Edgar Filing: CKX Lands Inc

Form 10-QSB

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

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

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

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

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

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

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

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,

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.

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.

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.

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

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents