NEW CONCEPT ENERGY, INC.
Forward-Looking Statements
Certain statements in this Form 10-K are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. The words “estimate”, “plan”, “intend”, “expect”, “anticipate”, “and believe” and similar expressions are intended to identify forward-looking statements. These forward-looking statements are found at various places throughout this Report and in the documents incorporated herein by reference. New Concept Energy, Inc. disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Although we believe that our expectations are based upon reasonable assumptions, we can give no assurance that our goals will be achieved. Important factors that could cause our actual results to differ from estimates or projections contained in any forward-looking statements are described under Item 1A. Risk Factors beginning on page -8-.
PART I
Item 1. Business
New Concept Energy, Inc. (“New Concept”, “NCE” or the “Company” or “we” or “us”) was incorporated in Nevada on May 31, 1991, under the name Medical Resource Companies of America, Inc. The Company is the successor-by-merger to Wespac Investors Trust, a California business trust that began operating in 1982. On March 26, 1996, the name was changed to Greenbriar Corporation. On February 8, 2005, the name of the Company was changed to CabelTel International Corporation. On May 21, 2008, the name of the company was changed to New Concept Energy, Inc.
Oil and Gas Operations
The Company, through its wholly owned subsidiaries Mountaineer State Energy, Inc. and Mountaineer State Operations, LLC. owns and operates oil and gas wells and mineral leases in Athens and Meigs Counties in Ohio and in Calhoun, Jackson and Roane Counties in West Virginia. The majority of our oil & gas operation was acquired through the acquisition of the Carl E. Smith Companies in 2008.
Since the acquisition the Company has drilled nine wells in West Virginia and Ohio. Eight of the wells are in production as of year-end and one will be completed in early 2014.
As of December 31, 2013 the Company has 152 producing gas wells, 31 non-producing wells and related equipment and mineral leases covering approximately 20,000 acres.
Retirement Community
The Company leases and operates Pacific Pointe Retirement Inn (“Pacific Pointe”) in King City, Oregon. Pacific Pointe, a retirement center, with a capacity of 114 residents and provides community living with basic services such as meals, housekeeping, laundry, 24/7 staffing, transportation and social and recreational activities. Our residents do not yet need assistance or support with activities of daily living but prefer the physical and psychological comfort of a residential community of like-minded people and access to senior-oriented services.
Business Strategy
The Company is a Nevada corporation which owns and operates oil and gas wells in Ohio and West Virginia.
The Company intends to continue to pursue acquisition of undervalued or distressed oil and gas related businesses, as well as additional acquisitions of oil and gas leases. The Company may choose to develop or resell the acquired acreage as management deems most beneficial to the Company.
The Company intends to maintain its interest in the retirement center it currently operates, however, management has no current intentions to own or operate any additional retirement facilities.
Insurance
The Company currently maintains property and liability insurance intended to cover claims in its oil and gas operations, retirement community and corporate operations. The provision of personal services entails an inherent risk of liability compared to more institutional long-term care communities. The Company also carries property insurance on each of its owned and leased properties, as appropriate.
Employees
At December 31, 2013, the Company employed, in all segments, 52 people (28 full-time and 24 part-time). The Company believes it maintains good relationships with its employees. None of the Company’s employees are represented by a collective bargaining group.
The Company’s operations are subject to the Fair Labor Standards Act. Many of the Company’s employees are paid at rates related to the minimum wage and any increase in the minimum wage will result in an increase in labor costs.
Management is not aware of any non-compliance by the Company as regards applicable regulatory requirements that would have a material adverse effect on the Company’s financial condition or results of operations.
Quality Assurance
Energy Philosophy – The Company is committed to the preservation and enhancement of the environment in which we operate. We are philosophically and operationally focused to continually prioritize the sensitivity of our ecological system in which we develop resources for our generation as well as our children’s. Management’s legacy is to prove that the energy industry can develop the earth’s natural resources with clean and efficient technologies while preserving its fragile beauty. Our technologies directly and significantly reduce the impact of our operations on nature and wildlife by minimizing surface disturbance.
Retirement Center Philosophy – The Company’s philosophy of management is to demonstrate by its actions and require from its employees high standards of personal integrity, to develop a climate of openness and trust, to demonstrate respect for human dignity in every circumstance, to be supportive in all relationships, to promote teamwork by involving employees in the management of their own work and to promote the free expression of ideas and opinions. In operating a retirement community, our commitment to quality assurance is designed to achieve a high degree of resident and family member satisfaction with the care and services the Company provides.
Regular Property Inspections – Property inspections are conducted by corporate personnel. These inspections cover the appearance of the exterior and grounds, the appearance and cleanliness of the interior, the professionalism and friendliness of staff and notes on maintenance.
Marketing
The Company’s sell most of its natural gas production to one purchaser and all of its oil production to one purchaser. While there is an available market for crude oil and natural gas production, we cannot be assured that the loss of this purchaser would not have a material impact on the Company.
At Pacific Pointe, the Company’s marketing and sales efforts are undertaken at the local level. These are intended to create awareness of our property and its services among prospective residents, their families and other key referral sources. The property engages in traditional types of marketing activities such as special events, radio spots, direct mailings, print advertising, signs and yellow page advertising. These marketing activities and media advertisements are directed to potential customers.
Government Regulation
Management is not aware of any non-compliance by the Company of applicable regulatory requirements that would have a material adverse effect on the Company’s financial condition or results of operations.
Competition
The oil and natural gas industry is highly competitive. We encounter strong competition from other independent operators and from major oil companies in acquiring properties, contracting for drilling equipment and securing trained personnel. Many of these competitors have financial and technical resources and personnel substantially larger than ours. As a result, our competitors may be able to pay more for desirable leases, or to evaluate, bid for and purchase a greater number of properties or prospects than our financial or personnel resources will permit.
We are also affected by competition for drilling rigs and the availability of related equipment. In the past, the oil and natural gas industry has experienced shortages of drilling rigs, equipment, pipe and personnel, which has delayed development drilling and other exploitation activities and has caused significant price increases. We are unable to predict when, or if, such shortages may again occur or how they would affect our development and exploitation program.
Competition is also strong for attractive oil and natural gas producing properties, undeveloped leases and drilling rights, and we cannot assure you that we will be able to compete satisfactorily. Many large oil companies have been actively marketing some of their existing producing properties for sale to independent producers. We regularly evaluate acquisition opportunities and submit bids as part of our growth strategy.
Our retirement community is in a highly competitive environment which and will continue to become increasingly competitive in the future. The Company competes with other retirement companies and numerous other companies providing similar long-term care alternatives, such as home healthcare agencies, community-based service programs and convalescent centers (nursing homes).
Available Information
The Company maintains an internet website at www.newconceptenergy.com. The Company has available through the website, free of charge, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, reports filed pursuant to Section 16 of the Securities Exchange Act of 1934 (the “Exchange Act”) and amendments to those reports as soon as reasonably practicable after we electronically file or furnish such materials to the Securities and Exchange Commission. In addition, the Company has posted the charters for our Audit Committee, Compensation Committee and Governance and Nominating Committee, as well as our Code of Business Conduct and Ethics, Corporate Governance Guidelines on Director Independence and other information on the website. These charters and principles are not incorporated in this Report by reference. The Company will also provide a copy of these documents free of charge to stockholders upon request. The Company issues Annual Reports containing audited financial statements to its common stockholders.
Item 1A. Risk Factors
Risks Related to the Company
An investment in our securities involves various risks. An investor should carefully consider the following risk factors in conjunction with the other information in this report before trading our securities.
The oil & gas industry is highly competitive. Competition for leasehold interests, subcontractors and qualified employees are keen and we are competing against companies that are larger, more experienced and better capitalized than we are.
Our governing documents contain anti-takeover provisions that may make it more difficult for a third party to acquire control of us. Our Articles of Incorporation contain provisions designed to discourage attempts to acquire control of the Company by a merger, tender offer, proxy contest or removal of incumbent management without the approval of our Board of Directors. As a result, a transaction which otherwise might appear to be in your best interests as a stockholder could be delayed, deferred or prevented altogether, and you may be deprived of an opportunity to receive a premium for your shares over prevailing market rates. The provisions contained in our Articles of Incorporation include:
|
|
●
|
the requirement of an 80% vote to make, adopt, alter, amend, change or repeal our Bylaws or certain key provisions of the Articles of Incorporation that embody, among other things, the anti-takeover provisions;
|
|
|
●
|
the so-called business combination “control act” requirements involving the Company and a person that beneficially owns 10% or more of the outstanding common stock except under certain circumstances; and
|
|
|
●
|
the requirement of holders of at least 80% of the outstanding Common Stock to join together to request a special meeting of stockholders.
|
As of March 26, 2014, a group of entities owned and controlled approximately 42% of the Company’s outstanding common stock. This group has significant voting power to block any attempted change in control – See Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
The Company’s principal offices are located at 1603 LBJ Freeway Suite 300, Dallas, Texas 75234. The Company believes this space is presently suitable, fully utilized and will be adequate for the foreseeable future.
Retirement Community
The Company under a long term lease operates Pacific Pointe Retirement Inn (“Pacific Pointe”) in King City, Oregon. Pacific Pointe began operations in 1993, has a capacity of 114 residents and provides community living with basic services such as meals, housekeeping, laundry, 24/7 staffing, transportation and social and recreational activities. These residents do not yet need assistance or support with activities of daily living but prefer the physical and psychological comfort of a residential community of like-minded people and access to senior-oriented services.
The Company’s retirement community is suitable, fully utilized and adequate for the purpose to which it is devoted.
The average occupancy and lease rate per resident for our one retirement facility is as follows:
| |
|
|
Average
|
|
|
Average
|
|
| |
|
|
Occupancy
|
|
|
Monthly Rate
|
|
| |
|
|
|
|
|
|
|
| |
December 2013
|
|
|
90.0% |
% |
|
$ |
2,290 |
|
| |
December 2012
|
|
|
92.1% |
% |
|
$ |
2,225 |
|
| |
December 2011
|
|
|
90.5% |
% |
|
$ |
2,191 |
|
| |
December 2010
|
|
|
91.3% |
% |
|
$ |
2,139 |
|
| |
December 2009
|
|
|
93.8% |
% |
|
$ |
2,123 |
|
Oil and Gas
Reserve Estimation
The Company’s producing properties have been in production for over 20 years. Because individual well production volumes were not available, composite production decline curves were constructed for each of the five counties in which these wells are located. All five composite decline curves exhibit well-established production decline trends. After reviewing all available information, it was determined that the most reliable method of estimating the Proved Developed Producing Reserves was by extrapolation of the existing production decline trends to the economic limit of production.
Proved Undeveloped Reserves were estimated by analogy to currently producing wells in the various areas producing from the same formations.
The Company’s reserve reports are prepared by independent petroleum engineers. The process used to control the information provided to the independent petroleum engineers includes an initial compilation of production data by experienced senior management personal in the Company’s field office. This data is independently reviewed by appropriate personal in the Company’s corporate office prior to being submitted to the independent petroleum engineer. The submitted data is ultimately compared to the final reserve report and then agreed to the financial statement disclosures prepared by the Company.
The Company uses the petroleum engineering firm of Lee Keeling and Associates, Inc. to prepare its reserve estimates and future net revenues from its oil and gas properties. The work is performed by a registered professional engineer who is a member of the Society of Petroleum Engineers with over 40 years of experience in the oil and gas industry.
According to our independent reserve engineering firm, Lee Keeling & Associates, Inc. as of December 31, 2013, our Proved Reserves in Ohio and West Virginia were approximately 2.9 million Mcf of natural gas and 173 thousand Bbls of oil. Of the total Proved Reserves, approximately 40% were Proved Developed Reserves. As of December 31, 2013, the related PV-10 of our Proved Reserves was approximately $12.2 million from Ohio & West Virginia. Additionally the company has other Proved Reserves of approximately $50 thousand in Fayetteville Arkansas.
Additional Oil and Gas Information
Production
|
|
2013 - 194,000 Mcf of natural gas and 12,404 Bbls of oil
|
|
|
2012 –178,000 Mcf of natural gas and 8,115 Bbls of oil
|
|
|
2011 - 177,000 Mcf of natural gas and 4,563 Bbls of oil
|
|
|
Average sales price per unit
|
|
|
2013 - $4.23 per Mcf and $96.00 per Bbls
|
|
|
2012 - $3.59 per Mcf and $92.43per Bbls
|
|
|
2011 - $5.57 per Mcf and $89.21per Bbls
|
|
|
Developed acreage – approximately 20,000 acres
|
|
|
Drilling activity – The Company acquired the operations in Ohio and West Virginia in October 2008 and initially focused on networking existing gas wells. During 2011 the Company has drilled 8 wells at a total cost of approximately $950,000. In the later part of 2013 the Company drilled one well which will be completed during the 1st quarter of 2014.
|
Development plan
In September 2008, the Company through its acquisition of Carl E. Smith, Inc. (now known as Mountaineer State Energy, Inc.) acquired 20,000 acres of mineral rights in Ohio and West Virginia. The 20,000 acres are both surrounded and interspersed of hundreds of existing wells of which 138 producing wells were owned by the Company and other non-related entities owned the rest of such wells. The entire area has pipelines in place and decades of information regarding reserves.
In connection with the acquisition, the Company formulated a development plan to first rework existing wells, to improve production using modern technology (both in proved developed and proved undeveloped reserves), and to follow up with the drilling of new wells. The Company’s plan is to use the current knowledge of the area and new technologies available to both rework its existing wells and drill new wells.
Proved Reserves
The following table presents our estimated proved reserves as of December 31, 2013. These estimates correspond with the method used in presenting the “Supplemental Information on Oil and Gas Operations” in Note O to our consolidated financial statements included in this report.
| |
|
Gas
|
|
|
Oil
|
|
| |
|
(MMCF)
|
|
|
(MBBLS)
|
|
|
Proved Reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the changes in our total proved undeveloped reserves.
| |
|
Gas
|
|
|
Oil
|
|
| |
|
(MMCF)
|
|
|
(MBBLS)
|
|
Proved undeveloped reserves as of December 31, 2012
|
|
|
|
|
|
|
|
|
Revaluation of undeveloped reserves
|
|
|
|
|
|
|
|
|
Conversion to proved developed reserves
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Proved undeveloped reserves as of December 31, 2013
|
|
|
|
|
|
|
|
|
Well Statistics
The following table sets forth our wells (all natural gas) as of December 31, 2013.
