CKX LANDS, INC. 10-K

ITEM 1A. RISK FACTORS   Significant Risk Factors   In addition to the other information set forth in this report, you should carefully consider the following risks, which could materially affect our business, financial condition, or results of operations in future periods. The risks described below are not the only risks facing our Company. Additional risks not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, or results of operations in future periods.   2     The COVID-19 pandemic created a global health crisis and an unprecedented disruption of commercial activity around the world, including in Louisiana. The severity and effect of the pandemic are constantly evolving, and its future consequences ar uncertain, so we cannot predict how it may affect our future financial condition and results of operations.   In response to the COVID-19 pandemic, government authorities around the world implemented “stay-at-home” and other social distancing orders, travel restrictions, quarantines and other measures that required many businesses, including some of our business partners and customers, to close or limit their operations. Disruptions in commercial activity and changes in consumer spending resulting from the pandemic have significantly affected worldwide commerce and the global economy. Although we have operated continuously throughout the pandemic, and while effective COVID-19 vaccines, treatments and other measures have led to improved conditions in the U.S. and many other countries, we cannot predict how the pandemic and new variants of coronavirus could impact our operations in the future. Among other possible effects, the pandemic could materially and adversely affect us in the following ways:     ● We have only one employee, who is our President and Treasurer.  Although our Board of Directors has an emergency management succession plan in case he becomes unavailable due to illness or death from COVID-19, the transition in management to his interim successor may be impeded by the lack of other employees.  In addition, conditions created by the pandemic may make it more difficult for our Board of Directors to attract and retain a permanent replacement for his position.  Likewise, if a significant number of our nine directors were to be incapacitated by the virus, the continuity of our operations might be materially and adversely affected.      ● We depend on third parties for the generation of revenues, such as exploration and production companies, land management companies, surface lessees and timber mills. If any of these businesses limit or suspend their operations due to the pandemic or its economic effects, our operations could be materially, adversely affected. We may be unable to determine whether declines in income-producing activities on our lands are the result of the pandemic or other conditions.     ● A recession in Louisiana where our lands are located may depress the values of our lands and falling commodity prices could continue to reduce certain of our revenue streams. For example, our oil and gas revenues for our 2020 fiscal year were lower than for fiscal 2019 partially due to declines in demand and prices for oil and gas, resulting from the contraction of global economic activity caused by the pandemic.   The direct and indirect effects of the pandemic are extremely widespread and constantly evolving. It is possible that the pandemic could affect our business in the future in ways that we do not or cannot now anticipate.   A significant portion of our revenues is derived from oil and gas activities on our lands. We rely on third parties to conduct that activity.   We rely on third parties to conduct oil and gas exploration and production activity on our lands. If we are not successful in attracting third parties to conduct that activity or if there is any significant interruption in existing activity on our lands, our results of operations, financial condition and cash flows, would be adversely affected. Additionally, our ability to generate future earnings depends on third parties finding new production on our land to replace present production as it is depleted. Oil and gas prices, as well as new technology, will affect the possibility of replacing present production.   Our revenues could be negatively impacted by declines in commodity prices for oil, natural gas, and timber, among others.   We earn a significant portion of our operating income from the sale of commodities produced from our lands: oil and gas, and timber. Fluctuations in the prices for these commodities will directly impact our cash flow, net income and financial condition.   Additionally, because certain of our lands are leased to farmers, declines in the commodity prices for the crops they grow may impact their ability to make lease payments, and therefore could adversely affect our cash flow, results of operations and financial condition.   Our operations and properties could be adversely affected by hurricanes or other adverse weather events, natural disasters, or other significant disruptions.   Our properties are located principally in southwest Louisiana, where major hurricanes and flooding have occurred. Depending on where any hurricane makes landfall or flooding occurs, our properties could be significantly damaged, and income-producing activities on our properties could be disrupted. In fact, approximately 33 percent of our standing timber was at least partially damaged, and oil and gas production on our lands was temporarily interrupted due to Hurricane Laura in August 2020. In addition, the occurrence and frequency of hurricanes and flooding in Louisiana could also negatively impact demand for the use of our real estate assets because of perceptions of hurricane and flooding risks. In addition to hurricanes, the occurrence of other natural disasters and climate conditions in Louisiana, such as tornadoes, fires, unusually heavy or prolonged rain, droughts, prolonged freezing temperatures and heat waves, could have an adverse effect on our ability to use our properties or realize income from our properties.   3     We have approximately 10,495 net acres of timberland in various stages of growth or age classes. A typical pine timber stand will be harvested after 30 to 35 years of growth with some thinning occurring during this time. A hardwood stand will be harvested after 45 to 50 years of growth. A natural disaster can have a material adverse effect on timber growth, reducing its value. In addition to hurricanes, natural disasters that could affect our timber lands include tornados, high winds, heavy rains and flooding, and/or fire caused by lightning or other sources.   If any of the events described above occurs, we may experience disruptions to our operations and damage to our properties, which could have an adverse effect on our business, our financial condition, our results of operations, and our cash flows.   Our land holdings are concentrated in southwest Louisiana, and we therefore may suffer economic harm because of adverse conditions in that region.   Our land holdings are located principally in southwest Louisiana. Due to the concentration of our properties in this area, our performance is dependent on local economic conditions. This area has experienced periods of economic decline in the past and may do so in the future.   