New Concept Energy, Inc. - Quarter Report: 2021 September (Form 10-Q)

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, 2021

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)

Securities registered pursuant to Section 12(b) of the Exchange Act:

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 every Interactive Data File required to be submitted 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 such files).      Yes: x   No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or, an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company”, in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date. 

NEW CONCEPT ENERGY, INC., AND SUBSIDIARIES

Index to Quarterly Report on Form 10-Q

Period ended September 30, 2021

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

NEW CONCEPT ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)

(amounts in thousands)

The accompanying notes are an integral part of these consolidated financial statements.

NEW CONCEPT ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS - CONTINUED

(unaudited)

(dollars in thousands, except par value amount)

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)

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)

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

For the Three and Nine Months Ended September 30, 2021 and 2020

(Unaudited, shares and dollars in thousands)

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, 2020.  Operating results for the three and nine month periods ended September 30, 2021 are not necessarily indicative of the results that may be expected for any subsequent quarter or for the fiscal year ending December 31, 2021.

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, 2020.

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 has 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 of $2,138,000.

Also included in discontinued operations are net operating expenses the company incurred during the periods presented. For the three and nine months ended September 30, 2020, the Company recorded operating losses of$38,000 and $182,000.

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.

NOTE F: CONTINGENCIES

 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 9, 2021, 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, 2021, 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, 2021, the Company had current assets of $3,883,000 and current liabilities of $85,000.

Cash and cash equivalents at September 30, 2021 were $249,000 as compared to $27,000 at December 31, 2020.

Net cash provided in operating activities was $261,000 for the nine months ended September 30, 2021.  

Net cash used in financing activities was $192,000 for the nine months ended September 30, 2021. This is the cash used to repay the Companies outstanding mortgage on its properties.

Net cash provided from investing activities was $153,000 for the nine months ended September 30, 2021. This is the cash collected from the outstanding notes receivable.

Results of Operations

Comparison of the three months ended September 30, 2021 to the same period in 2020

The Company reported net loss from continuing operations of $8,000 for three months ended September 30, 2021, as compared to net income of $82,000 for the similar period in 2020.

For the three months ended September 30, 2021 and 2020, the Company recorded rental revenue of $25,000.

For the three months ended September 30, 2021, corporate general & administrative expenses were $53,000 as compared to $65,000 for the comparable periods in 2020.

For the three months ended September 30, 2020 the Company reported other income of $83,000 which represents a tax refund for taxes paid in prior years.

For the three months ended September 30, 2020 the Company recorded a gain from discontinued operation of $2,100,000. Included in 2020 is a gain from the sale of the oil and gas business of $2,138,000.

Comparison of the nine months ended September 30, 2021 to the same period in 2020

The Company reported net income from continuing operations of $120,000 for nine months ended September 30, 2021, as compared to net loss of $8,000 for the similar period in 2020.

For the nine months ended September 30, 2021 and 2020, the Company recorded rental revenue of $76,000.

For the nine months ended September 30, 2021, corporate general & administrative expenses were $238,000 as compared to $296,000 for the comparable periods in 2020. 

For the nine months ended September 30, 2020 the Company recorded a gain from discontinued operations of $1,956,000 Included in 2020 is a gain from the sale of the oil and gas business of $2,138,000.

“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 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.

 Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

All of the Company’s debt has been financed at fixed rates of interest.  Therefore, the Company has had 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.

PART II:  OTHER INFORMATION

Item 6.  Exhibits

The following exhibits are filed herewith or incorporated by reference as indicated below.

*Filed herewith.

Signatures

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.

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