SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(X) Quarterly Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the quarterly period ended July 31, 1997
OR
( ) Transition Report pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number: 0-28514
TREASURY INTERNATIONAL, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 98-0160284
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) IdentificationNumber)
1183 Finch Avenue West, North York, Ontario M3J 2G2
(Address of Principal Executive Offices)
Issuer's Telephone Number, Including Area Code: (416) 663-5508
7040 Tranmere Drive, Mississauga, Ontario L5S 1L9
(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
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 21,619,031 shares of Common Stock,
par value $.0001 per share were outstanding as of October 31, 1997.
<PAGE>
INDEX
PAGE
PART I. FINANCIAL INFORMATION....................... 3
ITEM 1. FINANCIAL STATEMENTS..................... 3
Interim Consolidated Balance Sheet as of July 3
31, 1997 and January 31, 1997................
Interim Consolidated Statement of Deficit as 4
of July 31, 1997 and July 31, 1996...........
Interim Consolidated Statement of Operations 5
as for the three months ended July 31, 1997
and 1996 and for the six months ended July
31, 1997 and 1996............................
Interim Consolidated Statement of Changes in 6
Stockholders' Equity as at July 31, 1997.....
Interim Consolidated Statement of Cash Flows 7
as of July 31, 1997 and July 31, 1996........
Notes to Interim Consolidated Financial 8
Statements...................................
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR 12
PLAN OF OPERATION........................
PART II. OTHER INFORMATION.......................... 16
ITEM 1. LEGAL PROCEEDINGS........................ 16
ITEM 2. CHANGES IN SECURITIES.................... 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS......................... 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K......... 16
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
TREASURY INTERNATIONAL, INC.
INTERIM CONSOLIDATED BALANCE SHEET
ASSETS
July 31, 1997
(Unaudited) January 31, 1997
CURRENT
Accounts receivable $689,020 $812,357
Inventories (Notes 2 and 4) 457,737 385,915
Sundry assets 46,281 144,541
Income taxes receivable - 6,182
1,193,038 1,348,995
GOODWILL 1,835,918 1,835,918
CAPITAL ASSETS (Notes 2 and 5) 662,002 723,299
ASSETS RELATED TO DISCONTINUED
OPERATIONS (Note 10) 1,359,857 -
--------- ------
TOTAL ASSETS $5,050,815 $3,908,212
========= =========
LIABILITIES
CURRENT
Bank indebtedness (Note 6) $406,284 $394,407
Accounts payable and accrued
liabilities 978,952 1,018,928
Current portion of long-term
debt 1,097,812 1,147,812
--------- ---------
2,483,048 2,561,147
DEFERRED INCOME TAXES 53,768 54,161
LONG-TERM DEBT (Note 7) 1,228,063 1,304,461
LIABILITIES RELATED TO DISCONTINUED
OPERATIONS (Note 10) 3,337,595 -
TOTAL LIABILITIES $7,102,474 $3,919,769
========= =========
STOCKHOLDERS' EQUITY
SHARE CAPITAL
Authorized
50,000,000 common shares,
$.0001 par value
Issued: 16,880,180 common shares 1,688 1,494
Contributed Surplus at July 31, 1997 2,634,913 1,543,861
DEFICIT (4,688,260) (1,556,912)
TOTAL STOCKHOLDERS' EQUITY (2,051,659) ( 11,557)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $5,050,815 $3,908,212
<PAGE>
TREASURY INTERNATIONAL, INC.
INTERIM CONSOLIDATED STATEMENT OF DEFICIT
(UNAUDITED)
For the Six Months Ended July 31
1997 1996
Balance, beginning of period $(1,556,912) $(524,828)
Net loss for the period (3,131,348) (45,432)
------------ ----------
Balance, end of period $(4,688,260) $(570,260)
<PAGE>
TREASURY INTERNATIONAL, INC.
