Attached files

file filename
EX-32 - EXHIBIT 32 - CKX LANDS, INC.ex32.htm
EX-31 - EXHIBIT 31 - CKX LANDS, INC.ex31.htm
EX-10.1 - EXHIBIT 10.1 - CKX LANDS, INC.ex10-1.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, 2016

 

 

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

 

 

 

 

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, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

Large accelerated filer     

 ☐

Accelerated filer 

 ☐

 

Non-accelerated filer     

 ☐

Smaller reporting company     

 ☒

 

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, 2016

 

 

Table of Contents

       

Page

Part I.     Financial Information    
         
Item 1.  

Financial Statements

   
         
a.  

Balance Sheets as of June 30, 2016 and December 31, 2015 (Unaudited)

 

1

b.  

Statements of Income for the quarter and six months ended June 30, 2016 and 2015 (Unaudited)

 

2

c.  

Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2016 and 2015 (Unaudited)

 

3

d.  

Statements of Cash Flows for the six months ended June 30, 2016 and 2015 (Unaudited)

 

4

e.  

Notes to Financial Statements as of June 30, 2016 (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

 

11

 

 
 

 

 

Part I – Financial Information

 

Item 1.

FINANCIAL STATEMENTS

 

CKX Lands, Inc.

Balance Sheets

June 30, 2016 and December 31, 2015

(Unaudited)

 

 

   

2016

   

2015

 

Assets

 

Current Assets:

               

Cash and cash equivalents

  $ 3,033,050     $ 2,767,424  

Certificates of deposit

    3,334,000       3,324,000  

Accounts receivable

    55,804       64,752  

Prepaid expense and other assets

    139,840       44,826  

Total current assets

    6,562,694       6,201,002  

Non-current Assets:

               

Certificates of deposit

    720,000       1,200,000  

Property and equipment:

               

Land

    5,468,358       5,209,846  

Timber

    1,598,058       1,546,088  

Building and equipment less accumulated depreciation of $72,907 and $84,156, respectively

    14,021       --  

Total property and equipment, net

    7,080,437       6,755,934  

Total assets

  $ 14,363,131     $ 14,156,936  
   

Liabilities and Stockholders’ Equity

 
   

Current Liabilities:

               

Trade payables and accrued expenses

  $ 151,726     $ 54,402  

Total current liabilities

    151,726       54,402  

Non-current Liabilities:

               

Deferred income tax payable

    292,767       292,767  

Total liabilities

    444,493       347,169  

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

    13,859,303       13,750,432  

Total stockholders’ equity

    13,918,638       13,809,767  

Total liabilities and stockholders’ equity

  $ 14,363,131     $ 14,156,936  

 

 

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

 

 
1

 

 

CKX Lands, Inc.

Statements of Income

Quarter and Six Months Ended June 30, 2016 and 2015

(Unaudited)

 

 

   

Quarter Ended

June 30,

   

Six Months Ended

June 30,

 
   

2016

   

2015

   

2016

   

2015

 

Revenues:

                               

Oil and gas

  $ 116,478     $ 242,300     $ 208,199     $ 472,522  

Timber

    8,033       --       120,868       --  

Surface

    15,137       32,995       98,889       55,714  

Total revenues

    139,648       275,295       427,956       528,236  

Costs, Expenses and (Gains):

                               

Oil and gas

    12,136       22,312       22,869       38,448  

Timber

    2,312       55       9,855       391  

Surface

    804       861       2,201       1,436  

General and administrative

    146,081       130,846       278,882       251,638  

Gain on sale of land

    --       (170,854 )     --       (172,352 )

Total cost, expenses and (gains)

    161,333       (16,780 )     313,807       119,561  

Income (loss) from operations

    (21,685 )     292,075       114,149       408,675  

Other Income:

                               

Interest income

    7,006       5,032       18,351       9,329  

Net other income

    7,006       5,032       18,351       9,329  

Income (loss) before income taxes

    (14,679 )     297,107       132,500       418,004  

Federal and State Income Taxes:

                               

Current

    (18,249 )     32,382       30,136       64,265  

Deferred

    --       68,341       --       68,341  

Total income taxes

    (18,249 )     100,723       30,136       132,606  

Net Income

  $ 3,570     $ 196,384     $ 102,364     $ 285,398  
                                 

Per Common Stock, basic and diluted

                               

Net Income

  $ 0.00     $ 0.10     $ 0.05     $ 0.15  

Dividends

  $ 0.00     $ 0.03     $ 0.00     $ 0.10  
                                 

Weighted Average Common Shares Outstanding, basic and diluted

    1,942,495       1,942,495       1,942,495       1,942,495  

 

 

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

 

 
2

 

 

CKX Lands, Inc.

