Form 10-QSB
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


FORM 10-QSB

 


(Mark One)

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2006

 

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from              to             

Commission file number 0-9669

 


CKX LANDS, INC.

(Exact name of small business issuer as specified in its charter)

 


 

Louisiana   72-0144530

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

One Lakeside Plaza, Lake Charles, Louisiana 70601

(Address of principal executive offices)

337-310-0547

(Issuer’s telephone number)

 

(Former name, former address and former fiscal year, if changed since last report)

 


Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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  x    No  ¨

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes  ¨    No  x

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 1,942,495

Transitional Small Business Disclosure Format (Check one):    Yes  ¨    No  x

 



Table of Contents

CKX Lands, Inc.

Form 10-QSB

For the Quarter Ended June 30, 2006

INDEX

 

            Page
Part I.   Financial Information  
  Item 1.   Financial Statements  
   

a.       Balance Sheet as of June 30, 2006

  1-2
   

b.       Income Statements for the six months ended June 30, 2006 and 2005

  3
   

c.       Cash Flow Statements for the six months ended June 30, 2006 and 2005

  4
   

d.       Stockholder’s Equity Statement for the six months ended June 30, 2006 and 2005.

  5
   

e.       Notes to Financial Statements

  6
  Item 2.   Management’s Discussion and Analysis or Plan of Operations   8
  Item 4.   Controls and Procedures   9
Part II.   Other Information  
  Item 6.   Exhibits and Reports on Form 8-K   9
Signatures   10
Certifications   11-13


Table of Contents

Part I. Financial Information

Item 1. Financial Statements

CKX Lands, Inc.

Balance Sheet

Assets

 

     June 30, 2006

Current Assets

  

Cash and cash equivalents

   $ 2,009,197

Accounts receivables

     460,853

Prepaid expense

     43,911

Interest receivable

     11,788
      

Total Current Assets

     2,525,749
      

Securities Available for Sale

     2,479,029
      

Property and Equipment (less accumulated depreciation of $72,157)

     5,047

Timber (less accumulated depletion of $412,138)

     440,680

Land

     3,998,555
      
     4,444,282
      
   $ 9,449,060
      

See accompanying notes


Table of Contents

CKX Lands, Inc.

Balance Sheet

Liabilities & Stockholders’ Equity

 

     June 30, 2006

Current Liabilities

  

Trade payables and accrued expenses

   $ 37,177

Income taxes payable:

  

Current

     21,935

Deferred

     76,513
      

Total Current Liabilities

     135,625
      

Non-Current Liabilites

  

Deferred income tax payable

     166,833
      

Stockholders’ Equity

  

Common stock, no par value: 3,000,000 shares authorized; 2,100,000 shares issued

   $ 72,256

Retained earnings

     9,393,235

Accumulated other comprehensive income

     56,627
      
     9,522,118

Less cost of treasury stock (157,505 shares)

     375,516
      
     9,146,602
      
   $ 9,449,060
      

See accompanying notes

 

2


Table of Contents

CKX Lands, Inc.

Statements of Income

 

     Quarter Ended
June 30, 2006
   Quarter Ended
June 30, 2005
   Six Months Ended
June 30, 2006
   Six Months Ended
June 30, 2005

Revenues:

           

Oil and gas

   $ 640,348    $ 566,943    $ 1,218,856    $ 1,115,538

Agriculture

     17,119      27,289      74,258      85,785

Timber

     48,236      43,736      68,055      46,728
                           
     705,703      637,968      1,361,169      1,248,051
                           

Costs and expenses:

           

Oil and gas production

     31,431      23,103      62,167      66,585

Agriculture

     278      827      1,688      1,244

Timber

     6,970      4,822      20,556      15,110

General and administrative

     79,233      103,205      195,252      207,929

Depreciation and depletion

     2,984      5,226      5,968      6,785
                           
     120,896      137,183      285,631      297,653
                           

Income from operations

     584,807      500,785      1,075,538      950,398
                           

Other income (expense):

           

Gain-Sale of land

     6,028         6,028   

Interest income

     34,086      16,172      67,371      29,121

Dividends on stock

     18,747      6,472      26,201      12,871

Gain-Sale of Securities

     304         7,589   
                           
     59,165      22,644      107,189      41,992
                           

Income before income taxes

     643,972      523,429      1,182,727      992,390
                           

Federal and state income taxes:

           

Current

     198,753      161,669      366,263      303,862

Deferred

           
                           
     198,753      161,669      366,263      303,862
                           

Net Income

   $ 445,219    $ 361,760    $ 816,464    $ 688,528
                           

Per common stock (1,942,495 shares)

   $ .23    $ .19    $ .42    $ .35

Dividends per share

   $ .07    $ .07    $ .24    $ .24

See accompanying notes

 

3


Table of Contents

CKX Lands, Inc.