(1) Gross wells are the sum of all wells in which we own an interest.
(2) Net wells are gross wells multiplied by our fractional working interests on the well.
Acreage Statistics
The following table sets forth our developed and undeveloped oil and gas lease and mineral acreage as of December 31, 2013.
(1) Gross acres are the sum of all acres in which we own an interest.
(2) Net acres are gross acres multiplied by our fractional working interests on the acreage.
Item 3. Legal Proceedings
Carlton Energy Group, LLC
In December 2006, Carlton Energy Group, LLC (“Carlton”) instituted litigation against an individual, Eurenergy Resources Corporation (“Eurenergy”) and several other entities including the Company (which was then known as CabelTel International Corporation) alleging tortuous conduct, breach of contract and other matters and as to the Company that it was the alter ego of Eurenergy. The Carlton claims were based upon an alleged tortuous interference with a contract by the individual and Eurenergy related to the right to explore a coal bed methane concession in Bulgaria which had never (and has not to this day) produced a drop of hydrocarbons. At no time during the pendency of this project or since did the Company or any of its officers or directors have any interest whatsoever in the success or failure of the so-called “Bulgaria Project”. However, in the litigation, Carlton alleged that the Company was the “alter-ego” of certain of the other Defendants including Eurenergy.
Following a jury trial in 2009, the Trial Court (295th District Court of Harris County, Texas) reduced the actual damages found by the jury of $66.5 million and entered judgment against EurEnergy and the individual jointly and severally for $31.16 million in actual damages on its tortuous-interference claim and the Court further assessed exemplary damages against The individual and EurEnergy in the amount of $8.5 million each. The Court granted a judgment for the Company finding that it was not the “alter ego” of any of the other parties and thereby would not incur any damages.
Cross appeals were filed by Carlton, the individual and EurEnergy to the Court of Appeals for the First District of Texas (the “Court of Appeals”) which rendered its opinion on February 14, 2012. The Court of Appeals opinion, among other things, reinstated the jury award of actual damages jointly and severely against the individual and EurEnergy in the amount of $66.5 million and overturned the Trial Court’s ruling favorable to the Company rendering a judgment for that amount plus exemplary damages against the Company as the “alter ego” of Eurenergy.
The Company and other defendants, filed a Petition for Review of the Court of Appeals Opinion with the Supreme Court of the State of Texas. After requesting a response from the Plaintiff the Supreme Court requested a full briefing on the merits. In March 2013 the Court granted the Petition for Review and oral arguments were heard in September 2013. The parties are awaiting a decision by the Court
The Company vigorously denies that it is the “alter ego” of any other entity; further the Company strongly believes that the Court of Appeals opinion is erroneous in concluding that the Company is an “alter ego” of any other entity which is contrary to Nevada substantive law. There are also questions regarding the underlying liability of EurEnergy and if Eurenergy is successful in its petition for review or, even if unsuccessful if the Company is successful on its positions described above, the Trial Court’s judgment could be reinstated and the Company would have no liability on this claim.
Chesapeake Exploration Limited Partnership and Chesapeake Operating, Inc. (“Chesapeake”)
In January 2006, the Company entered into a joint operating agreement evidencing its acquisition of a 5% interest in two gas wells being drilled and ultimately operated by Chesapeake. The Company relied on the cost projections provided by Chesapeake to make its investment decision. Subsequent to its investment, the Company received an invoice from Chesapeake for $556,217 which, according to Chesapeake, represents the Company’s 5% share of additional costs incurred by Chesapeake in drilling the wells. The Company believes that these additional costs far exceed any reasonable expense that should have been incurred in drilling the two wells and were incurred without notifying the Company of such expenses. The Company has requested an accounting of the additional expenses and a reconciliation of the final costs to the cost estimates previously presented. In April 2007, Chesapeake filed a lawsuit against the Company and others in District Court of Tarrant County, Texas.
In March 2011, Chesapeake received a summary judgment award including prejudgment interest for $686,874 plus $65,000 in legal fees. Further the judgment awarded Chesapeake additional legal fees of $30,000 should the Company file unsuccessful appeals to the Court of Appeals and the Texas Supreme Court. Chesapeake would also receive to post judgment interest.
The judgment did however acknowledge that the plaintiff did not pay the company for it’s pro rata share of the gas produced by the two wells during the entire period in question.
The Company appealed the judgment to the Court of Appeals which reduced the judgment by $22,000 but otherwise affirmed the lower court ruling. The Company filed an appeal with the Texas Supreme Court; however on February 15, 2013 the Texas Supreme Court denied the petition.
Following the ruling in March 2011 the Company arranged for a bond to the benefit of Chesapeake from a third party bonding Company for approximately $791,960. In February 2014 the Company paid the bonding company $791,960 which in turn paid Chesapeake.
There still remains the matter of the gas that is owed to the Company for it’s pro rata share of the gas produced and withheld by Chesapeake. The Company has estimated that there is approximately 70,000 MCF of gas for which the Company needs to be paid or receive in kind which would then be sold. The Company intends to pursue its rights to be compensated for its interest.
Item 4. Mine Safety Disclosures
Not Applicable
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
The common stock of the Company is listed and traded on the NYSE MKT using the symbol “GBR”. The following table sets forth the high and low sales prices as reported in the reporting system of the NYSE MKT and other published financial sources.
| |
|
2013
|
|
|
2012
|
|
| |
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On March 28, 2014 the closing price of the Company’s Common Stock was $1.99 per share. According to the Transfer Agent’s records, at March 4, 2014 the Company’s common stock was held by approximately 398 holders of record.
Dividends
The Company paid no dividends on its Common Stock in 2013 or 2012. The Company has not paid cash dividends on its common stock during at least the last ten fiscal years and it has been the policy of the Board of Directors of the Company to retain all earnings to pay down long-term debt and finance future expansion and development of its businesses. The payment of dividends, if any, will be determined by the Board of Directors in the future in light of conditions then existing, including the Company’s financial condition and requirements, future prospects, restrictions in financing agreements, business conditions and other factors deemed relevant by the Board of Directors.
Purchases of Equity Securities
The Board of Directors has not authorized the repurchase of any shares of its Common Stock under any share repurchase program, except when stockholders owning less than one round lot (100 shares) so request, the Company will purchase shares at market closing on the last trading day prior to receipt of the certificate(s). The Company repurchased no shares during the three months ended December 31, 2013.
Item 6. Selected Financial Data
The selected consolidated financial data presented below are derived from the Company’s audited financial statements.