INTERIM CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
For the Three MonthsFor the Six Months
Ended July 31 Ended July 31
1997 1996 1997 1996
---- ---- ---- ----
REVENUE $1,732,035 $277,735 $3,393,115 $277,735
COST OF GOODS SOLD 1,503,933 161,297 2,884,529 325,496
--------- ------- --------- --------
GROSS PROFIT 228,102 116,438 508,586 235,830
EXPENSES
General and
administrative (Note 9) 306,214 168,584 1,122,835 280,165
--------- ------- --------- -------
LOSS FROM OPERATIONS
BEFORE UNDERNOTED
ITEMS (78,112) (52,146) (614,249) (44,335)
Financial 31,333 - 64,784 -
Amortization 36,935 549 74,413 1,097
------ ------- ------ ------
68,268 549 139,197 1,097
------ ------- ------- ------
NET LOSS FROM CONTINUED
OPERATIONS (146,380)( 52,695) (753,446) (45,432)
NET LOSS FROM DISCONTINUED
OPERATIONS (Note 10) (200,562) - (282,260) -
NET LOSS ON DISPOSAL OF
DISCONTINUED
OPERATIONS (2,095,642) - (2,095,642) -
--------- ------ --------- -------
NET LOSS (2,442,584)(52,695) (3,131,348) (45,432)
========= ====== ========= ======
Loss Per Share
Continued operations (0.009) (.004) (0.046) (0.003)
Discontinued operations (0.139) - (0.144) -
----- --- ------ -------
(0.148) (.004) (0.190) (0.003)
===== ===== ====== =======
Weighted Average Number
of Common Shares
Outstanding 16,466,771 13,973,660 16,466,77 115,144,000
========== ========== ========= ===========
<PAGE>
TREASURY INTERNATIONAL, INC.
INTERIM CONSOLIDATED STATEMENT OF
CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JULY 31, 1997
(UNAUDITED)
COMMON PAID-IN CONTRIBUTED
SHARES CAPITAL SURPLUS
Balance - January 31, 1997 14,942,566 $ 1,494 $1,543,861
Issued 555,000 common shares for
consulting and public relations
services 555,000 56 554,944
Issued 150,000 common shares toward
the purchase price of Silver 925, Inc. 150,000 15 149,985
--------- ----- -----------
Balance - April 30, 1997 15,647,566 1,565 2,248,790
Issued 500,000 common shares for
consulting and public relations
services 500,000 50 111,196
Issued 225,000 common shares toward
the purchase price of Silver 925, Inc. 225,000 22 224,978
Issued 507,614 common shares toward
the reduction of debentures payable 507,614 51 49,949
Balance - July 31, 1997 16,880,180 $1,688 $2,634,913
========== ======== =========
<PAGE>
TREASURY INTERNATIONAL, INC.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JULY 31, 1997
(UNAUDITED)
July 31, 1997 July 31, 1996
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $( 3,131,348) $(45,432)
Adjustments to reconcile net
loss to net cash used in operating
activities:
Increase in deferred income taxes (393) -
Amortization 74,413 1,097
Decrease (increase) in accounts
receivable 123,337 ( 172,811)
Decrease in income taxes receivable 6,182 -
Increase in inventories (71,822) ( 106,767)
Decrease (increase) in sundry assets 98,260 ( 282)
Decrease in accounts payable ( 39,976) ( 12,277)
---------- -----------
NET CASH USED IN OPERATING ACTIVITIES ( 2,941,347) ( 336,472)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term debt (126,398) -
Proceeds on issue of common shares 1,091,246 235,500
CASH PROVIDED BY FINANCING ACTIVITIES 964,848 235,500
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of capital assets ( 13,116) -
Discontinued operations 1,977,738 -
---------- -----------
CASH PROVIDED BY INVESTING ACTIVITIES 1,964,622 -
---------- -----------
DECREASE IN CASH AND SHORT-TERM DEPOSITS
(BANK INDEBTEDNESS) ( 11,877) ( 100,972)
CASH AND SHORT-TERM DEPOSITS (BANK
INDEBTEDNESS), BEGINNING OF PERIOD ( 394,407) 292,611
CASH AND SHORT-TERM DEPOSITS (BANK
INDEBTEDNESS), END OF PERIOD $( 406,284) $ 191,639
========== ===========
<PAGE>
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The financial information for the three and six month periods ended July
31, 1997 and 1996 presented in this Form 10-QSB has been prepared from
accounting records of Treasury International, Inc. (the "Company") without
audit. The information furnished reflects all adjustments (consisting of only
normal recurring adjustments) which are, in the opinion of management, necessary
for a fair statement of the results of interim periods. Moreover, these
financial statements do not purport to contain complete disclosures in
conformity with generally accepted accounting principles. The results of
operations for the three months ended July 31, 1997 are not necessarily
indicative of the results to be expected for a full year. This report should be
read in conjunction with the consolidated financial statements included in the
Company's January 31, 1997 Form 10-KSB as filed with the Securities and Exchange
Commission.