We rely on third party managers for day-to-day property management of certain of our properties.   We rely on local third-party managers for the day-to-day management of our timberland properties. The cash flows from our timberland properties may be adversely affected if the property manager fails to provide quality services. These third-party managers may fail to manage our properties effectively or in accordance with the terms of our agreement with them. If any of these events occurs, we could incur losses or face liabilities from the loss or injury to our property or to persons at our properties. In addition, disputes may arise between us and third-party managers, and we may incur significant expenses to resolve those disputes or terminate the relevant agreement with the third parties and locate and engage competent and cost-effective alternative service providers to manage the relevant properties. Additionally, third party managers may manage and own other properties that may compete with our properties, which may result in conflicts of interest and decisions regarding the operation of our properties that are not in our best interests.   Potential environmental liabilities could result in substantial costs to us or cause our land to lose value.   Under federal, state, and local environmental laws, ordinances and regulations, we may be required to investigate and clean up the effects of releases of hazardous substances or petroleum products on our properties because of current or past ownership or operation of oil and gas activities on our lands. If previously unidentified environmental problems arise, we may have to make substantial payments, which could adversely affect our cash flow. As an owner of properties, we may have to pay for property damage and for investigation and cleanup costs incurred in connection with a contamination. The law typically imposes cleanup responsibility and liability regardless of whether an owner knew of or caused the contamination. Changes in environmental regulations or the discovery of environmental damage on our lands may cause the value of our lands to decline, may impact the development potential of our undeveloped land or could increase operating costs due to the cost of complying with new regulations.   Our overall business is subject to risks associated with the real estate industry.   We are subject to all risks related to investment in real estate, many of which relate to the general lack of liquidity of real estate investments, including, but not limited to:     ● changes in general or local economic conditions where our properties are located;   ● lack of availability of financing at favorable rates (or at all) that may render the purchase, sale or refinancing of a property more difficult or unattractive;   ● changes in real estate and zoning laws; and   ● increases in real estate taxes and insurance costs.   Our common stock may not have an active, liquid, and orderly trading market, and our stock price may be volatile.   Our common stock may not have an active, liquid, and orderly trading market due to the relatively low number of shares that are available for trading. Active, liquid, and orderly trading markets usually result in less price volatility and more efficiency in carrying out purchase and sale orders. The trading volume in our common stock may fluctuate and cause price variations to occur.   4     The market price of our common stock could also vary significantly because of a number of other factors, some of which are beyond our control, including the following:     ● actual or anticipated variations in our quarterly operating results or dividends;   ● changes in our results of operations or cash flows;   ● publication of research reports about us or the real estate industry;   ● changes in market valuations of similar companies;   ● speculation in the press or investment community;   ● the realization of any of the other risk factors presented in this annual report;   ● the extent of investor interest in our common stock;   ● our underlying asset value;   ● investor confidence in the stock and bond markets, generally;   ● changes in tax laws; and   ● general market and economic conditions.   If the per share trading price of our common stock declines significantly, stockholders may be unable to resell their shares at or above the price paid for them. We cannot assure stockholders that the per share trading price of our common stock will not fluctuate or decline significantly in the future.   In the past, securities class action litigation has often been instituted against companies following periods of volatility in the price of their common stock. This type of litigation could result in substantial costs and divert our management’s attention and resources, which could have an adverse effect on our financial condition, results of operations, cash flows and our ability to pay dividends on, and the per share trading price of, our common stock.   We could be adversely affected if we grow our Company by acquiring additional land or other assets, including operating businesses, but fail to successfully integrate the acquired asset into our existing business.   Our Board of Directors regularly evaluates a range of strategic alternatives and the Board and management conduct due diligence activities in connection with such alternatives. These include opportunities for growth though the acquisitions of land or other assets or business combinations, dispositions of assets and reinvestment of the proceeds, and other alternatives. 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. For example, we may have difficulty identifying suitable assets to acquire or consummating transactions on terms that are favorable.   We also cannot assure you that any transaction we do enter into will be successful. Significant expansion involves risks, such as:     ● the availability and terms of financing for the transaction and its effect on our financial condition;   ● increased expenses and working capital needs;   ● successfully integrating an acquired asset into our existing business, including:   o the distraction of our current management from our existing business operations;   o the potential loss of key employees or customers of an acquired business;   o identifying key managers to run an acquired business;   o implementing and maintaining consistent standards, controls, procedures and information systems across the company;   o managing the geographic distance of an acquired asset from our other assets and management team; and   o exposure to unforeseen or undisclosed liabilities of any acquired asset.   If we are unable to integrate a new asset into our existing business and manage a larger overall company efficiently, the expansion could adversely affect our operations, financial results and prospects, and we might not realize the cost savings and synergies we expected from the expansion. Additionally, the diversion of management’s time and attention from our day-to-day operations could adversely impact our performance.     ITEM 1B. UNRESOLVED STAFF COMMENTS   Not applicable.   5