ckx20180630_10q.htm

10-Q 1 ckx20180630_10q.htm FORM 10-Q ckx20180630_10q.htm

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 quarterly period ended June 30, 2018

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-31905

CKX Lands, Inc.

(Exact name of registrant as specified in its charter)

Louisiana		72-0144530
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


1508 Hodges Street
Lake Charles, LA		70601
(Address of principal executive offices)		(Zip Code)

	(337) 493-2399
	(Registrant’s telephone number)

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 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 ☒ 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	☐	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 Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 1,942,495

CKX Lands, Inc.

Form 10-Q

For the Quarter ended June 30, 2018

Table of Contents

		Page
Part I. Financial Information

Item 1.	Financial Statements

a.	Balance Sheets as of June 30, 2018 and December 31, 2017 (Unaudited)	1
b.	Statements of Income for the quarters and six months ended June 30, 2018 and 2017 (Unaudited)	2
c.	Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2018 and 2017 (Unaudited)	3
d.	Statements of Cash Flows for the six months ended June 30, 2018 and 2017 (Unaudited)	4
e.	Notes to Financial Statements as of June 30, 2018 (Unaudited)	5-7


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	8-10

Item 4.	Controls and Procedures	10

Part II. Other Information

Item 6.	Exhibits	11

	Signature	12

Part I – Financial Information

Item 1.

FINANCIAL STATEMENTS

CKX Lands, Inc.

Balance Sheets

June 30, 2018 and December 31, 2017

(Unaudited)

	2018		2017
Assets
Current Assets
Cash	$	795,332	$	1,618,583
Cash-Restricted		873,355		33,821
Certificates of deposit		2,140,000		2,662,890
Accounts receivable		93,177		113,067
Prepaid expense and other assets		114,495		50,354
Total current assets		4,016,359		4,478,715
Non-current Assets
Certificate of deposit		2,185,000		950,000
Property and equipment:
Land		7,051,412		7,147,100
Timber		2,134,230		2,119,180
Building and equipment less accumulated depreciation of $74,601 and $74,565, respectively		33,746		28,742
Total property and equipment, net		9,219,388		9,295,022
Total assets	$	15,420,747	$	14,723,737
Liabilities and Stockholders’ Equity
Current Liabilities
Trade payables and accrued expenses	$	140,735	$	207,166
Income tax payable		20,821		13,346
Total current liabilities		161,556		220,512
Non-current Liabilities
Deferred income tax payable		187,664		187,664
Total liabilities		349,220		408,176
Stockholders’ Equity
Common stock, no par value: 3,000,000 shares authorized;1,942,495 and 1,942,495 shares issued, respectively		59,335		59,335
Retained earnings		15,012,192		14,256,226
Total stockholders’ equity		15,071,527		14,315,561
Total liabilities and stockholders’ equity	$	15,420,747	$	14,723,737

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

CKX Lands, Inc.

Statements of Income

Quarters and Six Months Ended June 30, 2018 and 2017

(Unaudited)

Quarter Ended

June 30,

Six Months Ended

June 30,

2018

2017

2018

2017

Revenues:

Oil and gas

161,678

151,693

286,255

333,362

Timber

176,559

8,966

355,008

8,966

Surface

52,493

198,013

87,006

215,115

Surface – related party

3,303

38,333

12,459

38,333

Total revenues

394,033

397,005

740,728

595,776

Costs, Expenses and (Gains):

Oil and gas

13,287

20,083

29,943

33,049

Timber

14,784

6,107

35,378

6,107

Surface

7,513

15,237

14,503

24,848

General and administrative

133,748

100,590

266,309

250,233

Depreciation

234

233

467

Gain on sale of land and equipment

(3,334

)

(881,654

)

(2,891

)

Total cost, expenses and (gains)

166,232

142,250

(535,054

)

311,813

Income from operations

227,801

254,755

1,275,782

283,963

Other Income:

Interest income

12,954

10,363

25,876

20,575

Net other income

12,954

10,363

25,876

20,575

Income before income taxes

240,755

265,118

1,301,658

304,538

Federal and State Income Taxes:

Current

89,051

51,638

312,593

46,438

Deferred

Total income taxes

89,051

51,638

312,593

46,438

Net Income

151,704

213,480

989,065

258,100

Per Common Stock, basic and diluted

Net Income

0.08

0.11

0.51

0.13

Dividends

0.00

0.12

0.10

Weighted Average Common Shares Outstanding, basic and diluted

1,942,495

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

CKX Lands, Inc.

