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)
| | PART I. | FINANCIAL INFORMATION | | | | | ITEM 1. | FINANCIAL STATEMENTS BALANCE SHEETS AS OF MARCH 31, 2019 (UNAUDITED) AND DECEMBER 31, 2018 STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018 (UNAUDITED) STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018 (UNAUDITED) STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018 (UNAUDITED) NOTES TO FINANCIAL STATEMENTS AS OF MARCH 31, 2019 (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)ITEM 2.
| 3
| d. | Statements of Cash Flows for the quarters ended March 31, 2018 and 2017 (Unaudited)MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
| 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 | | ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 14 | | Signature
| 12 | | ITEM 4. | CONTROLS AND PROCEDURES | 14 | | | | PART II. | OTHER INFORMATION | | | | | ITEM 1 | LEGAL PROCEEDINGS | 14 | | | | ITEM 1A. | RISK FACTORS | 14 | | | | ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 14 | | | | ITEM 3. | DEFAULTS UPON SENIOR SECURITIES | 14 | | | | ITEM 4. | MINE SAFETY DISCLOSURES | 14 | | | | ITEM 5. | OTHER INFORMATION | 14 | | | | ITEM 6. | EXHIBITS | 15 | | | | SIGNATURES | 15 |
Part
PART I – Financial Information- FINANCIAL INFORMATION Item
ITEM 1. FINANCIAL STATEMENTS | FINANCIAL STATEMENTS
|
CKX Lands, Inc.LANDS, INC. Balance SheetsBALANCE SHEETS
March 31, 2018 and December 31, 2017
(Unaudited)
| | 2018 | | | 2017 | | 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 | |
| | March 31, 2019 | | | December 31, 2018 | | | | (Unaudited) | | | | | | ASSETS | | | | | | | | | Current assets: | | | | | | | | | Cash | | $ | 2,022,558 | | | $ | 1,860,736 | | Restricted cash | | | 103,975 | | | | - | | Certificates of deposit | | | 3,394,000 | | | | 3,370,000 | | Equity investment in mutual funds | | | 246,528 | | | | 244,825 | | Accounts receivable | | | 58,626 | | | | 118,463 | | Prepaid expense and other assets | | | 144,435 | | | | 36,989 | | Total current assets | | | 5,970,122 | | | | 5,631,013 | | Long-term certificate of deposit | | | 480,000 | | | | 725,000 | | Property and equipment, net | | | 9,235,033 | | | | 9,245,988 | | Total assets | | $ | 15,685,155 | | | $ | 15,602,001 | | | | | | | | | | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | | | | | | | | | | | Current liabilities: | | | | | | | | | Trade payables and accrued expenses | | | 194,248 | | | | 205,161 | | Income tax payable | | | - | | | | 11,654 | | Total current liabilities | | | 194,248 | | | | 216,815 | | Deferred income tax payable | | | 187,664 | | | | 187,664 | | Total liabilities | | | 381,912 | | | | 404,479 | | | | | | | | | | | Stockholders' equity: | | | | | | | | | Common stock, 3,000,000 authorized, no par value, 1,942,495 issued and outstanding as of March 31, 2019 and December 31, 2018 | | | 59,335 | | | | 59,335 | | Retained earnings | | | 15,243,908 | | | | 15,138,187 | | Total stockholders' equity | | | 15,303,243 | | | | 15,197,522 | | Total liabilities and stockholders' equity | | $ | 15,685,155 | | | $ | 15,602,001 | |
The accompanying notes are an integral part of these unaudited financial statements. CKX Lands, Inc.LANDS, INC. Statements of IncomeSTATEMENTS OF OPERATIONS
Quarters Ended March 31, 2018 and 2017
(Unaudited) | | 2018 | | | 2017 | | 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 | |
| | Three Months Ended March 31, | | | | 2019 | | | 2018 | | | | | | | | | | | Revenues: | | | | | | | | | Oil and gas | | $ | 94,228 | | | $ | 124,577 | | Timber sales | | | 14,481 | | | | 178,449 | | Surface revenue | | | 35,183 | | | | 34,513 | | Surface revenue - related party | | | 9,583 | | | | 9,156 | | Total revenue | | | 153,475 | | | | 346,695 | | Costs, expenses and (gains): | | | | | | | | | Oil and gas costs | | | 14,524 | | | | 16,656 | | Timber costs | | | 4,397 | | | | 20,594 | | Surface costs | | | 578 | | | | 6,990 | | General and administrative expense | | | 120,035 | | | | 132,561 | | Depreciation expense | | | 507 | | | | 233 | | Gain on sale of land | | | (75,926 | ) | | | (878,320 | ) | Total costs, expenses and (gains) | | | 64,115 | | | | (701,286 | ) | Income from operations | | | 89,360 | | | | 1,047,981 | | | | | | | | | | | Interest income | | | 26,524 | | | | 12,922 | | Income before income taxes | | | 115,884 | | | | 1,060,903 | | Federal and state income tax expense: | | | | | | | | | Current | | | 10,163 | | | | 223,542 | | Deferred | | | - | | | | - | | Total income taxes | | | 10,163 | | | | 223,542 | | Net income | | $ | 105,721 | | | $ | 837,361 | | | | | | | | | | | Per common stock, basic and diluted | | | | | | | | | Net income | | $ | 0.05 | | | $ | 0.43 | | Dividends | | $ | - | | | $ | 0.12 | | | | | | | | | | | Weighted average shares outstanding, basic and diluted | | | 1,942,495 | | | | 1,942,495 | |
The accompanying notes are an integral part of these unaudited financial statements. CKX Lands, Inc.LANDS, INC. Statements of Changes in Stockholders’ Equity
Quarters Ended March 31, 2018 and 2017STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(Unaudited) | | 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, 2017 | | | | | | | | | | | | | 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 | |
| | Common Stock | | | Retained | | | Total | | | | Shares | | | Amount | | | Earnings | | | Equity | | Balances, December 31, 2018 | | | 1,942,495 | | | $ | 59,335 | | | $ | 15,138,187 | | | $ | 15,197,522 | | Net income | | | - | | | | - | | | | 105,721 | | | | 105,721 | | Balances, March 31, 2019 (unaudited) | | | 1,942,495 | | | $ | 59,335 | | | $ | 15,243,908 | | | $ | 15,303,243 | |
| | Common Stock | | | Retained | | | Total | | | | Shares | | | Amount | | | Earnings | | | Equity | | Balances, December 31, 2017 | | | 1,942,495 | | | $ | 59,335 | | | $ | 14,256,226 | | | $ | 14,315,561 | | Net income | | | - | | | | - | | | | 837,361 | | | | 837,361 | | Dividends declared | | | - | | | | - | | | | (233,099 | ) | | | (233,099 | ) | Balances, March 31, 2018 (unaudited) | | | 1,942,495 | | | $ | 59,335 | | | $ | 14,860,488 | | | $ | 14,919,823 | |
The accompanying notes are an integral part of these unaudited financial statements. CKX Lands, Inc. Statements of Cash FlowsLANDS, INC.
