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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, 2021

 

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.)

     
     

2417 Shell Beach Drive

   

Lake Charles, LA

 

70601

(Address of principal executive offices)

 

(Zip Code)

     
 

(337) 493-2399

 
 

(Registrant’s telephone number)

 

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock with no par value

CKX

NYSE American

 

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 every Interactive Data File required to be submitted 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 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 shares of common stock are issued and outstanding as of August 6, 2021.

 

 

 

 

 

TABLE OF CONTENTS

 

 

Page

   

PART I.

FINANCIAL INFORMATION

 
     

ITEM 1.

FINANCIAL STATEMENTS

 
 

BALANCE SHEETS AS OF JUNE 30, 2021 (UNAUDITED) AND DECEMBER 31, 2020

 
 

STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020 (UNAUDITED)

 
 

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020 (UNAUDITED)

 
 

STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020 (UNAUDITED)

 
 

NOTES TO FINANCIAL STATEMENTS AS OF JUNE 30, 2021 (UNAUDITED)

1

     

ITEM 2.

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

5

     

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

10

     

ITEM 4.

CONTROLS AND PROCEDURES

10

     

PART II.

OTHER INFORMATION

 
     

ITEM 1

LEGAL PROCEEDINGS

11

     

ITEM 1A.

RISK FACTORS

11

     

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

11

     

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

11

     

ITEM 4.

MINE SAFETY DISCLOSURES

11

     

ITEM 5.

OTHER INFORMATION

11

     

ITEM 6.

EXHIBITS

11

     

SIGNATURES

12

 

 

 
 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

CKX LANDS, INC.

BALANCE SHEETS

 

   

June 30,

   

December 31,

 
   

2021

   

2020

 

ASSETS

 

(Unaudited)

         

Current assets:

               

Cash and cash equivalents

  $ 7,130,236     $ 6,463,255  

Equity investment in mutual funds

    502,757       502,595  

Accounts receivable

    46,134       98,515  

Prepaid expense and other assets

    94,705       8,711  

Total current assets

    7,773,832       7,073,076  

Property and equipment, net

    9,101,323       9,243,621  

Total assets

  $ 16,875,155     $ 16,316,697  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

               
                 

Current liabilities:

               

Trade payables and accrued expenses

  $ 79,413     $ 110,786  

Unearned revenue

    182,752       231,409  

Income tax payable

    37,333       -  

Total current liabilities

    299,498       342,195  

Deferred income tax payable

    187,664       187,664  

Total liabilities

    487,162       529,859  
                 

Stockholders' equity:

               

Common stock, 3,000,000 authorized, no par value, 1,942,495 issued and outstanding as of June 30, 2021 and December 31, 2020

    59,335       59,335  

Retained earnings

    16,328,658       15,727,503  

Total stockholders' equity

    16,387,993       15,786,838  

Total liabilities and stockholders' equity

  $ 16,875,155     $ 16,316,697  

 

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

 

 

 
 

 

CKX LANDS, INC.

STATEMENTS OF OPERATIONS

(Unaudited)

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2021

   

2020

   

2021

   

2020

 
                                 

Revenues:

                               

Oil and gas

  $ 99,202     $ 67,929     $ 149,347     $ 182,979  

Timber sales

    49,414       3,747       102,941       11,635  

Surface revenue

    53,107       107,438       94,728       155,308  

Surface revenue - related party

    9,583       9,583       19,166       19,166  

Total revenue

    211,306       188,697       366,182       369,088  

Costs, expenses and (gains):

                               

Oil and gas costs

    9,445       11,072       17,666       22,809  

Timber costs

    4,255       754       5,213       3,205  

Surface costs

    -       258       -       258  

General and administrative expense

    148,316       193,087       251,399       336,209  

Depreciation expense

    503       234       1,010       467  

Gain on sale of land

    (184,045 )     (220,800 )     (590,265 )     (253,907 )

Total costs, expenses and (gains)

    (21,526 )     (15,395 )     (314,977 )     109,041  

Income from operations

    232,832       204,092       681,159       260,047  
                                 

Interest income

    4,787       30,381       9,453       48,256  

Income before income taxes

    237,619       234,473       690,612       308,303  

Federal and state income tax expense:

                               

Current

    63,271       22,683       89,457       38,131  

Total income taxes

    63,271       22,683       89,457       38,131  

Net income

  $ 174,348     $ 211,790     $ 601,155     $ 270,172  
                                 

Earnings per share, basic and diluted

  $ 0.09     $ 0.11     $ 0.31     $ 0.14  
                                 

Weighted average 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.

