UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTER ENDED SEPTEMBER 30, 2016
or
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM           TO

Commission File Number 000-08187
NEW CONCEPT ENERGY, INC.
(Exact Name of Registrant as Specified in Its Charter)

Nevada
 
75-2399477
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
1603 LBJ Freeway
Suite 300
Dallas, Texas
 
(Address of principal executive offices)
 
 
75234
 
 
(Zip Code)
 
 
(972) 407-8400
 
 
(Registrant's telephone number, including area code)
 
 
 
 
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: R No: Ј

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: R   No Ј

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company.  See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer £
Accelerated filer £
 
 
 
Non-accelerated filer £
Smaller reporting company R
 
 
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes: £No: R
 
Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date.
 
Common Stock, $.01 par value
1,946,934 shares
(Class)
(Outstanding at November 14, 2016)


 
1

 
 
NEW CONCEPT ENERGY, INC. AND SUBSIDIARIES
Index to Quarterly Report on Form 10-Q
Period ended September 30, 2016

PART I:  FINANCIAL INFORMATION
 
 
 
Item 1.  Financial Statements
  3
Consolidated Balance Sheets
  3
Consolidated Statements of Operations
  5
Consolidated Statements of Cash Flows
  6
Notes To Consolidated Financial Statements
  7
 
 
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations
11
 
 
Item 3.  Quantitative and Qualitative Disclosures About Market Risk
13
 
 
Item 4.  Controls and Procedures
13
 
 
PART II:  OTHER INFORMATION
14
 
 
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
14
 
 
Item 6.  Exhibits
15
 
 
Signatures
16
 
 
 
 
2

 

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements
 
NEW CONCEPT ENERGY, INC. AND SUBSIDIARIES      
CONSOLIDATED BALANCE SHEETS      
 (unaudited)      
(amounts in thousands)      
 
 
September 30,
2016
   
December 31,
2015
 
 
           
Assets
           
 
           
Current assets
           
 Cash and cash equivalents
 
$
530
   
$
473
 
 Accounts receivable from oil and gas sales
   
105
     
141
 
 Other current assets
   
47
     
37
 
Total current assets
   
682
     
651
 
                 
 
               
Oil and natural gas properties (full cost accounting method)
               
 Proved developed and undeveloped oil and gas properties, net of depletion
   
5,658
     
5,914
 
 
               
Property and equipment, net of depreciation
               
 Land, buildings and equipment - oil and gas operations
   
722
     
803
 
 Other
   
142
     
134
 
Total property and equipment
   
864
     
937
 
 
               
Other assets
   
1,344
     
1,373
 
                 
Total assets
 
$
8,548
   
$
8,875
 
                 
                 
 
         

The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
3

 
 
NEW CONCEPT ENERGY, INC. AND SUBSIDIARIES      
CONSOLIDATED BALANCE SHEETS - CONTINUED      
(unaudited)      
(amounts in thousands, except share amounts)      
 
 
             
   
September 30,  2016
   
December 31,  2015
 
             
Liabilities and stockholders' equity
           
             
Current liabilities
           
    Accounts payable - trade (including $580,000 and $165,000 in 2016 and 2015 due to related parties)
 
$
605
   
$
241
 
    Accrued expenses
   
148
     
151
 
    Current portion of long term debt
   
828
     
831
 
Total current liabilities
   
1,581
     
1,223
 
                 
Long-term debt
               
    Notes payable less current portion
   
1,119
     
1,211
 
    Asset retirement obligation
   
2,770
     
2,770
 
Total liabilities
   
5,470
     
5,204
 
                 
Stockholders' equity
               
    Preferred stock, Series B
   
1
     
1
 
    Common stock, $.01 par value; authorized, 100,000,000
               
      shares; issued and outstanding, 1,946,934 shares
               
      at September 30, 2016 and December 31, 2015
   
20
     
20
 
    Additional paid-in capital
   
58,838
     
58,838
 
    Accumulated deficit
   
(55,781
)
   
(55,188
)
     
3,078
     
3,671
 
                 
Total liabilities & equity
 
$
8,548
   
$
8,875
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
4

 
 
 
 
NEW CONCEPT ENERGY, INC AND SUBSIDIARIES            
CONSOLIDATED STATEMENT OF OPERATIONS            
(unaudited)            
(amounts in thousands, except per share data)            
                         