Quarters Ended March 31, 2018 and 2017STATEMENTS OF CASH FLOWS
(Unaudited) | | 2018 | | | 2017 | | 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 | |
| | Three Months Ended | | | | March 31, | | | | 2019 | | | 2018 | | CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | | | Net income | | $ | 105,721 | | | $ | 837,361 | | Less non-cash expenses included in net income: | | | | | | | | | Depreciation, depletion and amortization expense | | | 616 | | | | 8,735 | | Gain on sale of land | | | (75,926 | ) | | | (878,320 | ) | Unrealized gain on equity investment in mutual funds | | | (245 | ) | | | - | | Changes in operating assets and liabilities: | | | | | | | | | Increase (decrease) in current assets | | | (47,609 | ) | | | (55,817 | ) | Increase (decrease) in current liabilities | | | (22,567 | ) | | | 44,330 | | Net cash used in operating activities | | | (40,010 | ) | | | (43,711 | ) | | | | | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | | Purchases of certificates of deposit | | | (489,000 | ) | | | (965,000 | ) | Proceeds from maturity of certificates of deposit | | | 710,000 | | | | 980,000 | | Purchases of mutual funds | | | (1,458 | ) | | | - | | Purchases of fixed assets | | | (17,970 | ) | | | (37,743 | ) | Proceeds from the sale of fixed assets | | | 104,235 | | | | 993,160 | | Net cash provided by investing activities | | | 305,807 | | | | 970,417 | | | | | | | | | | | NET INCREASE IN CASH AND RESTRICTED CASH | | | 265,797 | | | | 926,706 | | Cash and restricted cash, beginning of the period | | | 1,860,736 | | | | 1,652,404 | | Cash and restricted cash, end of the period | | $ | 2,126,533 | | | $ | 2,579,110 | | | | | | | | | | | SUPPLEMENTAL CASH FLOW INFORMATION | | | | | | | | | Cash paid for interest | | $ | - | | | $ | - | | Cash paid for income taxes | | $ | 60,500 | | | $ | 183,000 | |
The accompanying notes are an integral part of these unaudited financial statements. CKX LANDS, INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS The “Company,” “we,” “us,” and “our,” refer to CKX Lands, Inc. Notes to Financial Statements
March 31, 2018
(Unaudited)
Note 1.1: Significant Accounting Policies and Recent Accounting Pronouncements Significant Accounting Policies Basis of Presentation The accompanying unaudited interim financial statements of CKX Lands, Inc. (“Company”)the Company have been prepared in accordance with accounting principles generally accepted in the United States generally accepted accounting principles for interim financial information. They do not include allof America, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnotes required by United States generally accepted accounting principles for complete financial statements. Except as described herein, there hasfootnote disclosures have been no material change in the information disclosed in the notesomitted pursuant to the financial statements included in our financial statements as ofsuch rules and for the year ended December 31, 2017. regulations. In the opinion of management, all adjustments (consisting ofthe accompanying financial statements include normal recurring accruals) consideredadjustments that are necessary for a fair presentation have been included inof 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 scoperesults 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.interim periods presented. These financial statements and accompanying notes should be read in conjunction with our audited financial statements and notes thereto for the fiscal year ended December 31, 2018 included in our Annual Report on Form 10-K. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of results to be expected for the full fiscal year or any other periods.