Statement of Changes in Cash Flows

 

     Six Months Ended
June 30, 2006
    Six Months Ended
June 30, 2005
 

Cash Flows From Operating Activities

    

Net Income

   $ 816,464     $ 688,528  

Noncash (income) expenses included in net income:

    

Depreciation and depletion

     5,968       6,785  

(Gain) on sale of land

     (6,028 )  

(Gain) on sale of securities

     (7,589 )  

(Increase) decrease in current assets

     (3,845 )     (52,318 )

Increase (decrease) in current liabilities

     (92,560 )     35,489  
                

Net cash provided by operating activities

     712,410       678,484  
                

Cash Flows From Investing Activities

    

Proceeds from sale of land

     6,028    

Purchase of available for sale securities

       (580,697 )

Sale of available for sale securities

     836,469    

Purchase of property, equipment and timber

       (6,834 )
                

Net cash provided by (used in) investing activities

     842,497       (587,531 )
                

Cash Flows From Financing Activities

    

Dividends paid net of refunds

     (466,199 )     (466,426 )
                

Net cash (used in) investing activities

     (466,199 )     (466,426 )
                

Net increase (decrease) in cash and cash equivalents

     1,088,708       (375,473 )

Cash and cash equivalents:

    

Beginning

     920,489       1,214,405  
                

Ending

   $ 2,009,197     $ 838,932  
                

See accompanying notes

 

4


Table of Contents

CKX Lands, Inc.

Statement of Changes in Stockholders’ Equity

Six Months Ended June 30, 2005

 

     Comprehensive
Income
    Retained
Earnings
    Accumulated
Other
Comprehensive
Income
    Capital
Stock
Issued
   Treasury
Stock

Balance, December 2004

     $ 8,220,502     $ 50,781     $ 72,256    $ 375,516

Comprehensive income:

           

Net income

   $ 688,528       688,528         

Other comprehensive income:

           

Unrealized holdings loss occurring during period net of taxes of $5,024

     (7,858 )       (7,858 )     
                 

Total comprehensive income

   $ 680,670           
                 

Dividends

       (466,425 )       
                               

Balance, June 30, 2005

     $ 8,442,605     $ 42,923     $ 72,256    $ 375,516
                               

Six Months Ended June 30, 2006

 

     Comprehensive
Income
   Retained
Earnings
    Accumulated
Other
Comprehensive
Income
   Capital
Stock
Issued
   Treasury
Stock

Balance, December 2005

      $ 9,042,970     $ 31,502    $ 72,256    $ 375,516

Comprehensive income:

             

Net income

   $ 816,464      816,464          

Other comprehensive income:

             

Unrealized holdings gain occurring during period net of taxes of $13,509

     25,125        25,125      
                 

Total comprehensive income

   $ 841,589           
                 

Dividends

        (466,199 )        
                               

Balance, June 30, 2006

      $ 9,393,235     $ 56,627    $ 72,256    $ 375,516
                               

See accompanying notes

 

5


Table of Contents

CKX Lands, Inc.

Notes to Financial Statements

June 30, 2006

(Unaudited)

Note 1. Basis of Presentation

In the opinion of management, the accompanying balance sheet and related interim statements of income, cash flows, and stockholders’ equity include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in accordance with generally accepted accounting principles of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-QSB should be read in conjunction with Management’s Discussion and Analysis and financial statements and notes thereto included in the CKX Lands, Inc. 2005 Form 10-KSB.

Note 2. Nature of Business and Significant Accounting Policies

Nature of business:

The Company’s business is the ownership and management of land. The primary activities consist of leasing its properties for minerals (oil and gas) and agriculture and raising timber.

Significant accounting polices:

Cash and equivalents:

For purposes of the statement of each flows, cash equivalents include time deposits, certificates of deposit, and all highly liquid debt instruments with original maturities of three months or less.

Pervasiveness of estimates:

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Investment securities:

The Company complies with the provisions of Financial Accounting Standards Board Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities. Under the provisions of this statement, management must make a determination at the time of acquisition whether certain investments in debt and equity securities are to be held as investments to maturity, held as available for sale, or held for trading. Management, under a policy adopted by the board of directors of the Company, made a determination that all debt and equity securities owned at that date and subject to the provisions of the statement would be classified as held available-for-sale.

Under the accounting policies provided for investments classified as held available-for-sale,

 

6


Table of Contents

all such debt securities and equity securities that have readily determinable fair value shall be measured at fair value in the balance sheet. Unrealized holding gains and losses for available-for-sale securities shall be excluded from earnings and reported as a net amount (net of income taxes) as a separate component of retained earnings until realized. Realized gains and losses on available-for-sale securities are included in income. The cost of securities sold is based on the specific identification method. Interest on debts securities is recognized in income as earned, and dividends on marketable equity securities are recognized in income when declared.