   
For the Three Months
ended September 30,
   
For the Nine Months
ended September 30,
 
   
2016
   
2015
   
2016
   
2015
 
Revenue
                       
Oil and gas operations, net of royalties
 
$
190
   
$
232
   
$
579
   
$
663
 
Real estate operations
   
653
     
772
     
1,995
     
2,233
 
     
843
     
1,004
     
2,574
     
2,896
 
                                 
                                 
Operating expenses
                               
Oil and gas operations
   
295
     
527
     
924
     
1,437
 
Real estate operations
   
396
     
423
     
1,146
     
1,248
 
Lease expense
   
251
     
245
     
748
     
735
 
Corporate general and administrative
   
52
     
176
     
319
     
485
 
     
994
     
1,371
     
3,137
     
3,905
 
    Operating earnings (loss)
   
(151
)
   
(367
)
   
(563
)
   
(1,009
)
                                 
                                 
Other income (expense)
                               
Interest income
   
6
     
6
     
17
     
6
 
Interest expense
   
(8
)
   
(12
)
   
(26
)
   
(54
)
Recovery of bad debt expense
   
-
     
306
     
0
     
1,430
 
Other income (expense), net
   
(11
)
   
(8
)
   
(21
)
   
(24
)
Other income (expense)
   
(13
)
   
292
     
(30
)
   
1,358
 
                                 
                                 
Net income (loss) applicable to common shares
 
$
(164
)
 
$
(75
)
 
$
(593
)
 
$
349
 
                                 
Net income (loss) per common share-basic and diluted
 
$
(0.08
)
 
$
(0.04
)
 
$
(0.30
)
 
$
0.18
 
                                 
                                 
Weighted average common and equivalent shares outstanding - basic
   
1,947
     
1,947
     
1,947
     
1,947
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
5

 
NEW CONCEPT ENERGY, INC AND SUBSIDIARIES      
CONSOLIDATED STATEMENTS OF CASH FLOWS      
(unaudited)      
(amounts in thousands)      
   
For the Nine Months Ended
 
   
September 30,   
 
   
2016
   
2015
 
             
             
Cash flows from operating activities
           
Net income (loss)
 
$
(593
)
 
$
349
 
Adjustments to reconcile net income to net cash provided by (used in) operating activities
         
      Depreciation, depletion and amortization
   
393
     
593
 
      Write-off (recovery) of affiliate receivable
   
-
     
(1,430
)
Changes in operating assets and liabilities
               
        Other current and non-current assets
   
(20
)
   
122
 
Accounts payable and other liabilities
   
361
     
979
 
Net cash provided by (used) in operating activities
   
141
     
613
 
                 
Cash flows from investing activities
               
      Investment in oil and gas
   
-
     
(204
)
      Fixed asset additions
   
(45
)
   
(107
)
      Cash portion from the sale of land
   
-
     
116
 
      Repayment of loan from affiliate
   
-
     
126
 
Net cash provided by (used in) investing activities
   
(45
)
   
(69
)
                 
Cash flows from financing activities
               
      Payment on notes payable
   
(39
)
   
(263
)
Net cash provided by (used in) financing activities
   
(39
)
   
(263
)
                 
                 
Net increase (decrease) in cash and cash equivalents
   
57
     
281
 
Cash and cash equivalents at beginning of year
   
473
     
300
 
                 
Cash and cash equivalents at end of year
 
$
530
   
$
581
 
                 
Supplemental disclosures of cash flow information:
               
Cash paid for interest on notes payable
 
$
13
   
$
54
 
Cash paid for principal on notes payable
 
$
66
   
$
263
 
Non cash portion of sale of land
   
-
   
$
415
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
 
6

 

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.  
 
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, 2015.  Operating results for the nine  month period ended September 30, 2016 are not necessarily indicative of the results that may be expected for any subsequent quarter or for the fiscal year ending December 31, 2016.
 
NOTE B: NATURE OF OPERATIONS
 
The Company 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 through its wholly owned subsidiaries Mountaineer State Energy, LLC and Mountaineer State Operations, LLC.
 
The Company also leases and operates a retirement community in King City Oregon, with a capacity of 114 residents.
 