1. Nature of business
The Company is a holding company which, through its wholly-owned
subsidiaries, J.J.A.M.P. Treasury International Corp. ("J.J.A.M.P."), Megatran
Investments Ltd. ("Megatran") and Mega Blow Moulding Limited ("Mega Blow"),
distributes a variety of consumer and industrial products. The Company was
incorporated on August 18, 1995 in the State of Delaware.
2. Summary of significant accounting policies
(a) Basis of consolidation
These consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, J.J.A.M.P., Megatran and
Mega Blow. The financial statements of Silver 925, Inc., which the
Company owned from February 25, 1997 until September 19, 1997 are not
consolidated with these financial statements.
(b) Inventories
Raw materials are valued at the lower of cost (first-in, first-out
method) and net realizable value. Finished goods are valued at the
lower of cost and net realizable value with cost being determined by
the retail method.
(c) Capital assets
Capital assets are recorded at cost less accumulated amortization.
Amortization is provided as follows:
<PAGE>
Leasehold improvements - straight line over term of lease
Machinery and equipment - 20% diminishing balance
Office equipment - 20% diminishing balance
(d) Revenue recognition
Revenue is generally recognized as customers are invoiced for
products shipped by the Company.
(e) Loss per share
Loss per share of the Company's Common Stock (the "Common Stock") is
calculated based on the weighted average number of shares outstanding
during the period of 16,466,771.
(f) General
These financial statements have been prepared in accordance with
United States generally accepted accounting principles (GAAP), as
they relate to these financial statements.
3. Business combination
On October 30, 1996, the Company acquired 100% of the issued and
outstanding common shares of Megatran, parent company of Mega Blow. The
purchase price of $2,863,182 consisted of $1,361,302 cash and $1,501,880
debentures.
4. Inventories
Inventories July 31, 1997 January 31, 1997
consist of:
Raw materials $ 195,970 $ 151,241
Packaging 18,229 24,345
Finished goods 243,538 210,329
----------- -----------
$ 457,737 $ 385,915
========== ==========
<PAGE>
5. Capital assets
July 31, January
1997 31, 1997
----------------------------------- ------------
Accumulated Net Net
Cost Amortization book value book value
Leasehold $ 4,191 $1,528 $ 2,663 $ 2,893
improvements
Machinery and 2,452,648 1,839,585 613,063 668,585
equipment
Office equipment 102,514 56,238 46,276 51,821
---------- ----------- ----------- -------------
$ 2,559,353 $ 1,897,351 $662,002 $ 723,299
========== ========== ========== ==========
6. Bank indebtedness
The bank indebtedness consists of three operating demand loans in the
amount of $406,284 which are secured by a registered general assignment of
book debts and general security agreements of Mega Blow.
7. Long term debt
The long-term debt consists of term loans and three debentures payable.
The term loans are secured by a registered general security agreement
having first charge over all assets excluding real property of Mega Blow.
The term loans bear interest at per annum rates varying from 6.47% to bank
prime plus 1.75%. One of the three debentures in the amount of $500,000
bears interest at a rate of 8% per annum. The remaining two are
interest-free debentures. The term loans and debentures are payable as
follows:
Term Loans Debentures Total
1998 $ 147,185 $ 950,627 $ 1,097,812
1999 154,158 250,627 404,785
2000 161,594 250,626 412,220
2001 169,527 - 169,527
2002 177,989 - 177,989
2003 and 63,542 - 63,542
following ------------- ------------ -----------
873,995 1,451,880 2,325,875
Less current 147,185 950,627 1,097,812
portion ------------ ------------ ------------
$ 726,810 $ 501,253 $ 1,228,063
=========== =========== ============
8. Income taxes
As of July 31, 1997, the Company had a net operating loss carryover of
approximately $2,059,000 expiring in various years through 2013.
<PAGE>
9. General and administrative expenses
General and administrative expenses include fees paid by the Company for
consulting and public relations services in the amount of $711,742.
10. Subsequent transaction and discontinued operations
On February 26, 1997, the Company acquired all of the outstanding capital
stock of Silver 925, Inc. ("Silver"). On September 19, 1997, the Company
entered into an agreement with the former shareholders of Silver 925
pursuant to which the Company transferred all of the shares of Silver's
capital stock back to the former shareholders. Accordingly, the results of
Silver are not consolidated in these financial statements and have been
reported as discontinued operations in these financial statements. The
Company has reported an estimated net loss of $2,095,642 on the disposal
of Silver. The net assets of this discontinued operation have been stated
at their net carrying value less the anticipated loss on disposal. The
revenues from the discontinued operations of Silver during the six months
ended July 31, 1997 amount to $293,794.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The information contained in this Quarterly Report on Form 10-QSB contains
"forward looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Actual results
may materially differ from those projected in the forward looking statements as
a result of certain risks and uncertainties set forth in this report. Although
management believes that the assumptions made and expectations reflected in the
forward looking statements are reasonable, there is no assurance that the
underlying assumptions will, in fact, prove to be correct or that actual future
results will not be different from the expectations expressed in this report.