Statements of Changes in Stockholders’ Equity

Six Months Ended June 30, 2016 and 2015

(Unaudited)

 

   

Total

   

Retained
Earnings

   

Capital
Stock
Issued

   

Treasury
Stock

 

Quarter Ended June 30, 2016

                               

December 31, 2015 Balance

  $ 13,809,767     $ 13,750,432     $ 59,335     $ --  

Net income

    102,364       102,364       --       --  

Dividends reversion

    6,507       6,507       --       --  

June 30, 2016 Balance

  $ 13,918,638     $ 13,859,303     $ 59,335     $ --  
                                 

Quarter Ended June 30, 2015

                               

December 31, 2014 Balance

  $ 13,540,989     $ 13,844,249     $ 72,256     $ (375,516 )

Net income

    285,398       285,398       --       --  

Dividends paid

    (194,250 )     (194,250 )     --       --  

June 30, 2015 Balance

  $ 13,632,137     $ 13,935,397     $ 72,256     $ (375,516 )

 

 

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

 

 
3

 

 

CKX Lands, Inc.

Statements of Cash Flows

Six Months Ended June 30, 2016 and 2015

(Unaudited)

 

 

   

2016

   

2015

 

Cash Flows from Operating Activities:

               

Net Income

  $ 102,364     $ 285,398  

Less non-cash expenses included in net income:

               

Depreciation, depletion and amortization

    1,751       --  

Deferred income tax expense

    --       68,341  

Gain on sale of land

    --       (172,352 )

Change in operating assets and liabilities:

               

Increase in current assets

    (86,066 )     (14,331 )

Increase in current liabilities

    97,324       30,941  

Net cash provided from operating activities

    115,373       197,997  

Cash Flows from Investing Activities:

               

Certificates of deposit:

               

Purchases

    (730,000 )     (1,404,000 )

Maturity proceeds

    1,200,000       1,440,000  

Land, timber, equipment, and other assets:

               

Purchases

    (326,254 )     (21,535 )

Sales proceeds

    --       185,623  

Proceeds held in 1031 trust account

    --       (187,500 )

Net cash provided from investing activities

    143,746       12,588  

Cash Flows from Financing Activities:

               

Dividends reversion (paid)

    6,507       (194,250 )

Net cash from (used in) financing activities

    6,507       (194,250 )

Net increase in cash and cash equivalents

    265,626       16,335  

Cash and cash equivalents:

               

Beginning

    2,767,424       5,225,594  

Ending

  $ 3,033,050     $ 5,241,929  
                 

Supplemental disclosures of cash flow information:

               

Cash payments (refunds) for:

               

Interest

  $ --     $ --  

Income taxes

  $ 9,920     $ 13,577  

 

 

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

 

 
4

 

 

CKX Lands, Inc.

Notes to Financial Statements

June 30, 2016

(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, 2015. 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.

 

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, 2015 and Form 10-Q for the quarter period ended June 30, 2015.

 

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 for the tax years that remain subject to examination, generally 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.

 

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 all of which are derived from the Company lands. They are managed separately due to the unique aspects of each area.

 

 
5

 

 

Following is a summary of segmented operations information for the six months ended June 30, 2016 and 2015, respectively:

 

   

2016

   

2015

 

Revenues:

               

Oil and Gas

  $ 208,199     $ 472,522  

Timber

    120,868       --  

Surface

    98,889       55,714  

Total

    427,956       528,236  

Cost and Expenses:

               

Oil and Gas

    22,869       38,448  

Timber

    9,855       391  

Surface

    2,201       1,436  

Total

    34,925       40,275  

Income from Operations:

               

Oil and Gas

    185,330       434,074  

Timber

    111,013       (391 )

Surface

    96,688       54,278  

Total

    393,031       487,961  

Other Expense before Income Taxes:

    (260,531 )     (69,957 )

Income before Income Taxes

    132,500       418,004  

Identifiable Assets, net of accumulated depreciation:

               

Oil and Gas

  $ --     $ --  

Timber

    1,598,058       1,548,960  

Surface

    --       --  

General Corporate Assets

    12,765,073       12,468,122  

Total

    14,363,131       14,017,082  
                 

Capital Expenditures:

               

Oil and Gas

    --       --  

Timber

    53,721       21,535  

Surface

    --       --  

General Corporate Assets:

    272,533       --  

Total

    326,254       21,535  
                 

Depreciation and Depletion:

               

Oil and Gas

    --       --  

Timber

    1,751       --  

Surface

    --       --  

General Corporate Assets

    --       --  

Total

  $ 1,751     $ --  

 

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, 2015. 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.

 

Revenue from customers representing 5% or more of total revenue for the six months ended June 30, 2016 and 2015, respectively are:

 

Count

   

2016

   

2015

 
1     $ 112,835     $ 93,755  
2       63,449       87,285  
3       59,522       72,415  
4       34,191       43,833  
5       32,695       42,376  
6       30,061       33,519  
7       --       30,440  

 

 
6

 

 

CKX Lands, Inc.

