Note 1. The financial statements and notes to financial statements included herein have been prepared without audit (except for the balance sheet at January 31, 2018) in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. In the opinion of the Trustees, all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of (a) the results of operations for the three and nine months ended October 31, 2018 and 2017, (b) the financial position at October 31, 2018 and (c) the cash flows for the nine months ended October 31, 2018 and 2017, have been made. For further information, refer to the financial statements and footnotes included in Mesabi Trust’s Annual Report on Form 10-K for the year ended January 31, 2018.

Recent Accounting Pronouncements

Revenue from Contracts with Customers

Mesabi Trust adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers and ASU 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date (“ASC 606”) on February 1, 2018 using the full retrospective transition method, under which it is required to revise its financial statements for the year ended January 31, 2018, as well as any applicable interim periods within the year ended January 31, 2018, as if ASC 606 had been effective for those periods. Under ASC 606, the Trust recognizes revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. See Note 2 for disclosures required by ASU 2014-09, including the Trust’s revenue recognition accounting policies.

The cumulative effect of adopting ASC 606 was an increase in the January 31, 2018 unallocated reserve of approximately $99,000.

The following tables present the effect of the adoption of ASC 606 on the Trust’s financial statements included in this report.


	Three Months Ended				Three Months Ended		Nine Months Ended				Nine Months Ended
	October 31, 2017				October 31, 2017		October 31, 2017				October 31, 2017
	(As Previously Reported)		Adoption of ASC 606		(As Adjusted)		(As Previously Reported)		Adoption of ASC 606		(As Adjusted)

Condensed Statements of Operations

Revenues
Royalty income	$	12,165,191	$	(1,266,576)	$	10,898,615	$	29,162,757	$	726,461	$	29,889,218
Interest		26,384		—		26,384		40,199		—		40,199

Total revenues		12,191,575		(1,266,576)		10,924,999		29,202,956		726,461		29,929,417

Expenses		227,330		—		227,330		762,869		—		762,869

Net income	$	11,964,245	$	(1,266,576)	$	10,697,669	$	28,440,087	$	726,461	$	29,166,548

WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING
Number of units outstanding		13,120,010		—		13,120,010		13,120,010		—		13,120,010

Net income per unit	$	0.9119	$	(0.0965)	$	0.8154	$	2.1677	$	0.0554	$	2.2231

Distributions declared per unit	$	0.6400	$	—	$	0.6400	$	1.3500	$	—	$	1.3500


	January 31, 2018				January 31, 2018
	(As Previously Reported)		Adoption of ASC 606		(As Adjusted)
Condensed Balance Sheets

Assets

Cash and cash equivalents	$	314,835	$	—	$	314,835

U.S. Government securities, at amortized cost (which approximates market)		23,797,451		—		23,797,451

Accrued income receivable		1,956,091		—		1,956,091
Contract asset		—		99,264		99,264
Prepaid expenses		54,640		—		54,640
Current assets		26,123,017		99,264		26,222,281

Fixed property, including intangibles, at nominal values
Assignments of leased property

Amended assignment of Peters Lease		1		—		1

Assignment of Cloquet Leases		1		—		1

Certificate of beneficial interest for 13,120,010 units of Land Trust		1		—		1
		3		—		3

Total assets	$	26,123,020	$	99,264	$	26,222,284

Liabilities, Unallocated Reserve And Trust Corpus

Liabilities
Distribution payable	$	15,481,612	$	—	$	15,481,612
Accrued expenses		133,994		—		133,994
Total liabilities		15,615,606		—		15,615,606

Unallocated reserve		10,507,411		99,264		10,606,675

Trust corpus		3		—		3

Total liabilities, unallocated reserve and trust corpus	$	26,123,020	$	99,264	$	26,222,284


	Nine Months Ended				Nine Months Ended
	October 31, 2017				October 31, 2017
	(As Previously Reported)		Adoption of ASC 606		(As Adjusted)

Condensed Statements of Cash Flows

Operating activities
Royalties received	$	24,271,530	$	—	$	24,271,530
Interest received		39,896		—		39,896
Expenses paid		(825,270)		—		(825,270)

Net cash from operating activities		23,486,156		—		23,486,156

Investing activities
Maturities of U.S. Government securities		9,933,171				9,933,171
Purchases of U.S. Government securities		(35,768,880)		—		(35,768,880)

Net cash used for investing activities		(25,835,709)		—		(25,835,709)

Financing activity
Distributions to unitholders		(11,152,009)		—		(11,152,009)

Net change in cash and cash equivalents		(13,501,562)		—		(13,501,562)

Cash and cash equivalents, beginning of year		13,695,168		—		13,695,168

Cash and cash equivalents, end of year	$	193,606	$	—	$	193,606

Reconciliation of net income to net cash from operating activities

Net income	$	28,440,087	$	726,461	$	29,166,548
Increase in accrued income receivable		(2,792,115)		—		(2,792,115)
Increase in contract asset		—		(726,461)		(726,461)
Increase in prepaid expense		(41,078)		—		(41,078)
Increase in accrued expenses		(21,323)		—		(21,323)
Decrease in deferred royalty revenue		(2,099,415)		2,099,415		—
Decrease in contract liability		—		(2,099,415)		(2,099,415)

Net cash from operating activities	$	23,486,156	$	—	$	23,486,156

Non cash financing activity

Distributions declared and payable	$	8,396,806	$	—	$	8,396,806