CKX LANDS, INC. - Quarter Report: 2018 June (Form 10-Q)

 

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

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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

 

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		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

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		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				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			$	0.00			$	0.12			$	0.10
Weighted Average Common Shares Outstanding, basic and diluted			1,942,495				1,942,495				1,942,495				1,942,495

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		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				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				258,100				--
Dividends declared			(194,250	)			(194,250	)			--
June 30, 2017 Balance		$	14,050,798			$	13,991,463			$	59,335

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		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

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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:

 

 

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:

 

 

 

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.

 

 

 

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.

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