Statements of Changes in Stockholders’ Equity

Six Months Ended June 30, 2018 and 2017

(Unaudited)

Total

Retained
Earnings

Capital
Stock
Issued

Six Months Ending June 30, 2018

December 31, 2017 Balance

14,315,561

14,256,226

59,335

Net income

989,065

Dividends declared

(233,099

)

(233,099

)

June 30, 2018 Balance

15,071,527

15,012,192

59,335

Six Months Ending June 30, 2017

December 31, 2016 Balance

13,986,948

13,927,613

59,335

Net income

258,100

Dividends declared

(194,250

)

(194,250

)

June 30, 2017 Balance

14,050,798

13,991,463

59,335

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

CKX Lands, Inc.

Statements of Cash Flows

Six Months Ended June 30, 2018 and 2017

(Unaudited)

	2018			2017
Cash Flows Provided From Operating Activities:
Net Income	$	989,065		$	258,100
Less non-cash and non-operating (income) expenses included in net income:
Depreciation, depletion and amortization		15,180			467
Gain on sale of land and equipment		(881,654	)		(2,891	)
Change in operating assets and liabilities:
Increase in current assets		(58,503	)		(104,871	)
Increase in current liabilities		(58,956	)		11,278
Net cash provided from operating activities		5,132			162,083
Cash Flows Provided From (Used In) Investing Activities:
Certificates of deposit:
Purchases		(2,905,000	)		(1,212,890	)
Maturity proceeds		2,192,890			1,690,000
Land, equipment, and other assets:
Purchases		(10,371	)		--
Sales proceeds		996,494			3,390
Timber:
Purchases		(29,763	)		(11,040	)
Net cash provided from investing activities		244,250			469,460
Cash Flows Used In Financing Activities:
Dividends paid		(233,099	)		(194,250	)
Net cash used in financing activities		(233,099	)		(194,250	)
Net increase in cash and cash-restricted		16,283			437,293
Cash and cash-restricted:
Beginning		1,652,404			1,081,188
Ending	$	1,668,687		$	1,518,481

Supplemental disclosures of cash flow information:
Cash payments for:
Interest	$	--		$	--
Income taxes	$	308,387		$	55,000

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

CKX Lands, Inc.

Notes to Financial Statements

June 30, 2018

(Unaudited)

Note 1. Basis of Presentation

The accompanying unaudited financial statements of CKX Lands, Inc. (“Company”) have been prepared in accordance with United States generally accepted accounting principles for interim financial information. They do not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements. Except as described herein, there has been no material change in the information disclosed in the notes to the financial statements included in our financial statements as of and for the year ended December 31, 2017. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included in the accompanying financial statements. Certain amounts have been reclassified to conform to the current period’s presentation, including oil and gas, timber, and surface, from general and administrative costs and expenses on the statements of income.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes most current revenue recognition guidance, including industry-specific guidance. Subsequently, the FASB has issued updates which 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. We adopted this guidance in the first quarter of 2018 applying the modified retrospective approach. We have completed our review of all revenue sources in scope for the new standard, and stumpage agreements are within this scope. In accordance with the new standard, the basis for determining revenue and expenses allocable to 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. The companies shall also disclose information about the nature of the restrictions on restricted cash and restricted cash equivalents. We 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.

Interim results are not necessarily indicative of results for a full year. These financial statements and accompanying notes should be read in conjunction with the Company’s Form 10-K for the year ended December 31, 2017 and Form 10-Q for the quarterly period ended June 30, 2018.

Note 2. Income Taxes

In accordance with generally accepted accounting principles, the Company has analyzed its filing positions in federal and state income tax returns that remain subject to examination, generally 3 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.

Note 3. Company Operations

The Company’s operations are classified into three principal operating segments that are all located in the United States: oil and gas, timber and surface. 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.

CKX Lands, Inc.

Notes to Financial Statements

June 30, 2018

(Unaudited)

Following is a summary of segmented operations information for the six months ended June 30, 2018 and 2017, respectively:

	2018		2017
Revenues
Oil and Gas	$	286,255	$	333,362
Timber		355,008		8,966
Surface		99,465		253,448
Total		740,728		595,776
Cost and Expenses
Oil and Gas		29,943		33,049
Timber		35,378		6,107
Surface		14,506		24,848
Total		79,824		64,004
Income from Operations
Oil and Gas		256,312		300,313
Timber		319,630		2,859
Surface		84,962		228,600
Total		660,904		531,772
Other Income (Expense) before Income Taxes		328,161		(273,672	)
Income before Income Taxes		989,065		258,100

Identifiable Assets, net of accumulated depreciation and depletion
Oil and Gas		--		--
Timber		2,134,230		2,119,180
Surface		--		--
General Corporate Assets		13,286,517		12,604,557
Total		15,420,747		14,723,737

Capital Expenditures
Oil and Gas		--		--
Timber		29,763		11,040
Surface		--		--
General Corporate Assets		10,371		--
Total		40,134		11,040

Depreciation and Depletion
Oil and Gas		--		--
Timber		14,713		--
Surface		--		--
General Corporate Assets		467		467
Total	$	15,180	$	467

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 in the Company’s Form 10-K for the year ended December 31, 2017. The Company evaluates performance based on income or loss from operations before income taxes excluding any nonrecurring gains and losses on securities held available-for-sale. 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.

