New Concept Energy(GBR) - 2019 Q4 - Annual Report

PART I Business New Concept Energy, Inc. operates oil and gas wells and mineral leases in Ohio and West Virginia, focusing on acquiring undervalued assets - The company's core operations involve owning and operating oil and gas wells and mineral leases in Ohio and West Virginia[10] Operational Assets as of December 31, 2019 | Asset Type | Quantity | | :--- | :--- | | Producing Wells | 153 | | Non-producing Wells | 44 | | Mineral Leases (Acres) | ~20,000 | - The company's growth strategy is to acquire undervalued or distressed oil and gas businesses and leases, with execution dependent on available financing and market conditions[13] - The company operates with a small team, employing 5 people as of year-end 2019, and contracts the remainder of its work to third parties[15] - The oil and natural gas industry is highly competitive, with the company facing strong competition from larger, better-funded, and more experienced operators[21] Risk Factors The company identifies key risks including the COVID-19 pandemic, intense industry competition, market volatility, and anti-takeover provisions - The COVID-19 pandemic is identified as a significant risk that could adversely affect the global economy and the company's business operations[25] - The company faces significant risks from industry competition, fluctuating oil and gas prices, and anti-takeover provisions in its articles of incorporation, which require an 80% supermajority vote for certain changes[26][27][28] Unresolved Staff Comments There are no unresolved staff comments - Not applicable[29] Properties The company's primary assets are oil and gas properties in Ohio and West Virginia, with development plans suspended due to market prices Proved Reserves and Production (as of Dec 31, 2019) | Metric | Value | | :--- | :--- | | Proved Natural Gas Reserves | 354,000 Mcf | | Proved Oil Reserves | 29,105 Bbls | | PV-10 of Total Reserves | ~$1 million | | 2019 Gas Production | 129,000 Mcf | | 2019 Oil Production | 4,000 Bbls | Well and Acreage Statistics (as of Dec 31, 2019) | Category | Gross | Net | | :--- | :--- | :--- | | Wells | | | | Producing | 153 | 148 | | Non-Producing | 44 | 44 | | Total Wells | 197 | 192 | | Acreage | | | | Developed | 19,375 | 19,375 | | Undeveloped | — | — | | Total Acreage | 19,375 | 19,375 | - The company's development plan, which includes reworking existing wells and drilling new ones, has been suspended until the market prices for oil and gas stabilize[37] Legal Proceedings Ongoing lawsuits are not expected to materially impact the company's financial condition, operations, or cash flows - Management is of the opinion that ongoing lawsuits will not have a material effect on the company's financial condition[44] Mine Safety Disclosures This section is not applicable to the company - Not Applicable[45] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the NYSE American, with no dividends paid in 2019 or 2018, and no share repurchase program - The company's common stock is listed on the NYSE American with the trading symbol 'GBR'[45] - No dividends were paid on common stock in 2019 or 2018; the company's policy is to retain earnings for debt reduction and business development[46] - The Board of Directors has not authorized any share repurchase programs[47] Selected Financial Data Financial data from 2017-2019 shows declining revenue, significant operating losses, and a substantial net loss in 2019 due to impairment Selected Financial Data (in thousands, except per share data) | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Operating Revenue | $590 | $682 | $791 | | Operating Loss | $(2,793) | $(515) | $(3,270) | | Net Loss | $(2,352) | $(484) | $(3,246) | | Net Loss Per Share | $(0.46) | $(0.21) | $(1.59) | | Total Assets | $5,790 | $7,882 | $4,205 | | Total Stockholders' Equity | $2,409 | $4,761 | $636 | Management's Discussion and Analysis of Financial Condition and Results of Operation Management's discussion covers financial performance, a significant impairment charge in 2019, declining revenues, liquidity, and critical accounting policies Critical Accounting Policies and Estimates Key accounting policies include the full cost method for oil and gas properties, quarterly 'ceiling tests', reserve estimation, and a full valuation allowance for deferred tax assets - The company utilizes the full cost method of accounting for its oil and gas properties, capitalizing all acquisition, exploration, and development costs[54] - A quarterly 'ceiling test' is performed, which limits the amount of capitalized costs, with excess costs charged to expense, as seen with impairment charges[55] - Due to uncertainty about generating future taxable income, a 100% valuation allowance was established against the company's net deferred tax assets[62] Liquidity and Capital Resources At year-end 2019, current assets were $4.14 million and current liabilities were $434,000, with cash and cash equivalents significantly decreasing to $22,000 Cash Flow Summary (in thousands) | Activity | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Net Cash from Operating Activities | $369 | $(637) | $202 | | Net Cash from Investing Activities | $(664) | $(3,960) | $14 | | Net Cash from Financing Activities | $(44) | $4,539 | $90 | - Cash and cash equivalents decreased from $361,000 at December 31, 2018, to $22,000 at December 31, 2019[63] Results of Operations Revenues declined in 2019 and 2018 due to lower natural gas prices, with a significant $2.3 million non-cash impairment charge in 2019 - In 2019, the company recorded a $2.3 million non-cash impairment charge to write down its investment in West Virginia after an unsuccessful well drilling and subsequent revaluation of reserves[66] - 2019 revenues decreased to $590,000 from $682,000 in 2018, primarily due to lower prices received for natural gas[65] - 2018 revenues