Item 1. Financial Statements
NEW CONCEPT ENERGY, INC. AND SUBSIDIARIES
|
CONSOLIDATED BALANCE SHEETS
|
(amounts in thousands)
|
|
|
|
March 31,
2018
|
|
December 31, 2017
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
397
|
|
|
$
|
419
|
|
Accounts receivable from oil and gas sales
|
|
|
58
|
|
|
|
67
|
|
Current portion note receivable
|
|
|
47
|
|
|
|
36
|
|
Total current assets
|
|
|
502
|
|
|
|
522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and natural gas properties (full cost accounting method)
|
|
|
|
|
|
|
|
|
Proved developed and undeveloped oil and gas properties, net of depletion
|
|
|
2,669
|
|
|
|
2,721
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net of depreciation
|
|
|
|
|
|
|
|
|
Land, buildings and equipment - oil and gas operations
|
|
|
647
|
|
|
|
661
|
|
|
|
|
|
|
|
|
|
|
Note Receivable
|
|
|
278
|
|
|
|
301
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
4,096
|
|
|
$
|
4,205
|
|
The accompanying notes are an integral part of these consolidated
financial statements.
NEW CONCEPT ENERGY, INC. AND SUBSIDIARIES
|
CONSOLIDATED BALANCE SHEETS - CONTINUED
|
(amounts in thousands, except share amounts)
|
|
|
|
|
|
|
|
|
March 31,
2018
|
|
December 31, 2017
|
|
|
|
|
|
Liabilities and stockholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable - (including $433 and
$412 due to related parties in 2018 and 2017)
|
|
$
|
464
|
|
|
$
|
446
|
|
Accrued expenses
|
|
|
58
|
|
|
|
29
|
|
Current portion of long term
debt
|
|
|
68
|
|
|
|
81
|
|
Total current liabilities
|
|
|
590
|
|
|
|
556
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
Notes payable less current portion
|
|
|
234
|
|
|
|
243
|
|
Asset retirement obligation
|
|
|
2,770
|
|
|
|
2,770
|
|
Total liabilities
|
|
|
3,594
|
|
|
|
3,569
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
|
|
|
|
|
|
Preferred stock, Series B
|
|
|
1
|
|
|
|
1
|
|
Common stock, $.01 par value; authorized, 100,000,000
|
|
|
|
|
|
|
|
|
shares; issued and outstanding, 2,036,935
shares
|
|
|
|
|
|
|
|
|
at March 31, 2018 and December 31, 2017
|
|
|
21
|
|
|
|
21
|
|
Additional paid-in capital
|
|
|
59,000
|
|
|
|
59,000
|
|
Accumulated deficit
|
|
|
(58,520
|
)
|
|
|
(58,386
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders' equity
|
|
|
502
|
|
|
|
636
|
|
|
|
|
|
|
|
|
|
|
Total liabilities & equity
|
|
$
|
4,096
|
|
|
$
|
4,205
|
|
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,
|
|
|
2018
|
|
2017
|
Revenue
|
|
|
|
|
Oil and gas operations, net of royalties
|
|
$
|
204
|
|
|
$
|
195
|
|
Total Revenues
|
|
|
204
|
|
|
|
195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Oil and gas operations
|
|
|
275
|
|
|
|
256
|
|
Corporate general and administrative
|
|
|
75
|
|
|
|
100
|
|
Total Operating Expenses
|
|
|
350
|
|
|
|
356
|
|
Operating earnings (loss)
|
|
|
(146
|
)
|
|
|
(161
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
7
|
|
|
|
4
|
|
Interest expense
|
|
|
(6
|
)
|
|
|
(7
|
)
|
Other income (expense), net
|
|
|
11
|
|
|
|
(8
|
)
|
Expense
|
|
|
12
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
|
(134
|
)
|
|
|
(172
|
)
|
|
|
|
|
|
|
|
|
|
Earnings from discontinued operations
|
|
|
0
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common shares
|
|
$
|
(134
|
)
|
|
$
|
(159
|
)
|
|
|
|
|
|
|
|
|
|
Net (loss) per common share from continuing operations
|
|
$
|
(0.07
|
)
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
Net income per common share from discontinued operations
|
|
$
|
—
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share-basic and diluted
|
|
$
|
(0.07
|
)
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common and equivalent shares outstanding - basic
|
|
|
2,037
|
|
|
|
1,947
|
|
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,
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(134
|
)
|
|
$
|
(159
|
)
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
67
|
|
|
|
148
|
|
Write-off of retirement center assets
|
|
|
—
|
|
|
|
24
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Other current and non-current assets
|
|
|
21
|
|
|
|
134
|
|
Accounts payable and other liabilities
|
|
|
47
|
|
|
|
282
|
|
Net cash provided by (used) in operating activities
|
|
|
1
|
|
|
|
429
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Investment in undeveloped land
|
|
|
—
|
|
|
|
(10
|
)
|
Fixed asset additions
|
|
|
—
|
|
|
|
(2
|
)
|
Net cash provided by (used in) investing activities
|
|
|
—
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Payment on notes payable
|
|
|
(23
|
)
|
|
|
(10
|
)
|
Net cash provided by (used in) financing activities
|
|
|
(23
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(22
|
)
|
|
|
407
|
|
Cash and cash equivalents at beginning of year
|
|
|
419
|
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
397
|
|
|
$
|
520
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information
|
|
|
|
|
|
|
|
|
Cash paid for interest on notes payable
|
|
$
|
6
|
|
|
$
|
7
|
|
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.
