______________________________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED September 30, 2020
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
Commission File Number 000-08187
NEW CONCEPT ENERGY, INC.
(Exact Name of Registrant as Specified in Its Charter)
| Nevada | 75-2399477 | |||||||||
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(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) | |||||||||
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1603 LBJ Freeway Suite 800 Dallas, Texas | ||||||||||
| (Address of principal executive offices) | ||||||||||
| 75234 | ||||||||||
| (Zip Code) | ||||||||||
| (972) 407-8400 | ||||||||||
| (Registrant’s telephone number, including area code) | ||||||||||
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Securities registered pursuant to Section 12(b) of the Exchange Act:
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| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||
| Common Stock, par value $0.01 | GBR | NYSE AMERICAN | ||||||||
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 Web site, 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer [ ] | Accelerated filer [ ] | ||||
| Non-accelerated filer [ ] | Smaller reporting company [X] | ||||
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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Yes: [ ] No: [X] |
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Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.
| Common Stock, $.01 par value | 5,131,934 shares |
| (Class) | (Outstanding at November 12, 2020) |
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NEW CONCEPT ENERGY, INC. AND SUBSIDIARIES
Index to Quarterly Report on Form 10-Q
Period ended September 30, 2020
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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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, 2019. Operating results for the three and six month periods ended September 30, 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 also 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 approximately 16,000 square feet is leased at a rate of $101,000 per annum.
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: DISCONTINUED OPERATIONS
On August 31, 2020 the Company sold its entire oil and gas operation for $85,000 to an independent third party. In the prior years the Company has accrued a liability of $2,745,000 to plug and abandon the existing wells. This obligation has been assumed by the buyer. Upon the sale of the wells the Company recorded a gain of $2,138,000.
Also included in discontinued operations are net operating expenses the company incurred during the period presented. For the nine months ended September 31, 2020 and 2019 the Company recorded an operating loss of $182,000 and $2,423,000. In September 2019 the Company wrote down the accounting value of its oil and gas reserves of by $2,285,000.
NOTE E: LIQUIDITY
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.
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NOTE F: CONTINGENCIES
During the first quarter of 2020 and continuing thereafter, both the COVID-19 pandemic and attempts at containment have resulted in decreased economic activity which has adversely affected the broader global economy. At this time, the full extent to which COVID-19 pandemic will negatively impact the global economy and our business is uncertain.
NOTE G: SUBSEQUENT EVENTS
The Company has evaluated subsequent events through November 12, 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.
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 September 30, 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 September 30, 2020, the Company had current assets of $3,764,000 and current liabilities of $97,000.
Cash and cash equivalents at September 30, 2020 were $42,000 as compared to $22,000 at December 31, 2019.
Net cash used in operating activities was $491,000 for the nine months ended September 30, 2020.
Net cash received from investing activities was $85,000 for the nine months ended September 30, 2020. This is the cash received from the sale of oil & gas operations.
Net cash received from financing activities was $426,000 for the nine months ended September 30, 2020. This is the cash received from the collection of notes receivable.
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Results of Operations
Comparison of the three months ended September 30, 2020 to the same period in 2019
The Company reported net income of $2,182,000 for three months ended September 30, 2020, as compared to net loss of $2,320,000 for the similar period in 2019.
For the three months ended September 30, 2020 and 2019, the Company recorded rental revenue of $25,000.
For the three months ended September 30, 2020, corporate general & administrative expenses were $65,000 as compared to $92,000 for the comparable periods in 2019.
For the three months ended September 30, 2020 the Company reported other income of $84,000 which represents a tax refund for taxes paid in prior years.
For the three months ended September 30, 2020 the company recorded a gain of $2,182,000 from the sale of its oil and gas operations.
For the three months ended September 30, 2020 recorded a gain from discontinued operation of $2,100,000 as compared to a loss of $2,342,000 for the comparable periods in 2019. Included in 2020 is a gain from the sale of the oil and gas business of $2,138,000. Included in 2019 is impairment loss for its oil and gas properties of $2,285,000.
