Item 1. Financial Statements
NEW CONCEPT ENERGY, INC. AND SUBSIDIARIES
|
CONSOLIDATED BALANCE SHEETS
|
(amounts in thousands)
|
|
|
|
|
March 31, 2020
|
|
|
|
December 31, 2019
|
|
Assets
|
|
|
(Unaudited)
|
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
27
|
|
|
$
|
22
|
|
Accounts receivable from oil and gas sales
|
|
|
56
|
|
|
|
73
|
|
Current portion note receivable (including $3,950 and $4,005 in 2020 and 2019 from related parties
|
|
|
3,990
|
|
|
|
4,046
|
|
Other current assets
|
|
|
38
|
|
|
|
—
|
|
Total current assets
|
|
|
4,111
|
|
|
|
4,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and natural gas properties (full cost accounting method)
|
|
|
|
|
|
|
|
|
Proved developed and undeveloped oil and gas properties, net of depletion
|
|
|
735
|
|
|
|
767
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net of depreciation
|
|
|
|
|
|
|
|
|
Land, buildings and equipment - oil and gas operations
|
|
|
665
|
|
|
|
668
|
|
|
|
|
|
|
|
|
|
|
Note Receivable
|
|
|
204
|
|
|
|
214
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,715
|
|
|
$
|
5,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
NEW CONCEPT ENERGY, INC. AND SUBSIDIARIES
|
CONSOLIDATED BALANCE SHEETS - CONTINUED
|
(dollars in thousands, except par value amount)
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
December 31, 2019
|
|
|
|
|
(Unaudited)
|
|
|
|
(Audited)
|
|
Liabilities and stockholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable - (including $243 and $180 due to related parties in 2020 and 2019)
|
|
$
|
367
|
|
|
$
|
355
|
|
Accrued expenses
|
|
|
55
|
|
|
|
35
|
|
Current portion of long term debt
|
|
|
40
|
|
|
|
44
|
|
Total current liabilities
|
|
|
462
|
|
|
|
434
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
Notes payable less current portion
|
|
|
171
|
|
|
|
177
|
|
Asset retirement obligation
|
|
|
2,770
|
|
|
|
2,770
|
|
Total liabilities
|
|
|
3,403
|
|
|
|
3,381
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
|
|
|
|
|
|
Preferred stock, Series B
|
|
|
1
|
|
|
|
1
|
|
Common stock, $.01 par value; authorized, 100,000,000
|
|
|
|
|
|
|
|
|
shares; issued and outstanding, 5,131,934 and 2,036,935 shares
|
|
|
|
|
|
|
|
|
at March 31, 2020 and December 31, 2019
|
|
|
51
|
|
|
|
51
|
|
Additional paid-in capital
|
|
|
63,579
|
|
|
|
63,579
|
|
Accumulated deficit
|
|
|
(61,319
|
)
|
|
|
(61,222
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders' equity
|
|
|
2,312
|
|
|
|
2,409
|
|
|
|
|
|
|
|
|
|
|
Total liabilities & equity
|
|
$
|
5,715
|
|
|
$
|
5,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
NEW CONCEPT ENERGY, INC AND SUBSIDIARIES
|
CONSOLIDATED STATEMENT OF OPERATIONS
|
(unaudited)
|
(amounts in thousands, except per share data)
|
|
|
|
|
|
|
|
For the Three Months ended March 31,
|
|
|
2020
|
|
2019
|
Revenue
|
|
|
|
|
Oil and gas operations, net of royalties
|
|
$
|
125
|
|
|
$
|
180
|
|
Total Revenues
|
|
|
125
|
|
|
|
180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Oil and gas operations
|
|
|
178
|
|
|
|
179
|
|
Corporate general and administrative
|
|
|
104
|
|
|
|
88
|
|
Total Operating Expenses
|
|
|
282
|
|
|
|
267
|
|
Operating earnings (loss)
|
|
|
(157
|
)
|
|
|
(87
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
64
|
|
|
|
65
|
|
Interest expense
|
|
|
(4
|
)
|
|
|
(5
|
)
|
Other income (expense), net
|
|
|
—
|
|
|
|
153
|
|
Expense
|
|
|
60
|
|
|
|
213
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) applicable to common shares
|
|
|
(97
|
)
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share-basic and diluted
|
|
$
|
0.01
|
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
Weighted average common and equivalent shares outstanding - basic
|
|
|
5,132
|
|
|
|
5,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
NEW CONCEPT ENERGY, INC AND SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(unaudited)
|
(amounts in thousands)
|
|
|
For the Three Months Ended
|
|
|
March 31,
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(97
|
)
|
|
$
|
126
|
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
37
|
|
|
|
23
|
|
Other current and non-current assets
|
|
|
45
|
|
|
|
(100
|
)
|
Accounts payable and other liabilities
|
|
|
32
|
|
|
|
65
|
|
Net cash provided by (used) in operating activities
|
|
|
17
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Payment on notes payable