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make a number of estimates and judgments that affect the reported amounts of assets, liabilities, expenses, and related disclosures. Actual results may differ from these estimates. Concentration of Credit Risk The Company maintains its cash balances in seven financial institutions. The amount on deposit in each financial institution is insured by the Federal Deposit Insurance Corporation up to $250,000. Cash Equivalents Cash equivalents are highly liquid debt instruments with original maturities of three months or less when purchased. Certificate of Deposits Certificates of deposit have maturities greater than three months when purchased, in amounts not greater than $250,000. All certificates of deposit are held until maturity and recorded at cost which approximates fair value. Certificates of deposit mature through 2020. Equity Investment In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition of Financial Assets and Financial Liabilities,” (ASU 2016-01), which makes targeted amendments to the guidance for recognition, measurement, presentation and disclosure of financial instruments. The guidance under ASU 2016-01 requires equity investments, other than equity method investments, to be measured at fair value with changes in fair value recognized in net income. As of March 31, 2019and December 31, 2018, the Company classified $246,528 and $244,825, respectively, of mutual funds as equity securities. The Company invests in ultra-short, high quality U.S. dollar money market, foreign funds, and obligations issued by the US Government. The Company did not hold any equity investments until the fourth quarter of 2018, accordingly, there are no effects on the Company’s Form 10-Kinvestments under the adoption of ASU 2016-01.” Accounts Receivable The Company’s accounts receivable consist of incomes received after quarter end for royalties produced prior to quarter-end. When there are royalties that have not been received at the yeartime of the preparation of the financial statements for months in the prior quarter, the Company estimates the amount to be received based on the last month’s royalties that were received from that particular company. The Company does not maintain an allowance for doubtful accounts because other than the accrual for earned but not received royalties, it has no accounts receivable. Property, Building and Equipment Property, building, and equipment is stated at cost. Major additions are capitalized. Maintenance and repairs are charged to income as incurred. Depreciation is computed on the straight-line and accelerated methods over the following estimated useful lives of the assets: Furniture and equipment (years) | | | 5 | | | | - | | | | 7 | | Land improvements (years) | | | | | | | 15 | | | | | |
Impairment of Long-lived Assets Long-lived assets, such as land, timber and property, buildings, and equipment, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If events or circumstances arise that require a long-lived asset to be tested for potential impairment, the Company first compares undiscounted cash flows expected to be generated by the asset to its carrying value. If the carrying amount of the long-lived asset is not recoverable on an undiscounted cash flow basis, an impairment charge is recognized to the extent that the carrying value exceeds the fair value. Fair value may be determined through various valuation techniques including quoted market prices, third-party independent appraisals and discounted cash flow models. The Company recorded no impairment charges during the three months ended March 31, 2019 and 2018. Revenue Recognition
Effective January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Under the new standard, we recognize revenues when the following criteria are met: (i) persuasive evidence of a contract with a customer exists, (ii) identifiable performance obligations under the contract exist, (iii) the transaction price is determinable for each performance obligation, (iv) the transaction price is allocated to each performance obligation, and (v) the performance obligations are satisfied. We derive a majority of our revenues from oil and gas royalties, timber sales, and surface leases. Surface leases are not within the scope of ASC 606. See Note 6 for more detailed information about the Company’s reportable segments. Oil and Gas Oil and gas revenue is generated through customer contracts, where we provide the customer access to a designated tract of land upon which the customer performs exploration, extraction, production and ultimate sale of the oil and gas. The Company receives royalties on all oil and gas produced by the customer. The performance obligation identified in oil and gas related contracts is the production of oil and gas on the designated tract of land. The performance obligation is satisfied at a point in time, which is when the customer produces oil and gas. The transaction price is comprised of fixed fees (royalties) on all oil and gas produced. The Company accrues monthly royalty revenues based upon estimates and adjusts to actual as the Company receives payments. Accrued royalty income was $58,626 and $93,594 as of March 31, 2019 and December 31, 2017 2018, respectively. There are no capitalized contract costs associated with oil and Form 10-Qgas contracts. The accounting of royalty income remains largely unchanged upon implementation of ASC 606.
Timber Timber revenue is generated through customer contracts executed as a pay-as-cut arrangement, where the customer acquires the right to harvest specified timber on a designated tract for a set period of time at agreed-upon unit prices. The performance obligation identified in timber related contracts is the quarterly period ended severing of a single tree. We satisfy our performance obligation when timber is severed, at which time revenue is recognized. The transaction price for timber sales is determined using contractual rates applied to harvest volumes. The Company may receive a deposit at the time of entering into a stumpage agreement and this deposit is recorded in trade payables and accrued expenses until earned. The Company held stumpage agreement deposits of $54,300 at March 31, 2018.2019 and December 31, 2018, respectively. There are no capitalized contract costs associated with timber contracts. The accounting of timber revenue remains largely unchanged upon implementation of ASC 606. Surface Surface revenue is earned through annual leases for agricultural and hunting activities and the Company records revenues evenly over the term of these leases. Surface revenues from these sources are recurring on an annual basis. Unearned surface revenues are recorded in trade payables and accrued expenses and were $70,780 and $58,893 at March 31, 2019 and December 31, 2018, respectively. Surface revenue is also earned through right of way and related temporary work space leases, both of which are not unusual in occurrence and are not recurring sources of revenue. Generally, a right of way lease relates to either a utility or pipeline right of way that is a permanent servitude or exists for fixed periods of time greater than thirty years. The Company retains ownership of the land and the servitude is limited to the use of the surface. Revenue is recorded at the time of the agreement’s execution date. For income tax purposes, these types of agreements are treated as sales of business assets. Other sources of surface revenue can be commercial activities leases and sales of surface minerals, such as dirt. Basic and Diluted Earnings per share