CKX Lands, Inc.

Notes to Financial Statements

June 30, 2018

(Unaudited)

Note 3. Company Operations (continued)

Revenue from customers representing 5% or more of total revenue for the six months ended June 30, 2018 and 2017, respectively are:

Count	2018		2017
1	$	250,334	$	179,292
2		77,137		80,210
3		73,110		54,154
4		47,567		42,513
5		38,333		38,333

Note 4. Cash – Restricted

During the first quarter of 2018, the company closed on the sale of four parcels of land all of which were structured as a “deferred exchange using a qualified intermediary” pursuant to Paragraph 1031 of the Internal Revenue Code (1031 Exchange) for income tax purposes. The net proceeds from these transactions of $993,160 of which $873,355 remained in the Cash-Restricted amount at June 30, 2018. Subsequent to March 31, 2018, identified properties for the purposes of the 1031 Exchange were deemed not acceptable after preliminary due diligence. The 1031 Exchange will not be completed. The related tax expense on the gain from these sales has been accrued at June 30, 2018.

The following table provides a reconciliation of cash and cash-restricted reported within the balance sheet that sum to the total of the same such amounts shown in the statement of cash flows.

	June 30, 2018
Cash	$	795,332
Cash-restricted		873,355
Cash and cash-restricted	$	1,668,687

Note 5. Dividend Declaration

On March 22, 2018, the Company declared a dividend of twelve ($0.12) cents per common share payable to shareholders of record date as of April 5, 2018 and payment date of April 12, 2018.

Note 6. Related Party Transactions

On April 17, 2017, the Company entered into an option to lease agreement (“OTL”) with Stream Wetlands Services, LLC (“Stream”). Under the terms of the OTL, Stream paid the Company $38,333 during the quarter ended March 31, 2018 for an extension of an exclusive right to evaluate and market certain lands owned by the Company to their client for beneficial use purposes to compensate for wetlands impact through February 28, 2019. Stream may extend the OTL for up to two (2) successive periods of twelve (12) months. If Stream is chosen to perform their client’s project, the Company has agreed to put forth its best efforts to negotiate and enter into a mutually acceptable lease form. Due to the uncertainty of the contract award and project scope, we are unable to estimate the potential financial benefit, if any, to the Company. William Gray Stream, a prior Company Director, is the president of Stream Wetlands Services, LLC.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

Revenue

Comparison of Revenues for the three months ended June 30, 2018 and 2017 follows:

	2018		2017		$ Change			% Change
Oil and Gas		286,255		333,362		(47,107	)		(14.13	)%
Timber		355,008		8,966		346,042			3,859.49	%
Surface		99,465		253,448		(153,983	)		(60.76	)%
Total		740,728		595,776		144,952			24.33	%

Oil and Gas

CKX leases its property to oil and gas operators and collects income through its land ownership in the form of oil and gas royalties and lease rentals and geophysical revenues. A breakdown of oil and gas revenues follows:

	2018		2017		$ Change			% Change
Oil		230,249		245,441		(15,192	)		(6.19	)%
Gas		51,520		80,254		(28,734	)		(35.80	)%
Lease and Geophysical		4,486		7,667		(3,181	)		(41.49	)%
Total		286,255		333,362		(47,107	)		(14.13	)%

CKX received oil and/or gas revenues from 87 and 95 wells during the three-month period ended June 30, 2018 and 2017, respectively.

The following schedule summarizes barrels and MCF produced and average price per barrel and per MCF.

	2018		2017
Net oil produced (Bbl)⁽²⁾		3,247		4,305
Average oil sales price (per Bbl)^(1,2)	$	63.18	$	50.40
Net gas produced (MCF)		15,248		23,746
Average gas sales price (per MCF)⁽¹⁾	$	3.38	$	3.38

Notes to above schedule:

⁽¹⁾ Before deduction of production costs and severance taxes.

⁽²⁾ Excludes plant products.

Oil and Gas revenues decreased by $43,926 from 2017 revenues. As indicated from the schedule above the net decrease was due to increases in the average price per barrel and decreases in barrels of oil produced, MCF of gas produced, and the average price per MCF.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Lease and geophysical revenues were $4,486 in 2018 and $7,667 in 2017 amounts. These revenues are dependent on oil and gas producers’ activities, are not predictable and can vary significantly from year to year.