 

 

 
 

 

CKX LANDS, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

THREE MONTHS ENDED JUNE 30, 2021 AND 2020

(unaudited)

 

   

Common Stock

   

Retained

   

Total

 
   

Shares

   

Amount

   

Earnings

   

Equity

 

Balances, March 31, 2021

    1,942,495     $ 59,335     $ 16,154,310     $ 16,213,645  

Net income

    -       -       174,348       174,348  

Balances, June 30, 2021

    1,942,495     $ 59,335     $ 16,328,658     $ 16,387,993  
                                 
   

Common Stock

   

Retained

   

Total

 
   

Shares

   

Amount

   

Earnings

   

Equity

 

Balances, March 31, 2020

    1,942,495     $ 59,335     $ 15,446,502     $ 15,505,837  

Net income

    -       -       211,790       211,790  

Balances, June 30, 2020

  $ 1,942,495     $ 59,335     $ 15,658,292     $ 15,717,627  

 

 

CKX LANDS, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

SIX MONTHS ENDED JUNE 30, 2021 AND 2020

(unaudited)

 

   

Common Stock

   

Retained

   

Total

 
   

Shares

   

Amount

   

Earnings

   

Equity

 

Balances, December 31, 2020

    1,942,495     $ 59,335     $ 15,727,503     $ 15,786,838  

Net income

    -       -       601,155       601,155  

Balances, June 30, 2021

    1,942,495     $ 59,335     $ 16,328,658     $ 16,387,993  
                                 
   

Common Stock

   

Retained

   

Total

 
   

Shares

   

Amount

   

Earnings

   

Equity

 

Balances, December 31, 2019

    1,942,495     $ 59,335     $ 15,388,120     $ 15,447,455  

Net income

    -       -       270,172       270,172  

Balances, June 30, 2020

  $ 1,942,495     $ 59,335     $ 15,658,292     $ 15,717,627  

 

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

 

 

 
 

 

CKX LANDS, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

 

   

Six Months Ended

 
   

June 30,

 
   

2021

   

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES

               

Net income

  $ 601,155     $ 270,172  

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

         

Depreciation expense

    1,010       467  

Depletion expense

    430       184  

Gain on sale of land

    (590,265 )     (253,907 )

Unrealized (gain) loss on equity investment in mutual funds

    (38 )     1,503  

Changes in operating assets and liabilities:

               

(Increase) decrease in current assets

    (33,613 )     (37,758 )

Increase (decrease) in current liabilities

    (42,697 )     111,381  

Net cash provided by (used in) operating activities

    (64,018 )     92,042  
                 

CASH FLOWS FROM INVESTING ACTIVITIES

               

Purchases of certificates of deposit

    -       (1,985,465 )

Proceeds from maturity of certificates of deposit

    -       1,929,000  

Purchases of mutual funds

    (124 )     (3,175 )

Costs of reforesting timber

    (14,114 )     -  

Proceeds from the sale of fixed assets

    745,237       254,458  

Net cash provided by investing activities

    730,999       194,818  
                 

NET INCREASE IN CASH AND CASH EQUIVALENTS

    666,981       286,860  

Cash and cash equivalents, beginning of the period

    6,463,255       3,280,289  

Cash and cash equivalents, end of the period

  $ 7,130,236     $ 3,567,149  
                 

SUPPLEMENTAL CASH FLOW INFORMATION

               

Cash paid for interest

  $ -     $ -  

Cash paid for income taxes

  $ 51,423     $ 5,000  

 

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.

 

 

 

 

Note 1:      Significant Accounting Policies and Recent Accounting Pronouncements

 

Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures have been omitted pursuant to such rules and regulations. In the opinion of management, the accompanying financial statements include normal recurring adjustments that are necessary for a fair presentation of the results for the interim periods presented. These financial statements should be read in conjunction with our audited financial statements and notes thereto for the fiscal year ended December 31, 2020 included in our Annual Report on Form 10-K. The results of operations for the six months ended June 30, 2021 are not necessarily indicative of results to be expected for the full fiscal year or any other periods.

 

The preparation of the 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.

