CKX LANDS, INC. (Form: 10-K, Received: 03/16/2020 06:23:12)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

☑	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2019

☐	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 1-31905

CKX Lands, Inc.

(Exact name of registrant as specified in its Charter)

Louisiana
(State or other jurisdiction of
incorporation or organization)

72-0144530
(I.R.S. Employer Identification Number)

One Lakeside Plaza, 4^th Floor

Lake Charles, LA
(Address of principal executive offices)

70601
(Zip Code)

Registrant’s telephone number, including area code: (337) 493-2399

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock with no par value	CKX	NYSE American

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐ No ☑

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ☐ No ☑

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 ☑ 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 (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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

☑

Smaller reporting company

☑

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 Act).

YES ☐ NO ☑

The aggregate market value of the voting common equity held by non-affiliates of the registrant as of June 30, 2019 based on the closing price on that date of $9.75 was $13,398,011.

The number of shares of the registrant’s Common Stock outstanding as of March 4, 2020, was 1,942,495.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive Proxy Statement prepared in connection with the 2020 Annual Meeting of Stockholders are incorporated by reference into Part III, Items 10, 11, 12, 13 and 14 of this Annual Report on Form 10-K.

Note 1:

Nature of Business and Significant Accounting Policies

Nature of Business

The Company was incorporated in the State of Louisiana on June 27, 1930. The Company’s business is the ownership and management of land. The primary activities consist of leasing its properties for minerals (oil and gas), raising and harvesting timber, and surface use (agriculture, right of ways, hunting).

Significant Accounting Policies

Basis of Presentation and Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Certain prior period amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations.

Concentration of Credit Risk

The Company maintains its cash balances in six financial institutions. The amount on deposit in each financial institution is insured by the Federal Deposit Insurance Corporation up to $250,000.

Cash Equivalents

Cash equivalents are highly liquid debt instruments with original maturities of three months or less when purchased.

Certificate of Deposits

Certificates of deposit have maturities greater than three months when purchased, in amounts not greater than $250,000. All certificates of deposit are held until maturity and recorded at cost which approximates fair value. Certificates of deposit mature through 2020.

Equity Investment

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition of Financial Assets and Financial Liabilities,” (ASU 2016-01), which makes targeted amendments to the guidance for recognition, measurement, presentation and disclosure of financial instruments. The guidance under ASU 2016-01 requires equity investments, other than equity method investments, to be measured at fair value with changes in fair value recognized in net income. As of December 31, 2019, and 2018, the Company classified $500,642 and $244,825, respectively, of mutual funds as equity securities. The Company invests in ultra-short, high quality U.S. dollar money market funds, foreign funds, and obligations issued by the U.S. Government. The Company did not hold any equity investments until the fourth quarter of 2018, accordingly, there are no effects on the Company’s investments from the adoption of ASU 2016-01.

Accounts Receivable

The Company’s accounts receivable consist of incomes received after quarter-end for royalties produced, timber harvested, and surface revenue earned prior to quarter-end. When there are royalties that have not been received at the time of the preparation of the financial statements for months in the prior quarter, the Company estimates the amount to be received based on the average of the most recent 12 month’s royalties that were received from that particular well. For timber and surface revenue not received at the time of preparation of the financial statements for months in the prior quarter, the Company analyzes subsequent receipts for revenues earned in the prior quarter. The Company does not maintain an allowance for doubtful accounts because other than the accrual for earned but not received royalties, timber revenue, and surface revenue, it has no accounts receivable.

F-7

Property, Building and Equipment

Property, building, and equipment is stated at cost. Major additions are capitalized. Maintenance and repairs are charged to income as incurred. Depreciation is computed on the straight-line and accelerated methods over the following estimated useful lives of the assets:

Furniture and equipment (years)			5	-	7
Land improvements (years)				15

Impairment of Long-lived Assets

Long-lived assets, such as land, timber and property, buildings, and equipment, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If events or circumstances arise that require a long-lived asset to be tested for potential impairment, the Company first compares undiscounted cash flows expected to be generated by the asset to its carrying value. If the carrying amount of the long-lived asset is not recoverable on an undiscounted cash flow basis, an impairment charge is recognized to the extent that the carrying value exceeds the fair value. Fair value maybe determined through various valuation techniques including quoted market prices, third-party independent appraisals and discounted cash flow models. The Company recorded no impairment charges during 2019 and 2018.

