NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
NOTE A – BUSINESS DESCRIPTION AND
PRESENTATION
The Company, owns approximately 190 acres
of land located in Parkersburg West Virginia. Located on the land are four structures totaling approximately 53,000 square feet.
Of this total area the main industrial / office building contains approximately 24,800 square feet of which as of December 31,
2020 approximately 16,000 of industrial area is leased for $101,000 per annum.
In August 2020 the Company sold its oil and
gas wells and mineral leases which were located in Ohio and West Virginia. The oil and operations for the periods included in this
report are reflected as discontinued operations.
The Company’s ability to meet current cash obligations
relies on cash received from operations and the collection of notes receivable, including a $3.6 million dollar receivable from
a related party.
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 $12,000, $18,000 and $43,000 for 2020, 2019 and 2018, respectively.
Segments
The Company operates one primary business segment:
real estate rental. Segment data is provided in “Note J” to these consolidated financial statements.
On August 31, 2020 the Company sold its oil
and gas segment which is now reflected as Discontinued Operations.
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 property leases are recorded
when due from the tenant and is recognized monthly as it is earned.
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.
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.
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 adoption of the standard on January 1, 2020, did not have a material impact on our financial position
and results of operations.
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.
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 – DISCONTINUED OPERATIONS
On August 31, 2020, the Company sold its
entire oil and gas operation for $85,000 to an independent third party. In prior years the Company accrued a liability of
$2,745,000 to plug and abandon the existing wells. This obligation was assumed by the buyer. Upon the sale of the wells the
Company recorded a gain on sale of $2,138,000.
Also included in discontinued operations
are net operating expenses the Company incurred during the period presented. For the years ended December 31, 2020, 2019 and
2018 the Company recorded operating losses of $170,000, $2,412,000 and $219,000. In September 2019 the Company wrote down the
accounting value of its oil and gas reserves by $2,285,000.
NOTE E – NOTES RECEIVABLE
Notes Receivable are comprised of the following
(in thousands):
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
|
Rate
|
|
2020
|
|
2019
|
American Realty Investors, Inc. (a related party) receivable upon maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
in September 2021
|
|
|
6%
|
|
$
|
3,631
|
|
|
$
|
4,005
|
|
Third Party receivable payable monthly and matures in July 2025
|
|
|
6%
|
|
|
205
|
|
|
|
255
|
|
|
|
|
|
|
|
3,836
|
|
|
|
4,260
|
|
less: current portion of notes receivable
|
|
|
|
|
|
3,683
|
|
|
|
4,046
|
|
Notes Receivable
|
|
|
|
|
$
|
153
|
|
|
$
|
214
|
|
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, 2020 is $205,000 with $52,000 due currently.
NOTE F – FIXED ASSETS
Land, building and furniture, fixtures and
equitpment are recorded at cost incurred to acquire the assets.
At December 31, 2020, fixed assets are as follows:
|
|
2020
|
|
2019
|
Land and improvements
|
|
$
|
432
|
|
|
$
|
432
|
|
Buildings and improvements
|
|
|
341
|
|
|
|
341
|
|
Total fixed assets
|
|
|
773
|
|
|
|
773
|
|
Less: Accumulated depreciation
|
|
|
(117
|
)
|
|
|
(105
|
)
|
Net Fixed Assets
|
|
$
|
656
|
|
|
$
|
668
|
|
NOTE G – NOTES PAYABLE
Notes payable is comprised of the following (in thousands):
|
|
2020
|
|
2019
|
|
|
|
|
|
Bank Debt
|
|
$
|
192
|
|
|
$
|
245
|
|
Less current portion of long term debt
|
|
$
|
(52
|
)
|
|
$
|
(44
|
)
|
|
|
$
|
140
|
|
|
$
|
201
|
|
Less deferred borrowing costs - net of amortization
|
|
$
|
(18
|
)
|
|
$
|
(24
|
)
|
|
|
$
|
122
|
|
|
$
|
177
|
|
Bank debt represent loan 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, 2020 are as follows (in thousands):
|
2021
|
|
|
|
52
|
|
|
2022
|
|
|
|
55
|
|
|
2023
|
|
|
|
58
|
|
|
2024
|
|
|
|
27
|
|
|
|
|
|
$
|
192
|
|
NOTE H – INCOME TAXES
At December 31, 2020, the Company had net operating
loss carry forwards of approximately $8.5 million, which expire between 2021 and 2036.
Forms 1120, U.S, Corporation Income Tax Returns,
for the years ending December 31, 2020, 2019, 2018 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.
|
|
2020
|
|
2019
|
|
2018
|
Earned income tax at statutory rate
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Net operating loss utilization
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Deferred tax asset from NOL carry forwards
|
|
|
1,786
|
|
|
|
2,200
|
|
|
|
2,183
|
|
Valuation allowance
|
|
|
(1,786
|
)
|
|
|
(2,200
|
)
|
|
|
(2,183
|
)
|
Reported income tax expense (benefit)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
NOTE I – STOCKHOLDERS’ EQUITY
Outstanding Preferred Stock
Preferred stock consists of the following (amounts in thousands):
|
|
Year Ended
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
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.