|
|
|
(12
|
)
|
|
|
(15
|
)
|
Net cash provided by (used in) financing activities
|
|
|
(12
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
5
|
|
|
|
99
|
|
Cash and cash equivalents at beginning of year
|
|
|
22
|
|
|
|
361
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
27
|
|
|
$
|
460
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information
|
|
|
|
|
|
|
|
|
Cash paid for interest on notes payable
|
|
$
|
3
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
NEW CONCEPT ENERGY, INC AND SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
|
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B
|
|
Common Stock
|
|
Additional
|
|
Accum-
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
paid in
|
|
ulated
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
capital
|
|
deficit
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
|
1
|
|
|
|
1
|
|
|
|
5,132
|
|
|
$
|
51
|
|
|
$
|
63,579
|
|
|
|
(58,870
|
)
|
|
|
4,761
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126
|
|
|
|
126
|
|
Balance at March 31, 2020
|
|
|
1
|
|
|
$
|
1
|
|
|
|
5,132
|
|
|
$
|
51
|
|
|
$
|
63,579
|
|
|
$
|
(58,744
|
)
|
|
$
|
4,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
|
1
|
|
|
|
1
|
|
|
|
5,132
|
|
|
$
|
51
|
|
|
$
|
63,579
|
|
|
|
(61,222
|
)
|
|
|
2,409
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(97
|
)
|
|
|
(97
|
)
|
Balance at March 31, 2019
|
|
|
1
|
|
|
$
|
1
|
|
|
|
5,132
|
|
|
$
|
51
|
|
|
$
|
63,579
|
|
|
$
|
(61,319
|
)
|
|
$
|
2,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
NEW CONCEPT ENERGY, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
NOTE A: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include
the accounts of New Concept Energy, Inc. and its majority-owned subsidiaries (collectively, “NCE” or the “Company”). All
significant intercompany transactions and accounts have been eliminated. Certain reclassifications have been made to
the prior year revenue and operating expense amounts in the statement of operations to conform to the current year presentation.
The unaudited financial statements included herein have been prepared
by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The financial
statements reflect all adjustments that are, in the opinion of management, necessary to fairly present such information. All
such adjustments are of a normal recurring nature. Although the Company believes that the disclosures are adequate to
make the information presented not misleading, certain information and footnote disclosures, including a description of significant
accounting policies normally included in financial statements prepared in accordance with accounting principles generally accepted
in the United States of America, have been condensed or omitted pursuant to such rules and regulations.
The Company’s ability to meet current cash obligations
relies on cash received from current operations and the collection of notes receivable. The Company is evaluating business opportunities
to provide both additional income and cash flow.
These financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year
ending December 31, 2019. Operating results for the three month period ended March 31, 2020 are not necessarily indicative
of the results that may be expected for any subsequent quarter or for the fiscal year ending December 31, 2020.
NOTE B: NATURE OF OPERATIONS
The Company 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 through its wholly owned subsidiaries Mountaineer
State Energy, LLC and Mountaineer State Operations, LLC.
NOTE C: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
We consider accounting policies related to our estimates of depreciation
amortization and depletion, segments, oil and gas properties, oil and gas reserves, gas gathering assets, office and field equipment,
revenue recognition and gas imbalances, leases, revenue recognition for real estate operations, impairment, and sales of real estate
as significant accounting policies. The policies include significant estimates made by management using information
available at the time the estimates are made. However, these estimates could change materially if different information
or assumptions were used. These policies are summarized in our Annual Report on Form 10-K for the year ended December
31, 2019.