Revenue Recognition

Effective January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Under the new standard, we recognize revenues when the following criteria are met: (i) persuasive evidence of a contract with a customer exists, (ii) identifiable performance obligations under the contract exist, (iii) the transaction price is determinable for each performance obligation, (iv) the transaction price is allocated to each performance obligation, and (v) the performance obligations are satisfied. We derive a majority of our revenues from oil and gas royalties, timber sales, and surface leases. Surface leases are not within the scope of ASC 606. See Note 9 for more detailed information about the Company’s reportable segments.

Oil and Gas

Oil and gas revenue is generated through customer contracts, where we provide the customer access to a designated tract of land upon which the customer performs exploration, extraction, production and ultimate sale of the oil and gas. The Company receives royalties on all oil and gas produced by the customer. The performance obligation identified in oil and gas related contracts is the oil and gas produced on the designated tract of land. The performance obligation is satisfied at a point in time, which is when the customer produces oil and gas. The transaction price is comprised of fixed fees (royalties) on all oil and gas produced The Company accrues monthly royalty revenues based upon estimates and adjusts to actual as the Company receives payments. Accrued royalty income was $84,880 and $93,594 as of December 31, 2019 and 2018, respectively. There are no capitalized contract costs associated with oil and gas contracts. The accounting for royalty income remains largely unchanged upon implementation of ASC 606.

Timber

Timber revenue is generated through customer contracts executed as a pay-as-cut arrangement, where the customer acquires the right to harvest specified timber on a designated tract for a set period of time at agreed-upon unit prices. The performance obligation identified in timber related contracts is the severing of a single tree.

We satisfy our performance obligation when timber is severed, at which time revenue is recognized. The transaction price for timber sales is determined using contractual rates applied to harvest volumes. The Company may receive a deposit at the time of entering into a stumpage agreement and this deposit is recorded in unearned revenue until earned. The Company held stumpage agreement deposits of $87,300 and $54,300 at December 31, 2019 and 2018, respectively. Accrued timber income was $10,407 and $9,466 at December 31, 2019 and 2018, respectively. The accounting for timber revenue remains largely unchanged upon implementation of ASC 606.

Surface

Surface revenue is earned through annual leases for agricultural and hunting activities and the Company records revenues evenly over the term of these leases. Surface revenues from these sources are recurring on an annual basis. Unearned revenues were $77,857 and $58,893 at December 31, 2019 and 2018, respectively. Accrued surface revenue was $7,499 and $15,403 at December 31, 2019 and 2018, respectively.

Surface revenue is also earned through right of way and related temporary work-space leases, both of which are not unusual in occurrence and are not recurring sources of revenue. Generally, a right of way lease relates to either a utility or pipeline right of way that is a permanent servitude or exists for fixed periods of time greater than thirty years. The Company retains ownership of the land and the servitude is limited to the use of the surface. Revenue is recorded at the time of the agreement’s execution date. For income tax purposes, these types of agreements are treated as sales of business assets.

F-8

Other sources of surface revenue can be commercial activities leases and sales of surface minerals, such as dirt.

Basic and Diluted Earnings per share

Net earnings per share is provided in accordance with FASB ASC 260-10, "Earnings per Share". Basic earnings per share is computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted income per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive income per share excludes all potential common shares if their effect is anti-dilutive. As of December 31, 2019, and 2018 there were no dilutive shares outstanding.

Dividends

The Company does not currently pay dividends on a regular basis. In determining whether to declare a dividend, the Board of Directors takes into account the Company’s prior fiscal year’s cash flows from operations and the current economic conditions, among other information deemed relevant. Dividends paid per common stock are based on the weighted average number of common stock shares outstanding during the period.