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31,
|
|
| |
|
2013
|
|
|
2012
|
|
|
2011
|
|
| |
|
(amounts in thousands, except per share amounts)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,222 |
|
|
$ |
3,944 |
|
|
$ |
3,901 |
|
|
|
|
|
5,064 |
|
|
|
5,766 |
|
|
|
5,762 |
|
|
|
|
|
(842 |
) |
|
|
(1,822 |
) |
|
|
(1,861 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing
operations before income taxes
|
|
|
426 |
|
|
|
168 |
|
|
|
(11,793 |
) |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing
|
|
|
426 |
|
|
|
168 |
|
|
|
(11,793 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
426 |
|
|
$ |
168 |
|
|
$ |
(11,793 |
) |
Earnings (loss) per common
share – basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.22 |
|
|
$ |
0.09 |
|
|
$ |
(6.05 |
) |
|
|
|
$ |
0.22 |
|
|
$ |
0.09 |
|
|
$ |
(6.05 |
) |
|
|
|
|
1,947 |
|
|
|
1,947 |
|
|
|
1,947 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
13,308 |
|
|
$ |
12,484 |
|
|
$ |
13,450 |
|
|
|
|
|
2195 |
|
|
|
2,857 |
|
|
|
3,431 |
|
Asset retirement obligation
|
|
|
2,770 |
|
|
|
2,770 |
|
|
|
2,702 |
|
|
|
|
|
6236 |
|
|
|
5,838 |
|
|
|
6,972 |
|
Total stockholders’ equity
|
|
$ |
7,072 |
|
|
$ |
6,646 |
|
|
$ |
6,478 |
|
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation
Overview
The Company, through its wholly owned subsidiaries Mountaineer State Energy, Inc. and Mountaineer State Operations, LLC. owns and operates oil and gas wells and mineral leases in Athens and Meigs Counties in Ohio and in Calhoun, Jackson and Roane Counties in West Virginia. The majority of our oil & gas operation was acquired through the acquisition of the Carl E. Smith Companies in 2008.
Since the acquisition the Company has drilled nine wells in West Virginia and Ohio. Eight of the wells are in production as of year-end and one will be completed in early 2014.
As of December 31, 2013 the Company has 152 producing gas wells, 31 non-producing wells and related equipment and mineral leases covering approximately 20,000 acres.
A component of the purchase price for the acquisition of Carl E. Smith, Inc. were certain non-interest bearing long term obligations which the Company will paid out over the next 15 years. The Company has evaluated the above notes and after factoring in certain offsets provided for in the agreement has valued the above obligations at $1,499,000 at December 31, 2013.
As of December 31, 2013, the Company leased one independent living community in Oregon, with a capacity of 114 residents.
A number of years ago the Company owned, leased and operated assisted living and retirement communities throughout the United States. During that period of time the Company has both acquired and sold over seventy communities. The property in Oregon is a holdover from that time period. While not an integral part of our business plan the one remaining facility is profitable and it is anticipated that it will remain a part of the Company’s 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 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.
Oil and Gas Property Accounting
The Company uses the full cost method of accounting for its investment in oil and natural gas properties. Under this method of accounting, all costs of acquisition, exploration and development of oil and natural gas properties (including such costs as leasehold acquisition costs, geological expenditures, dry hole costs, tangible and intangible development costs and direct internal costs) are capitalized as the cost of oil and natural gas properties when incurred.
The full cost method requires the Company to calculate quarterly, by cost center, a “ceiling,” or limitation on the amount of properties that can be capitalized on the balance sheet. To the extent capitalized costs of oil and natural gas properties, less accumulated depletion and related deferred taxes exceed the sum of the discounted future net revenues of proved oil and natural gas reserves, the lower of cost or estimated fair value of unproved properties subject to amortization, the cost of properties not being amortized, and the related tax amounts, such excess capitalized costs are charged to expense. Beginning December 31, 2009, full cost companies use the unweighted arithmetic average first day of the month price for oil and natural gas for the 12-month period preceding the calculation date to calculate the future net revenues of proved reserves. Prior to December 31, 2009, companies used the price in effect at the calculation date and had the option, under certain circumstances, to elect to use subsequent commodity prices if they increased after the calculation date.
The Company assesses any unproved oil and gas properties on an annual basis for possible impairment or reduction in value. The Company assesses properties on an individual basis or as a group if properties are individually insignificant. The assessment includes consideration of the following factors, among others: intent to drill; remaining lease term; geological and geophysical evaluations; drilling results and activity; the assignment of proved reserves; and the economic viability of development if proved reserves are assigned. During any period in which these factors indicate an impairment of unproved properties not subject to amortization, the associated costs incurred to date for such properties are then included in unproved properties subject to amortization.
Oil and Gas Reserves
Our proved oil and gas reserves are estimated by independent petroleum engineers. Reserve engineering is a subjective process that is dependent upon the quality of available data and the interpretation thereof, including evaluations and extrapolations of well flow rates and reservoir pressure. Estimates by different engineers often vary, sometimes significantly. In addition, physical factors such as the results of drilling, testing and production subsequent to the date of an estimate, as well as economic factors such as changes in product prices, may justify revision of such estimates. Because proved reserves are required to be estimated using prices at the date of the evaluation, estimated reserve quantities can be significantly impacted by changes in product prices.
Depreciation, depletion and amortization (“DD&A”) of producing properties is computed on the unit-of-production method based on estimated proved oil and gas reserves. While total DD&A expense for the life of a property is limited to the property’s total cost, proved reserve revisions result in a change in timing of when DD&A expense is recognized. Downward revisions of proved reserves result in an acceleration of DD&A expense, while upward revisions tend to lower the rate of DD&A expense recognition.
The standardized measure of discounted future net cash flows and changes in such cash flows are prepared using assumptions required by the Financial Accounting Standards Board and the Securities and Exchange Commission. Such assumptions include using year-end oil and gas prices and year-end costs for estimated future development and production expenditures. Discounted future net cash flows are calculated using a 10% rate. Changes in any of these assumptions could have a significant impact on the standardized measure. Accordingly, the standardized measure does not represent management’s estimated current market value of proved reserves.
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 December 31, 2013, 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 December 31, 2013, the Company had current assets of $2,019,000 and current liabilities of $1,271,000.
Cash and cash equivalents totaled $1,621,000 at December 31, 2013 and 398,000 at December 31, 2012. New Concept’s principal sources of cash are property operations, sales of oil and gas, and proceeds from sales of assets.
Net cash provided by continuing operating activities was $1,602,000 in 2013, $501,000 in 2012 and $566,000 in 2011.
Net cash (used in) investing activities was ($401,000) in 2013, ($209,000) in 2012 and ($1,336,000) in 2011.
Net cash provided by (used in) financing activities was $22,000 in 2013, ($3,000) in 2012 and $820,000 in 2011.
Results of Operations
Fiscal 2013 as compared to 2012
Revenues: Total revenues was $4.2 million in 2013 and $3.9 million in 2012. Net revenue for our oil and gas operation increased by $300,000 principally due to both the quantity of both oil and gas produced as well as the price in 2013 as compared to 2012.
Operating Expenses: Operating expenses were $5.1 million in 2013 and $5.8 million in 2012.
Oil & gas operating expenses increased by a net of $47,000 in 2013. Operating costs including payroll increased by $83,000 which was offset by a $36,000 reduction in depletion.
Real estate operating expenses were $1,555,000 in 2013 as compared to $1,465,000 in 2012. The principal cause of the increase was payroll increases at the Company’s retirement facility
Corporate Expenses were $500,000 in 2013 and $577,000 in 2012. The Company incurred less legal fees in 2013 which was the principal cause of the reduction in costs
Pursuant to the requirements of the “full cost ceiling test” in 2013 the Company recorded a non-cash charge to operations of $ 200,000 to write down its investment of $250,000 in two small wells in Arkansas. These two wells are the subject of ongoing litigation with Chesapeake Exploration L.P.
