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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 September 30, 2022

 

☐

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: 1,974,427 shares of common stock are issued and outstanding as of November 1, 2022.

 

 
 

 

 

TABLE OF CONTENTS

 

 

Page
   

PART I.

FINANCIAL INFORMATION

  
     

ITEM 1.

FINANCIAL STATEMENTS

  
 

BALANCE SHEETS AS OF SEPTEMBER 30, 2022 (UNAUDITED) AND DECEMBER 31, 2021

  
 

STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 (UNAUDITED)

  
 

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 (UNAUDITED)

  
 

STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 (UNAUDITED)

  
 

NOTES TO FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2022 (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

 

   

September 30,

    

December 31,

  
   

2022

(unaudited)

    

2021

  
ASSETS  

 

          
Current assets:                

Cash and cash equivalents

   $ 7,382,956     $ 7,409,873  

Equity investment in mutual funds

     505,119       502,832  

Accounts receivable

     97,439       50,739  

Prepaid expense and other assets

     136,908       35,405  
Total current assets     8,122,422       7,998,849  

Property and equipment, net

     9,082,897       9,056,238  
Total assets   $ 17,205,319     $ 17,055,087  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
                 
Current liabilities:                

Trade payables and accrued expenses

   $ 82,488     $ 111,123  

Unearned revenue

     121,438       150,113  
Total current liabilities     203,926       261,236  

Deferred income tax payable

     187,664       187,664  
Total liabilities     391,590       448,900  
                 
Stockholders' equity:                
Common stock, 3,000,000 shares authorized, no par value, 1,988,701 and 1,974,427 shares issued and outstanding, respectively as of September 30, 2022, and 1,942,495 shares issued and outstanding as of December 31, 2021     59,335       59,335  

Additional paid in capital

     707,788       -  

Treasury stock, 14,274 shares, at cost

     (176,592 )     -  

Retained earnings

     16,223,198       16,546,852  
Total stockholders' equity     16,813,729       16,606,187  
Total liabilities and stockholders' equity   $ 17,205,319     $ 17,055,087  

 

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

 

 
 

 

 

CKX LANDS, INC.

STATEMENTS OF OPERATIONS

(Unaudited)

 

   

Three Months Ended September 30,

    

Nine Months Ended September 30,

  
   

2022

    

2021

    

2022

    

2021

  
                                 

Revenues:

                                

Oil and gas

   $ 188,233     $ 108,208     $ 412,375     $ 257,555  

Timber sales

     87,904       11,936       198,283       114,877  

Surface revenue

     44,511       43,819       182,953       138,548  

Surface revenue - related party

     9,584       9,583       28,751       28,749  

Total revenue

     330,232       173,546       822,362       539,729  

Costs, expenses and (gains):

                                

Oil and gas costs

     17,844       12,264       38,194       29,930  

Timber costs

     3,516       3,255       6,701       8,468  

Surface costs

     -       -       5,129       -  

General and administrative expense

     411,189       141,136       1,180,832       392,538  

Depreciation expense

     711       507       1,901       1,517  

Gain on sale of land

     (5,667 )     (261,316 )     (5,667 )    

(851,582

 )

Total costs, expenses and (gains)

     427,593       (104,154 )     1,227,090       (419,129 )

Income (loss) from operations

     (97,361 )     277,700       (404,728 )     958,858  
                                 

Interest income

     9,107       3,622       15,563       13,075  

Miscellaneous income

     -       -       3,282       -  

Income (loss) before income taxes

     (88,254 )     281,322       (385,883 )     971,933  

Federal and state income tax expense (benefit):

                                
Income tax expense (benefit)     (36,551 )     92,813       (62,229 )     182,269  

Total income tax expense (benefit)

     (36,551 )     92,813       (62,229 )     182,269  

Net income (loss)

   $ (51,703 )   $ 188,509     $ (323,654 )   $ 789,664  
                                 

Basic and diluted earnings per share

   $ (0.03 )   $ 0.10     $ (0.17 )   $ 0.41  

Weighted average shares outstanding, basic and diluted

     1,972,714       1,942,495       1,954,012       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 SEPTEMBER 30, 2022 AND 2021