Pursuant to a dividend reversion clause in the Company’s Articles of Incorporation, dividends not claimed within one year after the dividend becomes payable will expire and revert in full ownership to the Company and the Company’s obligation to pay such dividend will cease. Any dividend reversions are recorded in equity upon receipt.

Income Taxes

The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities.

Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.

In accordance with generally accepted accounting principles, the Company has analyzed its filing positions in federal and state income tax returns for the tax returns that remain subject to examination. Generally, returns are subject to examination for three years after filing. The Company believes that all filing positions are highly certain and that all income tax filing positions and deductions would be sustained upon a taxing jurisdiction’s audit. Therefore, no reserve for uncertain tax positions is required. No interest or penalties have been levied against the Company and none are anticipated.

Other Taxes

Taxes, other than income taxes, which consisted of property, payroll, franchise and oil and gas production taxes were $151,204 and $159,573, for the years ended December 31, 2019 and 2018, respectively.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the most current revenue recognition guidance, including industry-specific guidance. Subsequently, the FASB issued updates that provide additional implementation guidance. The new guidance requires companies to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services. The Company adopted this guidance in the first quarter of 2018 applying the modified retrospective approach. The Company has completed its review of all revenue sources in scope for the new standard, and oil, gas and mineral agreements and stumpage agreements are within this scope. In accordance with the new standard, the basis for determining revenue and expenses allocable to oil, gas and mineral agreements (royalty revenue) and stumpage agreements (timber revenue) was not modified. There was no net cumulative effect adjustment for this change as of January 1, 2018.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), which provides guidance requiring companies to report net cash provided or used by operating, investing and financing activities and the net effect of those flows on the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents during the period. The statement of cash flows shall report that information in a manner that reconciles beginning and ending totals of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Companies shall also disclose information about the nature of the restrictions on restricted cash and restricted cash equivalents. The Company adopted this guidance in the first quarter of 2018. In accordance with the new standard, no modification to our presentation for restricted cash was made.

F-9

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition of Financial Assets and Financial Liabilities,” (ASU 2016-01), which makes targeted amendments to the guidance for recognition, measurement, presentation and disclosure of financial instruments. The guidance under ASU 2016-01 requires equity investments, other than equity method investments, to be measured at fair value with changes in fair value recognized in net income. As of December 31, 2018, the Company classified $244,831 of mutual funds as equity securities. The Company invests in ultra-short, high quality U.S. dollar money market, foreign funds, and obligations issued by the US Government.

In February 2016, the FASB issued ASU 2016-02, which amended the accounting treatment for leases. Lessees (for capital and operating leases) and lessors (for sales-type leases, direct financing leases and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. In July 2018, the FASB issued ASU 2018-10 and ASU 2018-11. ASU 2018-10 provides certain areas for improvement in ASU 2016-02 and ASU 2018-11 provides an additional optional transition method by allowing entities to initially apply the new leasing standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The new leasing standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted this standard as of January 1, 2019. The Company reviewed its service agreements and other arrangements and evaluated whether they met the definition of a lease under ASU 2016-02. The Company determined that the adoption of this standard would have no impact on its financial statements.

There are various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

Note 3: Fair Value of Financial Instruments

ASC 820 Fair Value Measurements and Disclosures (“ASC 820”), defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements. It defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; and model-driven valuations whose inputs are observable or whose significant value drivers are observable. Valuations may be obtained from, or corroborated by, third-party pricing services.

Level 3: Unobservable inputs to measure fair value of assets and liabilities for which there is little, if any market activity at the measurement date, using reasonable inputs and assumptions based upon the best information at the time, to the extent that inputs are available without undue cost and effort.

F-10

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it was practical to estimate that value:

Class	Methods and/or Assumptions

Cash and cash equivalents:	Carrying value approximates fair value due to its readily convertible characteristic.