Net earnings per share is provided in accordance with FASB ASC 260-10, "Earnings per Share". Basic earnings per share is computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted income per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive income per share excludes all potential common shares if their effect is anti-dilutive. As of March 31,2019, and 2018 there were no dilutive shares outstanding. Dividends The Company has changed the manner in which it determines whether a dividend will be declared. The Company will no longer have a “regular” or “extra” dividend as has been described in prior reports. 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 the current economic conditions among other information deemed relevant. Dividends paid per common stock are based on the weighted average number of common stock shares outstanding during the period. Pursuant to a dividend reversion clause in the Company’s Articles of Incorporation, dividends not claimed within one year after the dividend becomes payable will expire and revert in full ownership to the Company and the Company’s obligation to pay such dividend will cease. Any dividend reversions are recorded in equity upon receipt. Recent Accounting Pronouncements In February 2016, the FASB issued ASU 2016-02, which amended the accounting treatment for leases. Lessees (for capital and operating leases) and lessors (for sales-type leases, direct financing leases and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. In July 2018, the FASB issued ASU 2018-10 and ASU 2018-11. ASU 2018-10 provides certain areas for improvement in ASU 2016-02 and ASU 2018-11 provides an additional optional transition method by allowing entities to initially apply the new leasing standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The new leasing standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted this standard as of January 1, 2019. The Company reviewed its service agreements and other arrangements and evaluated whether they met the definition of a lease under ASU 2016-02. The Company determined that the adoption of this standard would have no impact on its financial statements. There are various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to have a material impact on the Company’s financial position, results of operations or cash flows. Note 2. Income Taxes2: Restricted Cash In accordance with generally accepted accounting principles,During the three months ended March 31, 2019, the company closed on the sale of a parcel of land which was structured as a “deferred exchange using a qualified intermediary” pursuant to Section 1031 of the Internal Revenue Code (1031 Exchange) for income tax purposes. The net proceeds from this transaction of $103,975 are included in restricted cash as of March 31, 2019. The related income tax expense on the gain from this sale has been accrued at March 31, 2019.
The following table provides a reconciliation of cash and restricted cash reported on the balance sheet that sum to the total of the same such amounts shown in the statement of cash flows. | | March 31, | | | December 31, | | | | 2019 | | | 2018 | | | | | | | | | | | Cash | | $ | 2,022,558 | | | $ | 1,860,736 | | Restricted cash | | | 103,975 | | | | - | | Total | | $ | 2,126,533 | | | $ | 1,860,736 | |
Note 3: Certificates of Deposit The Company has analyzed its filing positionscertificates of deposit for investment purposes. Certificates of deposit have maturities greater than three months when purchased, in federalamounts not greater than $250,000. All certificates of deposit are held until maturity and state income tax returns that remain subject to examination, generally 3 years after filing. The Company believes that all filing positions are highly certainrecorded at cost which approximates fair value. Certificates of deposit mature through August of 2020. Certificates of deposit were $3,874,000 and that all income tax filing positions$4,095,000 as of March 31, 2019 and deductions would be sustained upon a taxing jurisdiction’s audit. Therefore, no reserveDecember 31, 2018, respectively. Purchases of certificates of deposit were $489,000 and $965,000 for uncertain tax positions is required. No interest or penalties have been levied against the Companythree months ended March 31, 2019 and none are anticipated.2018, respectively. Proceeds from the maturity of certificates of deposit were $710,000 and $980,000 for the three months ended March 31, 2019 and 2018, respectively.
Note 4: Fair Value of Financial Instruments ASC 820 Fair Value Measurements and Disclosures (“ASC 820”), defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements. It defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value: Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; and model-driven valuations whose inputs are observable or whose significant value drivers are observable. Valuations may be obtained from, or corroborated by, third-party pricing services. Level 3: Unobservable inputs to measure fair value of assets and liabilities for which there is little, if any market activity at the measurement date, using reasonable inputs and assumptions based upon the best information at the time, to the extent that inputs are available without undue cost and effort. The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it was practical to estimate that value: Class | Methods and/or Assumptions | Cash and cash equivalents: | Carrying value approximates fair value due to its readily convertible characteristic. | Certificate of Deposit: | Held until maturity and recorded at amortized cost which approximates fair value. |
The estimated fair value of the Company's financial instruments are as follows: | | | | | | March 31, 2019 | | | December 31, 2018 | | Financial Assets: | | Level | | | Carrying Value | | | Fair Value | | | Carrying Value | | | Fair Value | | | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | | 1 | | | $ | 2,022,558 | | | $ | 2,022,558 | | | $ | 1,860,736 | | | $ | 1,860,736 | | Certificate of deposit - short term | | | 1 | | | | 3,394,000 | | | | 3,394,000 | | | | 3,370,000 | | | | 3,370,000 | | Certificate of deposit - long term | | | 1 | | | | 480,000 | | | | 480,000 | | | | 725,000 | | | | 725,000 | | Equity investment in mutual funds | | | 1 | | | | 246,289 | | | | 246,528 | | | | 244,832 | | | | 244,825 | | Total | | | | | | $ | 6,142,847 | | | $ | 6,143,086 | | | $ | 6,200,568 | | | $ | 6,200,561 | |
Note 5: Property and Equipment Property and equipment consisted of the following: | | March 31, | | | December 31, | | | | 2019 | | | 2018 | | | | | | | | | | | Land | | $ | 7,023,103 | | | $ | 7,051,412 | | Timber | | | 2,180,251 | | | | 2,162,390 | | Building and equipment | | | 108,602 | | | | 108,602 | | | | | 9,311,956 | | | | 9,322,404 | | Accumulated depreciation | | | (76,923 | ) | | | (76,416 | ) | Total | | $ | 9,235,033 | | | $ | 9,245,988 | |
CKX Lands, Inc.