(Unaudited)

 

 

   

Common Stock

            

Additional Paid-In

    

Retained

    

Total

  
   

Shares

    

Amount

    

Treasury Stock

    

Capital

    

Earnings

    

Equity

  

Balances, June 30, 2022

     1,974,079     $ 59,335     $ (131,335 )   $ 414,291     $ 16,274,901     $ 16,617,192  

Issuances under share-based compensation

     14,622       -       -       -       -       -  

Share-based compensation

     -       -       -       293,497       -       293,497  

Repurchases of common stock

     -       -       (45,257 )     -       -       (45,257

)

Net loss

     -       -       -       -       (51,703 )     (51,703 )

Balances, September 30, 2022

     1,988,701     $ 59,335     $ (176,592 )   $ 707,788     $ 16,223,198     $ 16,813,729  

 

   

Common Stock

            

Additional Paid-In

    

Retained

    

Total

  
   

Shares

    

Amount

    

Treasury Stock

    

Capital

    

Earnings

    

Equity

  

Balances, June 30, 2021

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

Net income

     -       -       -       -       188,509       188,509  

Balances, September 30, 2021

   $ 1,942,495     $ 59,335     $ -     $ -     $ 16,517,167     $ 16,576,502  

 

CKX LANDS, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(Unaudited)

 

   

Common Stock

            

Additional Paid-In

    

Retained

    

Total

  
   

Shares

    

Amount

    

Treasury Stock

    

Capital

    

Earnings

    

Equity

  

Balances, December 31, 2021

     1,942,495     $ 59,335     $ -     $ -     $ 16,546,852     $ 16,606,187  

Issuances under share-based compensation

     46,206       -       -       -       -       -  

Share-based compensation

     -       -       -       707,788       -       707,788  

Repurchases of common stock

     -       -       (176,592 )     -       -       (176,592

)

Net loss

     -       -       -       -       (323,654 )     (323,654 )

Balances, September 30, 2022

     1,988,701     $ 59,335     $ (176,592 )   $ 707,788     $ 16,223,198     $ 16,813,729  

 

   

Common Stock

            

Additional Paid-In

    

Retained

    

Total

  
   

Shares

    

Amount

    

Treasury Stock

    

Capital

    

Earnings

    

Equity

  

Balances, December 31, 2020

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

Net income

     -       -       -       -       789,664       789,664  

Balances, September 30, 2021

     1,942,495     $ 59,335     $ -     $ -     $ 16,517,167     $ 16,576,502  

 

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

 

 
 

 

 

CKX LANDS, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

 

   

Nine Months Ended

 
   

September 30,

  
   

2022

    

2021

  
CASH FLOWS FROM OPERATING ACTIVITIES                

Net income (loss)

   $ (323,654 )   $ 789,664  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:                

Depreciation expense

     1,901       1,517  

Depletion expense

     737       534  

Gain on sale of land

     (5,667 )     (851,582 )

Unrealized (gain) loss on equity investment in mutual funds

     504       -  

Share-based compensation

     707,788       -  
Changes in operating assets and liabilities:                

(Increase) decrease in current assets

     (148,203 )     14,204  

Increase (decrease) in current liabilities

     (57,310 )     (18,230 )

Net cash provided by (used in) operating activities

     176,096       (63,893 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES                

Purchases of mutual funds

     (2,791 )     (199 )

Purchase of property and equipment

     (12,835 )     -  

Costs of reforesting timber

     (16,462 )     (17,650 )

Purchases of land

     -       (4,063 )