In 2012 the Company recorded a similar non-cash charge to operations of $912,000 for its operations in West Virginia / Ohio. In 2013 the value calculated in accordance with the “full cost ceiling test” was recovered however the accounting rules prohibit the recovery of a previously taken write-down.
Interest Income & Expense: Interest Expense was $114,000 in 2013 as compared to $208,000 in 2012. The decrease was due to a reduction in the long term debt owed to the previous owners of the Companies oil and gas operation in West Virginia / Ohio.
Other Income & (Expense): Other income & (expense) was $(189,000) for 2013 as compared to $ 122,000 in 2012. The balances in 2013 and 2012 are comprised of numerous events.
Bad Debt Expense (Recovery): In 2011 the company recorded a bad debt expense with respect to a note receivable of $10 million dollars. In 2013 and 2012 the company recovered $1.6 million and $2.1 million respectively and recorded income (see: Item 13. on page 22 and Footnote C on page 37 for an explanation of the transaction)
Fiscal 2012 as compared to 2011
Revenues: Total revenues for 2012 and 2011 were $3.9 million. In early 2012 the Company entered into a five year agreement to sell its gas at an agreed upon price.
Operating Expenses: In 2012 the Company recorded a non-cash charge to operations of $ 912,000 pursuant to the requirements of the “full cost ceiling test “. In 2011 the Company recorded a similar write down of $1.4 million. In 2012 oil and gas operating expenses increased by $390,000 when compared to 2011 which is almost entirely due to an increase in depletion expense of $363,000. The operating expenses for the real estate operations increased by $175,000 in 2012 when compared to 2011. During 2011 the Company was in the final year of the primary 10 year lease for its retirement facility and recorded a required accounting adjustment to reduce the accounting cost of the lease by $140,000 to give effect to a even lease expense over the entire 10 years of the primary lease.
Interest Income & Expense: Interest income decreased by $360,000 in 2012 when compared to 2011 due to the Company not accruing interest income on its note receivable from Prime Income Asset Management, Inc (see Note C).
Other Income & (Expense): Other income & (expense) was $122,000 for 2012 as compared to $(155,000) in 2011. The balances in 2012 and 2011 are comprised of numerous events.
Bad Debt Expense: In 2011 the company recorded a bad debt expense with respect to a note receivable of $10 million dollars. In 2012 the Company recovered $2.1 million and recorded income. (see: Item 13. on page 22 and Footnote C on page 37 for an explanation of the transaction).
Item 7a: Quantitative and Qualitative Disclosures about Market Risk
All of the Company’s debt is financed at fixed rates of interest. Therefore, the Company has minimal risk from exposure to changes in interest rates.
Item 8. Financial Statements
The financial statements required by this Item begin at page 25 of this Report.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
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.
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.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. There are inherent limitations to the effectiveness of any system of internal control over financial reporting. These limitations include the possibility of human error, the circumvention of overriding of the system and reasonable resource constraints. Because of its inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2009. In making this assessment, management used the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on management’s assessments and those criteria, management has concluded that Company’s internal control over financial reporting was effective as of December 31, 2013.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial report. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Changes in Internal Control over Financial Reporting
In preparation for management’s report on internal control over financial reporting, we documented and tested the design and operating effectiveness of our internal control over financial reporting. There were no changes in our internal controls over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) that occurred during the quarter ended December 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Directors
The affairs of the Company are managed by the Board of Directors. The directors are elected at the Annual Meeting of Stockholders or appointed by the incumbent Board and serve until the next Annual Meeting of Stockholders, until a successor has been elected or approved, or until earlier resignation, removal or death.
It is the Board’s objective that a majority of the Board consists of independent directors. For a director to be considered “independent”, the Board must determine that the director does not have any direct or indirect material relationship with the Company. The Board has established guidelines to assist it in determining director independence, which conform to, or are more exacting than, the independence requirements in the American Stock Exchange listing rules. The independence guidelines are set forth in the Company’s “Corporate Governance Guidelines”. The text of this document has been posted on the Company’s internet website at http://www.newconceptenergy.com, and is available in print to any stockholder who requests it. In addition to applying these guidelines, the Board will consider all relevant facts and circumstances in making an independent determination.
The Company has adopted a code of conduct that applies to all directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer. Stockholders may find our Code of Conduct on our internet website address at http://www.newconceptenergy.com. We will post any amendments to the Code of Conduct as well as any waivers that are required to be disclosed by the rules of the SEC or the NYSE MKT on our website.
Our Board of Directors has adopted charters for our Audit, Compensation and Governance and Nominating Committees of the Board of Directors. Stockholders may find these documents on our website by going to the website address http://www.newconceptenergy.com. Stockholders may also obtain a printed copy of the materials referred to by contacting us at the following address:
New Concept Energy, Inc.
Attn: Investor Relations
1603 LBJ Freeway, Suite 300
Dallas, Texas 75234
972-407-8400 (Telephone)
The Audit Committee of the Board of Directors is an “audit committee” for the purposes of Section 3(a) (58) of the Exchange Act. The members of that Committee are Dan Locklear (Chairman), James Huffstickler and Victor L. Lund. Mr. Locklear is qualified as an “audit committee financial expert” within the meaning of SEC regulations and the Board has determined that he has the accounting and related financial management expertise within the meaning of the listing standards of the NYSE MKT. All of the members of the Audit Committee meet the independence and experience requirements of the listing standards of the NYSE MKT.
All members of the Audit Committee, Compensation Committee and the Governance and Nominating Committee must be independent directors. Members of the Audit Committee must also satisfy additional independence requirements which provide (i) that they may not accept, directly or indirectly, any consulting, advisory or compensatory fee from the Company or any of its subsidiaries other than their director’s compensation (other than in their capacity as a member of the Audit Committee, the Board of Directors or any other Committee of the Board), and (ii) no member of the Audit Committee may be an “affiliated person” of the Company or any of its subsidiaries, as defined by the Securities and Exchange Commission.
The current directors of the Company are listed below, together with their ages, terms of service, all positions and offices with the Company, their principal occupations, business experience and directorships with other companies during the last five years or more. The designation “affiliated”, when used below with respect to a director, means that the director is an officer or employee of the Company or one of its subsidiaries. The designation “independent”, when used below with respect to a director, means that the director is neither an officer of the Company nor a director, officer or employee of a subsidiary of the Company, although the Company may have certain business or professional relationships with the director as discussed in Item 13. Certain Relationships and Related Transactions.
Roz Campisi Beadle, age 57, (Independent) Director since December 2003
Ms. Beadle is Executive Vice President of Unified Housing Foundation and a licensed realtor. She has a background in public relations and marketing. Ms. Beadle is also extremely active in various civic and community services
Gene S. Bertcher, age 65, (Affiliated) Director November 1989 to September 1996 and since June 1999
Mr. Bertcher was elected President and Chief Financial Officer effective November 1, 2004. He was elected Chairman and Chief Executive Officer in December 2006. Mr. Bertcher has been Chief Financial Officer and Treasurer of the Company since November 1989 and Executive Vice President from November 1989 until he was elected President. Also, Mr. Bertcher is Executive Vice-President and Chief Financial Officer of American Realty Investors, Inc. (NYSE), Transcontinental Realty Investors, Inc. (NYSE), and Income Opportunity Realty Investors, Inc. NYSE MKT, positions he has occupied since February 2008. He has been a certified public accountant since 1973. No family relationship exists between Mr. Bertcher and any director or executive officer of the Company.
