U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
(Mark One)
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended June 30, 2000
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OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from to
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Commission file number 0-25177
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ADVANCED ENGINE TECHNOLOGIES, INC.
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(Name of Small Business Issuer in Its Charter)
Colorado 84-1358194
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
11150 W. Olympic Blvd. Suite 1020 Los Angeles Ca. 90064
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(Address of Principal Executive Offices) (Zip Code)
(310) 914-1849
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(Issuer's Telephone Number)
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Securities to be registered under Section 12(b) of the Act:
Title of Each Class to be so Name of Each Exchange on Which
Registered Each Class is to be Registered
None None
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Securities to be registered under Section 12(g) of the Act:
Common Stock, $.001 par value
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(Title of Class)
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Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) , and (2)
has been subject to such filing requirements for past 90 days.
Yes____X_______ No____________
<PAGE>
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or any
amendment to this Form 10-KSB.
State issuer's revenues for its most recent fiscal year.___$-0-______
The aggregate market value of the common equity held by non-affiliates
computed by reference to the price at which the common equity was sold, or the
average bid and asked price of such common equity ($2.125 per share) as of May
2, 2000 was $17,240,137.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date. 23,150,000 common shares as
of June 30, 2000
Transitional Small Business Disclosure Format (check one):
Yes________ No___X______
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PART I
Item 1. Description of Business
Forward-Looking Statements
This document contains forward-looking statements. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology such as "may," "will,"
"should," "except," "plan," "anticipate," "believe," "estimate," "predict,"
"potential" or "continue," the negative of such terms or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Moreover, neither we nor any
other person assumes responsibility for the accuracy and completeness of the
forward-looking statements. We are under no duty to update any of the
forward-looking statements after the date of this report to conform such
statements to actual results or to changes in our expectations.
Readers are also urged to carefully review and consider the various
disclosures made by us which attempt to advise interested parties of the factors
which affect our business, including without limitation the disclosures made
under the caption "Management's Discussion and Analysis of Financial Condition
or Plan of Operation" and under the caption "Risk Factors" included herein.
General
Advanced Engine Technologies, Inc. ("we", "us" or the "Company") was
incorporated and commenced operations on September 23, 1996. We were formed to
develop and commercialize the OX2 internal combustion engine, a
state-of-the-art, uniquely designed engine. Our focus is on the development and
commercial introduction of the OX2 engine and the subsequent licensing of the
OX2 engine technology to approved manufacturers.
In 1996, we entered into an exclusive sub-licensing agreement with OX2
Engine (Distribution) Ltd. ("OX2"), pursuant to which we acquired the right to
manufacture, distribute and market the OX2 engine in the North American Free
Trade Agreement countries (presently the United States, Canada and Mexico). OX2
licensed the technology from OX2 Intellectual Property, Inc., a foreign
corporation that was assigned the technology from the original patent holders.
The sub-license was for the longer of (1) life of the patent or (2) twenty
years. In May 1999, we acquired the worldwide patent rights for the OX2 engine
from OX2 in exchange for $1.5 million. We will take responsibility for patent
maintenance and for future research and development on the engine.
We have spent $1,341,376 for the fiscal year ended June 30, 2000 and
$525, 000 for the fiscal year ended June 30, 1999, on research and development
for the OX2 engine. On July 15, 1998, we entered into a joint venture agreement
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with Carroll Shelby, our president, to further develop the OX2 engine for use in
a standard application for motor vehicles and promote the OX2 engine to the
automotive industry.
Our Product
At the present time only a prototype of the OX2 internal combustion
engine, plus additional parts which can be used for engine development or for
the building of additional prototypes, have been built. No OX2 engines have been
manufactured for production use, and no assurance can be given that the OX2
engine will be successfully developed or manufactured.
The OX2 engine prototype is designed to be fuel efficient, lightweight,
low-emission, multi-fueled, and smaller and more inexpensive than conventional
internal combustion engines. We also believe that it will not have the complex
manufacture/production requirements of conventional internal combustion engines.
The OX2 engine prototype is designed to have only six major components,
of which only three move. We believe this design will result in low set-up and
production costs and simplicity of design that will promote a high level of
quality assurance.
The major parts of the engine prototype are: (1) housing, (2) cylinder
block, (3) top piston plate, (4) lower piston plate, (5) cam track, and (6)
drive shaft. The moving parts are: (1) cylinder block, (2) top piston plate, and
(3) lower piston plate.
