FORM 10-K/A
Amendment No. 2
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 2020 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 1-8245
Delaware 22-2084119
State or Other Jurisdiction of I.R.S. Employer Identification No.
of Incorporation or Organization
5 N. Lincoln Street, Keene, N.H. 03431
Address of Principal Executive Offices Zip Code
(732) 741-4008
Title of each class Trading Symbol(s) Name of each exchange on which registered
Units of Beneficial Interest NRT New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No X
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes No X
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes X No ___
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer Accelerated filer |
| Non-accelerated filer X Smaller reporting company X |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ___ No X
On April 30, 2020, the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold was $29,431,481.
As of December 30, 2020, there were 9,190,590 units of beneficial interest ("units") of the registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, 12, 13 and 14 of Part III have been partially or wholly omitted from this report and the information required to be contained therein is incorporated by reference from the registrant's definitive proxy statement for the 2020 Annual Meeting held on February 17, 2021, which definitive proxy statement was filed with the Securities and Exchange Commission on January 4, 2021.
EXPLANATORY NOTE
This Annual Report on Form 10-K/A constitutes Amendment No. 2 ("the Amendment") to the North European Oil Royalty Trust's Annual Report on Form 10-K for the year ended October 31, 2020, which was originally filed with the Securities and Exchange Commission on December 30, 2020 ("the Original Filing"). This Amendment is being filed solely to append the full text of Item 8 of Part II including the amended wording of the opinion of Mazars USA LLP within Pages F-1 and F-2 which were incorrect in the Original Filing.
No other change is made to the Original Filing. This Amendment does not purport to provide an update or a discussion of any other developments subsequent to the Original Filing. Accordingly, this Amendment should be read in conjunction with the Original Filing.
In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), new certifications by the Company's principal executive officer and principal financial officer are filed herewith as exhibits to this Amendment No. 2 pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act.
Part II
Item 8. Financial Statements and Supplementary Data.
| Page Number | |
| Report of Independent Registered Public Accounting Firm | F-1 - F-2 |
| Financial Statements: | |
| Statements of Assets, Liabilities and Trust Corpus as of October 31, 2020 and 2019 | F-3 |
| Statements of Revenue Collected and Expenses Paid for the Fiscal Years Ended October 31, 2020 and 2019 | F-4 |
| Statements of Undistributed Earnings for the Fiscal Years Ended October 31, 2020 and 2019 | F-5 |
| Statements of Changes in Cash and Cash Equivalents for the Fiscal Years Ended October 31, 2020 and 2019 | F-6 |
| Notes to Financial Statements | F-7 - F-9 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and the Unit Owners of
North European Oil Royalty Trust
Opinion on the Financial Statements
We have audited the accompanying statements of assets, liabilities and trust corpus of North European Oil Royalty Trust (the "Trust") as of October 31, 2020 and 2019, and the related statements of revenue collected and expenses paid, undistributed earnings, and changes in cash and cash equivalents, for each of the two years in the period ended October 31, 2020, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 2020 and 2019, and its revenue collected and expenses paid, and changes in its cash and cash equivalents for each of the two years in the period ended October 31, 2020, in conformity with the modified cash basis of accounting described in Note 1.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
F-1
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Basis of Accounting
As described in Note 1, these financial statements have been prepared on the modified cash basis of accounting, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America.
Mazars USA LLP
We have served as the Trust's auditor since 2006
New York, NY
December 30, 2020
F-2
| 2020 | 2019 | |
|---|---|---|
| ASSETS | ||
| Current assets -- Cash and cash equivalents | $649,585 | $1,590,893 |
| Producing gas and oil royalty rights, net of amortization (Notes 1 and 2) | 1 | 1 |
| Total Assets | $649,586 | $1,590,894 |
| 2020 | 2019 | |
| LIABILITIES AND TRUST CORPUS | ||
| Current liabilities -- Distributions to be paid to unit owners, paid November 2020 and 2019 | $183,811 | $1,470,494 |
| Trust corpus (Notes 1 and 2) | 1 | 1 |
| Undistributed earnings | 465,774 | 120,399 |
| Total Liabilities and Trust Corpus | $649,586 | $1,590,894 |
The accompanying notes are an integral part of these financial statements.
F-3
| 2020 | 2019 | |
|---|---|---|
| Gas, sulfur and oil royalties received | $4,050,017 | $8,344,712 |
| Interest income | 2,853 | 14,451 |
| Trust Income | 4,052,870 | 8,359,163 |
| Non-related party expenses | (715,490) | (703,351) |
| Related party expenses (Note 3) | (51,017) | (77,747) |
| Trust Expenses | ($766,507) | ($781,098) |
| Net Income | $3,286,363 | $7,578,065 |
| Net income per unit | $0.36 | $0.82 |
| Distributions per unit paid or to be paid to unit owners | $0.32 | $0.82 |
The accompanying notes are an integral part of these financial statements.