decreased to $682,000 from $791,000 in 2017, also due to a decline in natural gas prices[68] Quantitative And Qualitative Disclosures About Market Risk The company reports minimal market risk from interest rate changes due to fixed-rate debt - The Company has minimal risk from exposure to changes in interest rates as all of its debt is financed at fixed rates[72] Financial Statements This item indicates that the company's consolidated financial statements are included in the report starting on page 24 - The consolidated financial statements required by this Item begin at page 24 of this Report[72] Changes In and Disagreements With Accountants on Accounting and Financial Disclosure There were no changes in or disagreements with accountants on accounting and financial disclosure - None[72] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2019, with no material changes - The Principal Executive Officer and Principal Financial Officer concluded that disclosure controls and procedures were effective as of the end of the period covered by the report[73] - Management assessed and concluded that the Company's internal control over financial reporting was effective as of December 31, 2019, using the COSO framework[76] Other Information This section is not applicable - Not applicable[79] PART III Directors, Executive Officers and Corporate Governance The company is managed by a Board of Directors with independent members and standing committees, with Gene S. Bertcher as the sole executive officer - The Board of Directors has standing Audit, Compensation, and Governance and Nominating Committees, with charters available on the company's website[92][93][94] - Gene S. Bertcher is the sole executive officer, serving as Chairman of the Board, President, Chief Executive Officer, and Treasurer[95] - The company has adopted a 'Code of Business Conduct and Ethics' applicable to all personnel and a specific 'Code of Ethics for Senior Financial Officers'[97] Executive Compensation Gene S. Bertcher, the sole executive officer, received a salary of $56,500 in 2019, with non-employee directors receiving annual and meeting fees CEO Compensation (Gene S. Bertcher) | Year | Salary | | :--- | :--- | | 2019 | $56,500 | | 2018 | $56,500 | | 2017 | $53,650 | - Non-employee directors receive an annual fee of $2,500 and a meeting fee of $2,000 for each board meeting attended[102] - No plan-based awards, outstanding equity awards, or pension benefits were reported for executives[101] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Realty Advisors, Inc. is the majority shareholder with 59.63% ownership, while directors and executive officers collectively own 0% of common stock - Realty Advisors, Inc. is the largest beneficial owner, holding 3,060,000 shares, which represents 59.63% of the outstanding common stock[103] - All directors and executive officers as a group (5 people) beneficially own 0% of the company's common stock[104] Certain Relationships and Related Transactions, and Director Independence The company engages in related party transactions with Pillar Income Asset Management for administrative services, reimbursed at direct cost, and approved by independent directors - The company receives administrative services (payroll, insurance) from Pillar Income Asset Management, a subsidiary of its majority shareholder, Realty Advisors, Inc[106] - Pillar does not charge a fee for these services; the company reimburses the direct costs incurred by Pillar[106] - All transactions with officers, directors, or their affiliates must be approved by the independent members of the Board of Directors[108] Principal Accounting Fees and Services Swalm & Associates, P.C. served as the principal auditor, with total fees of $78,000 in 2019, primarily for audit and tax services, subject to Audit Committee pre-approval Principal Accounting Fees | Fee Type | 2019 | 2018 | | :--- | :--- | :--- | | Audit Fees | $69,000 | $67,000 | | Tax Fees | $9,000 | $12,000 | | Total Fees | $78,000 | $79,000 | - The Audit Committee is responsible for the appointment, compensation, and oversight of the independent auditor and has adopted a policy to pre-approve all audit and non-audit services[114] PART IV Exhibits and Financial Statement Schedules This section includes the independent auditor's report, consolidated financial statements, notes, and a list of all exhibits filed with the Form 10-K - This part includes the Report of the Independent Registered Public Accounting Firm, Consolidated Financial Statements, and Notes to Consolidated Financial Statements[116] - A list of exhibits filed with the report is provided, including articles of incorporation, bylaws, and various certifications[195][196] Financial Statements The audited consolidated financial statements for 2019 show a challenging period with a $2.3 million impairment charge, a $2.35 million net loss, and an unqualified auditor opinion - The independent auditor, Swalm & Associates, P.C., issued an unqualified opinion on the financial statements, with an emphasis-of-matter paragraph highlighting significant related party transactions[119][121] Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total Current Assets | $4,141 | $4,496 | | Net Oil and Gas Properties | $767 | $2,517 | | Total Assets | $5,790 | $7,882 | | Total Current Liabilities | $434 | $150 | | Asset Retirement Obligation | $2,770 | $2,770 | | Total Liabilities | $3,381 | $3,121 | | Total Stockholders' Equity | $2,409 | $4,761 | Consolidated Statement of Operations Highlights (in thousands) | Account | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Revenue | $590 | $682 | $791 | | Impairment of Properties | $2,285 | $— | $2,626 | | Net Loss | $(2,352) | $(484) | $(3,246) | | Net Loss Per Share | $(0.46) | $(0.21) | $(1.59) | Form 10-K Summary This item is optional and was not included by the company in this report - Optional and not included herein[117]