Certificate of Deposit:	Held until maturity and recorded at amortized cost which approximates fair value.

Equity Investment in mutual funds:	Carrying value adjusted to and presented at fair market value.

The estimated fair value of the Company's financial instruments are as follows:

			December 31, 2019				December 31, 2018
Financial Assets:	Level		Carrying Value		Fair Value		Carrying Value		Fair Value

Cash and cash equivalents		1	$	3,280,289	$	3,280,289	$	1,860,736	$	1,860,736
Certificate of deposit - short term		1		2,697,000		2,697,000		3,370,000		3,370,000
Certificate of deposit - long term		1		-		-		725,000		725,000
Equity investment in mutual funds		1		500,410		500,642		244,832		244,825
Total			$	6,477,699	$	6,477,931	$	6,200,568	$	6,200,561

Note 8: Segment Reporting

The Company’s operations are classified into three principal operating segments that are all located in the United States: oil and gas, surface and timber. The Company’s reportable business segments are strategic business units that offer income from different products. They are managed separately due to the unique aspects of each area.

F-12

The tables below present financial information for the Company’s three operating business segments:

	Years Ended December 31,
	2019			2018
Revenues:
Oil and gas	$	500,426		$	576,976
Timber sales		72,847			454,177
Surface revenue		237,998			163,610
Total segment revenues		811,271			1,194,763

Cost and expenses:
Oil and gas costs		57,454			63,231
Timber costs		21,144			45,640
Surface costs		1,274			23,636
Total segment costs and expenses		79,872			132,507

Income from operations:
Oil and gas		442,972			513,745
Timber		51,703			408,537
Surface		236,724			139,974
Total segment income from operations		731,399			1,062,256
Other income (expense) before income taxes		(430,211	)		403,597
Income before income taxes	$	301,188		$	1,465,853

	Years Ended December 31,
	2019		2018
Identifiable Assets, net of accumulated depreciation
Timber	$	2,188,594	$	2,162,390
General corporate assets		13,673,936		13,439,611
Total		15,862,530		15,602,001

Capital expenditures:
Timber		26,815		45,067
Surface		-		4,900
General corporate assets		-		5,471
Total segment costs and expenses		26,815		55,438

Depreciation and depletion
Oil and gas		-		-
Timber		611		1,858
General corporate assets		1,751		2,027
Total	$	2,362	$	3,885

There are no intersegment sales reported in the accompanying income statements. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on income or loss from operations before income taxes excluding nonrecurring gains and losses on equity investment. Income before income tax represents net revenues less costs and expenses less other income and expenses of a general corporate nature. Identifiable assets by segment are those assets used solely in the Company's operations within that segment.

F-13

PART I
Item 1.	Business	1
Item 1A.	Risk Factors	2
Item 1B.	Unresolved Staff Comments	4
Item 2.	Properties	5
Item 3.	Legal Proceedings	5
Item 4.	Mine Safety Disclosure	5

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	5
Item 6.	Selected Financial Data	6
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	6
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	10
Item 8.	Financial Statements and Supplementary Data	10
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	10
Item 9A.	Controls and Procedures	10
Item 9B.	Other Information	11

PART III
Item 10.	Directors, Executive Officers and Corporate Governance	11
Item 11.	Executive Compensation	11
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	12
Item 13.	Certain Relationships and Related Transactions, and Director Independence	12
Item 14.	Principal Accountant Fees and Services	12

PART IV
Item 15.	Exhibits, Financial Statement Schedules	12
Item 16.	Form 10-K Summary	13
Signatures		14

Customer	Revenue Type	% of Total Revenue
Pintail Oil & Gas LLC	Oil & Gas	13.26	%
Texegy Operating Company LLC	Oil & Gas	8.96	%
Kaiser-Frances Oil Company	Oil & Gas	6.7	%
Riceland Petroleum Company	Oil & Gas	6.67	%
C6 Operating LLC	Oil & Gas	5.7	%