Notes to Financial Statements
During the three months ended March 31, 2018 (Unaudited)2019 and 2018, the Company had a gain on sale of land of $75,926 and $878,320, respectively. For the three months ended March 31, 2018, $767,147 of the gain represented gain on the sale of an undivided 1/6thownership interest in land.
Depreciation, depletion and amortization expense was $616 and $8,735 for the three months ended March 31, 2019 and 2018, respectively.
Note 3. Company Operations6: Segment Reporting 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 operationsThe tables below present financial information for the quarter ended March 31, 2018 and 2017, respectively:Company’s three operating business segments:
| | 2018 | | | 2017 | | Revenues | | | | | | | | | Oil and Gas | | $ | 124,577 | | | $ | 181,669 | | Timber | | | 178,449 | | | | -- | | Surface | | | 43,669 | | | | 17,102 | | Total | | | 346,695 | | | | 198,771 | | Cost and Expenses | | | | | | | | | Oil and Gas | | | 16,656 | | | | 17,565 | | Timber | | | 20,594 | | | | 2,940 | | Surface | | | 6,990 | | | | 16,858 | | Total | | | 44,240 | | | | 37,363 | | Income from Operations | | | | | | | | | Oil and Gas | | | 107,921 | | | | 164,104 | | Timber | | | 157,855 | | | | (2,940 | ) | Surface | | | 36,679 | | | | 244 | | Total | | | 302,455 | | | | 161,408 | | Other Income (Expense) before Income Taxes | | | 758,448 | | | | (121,988 | ) | Income before Income Taxes | | | 1,060,903 | | | | 39,420 | | | | | | | | | | | Identifiable Assets, net of accumulated depreciation and depletion | | | | | | | | | Oil and Gas | | | -- | | | | -- | | Timber | | | 2,138,051 | | | | 2,083,408 | | Surface | | | -- | | | | -- | | General Corporate Assets | | | 13,467,377 | | | | 12,414,659 | | Total | | | 15,605,428 | | | | 14,498,067 | | | | | | | | | | | Capital Expenditures | | | | | | | | | Oil and Gas | | | -- | | | | -- | | Timber | | | 27,373 | | | | 11,040 | | Surface | | | -- | | | | -- | | General Corporate Assets | | | 10,370 | | | | -- | | Total | | | 37,743 | | | | 11,040 | | | | | | | | | | | Depreciation and Depletion | | | | | | | | | Oil and Gas | | | -- | | | | -- | | Timber | | | 8,502 | | | | -- | | Surface | | | -- | | | | -- | | General Corporate Assets | | | 233 | | | | 234 | | Total | | $ | 8,735 | | | $ | 234 | |
| | Three Months Ended | | | | March 31, | | | | 2019 | | | 2018 | | Revenues: | | | | | | | | | Oil and gas | | $ | 94,228 | | | $ | 124,577 | | Timber sales | | | 14,481 | | | | 178,449 | | Surface revenue | | | 44,766 | | | | 43,669 | | Total segment revenues | | | 153,475 | | | | 346,695 | | | | | | | | | | | Cost and expenses: | | | | | | | | | Oil and gas costs | | | 14,524 | | | | 16,656 | | Timber costs | | | 4,397 | | | | 20,594 | | Surface costs | | | 578 | | | | 6,990 | | Total segment costs and expenses | | | 19,499 | | | | 44,240 | | | | | | | | | | | Income from operations: | | | | | | | | | Oil and gas | | | 79,704 | | | | 107,921 | | Timber | | | 10,084 | | | | 157,855 | | Surface | | | 44,188 | | | | 36,679 | | Total segment income from operations | | | 133,976 | | | | 302,455 | | Other income (expense) before income taxes | | | (18,092 | ) | | | 758,448 | | Income before income taxes | | $ | 115,884 | | | $ | 1,060,903 | |
| | Three Months Ended | | | Year Ended | | | | March 31, | | | December 31, | | | | 2019 | | | 2018 | | Identifiable Assets, net of accumulated depreciation | | | | | | | | | Timber | | $ | 2,180,251 | | | $ | 2,162,390 | | General corporate assets | | | 13,504,904 | | | | 13,439,611 | | Total | | | 15,685,155 | | | | 15,602,001 | | �� | | | | | | | | | Capital expenditures: | | | | | | | | | Timber | | | 17,970 | | | | 45,067 | | Surface | | | - | | | | 4,900 | | General corporate assets | | | - | | | | 5,471 | | Total segment costs and expenses | | | 17,970 | | | | 55,438 | | | | | | | | | | | Depreciation and depletion | | | | | | | | | Oil and gas | | | - | | | | 1,858 | | Timber | | | 109 | | | | - | | General corporate assets | | | 507 | | | | 2,027 | | Total | | $ | 616 | | | $ | 3,885 | |
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-K10-K for the year ended December 31, 2017. 2018. 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, Note 20178: Income Taxes
(Unaudited)
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 those filed in the last three years. 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 3.8: Related Party Transactions The Company Operations (continued)and Stream Wetlands Services, LLC (“Stream Wetlands”) are parties to an option to lease agreement dated April 17, 2017 (the “OTL”). The OTL provides Stream Wetlands an option, exercisable through February 28, 2020, to lease certain lands from the Company, subject to the negotiation and execution of a mutually acceptable lease form. Stream Wetlands paid the Registrant $38,333 upon execution of the OTL, and an additional $38,333 during the quarters ended March 31, 2018 and 2019. Stream Wetlands may extend the term of the OTL for one more year by paying $38,333 in the first quarter of 2020. Mr. Stream, a director of the Company, is the president of Stream Wetlands. The Company’s President is a partner in Stockwell, Sievert, Viccellio, Clements, LLP (“Stockwell”). Beginning in August 2018, the Company began renting office space from Stockwell. The Company pays Stockwell $750 per month as rent for office space and associated services, $2,000 per month to reimburse the firm for an administrative assistant and reimburses Stockwell for miscellaneous office supplies and legal expenses. For the three months ended March 31, 2019, the Company recorded $8,495 in total of such expense, of which $2,250 was rent expense. Note 9: Concentrations Revenue from customers representing 5% or more of total revenue for the quarterthree months ended March 31, 2019 and 2018, and 2017,respectively are:were: | | | | Three Months Ended March 31, | | Count | | | 2018 | | | 2017 | | | | 2019 | | | 2018 | | 1 | | | $ | 138,519 | | | $ | 41,884 | | | | $ | 30,322 | | | $ | 138,519 | | 2 | | | | 39,899 | | | | 34,137 | | | | | 19,674 | | | | 39,899 | | 3 | | | | 34,723 | | | | 23,215 | | | | | 16,644 | | | | 34,723 | | 4 | | | | 24,193 | | | | 13,039 | | | | | 16,458 | | | | 24,193 | | 5 | | | | 19,764 | | | | 13,028 | | | | | 10,562 | | | | 19,764 | | 6 | | | | -- | | | | 12,795 | | |
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.