Comparison of the nine months ended September 30, 2020 to the same period in 2019
The Company reported net income of $1,948,000 for nine months ended September 30, 2020, as compared to net loss of $2,335,000 for the similar period in 2019.
For the three months ended September 30, 2020 and 2019, the Company recorded rental revenue of $25,000.
For the nine months ended September 30, 2020, corporate general & administrative expenses were $296,000 as compared to $314,000 for the comparable periods in 2019.
For the nine months ended September 30, 2020 recorded a gain from discontinued operation of $1,956,000 as compared to a loss of $2,423,000 for the comparable periods in 2019. Included in 2020 is a gain from the sale of the oil and gas business of $2,138,000. Included in 2019 is impairment loss for its oil and gas properties of $2,285,000.
“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
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 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.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
All of the Company’s debt is financed at fixed rates of interest. Therefore, the Company has no risk from exposure to changes in interest rates.
Item 4. CONTROLS AND PROCEDURES
(a) 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.
(b) 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.
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The following exhibits are filed herewith or incorporated by reference as indicated below.
| 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 | Bylaws of Registrant (incorporated by reference to Exhibit 3.2 to Registrant’s Form S-4 Registration Statement No. 333-55968 dated December 21, 1992) |
| 3.6 | Amendment to Section 3.1 of Bylaws of Registrant adopted October 9, 2003 (incorporated by reference to Exhibit 3.2.1 to Registrant’s Form S-4 Registration Statement No. 333-55968 dated December 21, 1992) |
| 3.7 | 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) |
| 3.8 | 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) |
| 3.9 | 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) |
| 3.10 | 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) |
| 3.11 | 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) |
| 3.12 | 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) |
| 3.13 | 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) |
| 31.1* | Certification pursuant to Rule 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended, of 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 |
| 101 | Interactive data files pursuant to Rule 405 of Regulation S-T. |
| *Filed herewith. | |
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Pursuant to the requirements of the Securities and Exchange Act of 1934, Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| New Concept Energy, Inc. | |||
| Date: November 12, 2020 | By: | /s/ Gene Bertcher | |
| Gene S. Bertcher | |||
| Principal Executive Officer, President and Principal Financial Officer | |||
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CERTIFICATIONS
PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER’S RULE 13a-14(a)/15d-14(a)
I, Gene S. Bertcher, certify that:
1) I have reviewed this annual report of Form 10-Q of New Concept Energy, Inc.;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made in light of the circumstances under which such statements were made, and is not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements and other financial information included in this report fairly present, in all material respects, the financial condition, results of operations and cash flows of the Registrant as of and for the periods presented in this report;
4) I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13-15(e) and 15(d)-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15(d)-15(f)) for the Registrant and have:
(a) Designed such disclosure controls and procedures, or used such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals;
(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the controls and procedures as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting.
5) I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controls.
| New Concept Energy, Inc. | ||
| Dated: November 12, 2020 | ||
| By: | /s/ Gene S. Bertcher | |
| Gene S. Bertcher | ||
| Principal Executive Officer, President and | ||
| Chief Financial Officer | ||
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CERTIFICATION PURSUANT TO 18 U.S.C. § 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of New Concept Energy, Inc. (the “Company”) of Form 10-Q for the period ended September 30, 2020, as filed with the Securities Exchange Commission on the date hereof (the “Report”), I, Gene S. Bertcher, President and Principal Financial Officer of the Company, do hereby certify pursuant to 18 U.S.C. §1350 that:
(i) The Report fully complies with the requirements of Section 13(a) or I 5(d) of the Securities Exchange Act of 1934, as amended; and
(ii) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company, at the end of the period indicated and for the periods indicated.
| New Concept Energy, Inc. | ||
| Dated: November 12, 2020 | ||
| By: | /s/ Gene S. Bertcher | |
| Gene S. Bertcher, | ||
| Principal Executive Officer, President and | ||
| Chief Financial Officer | ||