James E. Huffstickler, age 70, (Independent) Director since December 2003
Mr. Huffstickler has been Chief Financial Officer of Sunchase America, Ltd., a multi-state property management company, for more than twenty two years. He is a graduate of the University of South Carolina. Mr. Huffstickler has been a certified public accountant since 1976.
Dan Locklear, age 61, (Independent) Director since December 2003
Mr. Locklear has been Chief Financial Officer of Sunridge Management Group, a real estate management company, for more than five years. Mr. Locklear was formerly employed by Johnstown Management Company, Inc. and Trammel Crow Company. Mr. Locklear has been a certified public accountant since 1981 and a licensed real estate broker in the State of Texas since 1978.
Victor L. Lund, age 84, (Independent) Director since March 1996
Mr. Lund founded Wedgwood Retirement Inns, Inc. (“Wedgwood”) in 1977, which became a wholly owned subsidiary of the Company in 1996. For most of Wedgwood’s existence, Mr. Lund was Chairman of the Board, President and Chief Executive Officer, positions he held until Wedgwood was acquired by the Company. Mr. Lund is President and Chief Executive Officer of Wedgwood Services, Inc., a construction services company not affiliated with the Company.
Board Committees
The Board of Directors held five meetings during 2013. For such year, no incumbent director attended fewer than 75% of the aggregate of (i) the total number of meetings held by the Board during the period for which he or she had been a director, and (ii) the total number of meetings held by all Committees of the Board on which he or she served during the period that he or she served.
The Board of Directors has standing Audit, Compensation and Governance and Nominating Committees. The Audit Committee was formed on December 12, 2003, and its function is to review the Company’s operating and accounting procedures. A Charter of the Audit Committee has been adopted by the Board. The current members of the Audit Committee, all of whom are independent within the SEC regulations, the listing standards of the NYSE MKT and the Company’s Corporate Governance Guidelines are Messrs. Locklear (Chairman), Huffstickler and Lund. Mr. Dan Locklear is qualified as an Audit Committee financial expert within the meaning of SEC regulations, and the Board has determined that he has the accounting and related financial management expertise within the meaning of the listing standards of the NYSE MKT. The Audit Committee met four times in 2013.
The Governance and Nominating Committee is responsible for developing and implementing policies and practices relating to the corporate governance, including reviewing and monitoring implementation of the Company’s Corporate Governance Guidelines. In addition, the Committee develops and reviews background information on candidates for the Board and makes recommendations to the Board regarding such candidates. The Committee also prepares and supervises the Board’s annual review of director independence and the Board’s performance and self-evaluation. The Charter of the Governance and Nominating Committee was adopted on October 20, 2004. The members of the Committee are Messrs. Huffstickler (Chairman), Lund and Ms. Beadle. The Governance and Nominating Committee met once in 2013.
The Board has also formed a Compensation Committee of the Board of Directors, adopted a Charter for the Compensation Committee on October 20, 2004, and selected Ms. Beadle (Chairman) and Messrs. Huffstickler and Locklear as members of that Committee. The Compensation Committee met once in 2013.
The members of the Board of Directors at the date of this Report and the Committees of the Board on which they serve are identified below:
|
Director
|
Audit Committee
|
Governance and Nominating Committee
|
Compensation Committee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Officers
The following person currently serves as the sole executive officer of the Company: Gene S. Bertcher, Chairman of the Board, President, Chief Executive Officer and Treasurer. His position with the Company is not subject to a vote of stockholders. His age, term of service and all positions and offices with the Company, other principal occupations, business experience and directorships with other companies during the last five years or more are listed under the caption “Directors” above.
In addition to the foregoing officers, the Company has other officers not listed herein who are not considered executive officers.
Code of Ethics
The Board of Directors has adopted a code of ethics entitled “Code of Business Conduct and Ethics” that applies to all directors, officers and employees of the Company and its subsidiaries. In addition, the Company has adopted a code of ethics entitled “Code of Ethics for Senior Financial Officers” that applies to the principal executive officer, president, principal financial officer, chief financial officer, principal accounting officer and controller. The text of these documents is posted on the Company’s internet website address at http://www.newconceptenergy.com and is available in print to any stockholder who requests them.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of Forms 3, 4 and 5 furnished to the Company pursuant to Rule 16a-3(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act“), upon written representations received by the Company, the Company is not aware of any failure by any director, officer or beneficial owner of more than 10% of the Company’s common stock to file with the Securities and Exchange Commission on a timely basis.
Item 11. Executive Compensation
The following tables set forth the compensation in all categories paid by the Company for services rendered during the fiscal years ended December 31, 2013, 2011 and 2010 by the Chief Executive Officer of the Company and to the other executive officers and Directors of the Company whose total annual salary in 2012 exceeded $100,000, the number of options granted to any of such persons during 2011 and the value of the unexercised options held by any of such persons on December 31, 2013.
|
SUMMARY COMPENSATION TABLE
|
|
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
Change in
|
|
|
|
| |
|
|
|
|
|
Non-
|
Pension
|
|
|
|
| |
|
|
|
|
|
Equity
|
Value and
|
|
|
|
|
Name
|
|
|
|
|
|
Incentive
|
Nonqualified
|
All
|
|
|
|
and
|
|
|
|
|
|
Plan
|
Deferred
|
Other
|
|
|
|
Principal
|
|
|
|
Stock
|
Option
|
Compen-
|
Compensation
|
Compen-
|
|
|
|
Position
|
Year
|
Salary
|
Bonus
|
Awards
|
Awards
|
sation
|
Earnings
|
sation
|
Total
|
| |
|
|
|
|
|
|
|
|
|
|
|
Gene S. Bertcher (1)
Chairman, President
& Chief Financial
Officer
|
2013
|
$103,300
|
|
|
|
|
|
|
$103,300
|
|
|
2012
|
$103,300
|
|
|
|
|
|
|
$103,300
|
|
|
2011
|
$ 98,500
|
|
|
|
|
|
|
$98,500
|
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Commencing in February 2008, three other publicly held entities needed a chief financial officer, Income Opportunity Realty Investors, Inc. (“IOT”), Transcontinental Realty Investors, Inc. (“TCI”) and American Realty Investors, Inc. (“ARL”) each of which have the same contractual advisor, now Pillar Income Asset Management, Inc. (“Pillar”). On an interim basis, these three entities made an arrangement with the Company for the accounting and administrative services of the Company, specifically Gene S. Bertcher, President and principal executive officer of the Company who is a certified public accountant and has a long history in that industry. At the time NCE through Bertcher was also providing accounting and administrative services to other entities on a fee based arrangement to assist those entities when NCE has excess capacity and personnel to provide accounting services. Commencing February 2008, Mr. Bertcher was elected as an officer and chief financial officer of each of IOT, TCI and ARL. As a compensation arrangement evolved over time, the three entities agreed to reimburse NCE for one-half of the gross compensation and related expenses of Bertcher at NCE and from and after December 31, 2010, arranged to provide office space for Mr. Bertcher and certain other NCE personnel rather than requiring operating out of two separate locations. Beginning January 1, 2011, the NCE accounting department moved into offices maintained by the contractual advisor of the three entities. Further, NCE was allowed the use of certain administrative services such as space on the contractual advisor’s computer server, use of copiers, telephone services, etc. NCE has not been charged for the use of office space, computer services, telephone service or other day-to-day cost of operating an office. Each of IOT, TCI and ARL effectively split the cost one-third each. ARL owns in excess of 80% of the Common Stock of TCI and TCI in turn owns in excess of 80% of the Common Stock of IOT. The agreement renews on an annual basis and is terminable on sixty days written notice.