F-4
| 2020 | 2019 | ||
| Balance, beginning of period | $120,399 | $78,618 | |
| Net income | 3,286,363 | 7,578,065 | |
| 3,406,762 | 7,656,683 | ||
| Less: | |||
| Current year distributions paid or to be paid to unit owners | 2,940,988 | 7,536,284 | |
| Balance, end of period | $465,774 | $120,399 |
The accompanying notes are an integral part of these financial statements.
F-5
| 2020 | 2019 | ||
| Sources of Cash and Cash Equivalents: | |||
| Gas, sulfur and oil royalties received | $4,050,017 | $8,344,712 | |
| Interest income | 2,853 | 14,451 | |
| $4,052,870 | $8,359,163 | ||
| Uses of Cash and Cash Equivalents: | |||
| Payment of Trust expenses | $766,507 | $781,098 | |
| Distributions paid | 4,227,671 | 7,444,379 | |
| $4,994,178 | $8,225,477 | ||
| Net increase (decrease) in cash and cash equivalents during the year | (941,308) | 133,686 | |
| Cash and cash equivalents, beginning of year | 1,590,893 | 1,457,207 | |
| Cash and cash equivalents, end of year | $649,585 | $1,590,893 |
The accompanying notes are an integral part of these financial statements.
F-6
(1) Summary of significant accounting policies:
Basis of accounting -
The accompanying financial statements of North European Oil Royalty Trust (the "Trust") are prepared in accordance with the rules and regulations of the SEC. Financial statement balances and financial results are presented on a modified cash basis of accounting, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States ("GAAP basis"). In the opinion of management, all adjustments that are considered necessary for a fair presentation of these financial statements, including adjustments of a normal, recurring nature, have been included.
On a modified cash basis, revenue is earned when cash is received and expenses are incurred when cash is paid. GAAP basis financial statements disclose revenue as earned and expenses as incurred, without regard to receipts or payments. The modified cash basis of accounting is utilized to permit the accrual for distributions to be paid to unit owners (those distributions approved by the Trustees for the Trust). The Trust's distributable income represents royalty income received by the Trust during the period plus interest income less any expenses incurred by the Trust, all on a cash basis. In the opinion of the Trustees, the use of the modified cash basis of accounting provides a more meaningful presentation to unit owners of the results of operations of the Trust.
The Trust receives adjustments from the operating companies based on their final calculations of royalties payable during the prior periods, including the immediately preceding calendar quarter. Negative adjustments are carried over to the succeeding quarter. A negative adjustment of 444,931 Euros from the fourth quarter of fiscal 2020 will be carried over and offset against future royalty revenue received in the first quarter of fiscal 2021 ..
Producing gas and oil royalty rights -
The rights to certain gas and oil royalties in Germany were transferred to the Trust at their net book value by North European Oil Company (the "Company") (see Note 2). The net book value of the royalty rights has been reduced to one dollar ($1) in view of the fact that the remaining net book value of royalty rights is de minimis relative to annual royalties received and distributed by the Trust and does not bear any meaningful relationship to the fair value of such rights or the actual amount of proved producing reserves.
Federal and state income taxes -
The Trust, as a grantor trust and also under a private letter ruling issued by the Internal Revenue Service, is exempt from federal income taxes. The Trust has no state income tax obligations.
F-7
Cash and cash equivalents -
Cash and cash equivalents are defined as amounts deposited in bank accounts and amounts invested in certificates of deposit and U. S. Treasury bills with original maturities generally of three months or less from the date of purchase. The investment options available to the Trust are limited in accordance with specific provisions of the Trust Agreement. As of October 31, 2020, the uninsured amounts held in the Trust's U.S. bank accounts were $387,960. In addition, the Trust held Euros 9,977, the equivalent of $11,626, in its German bank account at October 31, 2020.
Net income per unit -
Net income per unit is based upon the number of units outstanding at the end of the period. As of October 31, 2020 and 2019, there were 9,190,590 units of beneficial interest outstanding.
New accounting pronouncements -
The Trust is not aware of any recently issued, but not yet effective, accounting standards that would be expected to have a significant impact on the Trust's financial position or results of operations.