Treasury International, Inc. (the "Company") is an international
manufacturing, distribution and marketing organization with subsidiaries
producing over 500 consumer and industrial products primarily for North American
markets.
On February 26, 1997, the Company acquired all of the outstanding capital
stock of Silver 925, Inc. ("Silver"). On September 19, 1997, the Company entered
into an agreement with the former shareholders of Silver 925 pursuant to which
the Company transferred all of the shares of Silver's capital stock back to the
former shareholders. Accordingly, the results of Silver are not consolidated in
these financial statements and have been reported as discontinued operations in
these financial statements.
Comparison of the Three Months Ended July 31, 1997 to the Three Months Ended
July 31, 1996
During the three months ended July 31, 1997 the Company's net sales
increased by 524% to $1,732,035 from $277,735 for the three months ended July
31, 1996. This increase in sales reflects the inclusion of Mega Blow Moulding
Ltd. ("Mega Blow") which was acquired in late 1996. The Company experienced a
net loss of $2,442,584 for the three months ended July 31, 1997 compared to a
net loss of $52,695 for the three months ended July 31, 1996. The increased loss
primarily reflects the loss of $2,296,204 the discontinued operations of, and
the costs of disposal of the discontinued operations of, Silver. The cost of
products sold by the Company during the three months ended July 31, 1997 was
$1,503,933, or 87% of sales, up from $161,297, or 58% of sales, for the three
months ended July 31, 1997. The increased costs were attributable to higher raw
material prices and competitive customer pricing strategies. Sales, general and
administrative expenses increased in the three months ended July 31, 1997 to
$306,214, or 18% of sales, compared to $168,584, or 61% of sales, for the three
months ended July 31, 1996. The increase was attributable to expenses related to
the acquisitions of both Mega Blow and Silver in respect of various consulting
services and marketing and promotion activities. The decrease in sales, general
and administrative expenses as a percentage of sales reflects the fact that
Silver's sales are included in the three months ended July 31, 1997. The Company
anticipates that sales, general and administrative expenses will decrease in the
next quarter as the Company will incur fewer expenses in connection with the
Silver divestiture.
<PAGE>
Comparison of the Six Months Ended July 31, 1997 to the Six Months Ended
July 31, 1996
During the six months ended July 31, 1997, the Company's sales increased
by 504% to $3,393,115 from $561,326 for the six months ended July 31, 1996. The
increase in sales was primarily attributable to the acquisition of Mega Blow.
The Company experienced a net loss of $3,131,348 for the six months ended July
31, 1997 compared to a net loss of $45,432 in the six months ended July 31,
1996. The increased net loss principally reflects the estimated net loss from
discontinued operations relating to the disposition of the Silver of $2,095,642.
The cost of products sold by the Company was 85% of sales during the six months
ended July 31, 1997, up from 58% of sales in the three months ended July 31,
1996. The increase in the cost of products sold is attributable to both higher
raw material prices and labor costs. Sales, general and administrative expenses
increased during the six months ended July 31, 1997 to $1,122,835, or 33% of
sales, compared to $280,165, or 101% of sales in the six months ended July 31,
1996.
Liquidity and Capital Resources
The primary sources of liquidity for the Company are funds generated by
operations and borrowing under the Company's loan agreement. Additional
information on the loan agreement is described in notes 6 and 7 to the Company's
Interim Consolidated Financial Statements set forth in Part I hereto.
The Company's current ratio has declined to 0.48 as of July 31, 1997
compared to 0.52 as of January 31, 1997. Among other things, the decrease in the
current ratio reflects a decrease in current assets. Current assets totaled
$1,193,038 at July 31, 1997 compared to $1,348,995 at January 31, 1997. The
decrease in prepaid expenses was offset to some extent by increased inventories
and increased accounts receivables during the prior six months. At July 31,
1997, the Company had no cash or short-term deposits, and current net bank
indebtedness of $406,284. Accounts receivable totaled $689,020 at July 31, 1997
compared to $812,357 at January 31, 1997.
As of July 31, 1997, current liabilities totaled $2,483,048 compared to
$2,561,147 at January 31, 1997. At July 31, 1997, the Company also had term
loans and debentures specifically incurred to finance the Company's acquisition
of Mega Blow.