Notes to Financial Statements

June 30, 2016

(Unaudited)

 

Note 4:       Land Purchases

 

During the first quarter of 2016, the Company purchased approximately 40 acres of land in Beauregard parish, Louisiana. The purchase price, inclusive of all related costs, was allocated $10,000 in timber and $59,638 to land on the Company’s balance sheet. No mineral rights were conveyed to the Company on the closing date.

 

During the second quarter of 2016, the Company purchased approximately 129 acres of land in Rapides parish, Louisiana. The purchase price, inclusive of all related costs, was allocated $34,200 in timber and $198,874 to land on the Company’s balance sheet. No mineral rights were conveyed to the Company on the closing date.

 

 

Note 5:       Subsequent Event - Land Purchase

 

On July 20, 2016, the Company purchased approximately 880 acres of land in Calcasieu parish, Louisiana. The purchase price, inclusive of estimated related costs, was allocated $408,000 in timber and $1,519,021 to land on the Company’s balance sheet. 50% of all mineral rights were conveyed to the Company on the closing date.

 

 
7

 

 

Item 2.

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

 

Results of Operations

 

Revenue

 

Comparison of Revenues for the six months ended June 30, 2016 and 2015 follows:

 

   

2016

   

2015

   

$ Change

   

% Change

 

Oil and Gas

    208,199       472,522       (264,323 )     (55.94 %)

Timber

    120,868       --       120,868       100.00 %

Surface

    98,889       55,714       43,175       77.49 %
                                 

Total

    427,956       528,236       (100,280 )     (18.98 %)

 

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:

 

   

2016

   

2015

   

$ Change

   

% Change

 

Oil

    151,934       348,811       (196,877 )     (56.44% )

Gas

    53,943       113,999       (60,056 )     (52.68% )

Lease and Geophysical

    2,322       9,712       (7,390 )     (76.09% )
                                 

Total

    208,199       472,522       (264,323 )     (55.94% )

 

CKX received oil and/or gas revenues from 99 and 122 wells during the Six months ended June 30, 2016 and 2015, respectively.

 

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

 

   

2016

   

2015

 

Net oil produced (Bbl)(2)

    4,090       6,052  

Average oil sales price (per Bbl)(1,2)

  $ 34.33     $ 52.18  
                 

Net gas produced (MCF)

    23,982       31,731  

Average gas sales price (per MCF)(1)

  $ 2.25     $ 3.59  

 

Notes to above schedule:

 

(1) Before deduction of production and severance taxes.

(2) Excludes plant products.

 

 

Oil and Gas revenues declined by $264,323 from 2015 revenues. As indicated in the schedule above the decline was due to a decrease in production and declines in the average sales prices for both oil and gas and lower lease and geophysical revenues. Oil and Gas revenues are dependent on oil and gas producers’ activities, are not predictable and can vary significantly from year to year.

 

 
8

 

 

Item 2.

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

 

 

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 and geophysical will continue to be depressed when compared to 2015 reported amounts.

 

During 2016, the Company received timber revenues of $112,835 from a stumpage agreement executed in 2014. The Company entered into an additional stumpage agreement in 2016 with a 24-month term and received an advance payment of $52,300 to be applied as the subject timber is harvested.

 

Surface revenue increased due to pipeline right of way agreements being executed in 2016. 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

 

Oil and gas costs, primarily severance taxes, decreased by $15,579 in 2016. With the reduction in oil and gas revenues, the decrease was expected.

 

General and administrative expenses increased by $27,244 primarily due to increased officer salary, property managers’ fees for preparation of timber sales bid packages, and director fees.

 

Other costs and expenses incurred for the six months ended June 30, 2016 were materially consistent with 2015 reported amounts.

 

Financial Condition

 

Current assets totaled $6,562,694 and total liabilities equaled $444,494 at June 30, 2016. Management believes available cash and certificates of deposit together with funds generated from operations should be sufficient to meet operating requirements and provide funds for strategic acquisitions. The Company renewed its bank line of credit during the quarter with an availability of $3,000,000.

 

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.

 

Pursuant to a dividend reversion clause in the Company’s Articles of Incorporation, dividends not claimed within one year after a dividend becomes payable will expire and revert in full ownership to the Company and the Company’s obligation to pay such dividend will cease. During 2016 the Company received $6,507 in dividend reversions and none in 2015.

 

 
9

 

 

 

Item 2.

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

 

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.

 

Revenues from oil and gas provide a significant portion of the Company’s net income and cash flows. These revenues come from wells operated by other companies which CKX Lands, Inc. owns a royalty interest. Consequently, these revenues fluctuate due to changes in oil and gas prices and changes in the operations of these other companies.

 

 

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.

 

 
10

 

 

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 quarter ended March 31, 2013.

 

 

10

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.

 

 

31

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

 

 

32

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 8, 2016  

/s/ Brian R. Jones 

 

Brian R. Jones

 

President and Treasurer

 

 

11