 

Risks and Uncertainties

 

In December 2019, a novel coronavirus disease (“COVID-19”) was reported and in January 2020, the World Health Organization (“WHO”) declared it a Public Health Emergency of International Concern. On February 28, 2020, the WHO raised its assessment of the COVID-19 threat from high to very high at a global level due to the continued increase in the number of cases and affected countries, and on March 11, 2020, the WHO characterized COVID-19 as a pandemic. While the Company did not incur significant disruptions to its operations during 2020 and in 2021 to date from COVID-19, it is unable at this time to predict the impact that COVID-19 will have on its business, financial position and operating results in future periods due to numerous uncertainties and is closely monitoring the impact of the pandemic on all aspects of its business.

 

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. The Company has not experienced any losses in such accounts and management believes the Company is not exposed to any significant credit risk on its cash balances.

 

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. No impairment charges were recorded during the six months ended June 30, 2021 and 2020.

 

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 June 30, 2021, and 2020 there were no dilutive shares outstanding.

 

 

1

 

Dividends

 

The Company does not currently pay dividends on a regular basis.  In determining whether to declare a dividend, the Board of Directors takes 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. No dividends were declared during the six months ended June 30, 2021 and 2020.

 

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

 

There are various updates recently issued and these are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

 

 

Note 2:      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.

   

Equity Investment in mutual funds:

    Carrying value adjusted to and presented at fair market value.

 

The estimated fair value of the Company's financial instruments are as follows:

 

           

June 30, 2021

   

December 31, 2020

 

Financial Assets:

 

Level

   

Carrying Value

   

Fair Value

   

Carrying Value

   

Fair Value

 
                                         

Cash and cash equivalents

    1     $ 7,130,236     $ 7,130,236     $ 6,463,255     $ 6,463,255  

Equity investment in mutual funds

    1       504,530       502,757       504,369       502,595  

Total

          $ 7,634,766     $ 7,632,993     $ 6,967,624     $ 6,965,850  

 

2

 

 

Note 3:      Property and Equipment

 

Property and equipment consisted of the following:

 

   

June 30,

   

December 31,

 
   

2021

   

2020

 
                 

Land

  $ 6,863,575     $ 7,018,547  

Timber

    2,210,626       2,196,942  

Equipment

    108,602       108,602  
      9,182,803       9,324,091  

Accumulated depreciation

    (81,480 )     (80,470 )

Total

  $ 9,101,323     $ 9,243,621  

 

 

During the six months ended June 30, 2021 and 2020, the Company had a gain on sale of land of $590,265 and $253,907, respectively.

 

Depreciation expense was $1,010 and $467 for the six months ended June 30, 2021 and 2020, respectively.

 

Depletion expense was $430 and $184 for the six months ended June 30, 2021 and 2020, respectively.

 

 

Note 4:      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.

 

The tables below present financial information for the Company’s three operating business segments:

 

   

Six Months Ended

   

Year Ended

 
   

June 30,

   

December 31,

 
   

2021

   

2020

 

Identifiable Assets, net of accumulated depreciation

               

Timber

  $ 2,210,626     $ 2,196,942  

General corporate assets

    14,664,529       14,119,755  

Total

    16,875,155       16,316,697  
                 

Capital expenditures:

               

Timber

    14,114       9,321  

Surface

    -       -  

General corporate assets

    -       -  

Total segment costs and expenses

  $ 14,114     $ 9,321  
                 

Depreciation and depletion

               

Oil and gas

    -       -  

Timber

    430       974  

General corporate assets

    1,010       2,303  

Total

  $ 1,440     $ 3,277  

 

3

 
   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2021

   

2020

   

2021

   

2020

 

Revenues:

                               

Oil and gas

  $ 99,202     $ 67,929     $ 149,347     $ 182,979  

Timber sales

    49,414       3,747       102,941       11,635  

Surface revenue

    62,690       117,021       113,894       174,474  

Total segment revenues

    211,306       188,697       366,182       369,088  
                                 

Cost and expenses:

                               

Oil and gas costs

    9,445       11,072       17,666       22,809  

Timber costs

    4,255       754       5,213       3,205  

Surface costs

    -       258       -       258  

Total segment costs and expenses

    13,700       12,084       22,879       26,272  
                                 

Net income from operations:

                               

Oil and gas

    89,757       56,857       131,681       160,170  

Timber

    45,159       2,993       97,728       8,430  

Surface

    62,690       116,763       113,894       174,216  

Total segment net income from operations

    197,606       176,613       343,303       342,816  

Unallocated other income (expense) before income taxes

    40,013       57,860       347,309       (34,513 )

Income before income taxes

  $ 237,619     $ 234,473     $ 690,612     $ 308,303  

 

There are no intersegment sales reported in the accompanying statements of operations. 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, 2020. The Company evaluates performance based on income or loss from operations before income taxes excluding any nonrecurring gains and losses. 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.

