CKX 10-Q Quarter ended March 31, 2018

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 March 31 , 201 8

☐   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 March 31, 201 8

Table of Contents

		Page
Part I. Financial Information
Item 1.	Financial Statements
a.	Balance Sheets as of March 31, 2018 and December 31, 2017 (Unaudited)	1
b.	Statements of Income for the quarters ended March 31, 2018 and 2017 (Unaudited)	2
c.	Statements of Changes in Stockholders’ Equity for the quarters ended March 31, 2018 and 2017 (Unaudited)	3
d.	Statements of Cash Flows for the quarters ended March 31, 2018 and 2017 (Unaudited)	4
e.	Notes to Financial Statements as of March 31, 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

		201 8				201 7
Assets
Current Assets
Cash		$	1,585,950			$	1,618,583
Cash-restricted			993,160				33,821
Certificates of deposit			2,392,890				2,662,890
Accounts receivable			64,022				113,067
Prepaid expense and other assets			140,964				50,354
Total current assets			5,176,986				4,478,715
Non-current Assets
Certificate of deposit			1,205,000				950,000
Property and equipment:
Land			7,051,412				7,147,100
Timber			2,138,051				2,119,180
Building and equipment less accumulated depreciation of $74,623 and $74,565, respectively			33,979				28,742
Total property and equipment, net			9,223,442				9,295,022
Total assets		$	15,605,428			$	14,723,737
Liabilities and Stockholders’ Equity
Current Liabilities
Trade payables and accrued expenses		$	210,954			$	207,166
Dividends payable			233,099				--
Income tax payable			53,888				13,346
Total current liabilities			497,941				220,512
Non-current Liabilities
Deferred income tax payable			187,664				187,664
Total liabilities			685,605				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			14,860,488				14,256,226
Total stockholders’ equity			14,919,823				14,315,561
Total liabilities and stockholders’ equity		$	15,605,428			$	14,723,737

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		201 8				201 7
Revenues
Oil and gas		$	124,577			$	181,669
Timber			178,449				--
Surface			34,513				17,102
Surface – related party			9,156				--
Total revenues			346,695				198,771
Costs, Expenses and (Gains)
Oil and gas			16,656				17,565
Timber			20,594				2,940
Surface			6,990				16,858
General and administrative			132,561				134,857
Depreciation			233				234
Gain on sale of land			(878,320	)			(2,891	)
Total cost, expenses and (gains)			(701,286	)			169,563
Income from operations			1,047,981				29,208
Other Income
Interest income			12,922				10,212
Net other income			12,922				10,212
Income before income taxes			1,060,903				39,420
Federal and State Income Taxes
Current			223,542				(5,200	)
Total income taxes			223,542				(5,200	)
Net Income		$	837,361			$	44,620
Per Common Stock, basic and diluted
Net Income		$	0.43			$	0.02
Dividends		$	0.12			$	0.10
Weighted Average Common Shares Outstanding, basic and diluted			1,942,495				1,942,495

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		Total				Retained Earnings				Capital Stock Issued
Quarter Ending March 31, 2018
December 31, 2017 Balance		$	14,315,561			$	14,256,226			$	59,335
Net income			837,361				837,361				--
Dividends declared			(233,099	)			(233,099	)			--
March 31, 2018 Balance		$	14,919,823			$	14,860,488			$	59,335
Quarter Ending March 31, 201 7
December 31, 2016 Balance		$	13,986,948			$	13,927,613			$	59,335
Net income			44,620				44,620				--
Dividends declared			(194,250	)			(194,250	)			--
March 31, 2017 Balance		$	13,837,318			$	13,777,983			$	59,335

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		201 8				201 7
Cash Flows Used In Operating Activities:
Net Income		$	837,361			$	44,620
Less non-cash and non-operating (income) expenses included in net income:
Depreciation, depletion and amortization			8,735				234
Gain on sale of land			(878,320	)			(2,891	)
Change in operating assets and liabilities:
Increase in current assets			(55,817	)			(129,832	)
Increase in current liabilities			44,330				35,122
Net cash used in operating activities			(43,711	)			(52,747	)
Cash Flows Provided From (Used In) Investing Activities:
Certificates of deposit:
Purchases			(965,000	)			(720,000	)
Maturity proceeds			980,000				720,000
Land, equipment, and other assets:
Purchases			(10,370	)			--
Sales proceeds			993,160				3,390
Timber:
Purchases			(27,373	)			(11,040	)
Net cash provided from (used in) investing activities			970,417				(7,650	)
Net increase (decrease) in cash and cash-restricted			926,706				(60,397	)
Cash and cash-restricted:
Beginning			1,652,404				1,081,188
Ending		$	2,579,110			$	1,020,791
Supplemental disclosures of cash flow information:
Cash payments for:
Interest		$	--			$	--
Income taxes		$	183,000			$	11,000

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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.

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 March 31, 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.

CKX Lands, Inc.

Notes to Financial Statements

March 31, 201 8

(Unaudited)

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.

Following is a summary of segmented operations information for the quarter ended March 31, 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

March 31, 201 8

(Unaudited)

Note 3. Company Operations (continued)

Revenue from customers representing 5% or more of total revenue for the quarter ended March 31, 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 are included the Cash-Restricted amount at March 31, 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 March 31, 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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