NOTE J – 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 K – 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, 2020
|
|
Current Operations
|
|
Corporate
|
|
Total
|
|
Discontinued Operations Oil & Gas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$ 101
|
|
$ -
|
|
$ 101
|
|
$ 225
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
60
|
|
390
|
|
450
|
|
395
|
Depreciation, depletion and amortization
|
|
12
|
|
6
|
|
18
|
|
-
|
Impairment of oil and gas properties
|
|
-
|
|
-
|
|
-
|
|
-
|
Total Operating Expenses
|
|
72
|
|
396
|
|
468
|
|
395
|
Interest income
|
|
-
|
|
242
|
|
242
|
|
-
|
Interest expense
|
|
-
|
|
(12)
|
|
(12)
|
|
-
|
Gain in sale of oil & gas operations
|
|
-
|
|
-
|
|
-
|
|
2,138
|
Other income (expense), net
|
|
-
|
|
85
|
|
85
|
|
-
|
Segment operating income (loss)
|
|
$ 29
|
|
$ (81)
|
|
$ (52)
|
|
$ 1,968
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2019
|
|
Current Operations
|
|
Corporate
|
|
Total
|
|
Discontinued Operations Oil & Gas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$ 98
|
|
$ -
|
|
$ 98
|
|
$ 492
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
50
|
|
412
|
|
462
|
|
550
|
Depreciation, depletion and amortization
|
|
11
|
|
6
|
|
17
|
|
69
|
Impairment of oil and gas properties
|
|
-
|
|
-
|
|
-
|
|
2,285
|
Total Operating Expenses
|
|
61
|
|
418
|
|
479
|
|
2,904
|
Interest income
|
|
-
|
|
257
|
|
257
|
|
-
|
Interest expense
|
|
-
|
|
(15)
|
|
(15)
|
|
-
|
Other income (expense), net
|
|
-
|
|
199
|
|
199
|
|
-
|
Segment operating income (loss)
|
|
$ 37
|
|
$ 23
|
|
$ 60
|
|
$ (2,412)
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2018
|
|
Current Operations
|
|
Corporate
|
|
Total
|
|
Discontinued Operations Oil & Gas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$ 123
|
|
$ -
|
|
$ 123
|
|
$ 559
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
50
|
|
353
|
|
403
|
|
540
|
Depreciation, depletion and amortization
|
|
9
|
|
6
|
|
15
|
|
238
|
Impairment of oil and gas properties
|
|
-
|
|
-
|
|
-
|
|
-
|
Total Operating Expenses
|
|
59
|
|
359
|
|
418
|
|
778
|
Interest income
|
|
-
|
|
37
|
|
37
|
|
-
|
Interest expense
|
|
-
|
|
(18)
|
|
(18)
|
|
-
|
Other income (expense), net
|
|
-
|
|
11
|
|
11
|
|
-
|
Segment operating income (loss)
|
|
$ 64
|
|
$ (329)
|
|
$ (265)
|
|
$ (219)
|
NOTE L - QUARTERLY DATA (UNAUDITED)
The table below reflects the Company’s
selected quarterly information for the years ended December 31, 2020, 2017 and 2016. Amounts shown are in thousands
except per share amounts.
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
Year ended December 31, 2020
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
|
|
|
|
|
|
Revenue
|
$ 25
|
|
$ 25
|
|
$ 25
|
|
$ 26
|
Operating (expense)
|
(18)
|
|
(18)
|
|
(18)
|
|
(18)
|
Corporate general and administrative expense
|
(104)
|
|
(127)
|
|
(65)
|
|
(100)
|
Other income (expense) net
|
60
|
|
60
|
|
137
|
|
58
|
Income (loss) allocable to common shareholders
|
(97)
|
|
(137)
|
|
2,182
|
|
(32)
|
Income (loss) per common share – basic
|
($0.02)
|
|
($0.03)
|
|
$0.43
|
|
$0.00
|
|
|
|
|
|
|
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
Year ended December 31, 2019
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
|
|
|
|
|
|
Revenue
|
$ 24
|
|
$ 24
|
|
$ 25
|
|
$ 25
|
Operating (expense)
|
(15)
|
|
(15)
|
|
(15)
|
|
(16)
|
Corporate general and administrative expense
|
(88)
|
|
(134)
|
|
(92)
|
|
(104)
|
Other income (expense) net
|
60
|
|
213
|
|
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
|
$ 37
|
|
$ 36
|
|
$ 25
|
|
$ 25
|
Operating (expense)
|
(15)
|
|
(15)
|
|
(15)
|
|
(14)
|
Corporate general and administrative expense
|
(75)
|
|
(108)
|
|
(99)
|
|
(77)
|
Other income (expense) net
|
5
|
|
5
|
|
5
|
|
15
|
Income (loss) allocable to common shareholders
|
$ (134)
|
|
$ (174)
|
|
$ (121)
|
|
$ (4)
|
Income (loss) per common share – basic
|
($0.07)
|
|
($0.08)
|
|
($0.06)
|
|
$0.00
|
NOTE M: LIQUIDITY
The Company’s ability to meet current
cash obligations relies in cash received from operations and the collection of notes receivable, including a $3.6 million dollar
receivable from a related party.
NOTE N – SUBSEQUENT EVENTS
During 2021, 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 31, 2021, 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.
|
|
|
|
|