 

 

Note 5:      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 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 6:      Related Party Transactions

 

The Company and Stream Wetlands Services, LLC (“Stream Wetlands”) are parties to an option to lease agreement dated April 17, 2017 (the “OTL”). The OTL provided Stream Wetlands an option to lease certain lands from the Company, subject to the negotiation and execution of a mutually acceptable lease form. On February 28, 2021, the Company renewed the OTL for a period of 12 months through February 28, 2022 in exchange for a payment by Stream Wetlands of $38,333, and Stream Wetlands may extend the option for one more year through February 28, 2023 upon payment of an additional $38,333. William Gray Stream, the President and Treasurer and a director of the Company, is the president of Stream Wetlands.

 

The Company’s President and Treasurer is also the President of Matilda Stream Management, Inc. Matilda Stream Management provides administrative and accounting services to the Company for no compensation.

 

The Company’s immediate past President and current Secretary and director is a partner in Stockwell, Sievert, Viccellio, Clements, LLP (“Stockwell”). Beginning in August 2018, the Company began renting office space from Stockwell. The Company paid 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 reimbursed Stockwell for miscellaneous office supplies and legal expenses. For the six months ended June 30, 2020, the Company recorded $16,713 in total of such expense, of which $4,500 was rent expense. These expenses were paid through August 31, 2020 and Stockwell ceased providing these services to the Company on August 31, 2020.

 

Surface revenue-related party was $19,166 for each of the six months ended June 30, 2021 and 2020. All of this amount was attributable to the OTL with Stream Wetlands described above.

 

4

 

 

 

Note 7:      Concentrations

 

Revenue from the Company's five largest customers for the six months ended June 30, 2021 and 2020, respectively were:

 

     

Six Months Ended June 30,

 

Count

   

2021

   

2020

 
1     $ 54,300     $ 59,905  
2       49,324       22,407  
3       28,679       20,078  
4       26,644       14,561  
5       24,535       14,172  

 

 

 

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 financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year ended December 31, 2020 and the related Managements 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, 2020, filed on March 25, 2021.

 

Cautionary Statement

 

This Management’s Discussion and Analysis includes a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and 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, this Form 10-Q 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.

 

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 surface payments from its lands. CKX receives income from royalty interests and mineral leases related to oil and gas production, timber sales, land 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. These commodity prices are affected by numerous factors and uncertainties external to CKX’s business and over which it has no control, including the global supply and demand for oil and gas, the effect of the COVID-19 pandemic and government responses to the pandemic on supply and demand, and domestic and global economic conditions, among other factors.

 

5

 

CKX has small royalty interests in 20 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 and on timberland and agricultural land. 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.

 

The Company’s Board of Directors regularly evaluates a range of strategic opportunities that could maximize shareholder value, and the Board and management conduct due diligence activities in connection with such opportunities. These include opportunities for growth though the acquisitions of land or other assets, business combinations, dispositions of assets and reinvestment of the proceeds, and other alternatives. The cost and terms of any financing to be raised in conjunction with any growth opportunity, including the Company’s ability to raise debt or equity capital on terms and at costs satisfactory to the Company, and the effect of such opportunities on the Company’s balance sheet, are critical considerations in any such evaluation. We cannot assure you that the Board’s evaluations or the Company’s due diligence activities will result in any transaction or other course of action.

 

 

Recent Developments

 

In the first quarter of 2019, the Company began developing several ranchette-style subdivisions on certain of its lands in Calcasieu and Beauregard Parishes using existing road rights of way.  The Company has identified demand in those areas for ranchette-style lots, which consist of more than three acres each, and the Board of Directors and management believe this project will allow the Company to realize a return on its investment in the applicable lands after payment of expenses.  The Company has completed and recorded plats for three subdivisions.  The three subdivisions are located on approximately 415 acres in Calcasieu Parish and approximately 160 acres in Beauregard Parish, and contain an aggregate of 39 lots.  As of June 30, 2021, the Company has closed on the sale of 18 of the 39 lots. As of the date of this report the Company sold one additional lot, has one sale pending, and it is actively marketing the remaining lots.