The Company's bank indebtedness of $406,284 is secured by a first priority
lien on the assets of Mega Blow. The Company also had outstanding $1,451,880
principal amount of debentures due as follows: $950,627 in 1998; $250,627 in
1999; and $250,626 in 2000. All debentures are convertible into shares of the
Company's Common Stock the option of the holders. In the event holders convert
those debentures, the Company's obligation to repay the $1,451,880 of
indebtedness would be eliminated; however, there can be no assurance that the
holders of the debentures will so convert the debentures.
<PAGE>
In August 1995, the Company issued 2,750,000 shares of Common Stock to
five private investors for an aggregate cash price of $275,000 pursuant to a
private placement offering. From August through November 1995, the Company
issued 1,449,878 shares of Common Stock for an aggregate price of $724,794
pursuant to a private placement offering. Each of the private placement
offerings was made pursuant to an exemption from registration provided by Rule
504 of Regulation D promulgated under the Securities Act.
In July, 1996, the Company issued 1,000,000 shares of Common Stock to two
individuals for an aggregate cash price of $198,000. The sales were exempt from
registration pursuant to Regulation S promulgated by the Securities and Exchange
Commission thereunder ("Regulation S").
In October, 1996, the Company sold 0% Convertible Debentures in the
aggregate principal amount of $1,000,000 due October 29, 1997 and October 30,
1999, respectively. In the same month, the Company also sold an 8% Senior
Subordinated Convertible Debenture in the principal amount of $500,000, due
October 29, 1997. As of July 16, 1997, the holder of the 8% Debenture elected to
convert the outstanding amount of such Debenture into shares of the Company's
Common Stock. The sales of the Debentures were made pursuant to an exemption
from registration provided by Regulation S.
In three transactions on February 20, March 15 and April 17, 1997, the
Company issued an aggregate of 555,000 shares of Common Stock to three
individuals in consideration for consulting and public relations services
provided to the Company. On February 25 and April 1, 1997, the Company issued an
aggregate of 150,000 shares of Common Stock to three individuals in partial
payment of the purchase price for the Company's acquisition of all of the
capital stock of Silver. The preceding sales of Common Stock were made pursuant
to an exemption from registration provided for privately-negotiated transactions
under Section 4(2) of the Exchange Act.
The Company has a foreign exchange rate risk related to international
earnings and cash flows. Management anticipates that, in future, the Company may
enter into forward foreign exchange contracts and purchase currency options tied
to the economic value of receivables, payables and expected cash flows
denominated in non-local foreign currencies should the need arise.
The Company believes it will generate sufficient positive cash flow from
operations to meet its operating requirements for the next twelve months.
However, there can be no assurance that the Company will be able to repay those
debentures which mature in 1997 if they are not converted into shares of the
Company's Common Stock. If the funds available under the Company's financing
agreements, together with its current cash and each equivalents, are not
sufficient to meet the Company's cash needs, the Company may, from time to time,
seek to raise capital from additional sources including the extension of its
current lending facilities, project-specific financing and additional public or
private debt or equity financing.
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities.
On May 13, 1997, the Company issued 500,000 shares of Common Stock to OTC
Communications in consideration for consulting and public relations services
provided to the Company. On each of May 1, 1997, June 2, 1997 and July 1, 1997,
the Company issued 75,000 shares of Common Stock to the former shareholders of
Silver in partial consideration for the Silver shares. The shares were issued
pursuant to Section 4(2) under the Securities Act. On July 22, 1997, the Company
issued 507,614 shares of Common Stock upon the conversion of $30,000 aggregate
principal amount of the Company's 8% Convertible Subordinated Debentures. The
shares were issued pursuant to Regulation S under the Securities Act.
Item 4. Submission of Matters to a Vote of Security Holders.
On July 30, 1997, by written consent, the holders of a
majority-in-interest of the Company's Common Stock authorized an amendment to
the Company's Certificate of Incorporation pursuant to which the number of
authorized shares of the Company's Common Stock was increased from 30,000,000 to
50,000,000 shares.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27 Financial Data Schedule
(b) Reports on Form 8-K. None.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TREASURY INTERNATIONAL, INC.
Dated: December 3, 1997 By: /s/ James Hal
James Hal
President
Dated: December 3, 1997 By: /s/ Howard Halpern
Howard Halpern
Principal Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE UNAUDITED JULY 31, 1997 FINANCIAL STATEMENTS OF TREASURY
INTERNATIONAL, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
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