Proceeds from the sale of fixed assets

     5,667       1,010,482  

Net cash (used in) provided by investing activities

     (26,421 )     988,570  
                 
CASH FLOWS FROM FINANCING ACTIVITIES                

Repurchases of common stock

     (176,592 )     -  

Net cash used in investing activities

     (176,592 )     -  
                 

NET CHANGE IN CASH AND CASH EQUIVALENTS

     (26,917 )     924,677  

Cash and cash equivalents, beginning of the period

     7,409,873       6,463,255  

Cash and cash equivalents, end of the period

   $ 7,382,956     $ 7,387,932  
                 
SUPPLEMENTAL CASH FLOW INFORMATION                

Cash paid for interest

   $ -     $ -  

Cash paid for income taxes

   $ 16,947     $ 171,423  
                 

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES

                

Sale of land accrued in accounts receivable

   $ -     $ 19,170  

 

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, 2021 included in our Annual Report on Form 10-K. The results of operations for the three and nine months ended September 30, 2022 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

 

On March 11, 2020, the WHO declared COVID-19 a pandemic. While the Company did not incur significant disruptions to its operations during 2021 and in 2022 to date from COVID-19, it is unable at this time to predict the impact that COVID-19 or new variants of the novel coronavirus 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. At times, cash balances may exceed the Federal Deposit Insurance Corporation’s insured limit of $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. During the year ended December 31, 2021, the Company performed a step zero impairment analysis on furniture and fixtures and land improvements and determined there were no qualitative factors that would indicate impairment. No impairment charges were recorded during the nine months ended September 30, 2022 and 2021.

 

Share-Based Compensation

 

We maintain one active incentive compensation plan: the 2021 Stock Incentive Plan (the Plan). The Plan provides for the issuance of restricted stock units (RSUs) and performance-based restricted stock units (PSUs) to certain of our employees, non-employee directors and consultants.

 

For awards that are subject to market conditions, we utilize a binomial-lattice model (i.e., Monte Carlo simulation model), to determine the fair value. The Monte Carlo simulation model utilizes multiple input variables to determine the share-based compensation expense. For grants with market conditions made during the nine months ended September 30, 2022, we utilized an annualized volatility of 39.6%, a 0% dividend yield and an annual risk-free interest rate of 3.5% each determined over a period consistent with the performance period associated with the awards with market conditions. The volatility was based on the last five-year period of our stock performance. The stock price projection for us assumes a 0% dividend yield. This is mathematically equivalent to reinvesting dividends in the issuing entity over the performance period. The risk-free interest rate is equal to the yield, as of the measurement date, of the zero-coupon U.S. Treasury bill that is commensurate with the remaining performance measurement period.

 

1
 

 

Share-based compensation expense related to RSUs and PSUs are expensed over the grant date to the end of the requisite service period using the straight-line method. The RSUs and PSUs do not have voting rights. We calculate the fair value of our share-based awards on the date of grant.

 

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. For the three and nine months ended September 30, 2022, potentially dilutive shares totaling to 310,794 RSU and PSU shares were excluded in the calculation of earnings per share as their effect is anti-dilutive due to the Company's net loss for such periods. There were no dilutive shares outstanding for the three and nine months ended September 30, 2021.

 

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 nine months ended September 30, 2022 and 2021.

 

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 to the accounting literature 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.

 

2
 

 

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

 

         

September 30, 2022

    

December 31, 2021

  

Financial Assets:

  

Level

    

Carrying Value

    

Fair Value

    

Carrying Value

    

Fair Value

  
                                       

Cash and cash equivalents

   1     $ 7,382,956     $ 7,382,956     $ 7,409,873     $ 7,409,873  

Equity investment in mutual funds

   1       507,406       505,119       504,606       502,832  

Total

         $ 7,890,362     $ 7,888,075     $ 7,914,479     $ 7,912,705  

 

 

Note 3:      Property and Equipment

 

Property and equipment consisted of the following:

 

   

September 30,

    

December 31,

  
   

2022

    

2021

  
                 

Land

   $ 6,815,711     $ 6,815,147  

Timber

     2,230,710       2,214,985  

Equipment

     120,873       108,602  
      9,167,294       9,138,734  

Accumulated depreciation

     (84,397 )     (82,496 )

Total

   $ 9,082,897     $ 9,056,238  

 

During the nine months ended September 30, 2022 and 2021, the Company had a gain on sale of land of $5,667 and $851,582, respectively.

