CKX(CKX) - 2019 Q4 - Annual Report

Part I Item 1. Business CKX Lands, Inc. is a Louisiana-based company generating income from oil and gas royalties, timber sales, and surface land payments, owning approximately 13,972 net acres and operating with a single part-time employee - The company's primary income sources are mineral royalties (oil and gas), timber sales, and surface payments from its land holdings[15] - CKX operates three reportable business segments: oil and gas, timber, and surface, with oil and gas revenues accounting for 62% of total revenues in 2019, up from 49% in 2018[17][18] - The company owns approximately 13,972 net acres, primarily in southwest Louisiana[24] - The company has only one part-time employee and is not subject to any union contracts or benefit programs[26] Top 5 Customers by Revenue Contribution (2019) | Customer | Revenue Type | % of Total Revenue | | :--- | :--- | :--- | | Pintail Oil & Gas LLC | Oil & Gas | 13.26% | | Texegy Operating Company LLC | Oil & Gas | 8.96% | | Kaiser-Frances Oil Company | Oil & Gas | 6.7% | | Riceland Petroleum Company | Oil & Gas | 6.67% | | C6 Operating LLC | Oil & Gas | 5.7% | Item 1A. Risk Factors The company faces significant risks including reliance on third-party oil and gas operators, volatile commodity prices, geographic concentration in southwest Louisiana, potential environmental liabilities, illiquid stock, and historical internal control weaknesses - A significant portion of revenues comes from oil and gas activities conducted by third parties, creating a dependency on their success and continued operations[36][37] - Revenues are highly sensitive to fluctuations in commodity prices for oil, natural gas, and timber[38] - The concentration of land holdings in southwest Louisiana exposes the company to risks from hurricanes, flooding, and adverse local economic conditions[40][43] - The company's common stock may lack an active, liquid trading market, potentially leading to price volatility[50] - Material weaknesses in internal controls were identified as of December 31, 2018, and although remediated in 2019, the lack of internal staff (only one part-time employee) presents a risk of future weaknesses[54] Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - Not applicable[55] Item 2. Properties The company owns approximately 13,972 net acres of land exclusively in Louisiana, primarily classified as timberlands across several parishes Net Acreage by Louisiana Parish | Parish | Net Acres | | :--- | :--- | | Calcasieu | 4,820 | | Beauregard | 3,588 | | Allen | 2,483 | | Jefferson Davis | 2,326 | | Other | 755 | | Total | 13,972 | - Of the total net acres, 7,484 acres are 100% owned by the company[58] - The land is primarily classified as timber lands (10,522 net acres), followed by agriculture lands (2,361 net acres)[58] Item 3. Legal Proceedings As of December 31, 2019, the company was not involved in any legal proceedings - The Company was not involved in any legal proceedings as of December 31, 2019[59] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[60] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the NYSE American under the symbol 'CKX', with 1,942,495 shares outstanding held by 452 stockholders as of March 4, 2020, and no dividends were paid or stock repurchased in 2019 - The company's common stock trades on the NYSE American under the symbol CKX[62] - As of March 4, 2020, there were 1,942,495 shares outstanding and 452 stockholders of record[63][65] - The company does not pay dividends on a regular basis, with the Board considering dividends based on prior year's cash flow and current economic conditions[66] Item 6. Selected Financial Data As a smaller reporting company, CKX Lands, Inc. is not required to provide this disclosure - Disclosure in response to this item is not required of a smaller reporting company[68] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations In 2019, total revenues decreased by 32% to $811,271, primarily due to an 84% decline in timber revenue and a 13.3% fall in oil and gas revenue, leading to a significant drop in net income to $249,933 from $1,115,060 in 2018, while the company maintained a strong liquidity position with $6.6 million in current assets and no debt Results of Operations Revenue Comparison (2019 vs. 2018) | Revenue Source | 2019 | 2018 | % Change | | :--- | :--- | :--- | :--- | | Oil and gas | $500,426 | $576,976 | (13.3)% | | Timber sales | $72,847 | $454,177 | (84.0)% | | Surface revenue | $237,998 | $163,610 | 45.5% | | Total revenues | $811,271 | $1,194,763 | (32.1)% | - The sharp decrease in timber revenue was attributed to wet weather that made harvesting difficult[78][87] - The decrease in oil revenue was due to lower average prices per barrel and lower production volume, while gas revenue increased due to higher production[82] - Gain on sale of land and equipment was significantly lower in 2019 at $80,876, compared to $881,654 in 2018[91] Liquidity and Capital Resources - As of December 31, 2019, the company had current assets of $6,620,448 and current liabilities of $217,412[95] - The company had no outstanding debt as of December 31, 2019, as a $1 million line of credit expired in June 2019 and was not extended[96] - Net cash provided by operating activities decreased to $194,711 in 2019 from $241,562 in 2018, primarily due to lower net income[100] - No dividends were paid in 2019, whereas $233,099 was paid in dividends in 2018[102] Item 7A. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, CKX Lands, Inc. is not required to provide this disclosure - Disclosure in response to this item is not required of a smaller reporting company[105] Item 8. Financial Statements and Supplementary Data This section indicates that the company's audited financial statements for 2019 and 2018, along with the independent auditor's report, are included starting on page F-1 - The company's financial statements have been audited by MaloneBailey, LLP, an independent registered public accounting firm[106] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reported no changes in or disagreements with its accountants on any accounting or financial disclosure matters - None[107] Item 9A. Controls and Procedures Management concluded that as of December 31, 2019, the company's disclosure controls and procedures and internal control over financial reporting were effective, having remediated prior material weaknesses through new controls and third-party expertise - Management concluded that disclosure controls and procedures were effective as of December 31, 2019[109][110] - Based on the COSO 2013 framework, management concluded that internal control over financial reporting was effective as of December 31, 2019[114] - Material weaknesses noted in the 2018 Form 10-K were remediated during 2019 by implementing controls such as proper segregation of duties and engaging third-party service organizations[115] Item 9B. Other Information There is no other information to report in this section - None[117] Part III Item 10. Directors, Executive Officers and Corporate Governance Information required by this item is incorporated by reference from the company's definitive proxy statement for its 2020 Annual Meeting of Stockholders - Information is incorporated by reference from the Registrant's definitive proxy statement[119] Item 11. Executive Compensation Information required by this item is incorporated by reference from the company's definitive proxy statement for its 2020 Annual Meeting of Stockholders - Information is incorporated by reference from the Registrant's definitive proxy statement[118] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information required by this item is incorporated by reference from the company's definitive proxy statement for its 2020 Annual Meeting of Stockholders - Information is incorporated by reference from the Registrant's definitive proxy statement[121] Item 13. Certain Relationships and Related Transactions, and Director Independence Information required by this item is incorporated by reference from the company's definitive proxy statement for its 2020 Annual Meeting of Stockholders - Information is incorporated by reference from the Registrant's definitive proxy statement[122] Item 14. Principal Accountant Fees and Services Information required by this item is incorporated by reference from the company's definitive proxy statement for its 2020 Annual Meeting of Stockholders - Information is incorporated by reference from the Registrant's definitive proxy statement[124] Part IV Item 15. Exhibits, Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K report, noting that financial statements are included and schedules are not required - The financial statements are filed as part of this report[127] - A list of exhibits filed with the report includes corporate governance documents, material contracts, and Sarbanes-Oxley certifications[126] Item 16. Form 10-K Summary The company has not provided a summary for its Form 10-K - None[131] Financial Statements Report of Independent Registered Public Accounting Firm MaloneBailey, LLP issued an unqualified opinion on the company's financial statements for 2019 and 2018, confirming fair presentation in conformity with U.S. GAAP - The auditor, MaloneBailey, LLP, expressed an unqualified opinion on the financial statements[141] Financial Statements The company's total assets increased slightly to $15.86 million in 2019, but net income significantly declined to $250k from $1.12 million in 2018 due to lower revenues and a smaller gain on land sales, while cash and cash equivalents substantially increased to $3.28 million Consolidated Balance Sheet Highlights (As of Dec 31) | Account | 2019 | 2018 | | :--- | :--- | :--- | | Cash | $3,280,289 | $1,860,736 | | Total Current Assets | $6,620,448 | $5,631,013 | | Total Assets | $15,862,530 | $15,602,001 | | Total Liabilities | $415,075 | $404,479 | | Total Stockholders' Equity | $15,447,455 | $15,197,522 | Consolidated Statement of Operations Highlights (Year Ended Dec 31) | Account | 2019 | 2018 | | :--- | :--- | :--- | | Total Revenue | $811,271 | $1,194,763 | | Income from Operations | $191,606 | $1,368,351 | | Net Income | $249,933 | $1,115,060 | | Net Income per Share | $0.13 | $0.57 | Consolidated Statement of Cash Flows Highlights (Year Ended Dec 31) | Account | 2019 | 2018 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $194,711 | $241,562 | | Net Cash from Investing Activities | $1,224,842 | $199,869 | | Net Cash from Financing Activities | $0 | ($233,099) | | Net Increase in Cash | $1,419,553 | $208,332 | Notes to Consolidated Financial Statements The notes detail accounting policies, financial instruments, and segment reporting, highlighting revenue recognition for oil and gas, timber, and surface leases, significant customer concentration, related party transactions, and a subsequent option agreement for a land sale - Revenue Recognition: Oil and gas royalty revenue is recognized when produced, and timber revenue is recognized when timber is severed, while surface lease revenue is recognized over the term of the lease[169][171][172] Segment Income from Operations (Year Ended Dec 31) | Segment | 2019 | 2018 | | :--- | :--- | :--- | | Oil and gas | $442,972 | $513,745 | | Timber | $51,703 | $408,537 | | Surface | $236,724 | $139,974 | | Total | $731,399 | $1,062,256 | - The company has significant customer concentration, with the top customer representing 13.26% of total revenue in 2019[211][34] - Related party transactions include an option-to-lease agreement with Stream Wetlands Services, LLC, whose president is a director of the company, and office rental payments to a law firm where the company's President is a partner[215][216] - Subsequent Event: In January 2020, the company entered an option agreement with Driftwood Pipeline, LLC to sell a 1/6th interest in land, receiving a $50,000 deposit[217]