At September 30, 2016 the company's current liabilities exceed its current assets and the company has a net loss of $593,000 for the nine months ended September 30, 2016.  The Company is in active discussions to sell its land held for investment and is in discussions with the holder of certain non-bank long-term debt to settle the amounts due or modify note to more favorable terms.  Management believes that, if its plans are successful, the Company will be able to significantly improve its liquidity and its working capital.
 
NOTE C: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
We consider accounting policies related to our estimates of depreciation amortization and depletion, segments, oil and gas properties, oil and gas reserves, gas gathering assets, office and field equipment, revenue recognition and gas imbalances, leases, revenue recognition for real estate operations, impairment, and sales of real estate as significant accounting policies.  The policies include significant estimates made by management using information available at the time the estimates are made.  However, these estimates could change materially if different information or assumptions were used.  These policies are summarized in our Annual Report on Form 10-K for the year ended December 31, 2015.

NOTE D: OIL AND GAS RESERVES
 
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.
 
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 a standardized method for determining pricing and require that future cash flow be discounted using a 10% rate. The valuation that results may not represent management's estimated current market value of proved reserves.

During the past few years the exploration, development and production of natural gas has resulted in an oversupply of natural gas which has resulted in a substantial reduction in the market price. Management of the Company believes that this oversupply will last for some time and does not anticipate an increase in the price we can receive in the market place. In April 2012 the Company entered into an agreement to fix the price it receives for the sale of its gas. For the five years ended April 2017 the Company will receive $4.53 per MCF.
 
 
7

 
NOTE E: LAND HELD FOR INVESTMENT

In February 2014 the Company acquired 7.4 acres of undeveloped land in Desoto, Texas for $624,000.The Company believes the highest and best use of this property is for the construction and development of multifamily housing. The Company acquired the property for investment purposes.


NOTE F: CONTINGENCIES

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 New Concept Energy, Inc., which was then known as CabelTel International Corporation (the "Company") 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 any 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 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 the other defendants filed a Petition for Review of the Court of Appeals Opinion with the Supreme Court of the State of Texas. On May 8, 2015, the Supreme Court of Texas affirmed, in part, and reversed, in part, the Court of Appeals Judgment, remanding the case to that Court for further proceedings. In its opinion, the Supreme Court concluded that the evidence supports the Jury's verdict that the individual used the Company and other entities, that it would be unjust to require Carlton to treat them separately and found that the Company was an alter ego as a matter of law.  The Supreme Court determined that the Court of Appeals erred in reinstating the jury's verdict on damages in the amount of $66.5 million as the amount was speculative and not supported by competent evidence. The court declined to reinstate the trial court's judgment of $31.16 million. The Supreme Court did rule that there was some evidence to support an award of actual damages and therefore remanded the case to the Court of Appeals to make a factual sufficiency determination, if possible, as to as to the amount.

After remand the parties provided supplemental briefing and the Court of Appeals held additional oral argument on February 17, 2016. On August 30, 2016 the Court of Appeals entered its opinion and judgement which reinstated the trial court's actual damages award but did not address exemplary damages. The Company filed a Motion for Rehearing and asked for the full panel of the Court of Appeals to address the constitutional question of the Court of Appeals authority to decide fact questions which the record does not reflect were considered by the jury. That Motion is still pending.

Management's preliminary analysis of these developments suggests it is reasonably possible that the claim will result in an unfavorable outcome. Management notes that in connection with the original appeal, the individual defendant deposited alternative security with the court to supersede the judgment which the court determined to have a value in excess of $56 million. Management believes that the maximum exposure would be in an amount significantly less than the amount on deposit. Accordingly, management believes that any adverse outcome is fully secured by that deposit.

Other

The Company has been named as a defendant in other lawsuits in the ordinary course of business.  Management is of the opinion that these lawsuits will not have a material effect on the financial condition, results of operations or cash flows of the Company. 