 

Depreciation expense was $1,901 and $1,517 for the nine months ended September 30, 2022 and 2021, respectively.

 

Depletion expense was $737 and $534 for the nine months ended September 30, 2022 and 2021, 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.

 

3
 

 

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

 

   

Nine Months Ended
September 30,

   

Year Ended
December 31,

 
   

2022

    

2021

  

Identifiable Assets, net of accumulated depreciation

                

Timber

   $ 2,230,710     $ 2,214,985  

General corporate assets

     14,974,609       14,840,102  

Total

     17,205,319       17,055,087  
                 

Capital expenditures:

                

Timber

   $ 16,462     $ 18,606  

Surface

     564       4,063  

General corporate assets

     12,271       -  

Total segment costs and expenses

   $ 29,297     $ 22,669  
                 

Depreciation and depletion

                

Oil and gas

   $ -     $ -  

Timber

     737       563  

General corporate assets

     1,901       2,027  

Total

   $ 2,638     $ 2,590  

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2022

    

2021

    

2022

    

2021

  

Revenues:

                                

Oil and gas

   $ 188,233     $ 108,208     $ 412,375     $ 257,555  

Timber sales

     87,904       11,936       198,283       114,877  

Surface revenue

     54,095       53,402       211,704       167,297  

Total segment revenues

     330,232       173,546       822,362       539,729  
                                 

Cost and expenses:

                                

Oil and gas costs

     17,844       12,264     $ 38,194     $ 29,930  

Timber costs

     3,516       3,255       6,701       8,468  

Surface costs

     -               5,129       -  

Total segment costs and expenses

     21,360       15,519       50,024       38,398  
                                 

Net income from operations:

                                

Oil and gas

     170,389       95,944     $ 374,181     $ 227,625  

Timber

     84,388       8,681       191,582       106,409  

Surface

     54,095       53,402       206,575       167,297  

Total segment net income from operations

     308,872       158,027       772,338       501,331  

Unallocated other income (expense) before income taxes

     (397,126 )     123,295       (1,158,221 )     470,602  

Income (loss) before income taxes

   $ (88,254 )   $ 281,322     $ (385,883 )   $ 971,933  

 

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, 2021. 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 for the tax returns that remain subject to examination. Generally, returns are subject to examination for three years after filing. 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.

 

4
 

 

 

Note 6:      Related Party Transactions

 

The Company and Stream Wetlands Services, LLC (“Stream Wetlands”) were 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, 2022, the Company exercised the OTL and entered into a lease in exchange for a payment by Stream Wetlands of $38,333. William Gray Stream, the President and a director of the Company, is the president of Stream Wetlands.

 

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

 

Surface revenue-related party was $28,751 and $28,749 for the nine months ended September 30, 2022 and 2021, respectively. All of these amounts were attributable to the OTL with Stream Wetlands described above.

 

 

 

Note 7:      Concentrations

 

Revenue from the Company's five largest customers for the nine months ended September 30, 2022 and 2021, respectively were:

 

     

Nine Months Ended September 30,

 

Count

    

2022

    

2021

  
1     $ 106,373     $ 61,350  
2       86,854       54,300  
3       63,302       50,095  
4       58,662       42,294  
5       48,450       40,821  

 

 

Note 8:      Share-Based Compensation

 

During the nine months ended September 30, 2022, the Company issued to certain employees an aggregate of 76,755 RSUs that vest over a three-year period through July 15, 2024 and 280,245 PSUs that vest upon achievement of certain stock price hurdles as measured during the period from July 15, 2020 through July 15, 2024. Each of the time-based and market-condition awards are subject to the recipient’s continued service with us, the terms and conditions of our stock incentive plan and the applicable award agreement. No awards were issued in 2021. As of September 30, 2022, 14,622 RSUs and 31,584 PSUs vested and the underlying shares were issued to employees.