 

The Company is working to identify additional undeveloped acres owned by the Company in Southwest Louisiana that would likewise be suitable for residential subdivisions.

 

 

Results of Operations

 

Summary of Results

 

The Company’s results of operations for the six months ended June 30, 2021 were driven primarily by a higher gain on the sale of land in the first six months of 2021, offset by lower general and administrative expenses. The higher gain on sale of land in the first six months of 2021 is due to the variable nature of land sales. The decrease in general and administrative expenses in the second quarter of 2021 was attributable to decreases in officer salaries, property management fees, legal fees and contract services offset by an increase in property taxes and transfer agent fees.

 

6

 

RevenueThree Months Ended June 30, 2021

 

Total revenues for the three months ended June 30, 2021 were $211,306, an increase of approximately 12% when compared with the same period in 2020. Total revenue consists of oil and gas, timber, and surface revenues. Components of revenues for the three months ended June 30, 2021 as compared to 2020, are as follows:

 

   

Three Months Ended June 30,

                 
   

2021

   

2020

   

Change from
Prior Year

   

Percent Change
from Prior Year

 

Revenues:

                               

Oil and gas

  $ 99,202     $ 67,929     $ 31,273       46.0 %

Timber

    49,414       3,747       45,667       1218.8 %

Surface

    62,690       117,021       (54,331 )     (46.4 )%

Total revenues

  $ 211,306     $ 188,697     $ 22,609       12.0 %

 

Oil and Gas

 

Oil and gas revenues were 47% and 36% of total revenues for the three months ended June 30, 2021 and 2020, respectively. A breakdown of oil and gas revenues for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020 is as follows:

 

   

Three Months Ended June 30,

                 
   

2021

   

2020

   

Change from
Prior Year

   

Percent Change
from Prior Year

 

Oil

  $ 88,967     $ 61,234     $ 27,733       45.3 %

Gas

    8,740       6,085       2,655       43.6 %

Lease and geophysical

    1,495       610       885       145.1 %

Total revenues

  $ 99,202     $ 67,929     $ 31,273       46.0 %

 

 

CKX received oil and/or gas revenues from 66 and 80 wells during the three months ended June 30, 2021 and 2020, respectively.

 

The following schedule summarizes barrels and MCF produced and average price per barrel and per MCF for the three months ended June 30, 2021 and 2020:

 

   

Three Months Ended

 
   

June 30,

 
   

2021

   

2020

 

Net oil produced (Bbl)(2)

    1,569       1,534  

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

  $ 56.70     $ 39.92  

Net gas produced (MCF)

    2,828       3,441  

Average gas sales price (per MCF)(1)

  $ 3.09     $ 1.77  

 

(1)  Before deduction of production costs and severance taxes

(2)  Excludes plant products

 

Oil revenues increased for the three months ended June 30, 2021, as compared to the three months ended June 30, 2020, by $27,733. Gas revenues increased for the three months ended June 30, 2021, as compared to the same period in 2020, by $2,655. As indicated from the schedule above, the increase in oil revenues was due to an increase in the net oil produced and an increase in the average oil sales price per barrel. The increase in gas revenues was due to an increase in average gas sales price per MCF partially offset by a decrease net gas produced.

 

Lease and geophysical revenues increased for the three months ended June 30, 2021, as compared to the three months ended June 30, 2020, by $885. These revenues are dependent on oil and gas producers’ activities, are not predictable and can vary significantly from year to year.

 

Timber

 

Timber revenue was $49,414 and $3,747 for the three months ended June 30, 2021 and 2020, respectively. The increase in timber revenues was due to wet weather during the second quarter of fiscal 2020 that limited customers’ ability to harvest timber.

 

7

 

Surface

 

Surface revenues decreased for the three months ended June 30, 2021, as compared to the three months ended June 30, 2020, by $54,331. This decrease is due to a reduction in one-time right of way income.