| | March 31, 2018 | | Cash | | $ | 1,585.950 | | Cash-restricted | | | 993,160 | | Cash and cash-restricted | | $ | 2.579,110 | |
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
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2018 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed on March 21, 2019. RevenueCautionary Statement
ComparisonThis Management’s Discussion and Analysis includes a number of Revenues forforward-looking statements within the three months ended March 31, 2018meaning of Section 27A of the Securities Act of 1933, as amended, and 2017 follows:Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like “believe,” “expect,” “plan,” “estimate,” “anticipate,” “intend,” “project,” “will,” “predicts,” “seeks,” “may,” “would,” “could,” “potential,” “continue,” “ongoing,” “should” and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this Form 10-Q. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or from our predictions, including those risks described in our Annual Report on Form 10-K and in our other public filings. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise.
| | 2018 | | | 2017 | | | $ Change | | | % Change | | Oil and Gas | | | 124,577 | | | | 181,669 | | | | (59,092 | ) | | | (32.53 | )% | Timber | | | 178,449 | | | | -- | | | | 178,449 | | | | 100.00 | % | Surface | | | 43,669 | | | | 17,102 | | | | 26,567 | | | | 155.34 | % | Total | | | 346,695 | | | | 198,771 | | | | 145,924 | | | | 74.42 | % |
Overview CKX Lands, Inc., a Louisiana corporation, began operations in 1930 under the name Calcasieu Real Estate & Oil Co., Inc. It was originally organized as a spin-off by a bank operating in southwest Louisiana. The purpose of the spin-off was to form an entity to hold non-producing mineral interests which regulatory authorities required the bank to charge off. Over the years, as some of the mineral interests began producing, the Company used part of the proceeds to acquire land. In 1990, the Company made its largest acquisition when it was one of four purchasers who bought a fifty percent undivided interest in approximately 35,575 acres in southwest Louisiana. Today the Company’s income is derived from mineral royalties, timber sales and Gassurface payments from its lands. CKX receives income from royalty interests and mineral leases related to oil and gas production, timber sales, and surface rents. Although CKX is active in the management of its land and planting and harvesting its timber, CKX is passive in the production of income from oil and gas production in that CKX does not explore for oil and gas or operate wells. These oil and gas activities are performed by unrelated third parties. 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. The Company’s oil and gas income fluctuates as new oil and gas production is discovered on Company land and then ultimately depletes or becomes commercially uneconomical to produce. The volatility in the daily commodity pricing of a barrel of oil or a thousand cubic feet, or “MCF,” of gas will also cause fluctuations in the Company’s oil and gas income. CKX has small royalty interests in 29 different producing oil and gas fields. The size of each royalty interest is determined by the Company’s net ownership in the acreage unit for the well. CKX’s royalty interests range from 0.0045% for the smallest to 7.62% for the largest. As the Company does not own or operate the wells, it does not have access to any reserve information. Eventually, the oil and gas reserves under the Company’s current land holdings will be depleted. Timber income is derived from sales of timber on Company lands. The timber income will fluctuate depending on our ability to secure stumpage agreements in the regional markets, timber stand age, and/or stumpage commodity prices. Timber is a renewable resource that the Company actively manages. Surface income is earned from various recurring and non-recurring sources. Recurring surface income is earned from lease arrangements for farming, recreational and commercial uses. Non-recurring surface income can include such activities as pipeline right of ways, and temporary worksite rentals. In managing its lands, the Company relies on and has established relationships with real estate, forestry, environmental and agriculture consultants as well as attorneys with legal expertise in general corporate matters, real estate, and minerals. The Company actively searches for additional real estate for purchase in Louisiana with a focus on southwest Louisiana. When evaluating unimproved real estate for purchase, the Company will consider numerous characteristics including but not limited to, timber fitness, agriculture fitness, future development opportunities and/or mineral potential. When evaluating improved real estate for purchase, the Company will consider characteristics including, but not limited to, geographic location, quality of existing revenue streams, and/or quality of the improvements. Results of Operations – Three Months Ended March 31, 2019 and 2018 Revenue Total revenues for the three months ended March 31, 2019 were $153,475, a decrease of approximately 56% when compared with the same period in 2018. Total revenue consists of oil and gas, timber, and surface revenues. Components of revenues for the three months ended March 31, 2019 as compared to 2018, are as follows:
| | Three Months Ended | | | | | | | | | | | | March 31, | | | | | | | | | | | | 2019 | | | 2018 | | | Change from Prior Period | | | Percent Change from Prior Period | | Revenues: | | | | | | | | | | | | | | | | | Oil and gas | | $ | 94,228 | | | $ | 124,577 | | | $ | (30,349 | ) | | | (24.4 | )% | Timber sales | | | 14,481 | | | | 178,449 | | | | (163,968 | ) | | | (91.9 | )% | Surface revenue | | | 44,766 | | | | 43,669 | | | | 1,097 | | | | 2.5 | % | Total revenues | | $ | 153,475 | | | $ | 346,695 | | | $ | (193,220 | ) | | | (55.7 | )% |
Oil and Gas
Oil and gas revenues were 61% and 36% of total revenues for the three months ended March 31, 2019 and 2018, respectively. A breakdown of oil and gas revenues for the three months ended March 31, 2019 as compared to the three months ended March 31, 2018 is as follows: | | 2018 | | | 2017 | | | $ Change | | | % Change | | Oil | | | 97,662 | | | | 130,205 | | | | (32,542 | ) | | | (24.99 | )% | Gas | | | 23,375 | | | | 46,464 | | | | (23,090 | ) | | | (49.69 | )% | Lease and Geophysical | | | 3,540 | | | | 5,000 | | | | (1.460 | ) | | | (29.20 | )% | Total | | | 124,577 | | | | 181,669 | | | | 57,092 | | | | (31.43 | )% |
| | Three Months Ended | | | | | | | | | | | | March 31, | | | | | | | | | | | | 2019 | | | 2018 | | | Change from Prior Period | | | Percent Change from Prior Period | | Oil | | $ | 37,999 | | | $ | 97,662 | | | $ | (59,663 | ) | | | (61.1 | )% | Gas | | | 52,222 | | | | 23,375 | | | | 28,847 | | | | 123.4 | % | Lease and geophysical | | | 4,008 | | | | 3,540 | | | | 468 | | | | 13.2 | % | Total revenues | | $ | 94,228 | | | $ | 124,577 | | | $ | (30,349 | ) | | | (24.4 | )% |
CKX received oil and/or gas revenues from 8279 and 8982 wells during the three-month periodthree months ended March 31, 20182019 and 2017,2018, respectively. The following schedule summarizes barrels and MCF produced and average price per barrel and per MCF.MCF for the three months ended March 31, 2019 and 2018: | | 2018 | | | 2017 | | | Three Months Ended | | Net oil produced (Bbl)(2) | | | 1,409 | | | | 2,274 | | | Average oil sales price (per Bbl)(1,2) | | $ | 60.92 | | | $ | 50.33 | | | | | | March 31, | | | | | 2019 | | | 2018 | | Net oil produced (Bbl)(2) | | | | 650 | | | | 1,409 | | Average oil sales price (per Bbl)(1,2) | | | $ | 58.45 | | | $ | 60.92 | | Net gas produced (MCF) | | | 6,724 | | | | 13,404 | | | | 10,280 | | | | 6,724 | | Average gas sales price (per MCF)(1) | | $ | 3.48 | | | $ | 3.47 | | | Average gas sales price (per MCF)(1) | | | $ | 5.08 | | | $ | 3.48 | |
Notes to above schedule:
(1) Before deduction of production costs and severance taxes.
(2) Excludes plant products.
(1) Before deduction of production costs and severance taxes | (2) Excludes plant products |
Oil andrevenues decreased for the three months ended March 31, 2019, as compared to the three months ended March 31, 2018, by $59,663. Gas revenues decreasedincreased for the three months ended March 31, 2019, as compared to 2018, by $57,092 from 2017 revenues.$28,847. As indicated from the schedule above the net decrease wasin oil revenues were due to increasesa decrease in the net oil produced and a decrease in the average oil sales price per barrel and decreasesbarrel. The increase in barrels of oil produced, , MCF ofgas revenues were due to an increase in net gas produced and an increase in 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 $3,540 in 2017 and $5,000 in 2016 amounts.increased for the three months ended March 31, 2019, as compared to the three months ended March 31, 2018, by $468. 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.Timber
DuringTimber revenue was $14,481 and $178,449 for the first quarter ofthree months ended March 31, 2019 and 2018, the Company received $178,449 in timber revenues. In 2017, the Company received no timber revenues. We believe the increaserespectively. The decrease in revenues is due to our continued marketingwet weather during the first quarter of our timber and securing stumpage agreements over the last couple of years and dryer weather. We believe the market will continuefiscal 2019 that limited customers’ ability to be challenging during 2018.harvest timber.
Surface Surface revenuerevenues increased from 2017for the three months ended March 31, 2019, as compared to the three months ended March 31, 2018, by $1,097. This is primarily due to increasing leasing fees for our hunting and agriculture properties as well as increased lease activity related southwest Louisiana economic growth. During 2018, we received no revenue related to pipeline right of way agreements. As previously noted by management, pipeline, utility and otheradditional right of ways are not unusualbeing granted.
Costs and Expenses Oil and gas costs decreased slightly for the three months ended March 31, 2019 as compared to the Company; however these types of revenue are not predictablethree months ended March 31, 2018 by $2,132. These changes were due to lower production taxes and can vary significantly from year to year. Costs and Expensescharges.