 

The share-based compensation expense recognized is included in general and administrative expense in the statements of operations. The total fair value of the awards was $2,794,169 of which $2,086,381 was unrecognized stock-based compensation expense as of September 30, 2022.

 

The plan participants elected to have the Company withhold 4,108 shares of the 14,622 shares earned to cover the employee payroll tax withholdings for the vested shares earned during the three-month period ended September 30, 2022. The plan participants elected to have the Company withhold 14,274 shares of the 46,206 shares earned to cover the employee payroll tax withholdings for the vested shares earned during the nine-month period ended September 30, 2022. These shares are reported as treasury stock on the balance sheet.

 

The share-based compensation expense recognized by award type was $125,001 and $582,787 for RSUs and PSUs, respectively, for the nine months ended September 30, 2022.

 

 

 

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, 2021 and the related Management’s 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, 2021, filed on March 28, 2022.

 

5
 

 

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, geopolitical conditions and domestic and global economic conditions, among other factors.

 

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 Company’s 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 alternatives that could increase shareholder value, 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, 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.

 

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 September 30, 2022, the Company has closed on the sale of 21 of the 39 lots. As of the date of this report no sales were pending, and the Company is actively marketing the remaining lots.

 

6
 

 

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 nine months ended September 30, 2022 were driven primarily by an increase in oil and gas, timber and surface revenues offset by an increase in general and administrative expenses. The increase in general and administrative expenses is primarily due to the decision to award the officers, who previously served without pay, share-based compensation, an increase in payroll expenses, audit fees and legal fees.

 

Revenue – Three Months Ended September 30, 2022

 

Total revenues for the three months ended September 30, 2022 were $330,232, an increase of approximately 90% when compared with the same period in 2021. Total revenue consists of oil and gas, timber, and surface revenues. Components of revenues for the three months ended September 30, 2022 as compared to 2021, are as follows:

 

   

Three Months Ended September 30,

                 
   

2022

    

2021

    

Change from
Prior Year

    

Percent Change
from Prior Year

  

Revenues:

                                

Oil and gas

   $ 188,233     $ 108,208     $ 80,025       74.0 %

Timber

     87,904       11,936       75,968       636.5 %

Surface

     54,095       53,402       693       1.3 %

Total revenues

   $ 330,232     $ 173,546     $ 156,686       90.3 %

 

Oil and Gas

 

Oil and gas revenues were 57% and 62% of total revenues for the three months ended September 30, 2022 and 2021, respectively. A breakdown of oil and gas revenues for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 is as follows:

 

   

Three Months Ended September 30,

                 
   

2022

    

2021

    

Change from
Prior Year

    

Percent Change
from Prior Year

  

Oil

   $ 170,376     $ 100,715     $ 69,661       69.2 %

Gas

     17,199       6,532       10,667       163.3 %

Lease and geophysical

     658       961       (303 )     (31.5 )%

Total revenues

   $ 188,233     $ 108,208     $ 80,025       74.0 %

 

CKX received oil and/or gas revenues from 80 and 64 wells during the three months ended September 30, 2022 and 2021, respectively.

 

The following schedule summarizes barrels and MCF produced and average price per barrel and per MCF for the three months ended September 30, 2022 and 2021:

 

   

Three Months Ended

  
   

September 30,

  
   

2022

    

2021

  

Net oil produced (Bbl)(2)

     1,585       1,653  

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

   $ 107.49     $ 60.94  

Net gas produced (MCF)

     2,084       1,991  

Average gas sales price (per MCF)(1)

   $ 8.25     $ 3.28  

 

7
 

 

Oil revenues increased for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021, by $69,661. Gas revenues increased for the three months ended September 30, 2022, as compared to the same period in 2021, by $10,667. As indicated from the schedule above, the increase in oil revenues was due to an increase in the average oil sales price per barrel partially offset by a decrease in the net oil produced. The increase in gas revenues was due to an increase in average gas sales price per MCF and an increase in net gas produced.