 

RevenueSix Months Ended June 30, 2021

 

Total revenues for the six months ended June 30, 2021 were $366,182, a decrease of approximately $2,906 when compared with the same period in 2020. Total revenue consists of oil and gas, timber, and surface revenues. Components of revenues for the six months ended June 30, 2021 as compared to 2020, are as follows:

 

   

Six Months Ended June 30,

                 
   

2021

   

2020

   

Change from
Prior Year

   

Percent Change
from Prior Year

 

Revenues:

                               

Oil and gas

  $ 149,347     $ 182,979     $ (33,632 )     (18.4 )%

Timber sales

    102,941       11,635       91,306       784.8 %

Surface revenue

    113,894       174,474       (60,580 )     (34.7 )%

Total revenues

  $ 366,182     $ 369,088     $ (2,906 )     (0.8 )%

 

 

Oil and Gas

 

Oil and gas revenues were 41% and 50% of total revenues for the six months ended June 30, 2021 and 2020, respectively. A breakdown of oil and gas revenues for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020 is as follows:

 

   

Six Months Ended June 30,

                 
   

2021

   

2020

   

Change from
Prior Year

   

Percent Change
from Prior Year

 

Oil

  $ 125,446     $ 157,459     $ (32,013 )     (20.3 )%

Gas

    21,661       24,062       (2,401 )     (10.0 )%

Lease and geophysical

    2,240       1,458       782       53.6 %

Total revenues

  $ 149,347     $ 182,979     $ (33,632 )     (18.4 )%

 

CKX received oil and/or gas revenues from 69 and 80 wells during the six months ended June 30, 2021 and 2020, respectively.

 

The following schedule summarizes barrels and MCF produced and average price per barrel and per MCF for the six months ended June 30, 2021 and 2020:

 

   

Six Months Ended

 
   

June 30,

 
   

2021

   

2020

 

Net oil produced (Bbl)(2)

    2,322       3,120  

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

  $ 54.02     $ 50.46  

Net gas produced (MCF)

    7,284       10,839  

Average gas sales price (per MCF)(1)

  $ 2.97     $ 2.22  

 

(1)  Before deduction of production costs and severance taxes

(2)  Excludes plant products

 

Oil revenues decreased for the six months ended June 30, 2021, as compared to the six months ended June 30, 2020, by $32,013. Gas revenues decreased for the six months ended June 30, 2021, as compared to the same period in 2020, by $2,401. As indicated from the schedule above, the decrease in oil revenues was due to a decrease in the net oil produced partially offset by an increase in the average oil sales price per barrel. The decrease in gas revenues was due to a decrease in net gas produced partially offset by an increase in the average price per MCF.

 

Lease and geophysical revenues increased for the six months ended June 30, 2021, as compared to the six months ended June 30, 2020, by $782. These revenues are dependent on oil and gas producers’ activities, are not predictable and can vary significantly from year to year.

 

8

 

Timber

 

Timber revenue was $102,941 and $11,635 for the six months ended June 30, 2021 and 2020, respectively. The increase in timber revenues was due to wet weather during the six months of fiscal 2020 that limited customers’ ability to harvest timber and recognition of an expired stumpage agreement.

 

Surface

 

Surface revenues decreased for the six months ended June 30, 2021, as compared to the six months ended June 30, 2020, by $60,580. This decrease is due to a reduction in one-time right of way income.

 

Costs and ExpensesThree and Six Months Ended June 30, 2021

 

Oil and gas costs decreased for the three and six months ended June 30, 2021 as compared to the three and six months ended June 30, 2020 by $1,627, and $5,143, respectively. These variances are due to the normal variations in year to year costs.

 

Timber costs increased for the three months ended June 30, 2021, as compared to the three months ended June 30, 2020, by $3,501. Timber costs increased for the six months ended June 30, 2021, as compared to the six months ended June 30, 2020, by $2,008. Timber costs are related to timber revenue.

 

General and administrative expenses decreased for the three months ended June 30, 2021, as compared to the three months ended June 30, 2020, by $44,771. This is primarily due to a decrease in officer salaries, property management fees, legal fees and contract services offset by an increase in insurance fees. General and administrative expenses decreased for the six months ended June 30, 2021, as compared to the six months ended June 30, 2020 by $84,810. This is primarily due to a decrease in officer salaries, property management fees, legal fees and contract services offset by an increase in property taxes and transfer agent fees.