Parish	Gross Acres		Net Acres		Segment(s)

Calcasieu		16,109		4,820	Oil and gas, timber and surface
Jefferson Davis		9,737		2,326	Oil and gas, timber and surface
Allen		8,148		2,483	Oil and gas, timber and surface
Beauregard		7,357		3,588	Oil and gas, timber and surface
Cameron		1,248		274	Oil and gas, surface
LaFourche		240		40	Oil and gas
Natchitoches		200		200	Timber
Vermilion		180		30	Oil and gas, surface
Rapides		129		129	Timber
St. Landry		80		32	Timber
Sabine		50		50	Timber

Total		43,478		13,972

Parish	Acres		Segment(s)

Beauregard		2,754	Oil and gas, timber and surface
Calcasieu		2,384	Oil and gas, timber and surface
Allen		1,121	Oil and gas, timber and surface
Jefferson Davis		684	Timber and surface
Natchitoches		200	Timber and surface
Cameron		162	None
Rapides		129	Timber
Sabine		50	Timber

Total		7,484

	Years Ended December 31,
	2019		2018		Change from Prior Year			Percent Change from Prior Year
Oil	$	383,578	$	487,276	$	(103,698	)		(21.3	)%
Gas		109,164		89,700		19,464			21.7	%
Lease and geophysical		7,684		4,487		3,197			71.3	%
Total revenues	$	500,426	$	581,463	$	(81,037	)		(13.9	)%

Field	Bbl Oil (1)		MCF Gas
South Bear Head Creek		1,821		1,757
South Jennings		447		9,298
Coward Gully		682		403
South Lake Charles		600		6,299
Castor Creek		686		25
Gonzales County		557		566
South Elton		159		2738
Pine Prairie		211		1,345

Activity	2019		2018
Bonus lease		1		1
Delay lease		2		2
Gross acres		200		200
Net acres		33		33

	3.3	Articles of Amendment to the Restated Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.3 to Form 10-K (File No. 001-31905) for year ended December 31, 2018 filed on March 21, 2019).

	3.4	By-Laws of the Registrant (incorporated by reference to Exhibit 3.1 to Form 8-K (File No. 001-31905) filed on August 9, 2019).

	4.1*	Description of capital stock.

	101.INS*	XBRL Instance
	101.SCH*	XBRL Taxonomy Extension Schema
	101.CAL*	XBRL Taxonomy Extension Calculation
	101.DEF*	XBRL Taxonomy Extension Definition
	101.LAB*	XBRL Taxonomy Extension Labels
	101.PRE*	XBRL Taxonomy Extension Presentation


/s/ Lee Boyer
Lee Boyer
President and Treasurer
(Principal Executive and Financial Officer)

/s/Lee W. Boyer
Lee W. Boyer		President, Treasurer and Director (Principal Executive and Financial Officer)

/s/ Mary Leach Werner
Mary Leach Werner		Secretary and Director

/s/Max H. Hart
Max H. Hart		Director

/s/Eugene T. Minvielle, IV
Eugene T. Minvielle, IV		Director

/s/Edward M. Ellington, II
Edward M. Ellington, II		Director

/s/ Michael B. White
Michael B. White		Director

/s/ Keith Duplechin
Keith Duplechin		Director

/s/ Daniel J. Englander
Daniel J. Englander		Director

FINANCIAL STATEMENTS	Page

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F-2

CONSOLIDATED BALANCE SHEETS	F-3

CONSOLIDATED STATEMENTS OF OPERATIONS	F-4

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY	F-5

CONSOLIDATED STATEMENTS OF CASH FLOWS	F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	F-7

	December 31,
	2019		2018
ASSETS
Current assets:
Cash	$	3,280,289	$	1,860,736
Certificates of deposit		2,697,000		3,370,000
Equity investment in mutual funds		500,642		244,825
Accounts receivable		102,786		118,463
Prepaid expense and other assets		39,731		36,989
Total current assets		6,620,448		5,631,013
Long-term certificate of deposit		-		725,000
Property and equipment, net		9,242,082		9,245,988
Total assets	$	15,862,530	$	15,602,001