NOTE D: OIL AND GAS RESERVES
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.
NOTE E: CONTINGENCIES
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 will 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.
NOTE F: SUBSEQUENT EVENTS
The Company has evaluated subsequent events through May 13, 2020,
the date the financial statements were available to be issued, and determined that there are none to be reported.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
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’s significant accounting policies are summarized
in Note B to our consolidated financial statements in our annual report on Form 10-K. 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.
Doubtful Accounts
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
of the tenant, customer or other debtor and the financial condition of the tenant or other 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 March 31, 2020, 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 March 31, 2020, the Company had current assets of $4,111,000
and current liabilities of $462,000.
Cash and cash equivalents at March 31, 2019 were $27,000 as compared
to $22,000 at December 31, 2019.
Net cash provided by operating activities was $17,000 for the three
months ended March 31, 2020.
Net cash used in financing activities was $12,000 for the three
months ended March 31, 2020, consisting of the repayments of loans to a bank.
Results of Operations
Comparison of the three months ended March 31, 2020 to the
same period in 2019
The Company reported a net loss of ($97,000) for three months ended
March 31, 2020, as compared to net income of $126,000 for the similar period in 2019.
For the three months ended March 31, 2020, the Company recorded
oil and gas revenues of $125,000 as compared to $180,000 for the comparable period of 2019. The reduction was principally
due to the dollar amount per barrel for oil and MCF for gas the Company received from the sale of natural gas
For the three months ended March 31, 2020, the Company recorded
oil and gas operating expenses of $178,000 as compared to $179,000 for the comparable period of 2019.
For the three months ended March 31, 2020, corporate general &
administrative expenses were $104,000 as compared to $88,000 for the comparable periods in 2019. The increase was due,
for the most part, to consulting fees paid by the Company regarding oil and gas matters.
Forward Looking Statements
“Safe Harbor” Statement under the Private Securities
Litigation Reform Act of 1995: A number of the matters and subject areas discussed in this filing that are not historical
or current facts deal with potential future circumstances, operations and prospects. The discussion of such matters
and subject areas is qualified by the inherent risks and uncertainties surrounding future expectations generally, and also may
materially differ from the Company’s actual future experience involving any one or more of such matters and subject areas
relating to interest rate fluctuations, the ability to obtain adequate debt and equity financing, demand, pricing, competition,
construction, licensing, permitting, construction delays on new developments, contractual and licensure, and other delays on the
disposition, transition, or restructuring of currently or previously owned, leased or managed properties in the Company’s
portfolio, and the ability of the Company to continue managing its costs and cash flow while maintaining high occupancy rates and
market rate charges in its retirement community. The Company has attempted to identify, in context, certain of the factors
that it currently believes may cause actual future experience and results to differ from the Company’s current expectations
regarding the relevant matter of subject area. These and other risks and uncertainties are detailed in the Company’s
reports filed with the Securities and Exchange Commission (“SEC”), including the Company’s Annual Reports on
Form 10-K and Quarterly Reports on Form 10-Q.
Inflation
The Company’s principal source of revenue is rents from a
retirement community and fees for services rendered. The real estate operation is affected by rental rates that are
highly dependent upon market conditions and the competitive environment in the areas where the property is located. Compensation
to employees and maintenance are the principal cost elements relative to the operation of this property. Although the
Company has not historically experienced any adverse effects of inflation on salaries or other operating expenses, there can be
no assurance that such trends will continue or that, should inflationary pressures arise, the Company will be able to offset such
costs by increasing rental rates in its real estate operation.
Environmental Matters
The Company has conducted environmental assessments on most of its
existing owned or leased properties. These assessments have not revealed any environmental liability that the Company
believes would have a material adverse effect on the Company’s business, assets or results of operations. The
Company is not aware of any such environmental liability. The Company believes that all of its properties are in compliance
in all material respects with all federal, state and local laws, ordinances and regulations regarding hazardous or toxic substances
or petroleum products. The Company has not been notified by any governmental authority and is not otherwise aware of
any material non-compliance, liability or claim relating to hazardous or toxic substances or petroleum products in connection with
any of its communities.