Timber costs increaseddecreased for the three months ended March 31, 2019 as compared to the three months ended March 31, 2018 by $17,954 in 2018$16,197. This is primarily due to the increased timbersdecreased timber revenue occurring induring the first quarter of 2018.three months ended March 31, 2019. Surface costs decreased for the three months ended March 31, 2019 as compared to the three months ended March 31, 2018 by $9,868 in 2018$6,412. This is primarily due to lower repair andreduced maintenance cost and no legal contract review.expense. General and administrative expenses decreasedecreased for the three months ended March 31, 2019 as compared to the three months ended March 31, 2018 by $2,296$12,526. This is primarily due to increaseda decrease in officer salaries, offset by increased property management, accounting, and legal fees.
Gain on Sale of Land
Gain on sale of land and equipment was $75,926 and $878,320 for land disposition administrationthe three months ended March 31, 2019 and decreases2018, respectively. For the three months ended March 31, 2018, $767,147 of the gain represented gain on the sale of an undivided 1/6th ownership interest in legal fees related to SEC reporting and director fees.land. Financial ConditionLiquidity and Capital Resources
Sources of Liquidity
Current assets totaled $5,176,986$5,970,122 and current liabilities equaled $497,941$194,248 at March 31, 2018.2019. The Company has an unsecured revolving line of credit with Hancock Whitney Bank. The line of credit permits the Company to draw a maximum aggregate amount of $1,000,000. The line of credit matures on June 25, 2019, and borrowings under the line of credit bear interest at a rate of 4.25%. As of March 31, 2019, there was no outstanding balance under the line of credit. 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 duringAnalysis of Cash Flows
Net cash used in operating activities decreased by $3,701 to $40,010 for the quarterthree months ended March 31, 2019, compared to $43,711 for the three months ended March 31, 2018. DuringThe change in cash provided by operating activities was attributable primarily to the first quarterdecrease in net income offset by the decrease on the gain on the sale 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.land. IssuesNet cash provided by investing activities was $305,807 and Uncertainties$970,417 for the three months ended March 31, 2019, and 2018, respectively. For the three months ended March 31, 2019, this primarily resulted from purchases of certificates of deposit of $489,000, purchases of mutual funds of $1,458, purchases of timber of $17,970, offset by proceeds from maturity of certificates of deposit of $710,000 and the proceeds from the sales of fixed assets of $104,235. For the three months ended March 31, 2018, this resulted from purchases of certificates of deposit of $965,000 and purchases of fixed assets of $37,743, offset by proceeds from maturity of certificates of deposit of $980,000 and from the proceeds of sales of fixed assets of $993,160.
This quarterlySignificant Accounting Polices and Estimates
There were no changes in our significant accounting policies and estimates during the three months ended March 31, 2019 from those set forth in “Significant Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2018. Recent Accounting Pronouncements See Note 1, Basis of Presentation and Recent Accounting Pronouncements, to our condensed consolidated financial statements included in this report contains forward-lookingfor information regarding recently issued accounting pronouncements that may impact our financial 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)
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The Company’s business and operations are subject to certain risks and uncertainties, including:Off-Balance Sheet Arrangements
Reliance upon Oil and Gas DiscoveriesDuring the three months ended March 31, 2019, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements.
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.ITEM 3. NOT APPLICABLE
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 4.
| CONTROLS AND PROCEDURES
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ITEM 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures The Company has evaluatedPursuant to Rule 13a-15(b) and Rule 15d-15(b) under the Exchange Act, the Company’s principal executive and financial officer carried out an evaluation of 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 defined under Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) as of the end of the period covered by this Report. Disclosure controls and procedures mean controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the report.issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on its evaluation, management concluded that as of March 31, 2019, the Company’s disclosure controls and procedures were not effective due to the existence of material weaknesses in internal control over financial reporting, discussed more fully below.
Changes in Internal Control Over Financial Reporting There were no significant changes with respect toAs disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018, our management concluded that, as of December 31, 2018, the Company’s internal control over financial reporting orwas not effective due primarily to a lack of internal staffing resulting in other factorsa lack segregation of duties, and a lack of evidence of review and oversight of certain financial processes, including processes that have been outsourced to a third-party service organization. Management is currently evaluating the steps that would be necessary to eliminate these material weaknesses.
There were no changes in the Company’s internal control over financial reporting during the fiscal quarter ended March 31, 2019 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the quarter covered by this report.reporting. PART II - OTHER INFORMATION ITEM 1 – 5. NOT APPLICABLE Part II. Other Information
Item 1 – 5.
| Not Applicable
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ITEM 6. EXHIBITS | | | 101.INS**
| 101.INS | XBRL Instance |
| 101.SCH**101.SCH
| XBRL Taxonomy Extension Schema |
| 101.CAL**101.CAL
| XBRL Taxonomy Extension Calculation |
| 101.DEF**101.DEF
| XBRL Taxonomy Extension Definition |
| 101.LAB**101.LAB
| XBRL Taxonomy Extension Labels |
| 101.PRE**101.PRE
| XBRL Taxonomy Extension Presentation |
| * | Filed herewith |
| **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.Furnished herewith
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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. Date: May 2, 2019 | CKX Lands, Inc.LANDS, INC. | | By: | | | Date: May 3, 2018
|
/s/ Brian R. JonesLee W. Boyer | | | Brian R. JonesLee W, Boyer
| | | President and Treasurer | | (Principal executive and financial officer) | |
1215
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