8

 
NOTE G:  OPERATING SEGMENTS

The following table reconciles the segment information to the corresponding amounts in the Consolidated Statements of Operations and total assets:
 
Three months ended September 30, 2016
 
Oil and Gas Operations
   
Retirement
Facility
   
 
Corporate
   
 
Total
 
                         
                         
Operating revenue
 
$
190
   
$
653
   
$
-
   
$
843
 
                                 
Operating expenses
   
200
     
384
     
52
     
636
 
Depreciation, depletion and amortization
   
95
     
12
     
-
     
107
 
Lease expense
   
-
     
251
     
-
     
251
 
Total operating expenses
   
295
     
647
     
52
     
994
 
Interest income
   
6
     
-
     
0
     
6
 
Interest expense
   
(8
)
   
-
     
-
     
(8
)
Recovery of bad debt expense
   
-
     
-
     
-
     
0
 
Other income
   
(11
)
   
-
     
-
     
(11
)
Segment operating income
 
$
(118
)
 
$
6
   
$
(52
)
 
$
(164
)
                                 
                                 
                                 
Three months ended September 30, 2015
 
Oil and Gas Operations
   
Retirement
Facility
   
 
Corporate
   
 
Total
 
                                 
                                 
Operating revenue
 
$
232
   
$
772
   
$
-
   
$
1,004
 
                                 
Operating expenses
   
314
     
408
     
176
     
898
 
Depreciation, depletion and amortization
   
213
     
15
     
-
     
228
 
Lease expense
   
-
     
245
     
-
     
245
 
Total operating expenses
   
527
     
668
     
176
     
1,371
 
Interest income
   
6
     
-
     
-
     
6
 
Interest expense
   
(12
)
   
-
     
-
     
(12
)
Recovery of bad debt expense
   
-
     
-
     
306
     
306
 
Other income
   
-
     
-
     
(8
)
   
(8
)
Segment operating income
 
$
(301
)
 
$
104
   
$
122
   
$
(75
)

 
9

 

Nine months ended September 30, 2016
Oil and Gas
Operations
 
Retirement
Facility
 
 
Corporate
 
 
Total
 
                 
                 
Operating revenue
 
$
579
   
$
1,995
   
$
-
   
$
2,574
 
                                 
Operating expenses
   
582
     
1,108
     
319
     
2,009
 
Depreciation, depletion and amortization
   
342
     
38
     
-
     
380
 
Lease expense
   
-
     
748
     
-
     
748
 
Total operating expenses
   
924
     
1,894
     
319
     
3,137
 
Interest income
   
17
     
-
     
-
     
17
 
Interest expense
   
(26
)
   
-
     
-
     
(26
)
Recovery of bad debt expense
   
-
     
-
     
-
     
0
 
Other income
   
-
     
-
     
(21
)
   
(21
)
Segment operating income
 
$
(354
)
 
$
101
   
$
(340
)
 
$
(593
)
                                 
                                 
                                 
Nine months ended September 30, 2015
Oil and Gas
Operations
 
Retirement
Facility
 
 
Corporate
 
 
Total
 
                                 
                                 
Operating revenue
 
$
663
   
$
2,233
   
$
-
   
$
2,896
 
                                 
Operating expenses
   
933
     
1,202
     
485
     
2,620
 
Depreciation, depletion and amortization
   
504
     
46
     
-
     
550
 
Lease expense
   
-
     
735
     
-
     
735
 
Total operating expenses
   
1,437
     
1,983
     
485
     
3,905
 
Interest income
   
6
     
-
     
0
     
6
 
Interest expense
   
(54
)
   
-
     
-
     
(54
)
Recovery of bad debt expense
   
-
     
-
     
1,430
     
1,430
 
Other income
   
-
     
-
     
(24
)
   
(24
)
Segment operating income
 
$
(822
)
 
$
250
   
$
921
   
$
349
 
 

NOTE H:  NEWLY ISSUED ACCOUNTING STANDARDS
 
We have considered all other newly issued accounting guidance that is applicable to our operations and the preparation of our consolidated statements, including that which we have not yet adopted.  We do not believe that any such guidance will have a material effect on our financial position or results or operation.

NOTE I:  SUBSEQUENT EVENTS

The Company has evaluated subsequent events through November 14, 2016, the date the financial statements were available to be issued, and has determined that there are none to be reported.



 
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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.
 
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.
 
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 a standardized method for determining pricing and require that future cash flow be discounted using a 10% rate. The valuation that results may not represent management's estimated current market value of proved reserves.


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, 2016 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, 2016, the Company had current assets of $682,000 and current liabilities of $1,581,000.

