Item 1. Financial Statements
NEW CONCEPT ENERGY, INC. AND SUBSIDIARIES
|
CONSOLIDATED BALANCE SHEETS
|
(amounts in thousands)
|
|
|
|
|
March 31, 2019
|
|
|
|
December 31, 2018
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
460
|
|
|
$
|
361
|
|
Accounts receivable from oil and gas sales
|
|
|
93
|
|
|
|
72
|
|
Current portion note receivable (including $4,076 and $4,017 in 2019 and 2018 from related parties
|
|
|
4,115
|
|
|
|
4,063
|
|
Other current assets
|
|
|
34
|
|
|
|
—
|
|
Total current assets
|
|
|
4,702
|
|
|
|
4,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and natural gas properties (full cost accounting method)
|
|
|
|
|
|
|
|
|
Proved developed and undeveloped oil and gas properties, net of depletion
|
|
|
2,503
|
|
|
|
2,517
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net of depreciation
|
|
|
|
|
|
|
|
|
Land, buildings and equipment - oil and gas operations
|
|
|
610
|
|
|
|
618
|
|
|
|
|
|
|
|
|
|
|
Note Receivable
|
|
|
244
|
|
|
|
251
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
8,059
|
|
|
$
|
7,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2019
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable - (including $97 and $37 due to related parties in 2019 and 2018)
|
|
$
|
123
|
|
|
$
|
59
|
|
Accrued expenses
|
|
|
33
|
|
|
|
32
|
|
Current portion of long term debt
|
|
|
59
|
|
|
|
59
|
|
Total current liabilities
|
|
|
215
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
Notes payable less current portion
|
|
|
187
|
|
|
|
201
|
|
Asset retirement obligation
|
|
|
2,770
|
|
|
|
2,770
|
|
Total liabilities
|
|
|
3,172
|
|
|
|
3,121
|
|
|
|
|
|
|
|
|
|
|
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, 2019 and December 31, 2018
|
|
|
51
|
|
|
|
51
|
|
Additional paid-in capital
|
|
|
63,579
|
|
|
|
63,579
|
|
Accumulated deficit
|
|
|
(58,744
|
)
|
|
|
(58,870
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders' equity
|
|
|
4,887
|
|
|
|
4,761
|
|
|
|
|
|
|
|
|
|
|
Total liabilities & equity
|
|
$
|
8,059
|
|
|
$
|
7,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
2019
|
|
2018
|
Revenue
|
|
|
|
|
Oil and gas operations, net of royalties
|
|
$
|
180
|
|
|
$
|
204
|
|
Total Revenues
|
|
|
180
|
|
|
|
204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Oil and gas operations
|
|
|
179
|
|
|
|
275
|
|
Corporate general and administrative
|
|
|
88
|
|
|
|
74
|
|
Total Operating Expenses
|
|
|
267
|
|
|
|
350
|
|
Operating earnings (loss)
|
|
|
(87
|
)
|
|
|
(146
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
65
|
|
|
|
7
|
|
Interest expense
|
|
|
(5
|
)
|
|
|
(6
|
)
|
Other income (expense), net
|
|
|
153
|
|
|
|
11
|
|
Expense
|
|
|
213
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) applicable to common shares
|
|
|
126
|
|
|
|
(134
|
)
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share-basic and diluted
|
|
$
|
0.02
|
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common and equivalent shares outstanding - basic
|
|
|
5,131
|
|
|
|
2,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
126
|
|
|
$
|
(134
|
)
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
23
|
|
|
|
67
|
|
Other current and non-current assets
|
|
|
(100
|
)
|
|
|
21
|
|
Accounts payable and other liabilities
|
|
|
65
|
|
|
|
47
|
|
Net cash provided by (used) in operating activities
|
|
|
114
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Payment on notes payable
|
|
|
(15
|
)
|
|
|
(23
|
)
|
Net cash provided by (used in) financing activities
|
|
|
(15
|
)
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
99
|
|
|
|
(22
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
361
|
|
|
|
419
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
460
|
|
|
$
|
397
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information
|
|
|
|
|
|
|
|
|
Cash paid for interest on notes payable
|
|
$
|
5
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
Additional
|
|
Accum-
|
|
|
|
|
Preferred stock
|
|
Common Stock
|
|
paid in
|
|
ulated
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
capital
|
|
deficit
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
|
|
1
|
|
|
|
1
|
|
|
|
2,037
|
|
|
$
|
21
|
|
|
$
|
59,000
|
|
|
|
(58,386
|
)
|
|
|
636
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(134
|
)
|
|
|
(134
|
)
|
Balance at March 31, 2018
|
|
|
1
|
|
|
$
|
1
|
|
|
|
2,037
|
|
|
$
|
21
|
|
|
$
|
59,000
|
|
|
$
|
(58,520
|
)
|
|
$
|
502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
|
1
|
|
|
|
1
|
|
|
|
5,132
|
|
|
$
|
51
|
|
|
$
|
63,579
|
|
|
|
(58,870
|
)
|
|
|
4,761
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126
|
|
|
|
126
|
|
Balance at March 31, 2019
|
|
|
1
|
|
|
$
|
1
|
|
|
|
5,132
|
|
|
$
|
51
|
|
|
$
|
63,579
|
|
|
$
|
(58,744
|
)
|
|
$
|
4,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2018. Operating results for the three month period ended March 31, 2019 are not necessarily
indicative of the results that may be expected for any subsequent quarter or for the fiscal year ending December 31, 2019.
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, 2018.
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.
During August 2017, the parties to the litigation reached an arrangement,
the final terms of which will not be determined until the outcome of an 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.
NOTE F: SUBSEQUENT EVENTS
The Company has evaluated subsequent events through May 15,
2019, 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, 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 March 31, 2019, the Company had current assets of $4,702,000
and current liabilities of $215,000.
Cash and cash equivalents at March 31, 2019 were $460,000
as compared to $361,000 at December 31, 2018.
Net cash provided by operating activities was $114,000 for
the three months ended March 31, 2019.
Net cash used in financing activities was $15,000 for the
three months ended March 31, 2019, consisting of the repayments of loans to a bank.
Results of Operations
Comparison of the three months ended March 31, 2019
to the same period in 2018
The Company reported net income of $126,000 for three months
ended March 31, 2019, as compared to net loss of $134,000 for the similar period in 2018.
For the three months ended March 31, 2019, the Company recorded
oil and gas revenues of $180,000 as compared to $204,000 for the comparable period of 2018. The reduction was principally
due to the dollar amount per MCF the Company received from the sale of natural gas
For the three months ended March 31, 2019, the Company recorded
oil and gas operating expenses of $179,000 as compared to $275,000 for the comparable period of 2018. The decrease was due to a
decrease in depletion and depreciation, consulting fees and general operating expenses.
For the three months ended March 31, 2019, corporate general
& administrative expenses were $88,000 as compared to $74,000 for the comparable periods in 2018. 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.