 

Lease and geophysical revenues decreased for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021, by $303. 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 $87,904 and $11,936 for the three months ended September 30, 2022 and 2021, respectively. The increase in timber revenues was due to normal business variations in timber customers’ harvesting.

 

Surface

 

Surface revenues increased for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021, by $693.

 

Revenue – Nine Months Ended September 30, 2022

 

Total revenues for the nine months ended September 30, 2022 were $822,362, an increase of approximately $282,633 when compared with the same period in 2021. Total revenue consists of oil and gas, timber, and surface revenues. Components of revenues for the nine months ended September 30, 2022 as compared to 2021, are as follows:

 

   

Nine Months Ended September 30,

                 
   

2022

    

2021

    

Change from
Prior Year

    

Percent Change
from Prior Year

  

Revenues:

                                

Oil and gas

   $ 412,375     $ 257,555     $ 154,820       60.1 %

Timber sales

     198,283       114,877       83,406       72.6 %

Surface revenue

     211,704       167,297       44,407       26.5 %

Total revenues

   $ 822,362     $ 539,729     $ 282,633       52.4 %

 

Oil and Gas

 

Oil and gas revenues were 50% and 48% of total revenues for the nine months ended September 30, 2022 and 2021, respectively. A breakdown of oil and gas revenues for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 is as follows:

 

   

Nine Months Ended September 30,

                 
   

2022

    

2021

    

Change from
Prior Year

    

Percent Change
from Prior Year

  

Oil

   $ 367,208     $ 226,161     $ 141,047       62.4 %

Gas

     41,624       28,193       13,431       47.6 %

Lease and geophysical

     3,543       3,201       342       10.7 %

Total revenues

   $ 412,375     $ 257,555     $ 154,820       60.1 %

 

CKX received oil and/or gas revenues from 87 and 70 wells during the nine months ended September 30, 2022 and 2021, respectively.

 

8
 

 

The following schedule summarizes barrels and MCF produced and average price per barrel and per MCF for the nine months ended September 30, 2022 and 2021:

 

   

Nine Months Ended

  
   

September 30,

  
   

2022

    

2021

  

Net oil produced (Bbl)(2)

     3,734       3,975  

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

   $ 98.34     $ 56.90  

Net gas produced (MCF)

     6,692       9,275  

Average gas sales price (per MCF)(1)

   $ 6.22     $ 3.04  

 

(1) Before deduction of production costs and severance taxes
(2) Excludes plant products

 

Oil revenues increased for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, by $141,047. Gas revenues increased for the nine months ended September 30, 2022, as compared to the same period in 2021, by $13,431. As indicated from the schedule above, the increase in oil revenues was due to an increase in the average oil sales price per barrel partially offset by a decrease in net oil produced. The increase in gas revenues was due to an increase in the average price per MCF partially offset by a decrease in net gas produced.

 

Lease and geophysical revenues increased for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, by $342. 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 $198,283 and $114,877 for the nine months ended September 30, 2022 and 2021, respectively. The increase in timber revenues was due to normal business variation in timber customers’ harvesting.

 

Surface

 

Surface revenues increased for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, by $44,407. This increase is due to multiple one-time oil and gas delay rentals from operators to postpone commencement of drilling during the primary term of lease, income from multiple one-time right of way payments, and new surface leases.

 

Costs and Expenses – Three and Nine Months Ended September 30, 2022

 

Oil and gas costs increased for the three and nine months ended September 30, 2022 as compared to the three and nine months ended September 30, 2021 by $5,580, and $8,264, respectively. These variances are due to the normal variations in year to year costs.

 

Timber costs increased for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021, by $261. Timber costs decreased for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, by $1,767. Timber costs are related to timber revenue.

 

General and administrative expenses increased for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021, by $270,053. This is primarily due to the decision to award the officers, who previously served without pay, share-based compensation and an increase in payroll expenses. General and administrative expenses increased for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021 by $788,294. This is primarily due to the officer compensation described above,and in increase in payroll expenses, auditing fees and legal fees.