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, 2017. Operating results for the three month period ended
March 31, 2018 are not necessarily indicative of the results that may be expected for any subsequent quarter or for the fiscal
year ending December 31, 2018.
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, 2017.
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
Carlton Litigation
Since December 2006, Carlton Energy Group,
LLC (“Carlton”), an individual, Eurenergy Resources Corporation (“Eurenergy”) and several other entities,
including New Concept Energy, Inc., which was then known as CabelTel International Corporation (the “Company”), have
been involved in contentious litigation alleging tortuous conduct, breach of contract and other matters and, as to the Company,
that it was
the alter ego of Eurenergy. The Carlton
claims were based upon an alleged tortuous interference with a contract by the individual and Eurenergy related to the right to
explore a coal bed methane concession in Bulgaria which had never (and has not to this day) produced any hydrocarbons. At no time
during the pendency of this project or since did the Company or any of its officers or directors have any interest whatsoever
in the success or failure of the so-called “Bulgaria Project.” However, in the litigation Carlton alleged that the
Company was the alter ego of certain of the other defendants, including Eurenergy.
Following a jury trial in 2009, the Trial
Court (295
th
District Court of Harris County, Texas) cross appeals were filed by Carlton, the individual and Eurenergy
to the Court of Appeals for the First District of Texas (the “Court of Appeals”), which, in February 2012, rendered
an opinion. The Company and the other defendants filed a Petition for Review of the Court of Appeals’ Opinion with the Supreme
Court of the State of Texas. On May 8, 2015, the Supreme Court of Texas affirmed, in part, and reversed, in part, the Court of
Appeals’ judgment, remanding the case to the Court of Appeals for further proceedings. On remand, the Court of Appeals reinstated
a verdict on damages in the amount of $31.16 million against the individual and Eurenergy.
During August 2017, the parties to the
litigation reached an arrangement, the final terms of which will not be determined until the outcome of another appeal to the
Supreme Court. Under the terms of the arrangement, the Company should have no financial responsibility to Carlton, nor should
any potential final outcome materially adversely affect the Company, in management’s opinion.
Other
The Company
has been named as a defendant in other lawsuits in the ordinary course of business. Management is of the opinion that
these lawsuits will not have a material effect on the financial condition, results of operations or cash flows of the Company.
NOTE F: NEWLY
ISSUED ACCOUNTING STANDARDS
In February 2016,
Accounting Standards Update No. 2016-02 (“ASU 2016-02”), Leases was issued. This new guidance establishes a new model
for accounting for leases and provides for enhanced disclosures. ASU 2016-02 is effective for reporting periods beginning after
December 15, 2018. The Company is currently evaluating the impact the adoption of this guidance, if any, on its financial position
and results of operations.
NOTE G: SUBSEQUENT
EVENTS
The Company has evaluated subsequent
events through May 11, 2018, 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, 2018,
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, 2018, the Company
had current assets of $502,000 and current liabilities of $590,000.
Cash and cash equivalents at
March 31, 2018 were $397,000 as compared to $419,000 at December 31, 2017.
Net cash provided by operating
activities was $1,000 for the three months ended March 31, 2018.
Net cash used in financing
activities was $23,000 for the three months ended March 31, 2018, consisting of the repayments of loans to a bank.
Results of Operations
Comparison of the three
months ended March 31, 2018 to the same period in 2017
The Company reported a net
loss of $134,000 for three months ended March 31, 2018, as compared to net loss of $159,000 for the similar period in 2017.
For the three months ended
March 31, 2018, the Company recorded oil and gas revenues of $204,000 as compared to $195,000 for the comparable period of 2017.
For the three months ended
March 31, 2018, the Company recorded oil and gas operating expenses of $275,000 as compared to $256,000 for the comparable period
of 2017. The increase was due to overall increase in general operating expenses.
For the three months ended
March 31, 2018, corporate general & administrative expenses were $75,000 as compared to $100,000 for the comparable periods
in 2017. The decrease was due to a decrease in payroll expenses of $23,000 as well as other administrative costs.
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.