The salary in the above table represents the portion of Mr. Bertcher’s compensation paid by the Company.
GRANTS OF PLAN-BASED AWARDS
None
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
None
OPTION EXERCISES AND STOCK VESTED
None
PENSION BENEFITS
None
NONQUALIFIED DEFERRED COMPENSATION
None
|
DIRECTOR COMPENSATION
|
|
Name
|
Fees Earned
Or Paid in
Cash
|
Stock
Awards
|
Option
Awards
|
Non-Equity
Incentive Plan
Compensation
|
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
|
All Other
Compensation
|
Total
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MANAGEMENT AND CERTAIN SECURITY HOLDERS
None
Compensation of Directors
The Company pays each non-employee director a fee of $2,500 per year, plus a meeting fee of $2,000 for each board meeting attended. Employee directors serve without compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth, as of March 28, 2014, certain information with respect to all stockholders known by the Company to own beneficially more than 5% of the outstanding common stock, which is the only outstanding class of securities of the Company, except for Series B Preferred Stock (the ownership of which is immaterial), as well as information with respect to the Company’s common stock owned beneficially by each director and current executive officers, whose compensation from the Company in 2012 exceeded $100,000, and by all directors and executive officers as a group. Unless otherwise indicated, each of these stockholders has sole voting and investment power with respect to the shares beneficially owned.
| |
|
Common Stock
|
|
|
Name of Beneficial Owner
|
|
No. of Shares
|
|
|
Percent of Class*
|
|
Arcadian Energy, Inc.(3)(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Go Green Fuel N.A., L.P. (6)
|
|
|
|
|
|
|
|
|
HKS Investment Corporation(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TacCo Financial, Inc.(3)(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All executive officers and directors as a group (five persons)
|
|
|
|
|
|
|
|
|
* Based on 1,946,935 shares of common stock outstanding at March 28, 2013.
** Less than 1%.
|
(1)
|
Consists of 108,994 shares of common stock owned by HKS Investment Corporation (“HKS”). According to an original statement on Schedule 13D dated January 9, 2006, the group consists of HKS Investment Corporation, David Hensel, John Kellar and Marshall Stagg, each of whom are deemed to be the beneficial owner of all 108,994 shares. Hensel is stated to be a shareholder, director and President of HKS; Kellar is a shareholder, director, Vice President and Treasurer of HKS; and Stagg is a shareholder, director and Secretary of HKS.
|
|
(2)
|
Consists of 40,811 shares of common stock owned by Mr. Bertcher.
|
|
(3)
|
Based on Amendment 21 to Schedule 13D, amended May 4, 2012, filed by each of these entities. Arcadian Energy, Inc. owns 127,968 shares directly and is the sole member of URC Energy, LLC which owns 672,630 shares. The amended Schedule 13D indicates that these entities, collectively, may be deemed a “Person” within the meaning of Section 13D of the Securities Exchange Act of 1934.
|
|
(4)
|
Consists of 500 shares of common stock. Officers and Directors of TacCo Financial, Inc. (“TFI”) are Ted P. Stokely, Chairman; RL S. Lemke, President and Treasurer and Craig E. Landess, Secretary. TFI’s stock is owned by Ted P. Stokely (100%).
|
|
|
The direct owner of the 672,630 shares of common stock is URC Energy, LLC. Under Rule 13d-3 of the Exchange Act, Arcadian Energy, Inc. as the sole member of URC Energy, LLC is deemed to be the beneficial owner of such shares.
|
|
(6)
|
Consists of 100,000 shares of Common Stock owned by Go Green Fuel N.A., L.P. a Texas limited partnership, the sole General Partner of which is GGF North American, LLC, a Texas limited liability company. According to an original statement on Schedule 13D dated December 31, 2009, Go Green Fuel N.A., L.P. acquired 100,000 shares of Common Stock from West Go Green, LLC a Nevada limited liability company at a price of $6.90 per share and Go Green Fuel N.A., LP granted to West Go Green LLC a “Repurchase Option” for a period of three calendar years from December 31, 2009 to repurchase all or any portion of the 100,000 shares purchased at the original purchase price of $6.90 per share, which Repurchase Option.
|
Item 13. Certain Relationships and Related Transactions, and Director Independence
Prime Income Asset Management, Inc (“PIAMI”) is a real estate management company that also invests in real estate for its own account. Pillar Income Asset Management, Inc. (“Pillar”) is a real estate management company. Both PIAMI and Pillar are indirectly owned by a private trust. URC Energy, Inc. (“URC”) is and has been a significant investor in the Company. URC is indirectly owned by a private trust. While the trusts for PIAMI and Pillar and URC are separate they have similar trustees and beneficiaries and therefore the Company has noted PIAMI and Pillar as related parties.
Eurenergy Resources, Inc (“ERC”) is an oil & gas company that owned and operated oil and gas wells. Beginning in 2006 the Company made loans to PIAMI and ERC at interest rates higher than the Company believes it could have gotten elsewhere.
In July 2006, the Company made an unsecured $1.4 million loan to ERC at an annual interest rate of 8%. In June of 2008, the Company entered into a letter of credit agreement with ERC. The terms of the agreement called for interest at the prime rate plus two percent. At May 21, 2009, the balance of the two notes and accrued interest thereon was $3,970,897. On November 20, 2007, the Company made a $630,000 loan PIAMI. In 2008, the Company made additional net advances on the loan totaling approximately $6.3 million. The initial loan and the additional advances were combined into a new loan with interest at the prime rate plus two percent. On May 21, 2009, PIAMI acquired both Eurenergy notes receivable at face value plus accrued interest totaling $3,970,897. Effective May 21, 2009 the Company and PIAMI entered into a new note combing all of the above loans into one note. The loan calls for interest at the prime rate plus 2% with principal and interest payable within 30 days after demand, and if not sooner demanded, on January 31, 2013.
At December 31, 2009, the balance due including accrued interest on the note receivable from PIAMI was $11.1 million.
During 2010 the note was paid down whereby as of December 31, 2010 the outstanding principal and interest totaled $10.4 million. During the first three quarters of 2011 the Company accrued interest of $360,000 and received $715,000 in payments from PIAMI. In the fourth quarter of 2011 the Company determined that the financial condition of PIAMI had deteriorated and there could be no assurance that the amount owed would or could be collected. The company has recorded a reserve of $10 million (the full balance) for the combined note.
Beginning in 2011 the Company conducted business with Pillar whereby Pillar provided the Company with services including processing payroll, acquiring insurance and other administrative matters (rent). The Company believes that by purchasing these services through certain large entities it can get lower costs and better service. In addition, Pillar loaned the Company $225,000 which was used to settle a lawsuit. Pillar does not charge the Company a fee for providing these services.