 

Gain on Sale of Land – Three and Nine Months Ended September 30, 2022

 

Gain on sale of land was $5,667 and $261,316 for the three months ended September 30, 2022 and 2021, respectively. Gain on sale of land was $5,667 and $851,582 for the nine months ended September 30, 2022 and 2021, respectively. For the nine months ended September 30, 2021, this consisted of a gain on sale of seventeen pieces of land including fourteen lots in subdivisions and unimproved land.

 

Liquidity and Capital Resources

 

Sources of Liquidity

 

Current assets totaled $8,122,422 and current liabilities equaled $203,926 at September 30, 2022.

 

As of September 30, 2022 and December 31, 2021, the Company had no outstanding debt.

 

9
 

 

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

 

The Company’s Board of Directors regularly evaluates a range of strategic alternatives that could increase shareholder value, 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. 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.

 

Analysis of Cash Flows

 

Net cash (used in) provided by operating activities was $176,096 and ($63,893) for the nine months ended September 30, 2022 and September 30, 2021, respectively. The increase in cash provided by operating activities was attributable to higher oil and gas, timber and surface revenue.

 

Net cash (used in) provided by investing activities was ($26,421) and $988,570 for the nine months ended September 30, 2022 and 2021, respectively.  For the nine months ended September 30, 2022, this primarily resulted from purchases of mutual funds of $2,791, purchases of property, plant and equipment of $12,835 and costs of reforesting timber of $16,462 offset by proceeds from the sale of fixed assets of $5,667. For the nine months ended September 30, 2021, this primarily resulted from proceeds from the sale of fixed assets of $1,010,482 offset by purchases of mutual funds of $199, purchases of land of $4,063 and costs of reforesting timber of $17,650.

 

Net cash used in financing activities was $176,592 and $0 for the nine months ended September 30, 2022 and 2021, respectively.  For the nine months ended September 30, 2022, this resulted from repurchases of common stock of $176,592.

 

Significant Accounting Polices and Estimates

 

There were no changes in our significant accounting policies and estimates during the nine months ended September 30, 2022 from those set forth in “Significant Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2021.

 

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 nine months ended September 30, 2022, we did not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).

 

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 officer and principal 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 officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on its evaluation, management concluded that as of September 30, 2022, 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 September 30, 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

10
 

 

PART II - OTHER INFORMATION

 

 

ITEMS 1 – 5.  NOT APPLICABLE

 

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

During the third quarter of fiscal 2022, the Company repurchased shares of its common stock as follows:

 

 

Issuer Purchases of Equity Securities

 

Period

  

(a) Total
Number

of Shares

Purchased(1)

    

(b) Average Price

Paid per Share

    

(c) Total Number
of

Shares
Purchased as

Part of Publicly

Announced Plans
or

Programs

    

(d) Maximum

Number (or

Approximate

Dollar

Value) of Shares

that May yet Be

Purchased Under

the Plans or

Programs

  

Jul. 1 – Jul 31, 2022

    

--

      

--

      

--

      

--

  

Aug. 1 – Aug. 31, 2022

    

--

      

--

      

--

      

--

  

Sep. 1 – Sep. 30, 2022

    

4,108

    

$

11.02

      

--

      

--

  

Total

    

4,108

    

$

11.02

      

--

      

--

  

 

(1)

All purchases were made pursuant to the Company’s 2021 Stock Incentive Plan under which shares were withheld to satisfy tax withholding obligations. The Company does not have a share repurchase program.

 

ITEMS 3 – 5. 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).
   

31.1*

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

31.2*

Certification of Scott A. Stepp, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   

32.1**

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

32.2**

Certification of Scott Stepp, Chief Financial Officer, pursuant to 18 U.S.C. Section 1320 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: November 9, 2022

 

CKX LANDS, INC.

  
   

By:

  
   

/s/ W. Gray Stream

 

W. Gray Stream

  

President

  

(Principal executive officer)

  

 

12
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