 

Gain on Sale of LandThree and Six Months Ended June 30, 2021

 

Gain on sale of land was $184,045 and $220,800 for the three months ended June 30, 2021 and 2020, respectively. Gain on sale of land was $590,265 and $253,907 for the six months ended June 30, 2021 and 2020, respectively. For the six months ended June 30, 2021, this consisted of a gain on sale of fourteen pieces of land including twelve lots in subdivisions and unimproved land. For the six months ended June 30, 2020, this consisted of a gain on sale of four pieces of land including three lots in subdivisions and one sale to local government for roadway construction.

 

Liquidity and Capital Resources

 

Sources of Liquidity

 

Current assets totaled $7,773,832 and current liabilities equaled $299,498 at June 30, 2021.

 

As of June 30, 2021 and December 31, 2020, the Company had no outstanding debt.

 

In the opinion of management, cash and cash equivalents are adequate for projected operations and possible land acquisitions.

 

Analysis of Cash Flows

 

Net cash provided by (used in) operating activities was ($64,018) and $92,042 for the six months ended June 30, 2021 and June 30, 2020, respectively. The change was attributable primarily to the increase in net income offset by the increase on the gain on the sale of land.

 

Net cash provided by investing activities was $730,999 and $194,818 for the six months ended June 30, 2021 and 2020, respectively.  For the six months ended June 30, 2021, this primarily resulted from proceeds from the sale of fixed assets of $745,237 offset by purchases of mutual funds of $124 and costs of reforesting timber of $14,114. For the six months ended June 30, 2020, this primarily resulted from purchases of certificates of deposit of $1,985,465 and purchases of mutual funds of $3,175, offset by proceeds from maturity of certificates of deposit of $1,929,000 and the proceeds from the sale of fixed assets of $254,458.

 

Significant Accounting Polices and Estimates

 

There were no changes in our significant accounting policies and estimates during the six months ended June 30, 2021 from those set forth in “Significant Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2020.

 

9

 

Recent Accounting Pronouncements

 

See Note 1, Basis of Presentation and Recent Accounting Pronouncements, to our condensed financial statements included in this report for information regarding recently issued accounting pronouncements that may impact our financial statements.

 

Off-Balance Sheet Arrangements

 

During the six months ended June 30, 2021, 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.

 

ITEM 3. NOT APPLICABLE

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Pursuant 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 Company’s disclosure controls and procedures (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 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 June 30, 2021, the Company’s disclosure controls and procedures were effective.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting during the fiscal quarter ended June 30, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

10

 

PART II - OTHER INFORMATION

 

 

ITEMS 15.  NOT APPLICABLE

 

ITEM 6.  EXHIBITS

 

 

3.1

Restated Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to Form 10-K (File No. 001-31905) for the year ended December 31, 2018 filed on March 21, 2019).

 

 

3.2

Amendment to Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.2 to Form 10-K (File No. 001-31905) for the year ended December 31, 2003 filed on March 19, 2004).

     
 

3.3

Articles of Amendment to the Restated Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.3 to Form 10-K (File No. 001-31905) for the year ended December 31, 2018 filed on March 21, 2019).

     
 

3.4

Amended and Restated By-Laws of the Registrant (incorporated by reference to Exhibit 3.1 to Form 8-K (File No. 001-31905) filed on August 9, 2019).

     
  10.1 CKX Lands, Inc. Stock Incentive Plan (incorporated by reference to Exhibit 4.5 to Form S-8 (File No. 333-256589) filed on May 28, 2021.
     
 

31*

Certification of W. Gray Stream, President and Treasurer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

     
 

32**

Certification of W. Gray Stream, President and Treasurer, pursuant to 18 U.S.C. Section 1350 and Section 906 of the Sarbanes-Oxley Act of 2002.

     
 

101.INS

Inline XBRL Instance

 

 

101.SCH

Inline XBRL Taxonomy Extension Schema

 

 

101.CAL

Inline XBRL Taxonomy Extension Calculation

 

 

101.DEF

Inline XBRL Taxonomy Extension Definition

 

 

101.LAB

Inline XBRL Taxonomy Extension Labels

 

 

101.PRE

Inline XBRL Taxonomy Extension Presentation

     
  104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

 

*

Filed herewith

 

**

Furnished herewith

 

11

 

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: August 6, 2021

 

CKX LANDS, INC.

 
   

By:

 
   

/s/ W. Gray Stream

 

W. Gray Stream

 

President and Treasurer

 

(Principal executive and financial officer)

 

 

12
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