Cash and cash equivalents at September 30, 2016 were $530,000 as compared to $473,000 at December 31, 2015.

Net cash provided from operating activities was $141,000 for the nine months ended September 30, 2016.  During the nine-month period, the Company had a net loss of $593,000.
 
 
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Net cash used in investing activities was $45,000 for the nine months ended September 30, 2016. This represents fixed assets acquired by the Company.

Net cash used in financing activities was $39,000 for the nine months ended September 30, 2016, consisting of the repayment of bank loans.

 Results of Operations

The following discussion is based on our Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and 2015 as included in Part 1, Item 1: Financial statements of this report.

Comparison of the three months ended September 30, 2016 to the same period ended 2015

The Company reported a net loss of $164,000 for the three months ended September, 30 2016, as compared to a net loss of $75,000 for the similar period in 2015.

For the three months ended September 30, 2016, the Company recorded oil and gas revenues, net of royalty expenses of $190,000 as compared to $232,000 for the comparable period of 2015. The decline in oil and gas revenue was principally due to the price the Company was receiving for its oil sales in 2016 as compared to 2015.

The Company recorded revenues of $653,000 for the three months ended September 30, 2016 from its retirement property compared to $772,000 for the comparable period in 2015. The decrease was primarily due a drop in occupancy at the facility caused principally by the opening of a competing facility in the community where our facility is located. .

For the three months ended September 30, 2016, the Company recorded oil and gas operating expenses of $295,000 as compared to $527,000 for the comparable period of 2015. The decrease was due to a decrease in overall operating expenses as the Company has actively been reducing costs to compensate for the reduction in revenue.

For the three months ended September 30, 2016, operating expenses at the retirement property were $396,000 as compared to $423,000 for the comparable period in 2015. The decrease in operating expenses were due to an overall decrease in non-payroll related expenses.

For the three months ended September 30, 2016, corporate general & administrative expenses were $52,000 as compared to $176,000 for the comparable periods in 2015. The decrease is primarily due to a reduction in wages and overall operating expenses.

For the three months ended September 30, 2015 the company recorded a bad debt expense recovery of $306,000 with respect to a note receivable that was fully reserved in a prior year (For a more complete discussion of history of the receivable, the establishment of a reserve due to concerns regarding collectability if the receivable and the recovery efforts refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2015 in Item 13 on page 21 and Footnote C on page 34)


Comparison of the nine months ended September 30, 2016 to the same period ended 2015
 
The Company reported a net loss of $593,000 for the nine months ended September 30, 2016, as compared to net income of $349,000 for the similar period in 2015.

For the nine months ended September 30, 2016, the Company recorded oil and gas revenues, net of royalty expenses of $579,000 as compared to $663,000 for the comparable period of 2015. The decline in oil and gas revenue was principally due to the price the Company was receiving for its oil sales in 2016 as compared to 2015.

The Company recorded revenues of $1,995,000 for the nine months ended September 30, 2016 from its retirement property compared to $2,223,000 for the comparable period in 2015. The decrease was primarily due a drop in occupancy at the facility caused principally by the opening of a competing facility in the community where our facility is located.

For the nine months ended September 30, 2016, the Company recorded oil and gas operating expenses of $924,000 as compared to $1,437,000 for the comparable period of 2015. The decrease was due to a decrease in overall operating expenses as the Company has actively been reducing costs to compensate for the reduction in revenue

For the nine months ended September 30, 2016, operating expenses at the retirement property were $1,146,000 as compared to $1,248,000 for the comparable period in 2015. The decrease in operating expenses were due to an overall decrease in non-payroll related expenses.
 
 
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For the nine months ended September 30, 2016, corporate general & administrative expenses were $319,000 as compared to $485,000 for the comparable periods in 2015. The decrease is primarily due to a reduction in wages and overall operating expenses.

For the nine months ended September 30, 2016 the company recorded a bad debt expense recovery of $1,430,000 with respect to a note receivable that was fully reserved in a prior year (For a more complete discussion of history of the receivable, the establishment of a reserve due to concerns regarding collectability if the receivable and the recovery efforts refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2015 in Item 13 on page 21 and Footnote C on page 34).