While separate companies, both PIAMI and Pillar are both owned by Realty Advisors, Inc. (“RAI”). During 2011 and 2012 the Company incurred obligations to Pillar totaling approximately $1.7 million. In a joint agreement among Pillar, PIAMI and the Company, Pillar agreed to relieve the Company of its obligation to pay $1.7 million and the Company agreed to reduce the amount owed by Prime by a like amount. In the third quarter of 2012 the Company recorded a $1.7 million gain on the transaction. In the fourth quarter of 2012 Pillar incurred expenses on behalf of the Company of $376,000 and agreed to forego payment in exchange for a reduction in the PIAMI obligation. The Company recorded an additional $376,000 gain.
During 2013 the Company incurred obligations to Pillar totaling approximately $1.6 million. In a joint agreement among Pillar, PIAMI and the Company, Pillar agreed to relieve the Company of its obligation to pay $1.6 million and the Company agreed to reduce the amount owed by Prime by a like amount.
During 2012 the Company and several other defendants settled a lawsuit for $225,000. The Company paid the entire amount and has a note receivable from one of the other defendants (a subsidiary of Arcadian Energy, Inc) for $112,500 representing its share of the settlement. In addition the company paid $48,800 to a consultant and will be reimbursed by Arcadian for a portion of his services.
Except as set forth above, the Reporting Persons do not have any contracts, arrangements, understandings or relationships, legal or otherwise, with any person with respect to any securities of the Issuer, including but not limited to, transfer or voting of any of the securities, finders’ fees, joint ventures, loan or option arrangements, puts or calls, guarantees of profits, divisions of profits or losses, or the giving or withholding of proxies.
It is the policy of the Company that all transactions between the Company and any officer or director, or any of their affiliates, must be approved by non-management members of the Board of Directors of the Company. All of the transactions described above were so approved.
Item 14. Principal Accounting Fees and Services
The following table sets forth the aggregate fees for professional services rendered to the Company for the years 2012 and 2011 by the Company’s principal accounting firm Swalm & Associates, P.C.:
All services rendered by the principal auditors are permissible under applicable laws and regulations and were pre-approved by either of the Board of Directors or the Audit Committee, as required by law. The fees paid to principal auditors for services described in the above table fall under the categories listed below:
Audit Fees: These are fees for professional services performed by the principal auditor for the audit of the Company’s annual financial statements and review of financial statements included in the Company’s Form 10-Q filings and services that are normally provided in connection with statutory and regulatory filings or engagements.
Audit-Related Fees: These are fees for assurance and related services performed by the principal auditor that are reasonably related to the performance of the audit or review of the Company’s financial statements. These services include attestation by the principal auditor that is not required by statute or regulation and consulting on financial accounting/reporting standards.
Tax Fees: These are fees for professional services performed by the principal auditor with respect to tax compliance, tax planning, tax consultation, returns preparation and reviews of returns. The review of tax returns includes the Company and its consolidated subsidiaries.
All Other Fees: These are fees for other permissible work performed by the principal auditor that does not meet the above category descriptions.
These services are actively monitored (as to both spending level and work content) by the Audit Committee to maintain the appropriate objectivity and independence in the principal auditor’s core work, which is the audit of the Company’s consolidated financial statements.
Financial Information Systems Design and Implementation Fees
Swalm & Associates, P.C. did not render professional services to the Company in 2013 with respect to financial information systems design and implementation.
Under the Sarbanes-Oxley Act of 2002 (the “SO Act”), and the rules of the Securities and Exchange Commission (the “SEC”), the Audit Committee of the Board of Directors is responsible for the appointment, compensation and oversight of the work of the independent auditor. The purpose of the provisions of the SO Act and the SEC rules for the Audit Committee’s role in retaining the independent auditor is two-fold. First, the authority and responsibility for the appointment, compensation and oversight of the auditors should be with directors who are independent of management. Second, any non-audit work performed by the auditors should be reviewed and approved by these same independent directors to ensure that any non-audit services performed by the auditor do not impair the independence of the independent auditor. To implement the provisions of the SO Act, the SEC issued rules specifying the types of services that an independent auditor may not provide to its audit client, and governing the Audit Committee’s administration of the engagement of the independent auditor. As part of this responsibility, the Audit Committee is required to pre-approve the audit and non-audit services performed by the independent auditor in order to assure that they do not impair the auditor’s independence. Accordingly, the Audit Committee has adopted a pre-approval policy of audit and non-audit services (the “Policy”), which sets forth the procedures and conditions pursuant to which services to be performed by the independent auditor are to be pre-approved. Consistent with the SEC rules establishing two different approaches to pre-approving non-prohibited services, the Policy of the Audit Committee covers pre-approval of audit services, audit-related services, international administration tax services, non-U.S. income tax compliance services, pension and benefit plan consulting and compliance services, and U.S. tax compliance and planning. At the beginning of each fiscal year, the Audit Committee will evaluate other known potential engagements of the independent auditor, including the scope of work proposed to be performed and the proposed fees, and the approve or reject each service, taking into account whether services are permissible under applicable law and the possible impact of each non-audit service on the independent auditor’s independence from management. Typically, in addition to the generally pre-approved services, other services would include due diligence for an acquisition that may or may not have been known at the beginning of the year. The Audit Committee has also delegated to any member of the Audit Committee designated by the Board or the financial expert member of the Audit Committee responsibilities to pre-approve services to be performed by the independent auditor not exceeding $25,000 in value or cost per engagement of audit and non-audit services, and such authority may only be exercised when the Audit Committee is not in session.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as a part of this report:
|
(1)
|
FINANCIAL STATEMENTS: The following financial statements of the Registrant and the Report of Independent Public Accountants therein are filed as part of this Report on Form 10-K:
|
| |
|
|
| |
Report of Swalm & Associates, P.C.
|
|
| |
|
|
| |
Consolidated Balance Sheets
|
26
|
| |
|
|
| |
Consolidated Statements of Operations
|
28
|
| |
|
|
| |
Consolidated Statements of Cash Flows
|
29
|
| |
|
|
| |
Consolidated Statements of Changes in Stockholders’ Equity
|
30
|
| |
|
|
| |
Notes to Consolidated Financial Statements
|
31
|
| |
|
|
(2)
|
FINANCIAL STATEMENT SCHEDULES: Other financial statement schedules have been omitted because the information required to be set forth therein is not applicable, is immaterial or is shown in the consolidated financial statements or notes thereto.
|
| |
|
|
(3)
|
EXHIBITS
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
New Concept Energy, Inc.
We have audited the accompanying consolidated balance sheets of New Concept Energy, Inc., and subsidiaries, as of December 31, 2013 and 2012, and the related consolidated statements of income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 2013. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements based on our audit.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, audits of its internal control over financial reporting. Our audits include consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion of the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of New Concept Energy, Inc., and subsidiaries as of December 31, 2013 and 2012, and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.
As described in the Note C to the financial statements, the Company had significant balances due from an affiliate which was fully reserved in 2011.
As described in Note K to the financial statements, the Company is named as a party to a significant lawsuit judgment. The Company and its legal counsel believe that the judgment is in error and that while the outcome of the matter cannot presently be determined, they do not believe that the matter will have a material effect on the Company’s financial position. Accordingly, no provision for any liability that may result has been made in the financial statements. Nevertheless, due to the nature of the uncertainty, it is reasonably possible that management’s view of the outcome will change in the near term.
/s/ Swalm & Associates, P.C.
Richardson, Texas
March 28, 2014