Declines in the fair value of available-for-sale securities below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Property and equipment:

Property and equipment is stated at cost. Major additions are capitalized; maintenance and repairs are charged to income currently. Depreciation is computed on the straight-line and accelerated methods over the estimated useful lives of the assets.

Timber:

When timber land is purchased with standing timber, the cost is divided between land and timber based on timber cruises contracted by the Company. The costs of reforestation are capitalized. The timber asset is amortized when the timber is sold based on the percentage of the timber sold from a particular tract applied to the amount capitalized for timber for that tract.

Oil and gas:

Oil and gas income is booked when the Company is notified by the well’s operators as to the Company’s share of the sales proceeds together with the withheld severance taxes. The Company has no capitalized costs relating to oil and gas producing activities and no costs for property acquisition, exploration and development activities.

Note 3. Earnings per share:

Earnings per share is based on the weighted average number of common shares outstanding during the year.

Note 4. Income taxes:

Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.

Note 5. Contingencies:

There are no material contingencies known to management. The Company does not participate in off balance sheet arrangements.

 

7


Table of Contents

Item 2. Management’s Discussion and Analysis or Plan of Operation

Results of Operations

Revenue

Revenue for the first six months of 2006 was $1,361,169 an increase of $113,118 or 9.1% over the first six months of 2005. Revenue for the quarter ended June 30, 2006 was $705,703 or 10.6% over the corresponding quarter of 2005. Revenues from agriculture and timber for the first six months of 2006 were down slightly from the first six months of 2005. Oil and gas income was up in 2006 over 2005 for both the first six months and the second quarter periods.

Shown below are comparisons for the two periods of oil and gas production and income from the seven largest interests owned by the Company

 

    

Six Months Ended

June 30, 2006

  

Six Months Ended

June 30, 2005

Oil Income

   $ 418,850    $ 371,923

Barrels produced

     6,784      7,760

Average price per barrel

   $ 61.74    $ 49.92

Gas income

   $ 517,267    $ 475,869

MCF produced

     45,262      62,494

Average price per mcf

   $ 11.42    $ 7.61

Increased oil and gas prices in the first six months of 2006 over the first six months of 2005 yielded higher oil and gas revenue despite a decline in barrels of oil produced and MCF of gas production.

There are no new well completed in the second quarter of 2006.

Operating Expenses

Operating expenses decreased $12,022 or 4% during the first six months of 2006 over the same period in 2005. The general and administrative expenses decreased by $12,677 compared to the first six months of 2005.

Income

Net income after taxes for the quarter ended June 30, 2006 increased $83,459 or 23.1% over the second quarter of 2005. Net income after tax for the first six months of 2006 was $127,936 higher than in 2005, and income from operations was $125,140 higher in 2006 than in 2005.

Financial Condition

Current assets plus securities available for sale totaled $5,004,778 on June 30, 2006, compared with $4,052,453 on June 30, 2005. Total liabilities were $302,458 on June 30, 2006, compared to $245,732 on June 30, 2005.

Management believes existing cash and short-term investments together with funds generated from operations should be sufficient to meet operating requirements and provide funds for strategic acquisitions.

 

8


Table of Contents

The Company declared the normal seven cents per common share during the quarter ended June 30, 2006. It is anticipated that the Company will be able to continue paying a seven cents per common share per quarter.

Issues and Uncertainties

This Quarterly Report contains statements that are forward-looking. 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 listed below, which, among others, should be considered in evaluating the Company’s financial outlook.

Revenues from oil and gas provide most of the Company’s income. All of these revenues come from wells operated by other companies from property belonging to CKX Lands, Inc. Consequently, these revenues fluctuate due to changes in oil and gas prices and changes in the operations of the other companies.

Item 4. Controls and Procedures

Under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Exchange Act Rule 13a -15(e) as of June 30, 2006. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation.

Part II. Other Information

Item 6. Exhibits and Reports on Form 8-K

 

(A) Exhibits

 

31.1   Certification of Arthur Hollins, III, President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herewith.
31.2   Certification of Michael P. Terranova, Treasurer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herewith.
32   Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

(B) Reports on Form 8-K

On April 24, 2006, we filed a Current Report on Form 8-K announcing the election of Michael P. Terranova as Treasurer and Chief Financial Officer to succeed William D. Blake, who retired as Vice-President and Treasurer.

Items 1, 2, 3 and 5 are not applicable.

 

9


Table of Contents

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    CKX Lands, Inc.
Date: August 4, 2006    

/s/ Michael P. Terranova

    Michael P. Terranova
    Treasurer and Chief Financial Officer
   

/s/ Arthur Hollins III

    Arthur Hollins, III
    President and Chief Executive Officer

 

10