(2) Formation of the Trust:
The Trust was formed on September 10, 1975. As of September 30, 1975, the Company was liquidated and the remaining assets and liabilities of the Company, including its royalty rights, were transferred to the Trust. The Trust, on behalf of the owners of beneficial interest in the Trust, holds overriding royalty rights covering gas and oil production in certain concessions or leases in the Federal Republic of Germany. These rights are held under contracts with local German exploration and development subsidiaries of ExxonMobil Corp. and the Royal Dutch/Shell Group of Companies. Under these contracts, the Trust receives various percentage royalties on the proceeds of the sales of certain products from the areas involved. At the present time, royalties are received for sales of gas well gas, oil well gas, crude oil, condensate and sulfur.
(3) Related party transactions:
John R. Van Kirk, the Managing Director of the Trust, provides office services to the Trust at cost. For such office services, the Trust reimbursed the Managing Director $4,020, and $26,166 in fiscal 2020 and 2019, respectively.
Lawrence A. Kobrin, a Trustee of the Trust, is no longer a partner of the firm but remains a Senior Counsel at Cahill Gordon & Reindel LLP, which serves as counsel to the Trust. For legal services, the Trust paid Cahill Gordon & Reindel LLP $46,997 and $51,581 in fiscal 2020 and 2019, respectively.
(4) Employee benefit plan:
The Trust has established a savings incentive match plan for employees (SIMPLE IRA) that is available to both employees of the Trust, one of whom is the Managing Director. The Trustees authorized the making of contributions by the Trust to the accounts of employees, on a matching basis, of up to 3% of cash compensation paid to each such employee for the 2020 and 2019 calendar years.
F-8
(5) Quarterly results (unaudited):
The tables below summarize the quarterly results and distributions of the Trust for the fiscal years ended October 31, 2020 and 2019:
Fiscal 2020 by Quarter and Year
| First | Second | Third | Fourth | Year | |
| Royalties received | $1,025,965 | $1,275,824 | $1,399,614 | $348,614 | $4,050,017 |
| Net income | $747,737 | $1,041,902 | $1,278,075 | $218,649 | $3,286,363 |
| Net Income per unit | $ 0.08 | $ 0.11 | $ 0.14 | $ 0.02 | $ 0.36 |
| Distribution paid or to be paid | $735,247 | $1,010,965 | $1,010,965 | $183,811 | $2,940,988 |
| Distribution per unit or to be paid to unit owners | $ 0.08 | $ 0.11 | $ 0.11 | $ 0.02 | $ 0.32 |
Fiscal 2019 by Quarter and Year
| First | Second | Third | Fourth | Year | |
| Royalties received | $2,303,000 | $2,235,350 | $2,146,227 | $1,660,135 | $8,344,712 |
| Net income | $2,037,785 | $2,001,753 | $2,022,464 | $1,516,063 | $7,578,065 |
| Net Income per unit | $ 0.22 | $ 0.22 | $ 0.22 | $ 0.16 | $ 0.82 |
| Distribution paid or to be paid | $2,021,930 | $2,021,930 | $2,021,930 | $1,470,494 | $7,536,284 |
| Distribution per unit or to be paid to unit owners | $ 0.22 | $ 0.22 | $ 0.22 | $ 0.16 | $ 0.82 |
F-9
Item 15. Exhibits and Financial Statement Schedules.
(a) The following is a list of the documents filed as part of this Report:
1. Financial Statements
Index to Financial Statements for the Fiscal Years Ended October 31, 2020 and 2019
Report of Independent Registered Public Accounting Firm
Statements of Assets, Liabilities and Trust Corpus as of October 31, 2020 and 2019
Statements of Revenue Collected and Expenses Paid for the Fiscal Years Ended October 31, 2020 and 2019
Statements of Undistributed Earnings for the Fiscal Years Ended October 31, 2020 and 2019
Statements of Changes in Cash and Cash Equivalents for the Fiscal Years Ended October 31, 2020 and 2019
Notes to Financial Statements
2. Exhibits
The Exhibit Index following the signature page lists all exhibits filed with this Report or incorporated by reference.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Trust has duly caused this Amendment No. 2 on Form 10-K/A to be signed on its behalf by the undersigned, thereunto duly authorized.
NORTH EUROPEAN OIL ROYALTY TRUST
| Dated: February 26, 2021 | /s/John R. Van Kirk |
| John R. Van Kirk, Managing Director | |
| and Principal Accounting Officer |
Exhibit Index
| Exhibit | Page |
| (31) Certification of Chief Executive Officer and Chief Financial Officer | .................16 |
| pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| (32) Certification of Chief Executive Officer and Chief Financial Officer | .................18 |
| pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
