New Concept Energy, Inc. - Quarter Report: 2023 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, 2023

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 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, or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

As of November 9, 2023, there were 5,131,934 shares of common stock outstanding.

NEW CONCEPT ENERGY, INC. AND SUBSIDIARIES

Index to Quarterly Report on Form 10-Q

Period ended September 30, 2023

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

NEW CONCEPT ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(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

(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, 2023 and 2022

(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 2022 balances have been reclassified to conform to the 2023 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, 2022.  Operating results for the three and nine month periods ended September 30, 2023 are not necessarily indicative of the results that may be expected for any subsequent quarter or for the fiscal year ending December 31, 2023.

NOTE B: NATURE OF OPERATIONS

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 approximately 16,000 square feet is leased at a rate of $101,000 per annum.

In August 2020, the Company sold its oil and gas operations to a third party. On January 1, 2022, the Company entered into a Consulting Management Agreement with respect to such oil and gas operations; whereby, the Company would provide management, supervisory and administrative services for a fee of 10% of the gross revenue of such oil and gas operations. The agreement is effective January 1, 2022 and may be terminated by either party upon sixty days’ notice.

NOTE C: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

We consider accounting policies related to our estimates of depreciation and amortization 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, 2022.

NOTE D: NOTE RECEIVABLE

Note Receivable is comprised of the following (in thousands):

This note became due on September 30, 2023. The maturity date has been extended to September 2025.

NOTE E: LIQUIDITY

The Company’s ability to meet current cash obligations relies on cash received from current operations and the collection of interest and principal of a note receivable with a due date of September 30, 2025. The Company is evaluating business opportunities to provide both additional income and cash flow.

NOTE F: CONCENTRATIONS

The Company maintains its cash balances at financial institutions that participate in the Federal Deposit Insurance Corporation's Transaction Account Guarantee Program which insures depositors up to $250,000. At September 30, 2023, and at times during the year, cash balances exceeded the federal insurance limits.

NOTE G:  SUBSEQUENT EVENTS

The Company has evaluated subsequent events through November 8, 2023, 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, 2023, 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, 2023, the Company had current assets of $484,000 and current liabilities of $64,000.

Cash and cash equivalents at September 30, 2023 were $460,000 as compared to $436,000 at December 31, 2022.

Net cash provided in operating activities was $35,000 and net cash used in investing activities $11,000 for the nine months ended September 30, 2023.  

Results of Operations

Comparison of the three months ended September 30, 2023 to the same period in 2022

The Company reported net income of $7,000 for the three months ended September 30, 2023, as compared to net a net income of $27,000 for the similar period in 2022.

For the three months ended September 30, 2023 the Company had revenue of $35,000 including $25,000 for rental revenue and $10,000 for management fees as compared to $25,000 for rental revenue and $38,000 for the comparative period in 2022. The reduction in revenue for management fees is due to a lower selling price for oil and gas.

For the three months ended September 30, 2023, corporate general & administrative expenses were $70,000 as compared to $71,000 for the comparable periods in 2022.

Comparison of the nine months ended September 30, 2023 to the same period in 2022

The Company reported net income of $18,000 for nine months ended September 30, 2023, as compared to net income of $170,000 for the similar period in 2022.

For the nine months ended September 30, 2023 the Company had revenue of $155,000 including $76,000 for rental revenue and $39,000 for management fees as compared to $76,000 for rental revenue and 79,000 for management fees for the comparative period in 2022. The reduction in revenue for management fees is due to a lower selling price for oil and gas.

For the nine months ended September 30, 2023, corporate general & administrative expenses were $219,000 as compared to $231,000 for the comparable periods in 2022. 

For the nine months ended September 30, 2022 the Company reported other income of $130,000. Included in other income for 2022 is $62,000 which represents the collection of an investment that had previously been fully reserved. Further during the nine months ended September 30, 2022 the Company sold equipment and recorded a gain of $68,000. .

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 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 property is 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

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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