Management believes oil and gas activity is driven by the current and forecasted commodity prices, demand for oil and gas, and upstream and downstream industry activity. Based on available public information, management believes that oil and gas activity which includes oil and gas production as well as lease rentals will be comparable to 2017 annual reported amounts.

During the first six months of 2018, the Company received $355,008 in timber revenues. In 2017, the Company received 8,966 in timber revenues. We believe the increase in revenues is due to our continued marketing of our timber and securing stumpage agreements over the last couple of years and dryer weather. We believe the market will continue to be challenging during 2018.

Surface revenue decreased $153,983 from 2017 revenues primarily due to no revenue related to pipeline right of way agreements were received in 2018. As previously noted by management, pipeline, utility and other right of ways are not unusual to the Company however, these types of revenue are not predictable and can vary significantly from year to year.

Costs and Expenses

Timber costs increased by $29,271 in 2018 due to the increased timbers revenue occurring in the first six months of 2018.

Surface costs decreased by $10,345 in 2018 due to lower repair and maintenance cost and no legal contract review.

General and administrative expenses increased by $16,076 primarily due to increased officer salaries for land disposition administration, increased transfer agent fees and public company fees, increased general and administrative expenses and decreases in legal fees related to SEC reporting and director fees.

Financial Condition

Current assets totaled $4,016,359 and current liabilities equaled $161,556 at June 30, 2018.

In the opinion of management, cash and cash equivalents, and certificates of deposit are adequate for projected operations and possible land acquisitions.

The Company declared and paid twelve cents per common share dividend during the quarter ended March 31, 2018. During the first quarter of each future calendar year, the Company anticipates determining if a dividend will be declared. In determining whether a dividend will be declared, the board of directors will take into account the Company’s prior fiscal year’s cash flows from operations and current economic conditions among other information deemed relevant.

Issues and Uncertainties

This quarterly report contains forward-looking statements. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of issues and uncertainties such as those discussed below, which, among others, should be considered in evaluating the Company’s financial outlook.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

The Company’s business and operations are subject to certain risks and uncertainties, including:

Reliance upon Oil and Gas Discoveries

The Company’s most significant risk is its reliance upon others to perform exploration and development for oil and gas on its land. Future income is dependent on others finding new production on the Company’s land to replace present production as it is depleted. Oil and gas prices as well as new technology will affect the possibility of new discoveries.

Commodity Prices

Most of the Company’s operating income comes from the sale of commodities produced from its lands: oil and gas, and timber. Fluctuations in these commodity prices will directly impact net income.

Natural Disasters

The Company has approximately 10,612 net acres of timberland (pine and hardwood) in various stages of growth or age classes. A typical pine timber stand will be harvested after 30 to 35 years of growth with some thinning occurring during this time. A hardwood stand will be harvested after 45 to 50 years of growth. A natural disaster can have a material adverse effect on timber growth, reducing its value. Natural disasters could include a hurricane, tornado, high winds, heavy rains and flooding, and/or fire cause by lightning.

Item 3.

Not applicable.

Item 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as of the period covered by this report. Based on the evaluation, performed under the supervision and with the participation of the Company’s management, including the President, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by the report.

Changes in Internal Control Over Financial Reporting

There were no significant changes with respect to the Company’s internal control over financial reporting or in other factors that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the quarter covered by this report.

Part II. Other Information

Item 1 – 5.

Not Applicable

Item 6.

EXHIBITS

3.1

Restated/Articles of Incorporation of the Registrant are incorporated by reference to Exhibit (3)-1 to Form 10 filed April 29, 1981.

3.2

Amendment to Articles of Incorporation of the Registrant is incorporated by reference to Exhibit (3.2) to Form 10-K for year ended December 31, 2003.

3.3

By-Laws of the Registrant are incorporated by reference to Exhibit (3.3) to Form 10-Q for the quarterly period ended June 30, 2013.

Contract to Purchase and Sell approximately 3,495 acres in Cameron Parish, Louisiana effective July 3, 2007 is incorporated by reference to Exhibit (10) to Form 10-QSB filed August 13, 2007.

10.1

Agreement to Purchase and Sell Real Estate of approximately 880 acres in Calcasieu Parish, Louisiana effective May 11, 2016 is incorporated by reference to Form 10-Q filed August 8, 2016.

	10.2	Agreement to Purchase and Sell Real Estate of commercial real estate in Sulphur, Louisiana effective July 13, 2017 is incorporated by reference to Form 10-Q filed August 3, 2017.

Certification of President and Treasurer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herewith.

Certification of President and Treasurer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed herewith.

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

**XBRL

information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

************************************

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CKX Lands, Inc.

Date: August 2, 2018	/s/ Lee Boyer
	Lee Boyer
	President