 
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 from a retirement community 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 properties are in compliance in all material respects with all federal, state and local laws, ordinances and regulations regarding hazardous or toxic substances or petroleum products.  The Company has not been notified by any governmental authority and is not otherwise aware of any material non-compliance, liability or claim relating to hazardous or toxic substances or petroleum products in connection with any of its communities.
 
Item 3.  Quantitative and Qualitative Disclosures about Market Risk
 
Interest Rate Risk
 
Nearly 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 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.
 
 
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(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 2.  Unregistered Sales of Equity Securities and Use of Proceeds
 
None.
 
 
 
 
14

 


Item 6.  Exhibits

The following exhibits are filed herewith or incorporated by reference as indicated below.
Exhibit Designation
Exhibit Description
 
 
3.1
Articles of Incorporation of Medical Resource Companies of America (incorporated by reference to Exhibit 3.1 to Registrant's Form S-4 Registration Statement No. 333-55968 dated December 21, 1992)
 
 
3.2
Amendment to the Articles of Incorporation of Medical Resource Companies of America (incorporated by reference to Exhibit 3.5 to Registrant's Form 8-K dated April 1, 1993)
 
 
3.3
Restated Articles of Incorporation of Greenbriar Corporation (incorporated by reference to Exhibit 3.1.1 to Registrant's Form 10-K dated December 31, 1995)
 
 
3.4
Amendment to the Articles of Incorporation of Medical Resource Companies of America (incorporated by reference to Exhibit to Registrant's PRES 14-C dated February 27, 1996)
 
 
3.5
Bylaws of Registrant (incorporated by reference to Exhibit 3.2 to Registrant's Form S-4 Registration Statement No. 333-55968 dated December 21, 1992)
 
 
3.6
Amendment to Section 3.1 of Bylaws of Registrant adopted October 9, 2003 (incorporated by reference to Exhibit 3.2.1 to Registrant's Form S-4 Registration Statement No. 333-55968 dated December 21, 1992)
 
 
3.7
Certificate of Decrease in Authorized and Issued Shares effective November 30, 2001 (incorporated by reference to Exhibit 2.1.7 to Registrant's Form 10-K dated December 31, 2002)
 
 
3.8
Certificate of Designations, Preferences and Rights of Preferred Stock dated May 7, 1993 relating to Registrant's Series B Preferred Stock (incorporated by reference to Exhibit 4.1.2 to Registrant's Form S-3 Registration Statement No. 333-64840 dated September 22, 1993)
 
 
3.9
Certificate of Voting Powers, Designations, Preferences and Rights of Registrant's Series F Senior Convertible Preferred Stock dated December 31, 1997 (incorporated by reference to Exhibit 2.2.2 of Registrant's Form 10-KSB for the fiscal year ended December 31, 1997)
 
 
3.10
Certificate of Voting Powers, Designations, Preferences and Rights of Registrant's Series G Senior Non-Voting Convertible Preferred Stock dated December 31, 1997 (incorporated by reference to Exhibit 2.2.3 of Registrant's Form 10-KSB for the fiscal year ended December 31, 1997)
 
 
3.11
Certificate of Designations dated October 12, 2004 as filed with the Secretary of State of Nevada on October 13, 2004 (incorporated by reference to Exhibit 3.4 of Registrant's Current Report on Form 8-K for event occurring October 12, 2004)
 
 
3.12
Certificate of Amendment to Articles of Incorporation effective February 8, 2005 (incorporated by reference to Exhibit 3.5 of Registrant's Current Report on Form 8-K for event occurring February 8, 2005)
 
 
3.13
Certificate of Amendment to Articles of Incorporation effective March 21, 2007 (incorporated by reference to Exhibit 3.13 of Registrant's Current Report on Form 8-K for event occurring March 21, 2005)
 
 
 31.1*
Certification pursuant to Rule 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended, of Principal Executive Officer and Chief Financial Officer
 
 
 32.1*
Certification of Principal Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. §1350
 
 
101 
Interactive data files pursuant to Rule 405 of Regulation S-T
 
 
*Filed herewith.

 
 
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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.
 
 
New Concept Energy, Inc.
 
 
 
 
 
Date: November 14, 2016
By:
 /s/ Gene Bertcher                               
 
 
Gene S. Bertcher, Principal Executive
 
 
 
Officer, President and Chief Financial 
 
 
 
Officer 
 
 
 
 

 
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