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Trade payables and accrued expenses		62,253		91,968
Unearned revenue		165,158		113,193
Income tax payable		-		11,654
Total current liabilities		227,411		216,815
Deferred income tax payable		187,664		187,664
Total liabilities		415,075		404,479

Stockholders' equity:
Common stock, 3,000,000 authorized, no par value, 1,942,495 issued and outstanding as of December 31, 2019 and 2018		59,335		59,335
Retained earnings		15,388,120		15,138,187
Total stockholders' equity		15,447,455		15,197,522
Total liabilities and stockholders' equity	$	15,862,530	$	15,602,001

	Common Stock				Retained		Total
	Shares		Amount		Earnings		Equity
Balances, December 31, 2018		1,942,495	$	59,335	$	15,138,187	$	15,197,522
Net income		-		-		249,933		249,933
Balances, December 31, 2019		1,942,495	$	59,335	$	15,388,120	$	15,447,455

	Years Ended
	December 31,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	249,933		$	1,115,060
Less non-cash expenses included in net income:
Depreciation expense		1,750			2,027
Depletion expense		611			1,858
Gain on sale of land		(80,876	)		(881,654	)
Unrealized gain on equity investment in mutual funds		(240	)		-
Changes in operating assets and liabilities:
Increase (decrease) in current assets		12,937			7,968
Increase (decrease) in current liabilities		10,596			(3,697	)
Net cash provided by operating activities		194,711			241,562

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of certificates of deposit		(2,456,000	)		(3,145,000	)
Proceeds from maturity of certificates of deposit		3,854,000			2,662,890
Purchases of mutual funds		(255,578	)		(244,825	)
Costs of reforesting timber		(26,815	)		(55,438	)
Proceeds from the sale of fixed assets		109,235			982,242
Net cash provided by investing activities		1,224,842			199,869

CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid		-			(233,099	)
Net cash used in financing activities		-			(233,099	)

NET INCREASE IN CASH AND RESTRICTED CASH		1,419,553			208,332
Cash and restricted cash, beginning of the period		1,860,736			1,652,404
Cash and restricted cash, end of the period	$	3,280,289		$	1,860,736

SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest	$	-		$	-
Cash paid for income taxes	$	67,107		$	355,387

	+/-		Louisiana								Mineral
Quarter	Acres		Parish	Ownership			Land		Timber		Rights %
1st		16.26	Calcasieu		100.00	%	$	112,500		-		0	%
2nd		20	Calcasieu		16.67	%	$	5,000		-		0	%

	2019		2018
Gross revenues
Royalty interests	$	500,426	$	576,976
Lease fees		22,901		4,487
		523,327		581,463
Production costs		57,454		63,231
Results before income tax expense		465,873		518,232
Estimated income tax expense		135,103		150,287
Results of operations from producing activities excluding corporate overhead	$	330,770	$	367,945

	2019		2018
Net gas produced (MCF)		32,107		25,776
Net oil produced (Bbl)		6,272		6,956

	Years Ended December 31,
Count	2019		2018
1	$	102,265	$	254,018
2		69,106		156,854
3		51,683		93,575
4		51,480		93,563
5		43,954		-

	2019			2018
Deferred tax assets		-			-
Deferred tax liabilities		(187,664	)		(187,664	)
	$	(187,664	)	$	(187,664	)

	2019			2018
Income tax on income before extraordinary item:
Tax at statutory rates	$	61,481		$	307,830
Tax effect of the following:
Statutory depletion		(15,763	)		(18,175	)
Section 179 deduction		-			(1,149	)
State income tax		3,109			62,137
Other		(2,081	)		-
Income tax on income	$	46,746		$	350,643

	2019			2018
Casualty loss	$	(77,714	)	$	(77,714	)
Deferred gain		(109,950	)		(109,950	)
	$	(187,664	)	$	(187,664	)