We expect the OX2 engine, once completed, will have several advantages
over a four stroke conventional engine. Some of these advantages are expected to
include:
o The OX2 engine prototype has only six major components, which should
result in lower set-up and production and manufacturing costs than a
typical conventional engine.
o We believe the OX2 engine prototype to have greater effective engine
capacity than a typical conventional engine.
o The OX2 engine prototype does not use a conventional crankshaft,
which we believe will result in a leverage advantage over a typical
conventional engine.
o The OX2 engine prototype design should enable the timing to be
adjusted, which will produce a more effective burn on the
combustible fuel being used.
o The OX2 engine prototype's piston speed should remain constant
throughout the entire power stroke, thus allowing exhaust gases to
be more efficiently expelled than a typical conventional engine.
In the short term, our plans are to complete the research and
development of the OX2 engine in order to prepare it for production and
marketing. We currently have an agreement with Steven Manthey, the inventor of
the OX2 engine, which provides that Mr. Manthey will continue to develop and
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maintain the OX2 engine prototype. We have an agreement with the University of
California, Riverside ("UCR"), which provides that they will continue to conduct
research and development on the OX2 engine prototype, in conjunction with us.
The research and development at UCR is being conducted under the guidance of Dr.
Joseph Norbeck (of the CE-CERT program at the University of California,
Riverside) and Dr. Roberta Nichols, one of our consultants. We are also
conducting research and development activities in Gardena, California.
Marketing
Assuming the completion of the necessary research and development
required to complete our product, and assuming the tests of our OX2 prototype
are successful, we will attempt to introduce the OX2 engine into the market. The
total size of the internal combustion engine industry makes the introduction of
any significant change to industry standards a complex promotional and marketing
exercise. We believe the multi-purpose nature of the OX2 engine should make it
compatible to several different market applications.
Upon completion of the OX2 engine, we expect, initially, to market it
to specialist engine manufacturers who produce stationary engines. We expect
that sub-licenses allowing the manufacture of OX2 engines, will be granted by us
only to a limited number of engine manufacturers, to achieve a manageable and
controlled market introduction.
Sources of Income
We expect to generate income in two ways: (1) we expect to receive a
licensing fee from approved manufacturers in return for the right to produce and
sell the OX2 engine; license fees will be determined by territory size and
market potential; and (2) we expect to receive a royalty payment for each engine
produced and sold. We expect royalty payments will be determined by engine
capacity and application.
Patents
We have been granted a U.S. patent for an Axial Piston Rotary Engine
(U.S. Patent No. 5,813,372). We have filed a patent application for an Axial
Piston Rotary Engine in Australia (No. PCT/AU95/00815). In addition, we have
patent applications pending in countries throughout the world.
Employees
We have one employee, our president. We are currently evaluating the
need to hire additional employees to assist in the daily operations and market
placement of our product. We also engage consultants who receive fees for their
consulting services.
Other Agreements
In June 1999, we agreed to grant 1,000,000 shares of the Company's
common stock ("Shares") to the University of California Riverside Foundation.
The stock is to be issued in five annual installments of 200,000 Shares each.
Two installments have been granted, one in July, 1999 and the other in July,
2000, for a total of 400,000 Shares. The Shares were donated to provide an
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endowment for research funds for the College of Engineering-Center for
Environmental Research and Technology. This donation is independent of the
relationship between Advanced Engine Technologies Inc., and the University of
California, Riverside for research and development of the OX2 engine.
Risk Factors
You should carefully consider the following risks and the other
information in this Report and our other filings with the SEC before you decide
to invest in us or to maintain or increase your investment. The risks and
uncertainties described below are not the only ones facing us. Additional risks
and uncertainties may also adversely impact and impair our business. If any of
the following risks actually occur, our business, results of operations, or
financial condition would likely suffer. In such case, the trading price of our
common stock could decline, and you may lose all or part of your investment.
o There can be no assurance that we will be able to successfully develop the
OX2 engine. No OX2 engines have been developed or manufactured for
production use, and no assurance can be given that the OX2 engine will be
successfully developed or manufactured. Testing and development on the
engine is still in progress, and is being conducted in conjunction with
UCR. Until further testing, research and development has been completed, we
will not have a finished product for introduction into the market. We do
not have an estimated completion date for the testing, research and
development. Furthermore, the we cannot provide assurance that we will be
successful in the ultimate development of the engine for commercial
applications.
o A market for our OX2 engine may take longer to develop than anticipated or
may never develop, which would adversely affect revenues and profitability.
Our OX2 engine represents an innovation in the industry for internal
combustion engines. The size of the internal combustion engine industry
makes the introduction of changes to industry standards a complex
promotional and marketing exercise. We cannot ensure that our targeted
customers will purchase our engine. If the market for our engines fails to
develop, or develops more slowly that anticipated, we may not be able to
meet our expenses and may not achieve profitable results. In addition, we
cannot provide assurance that we will be successful with our marketing
efforts or the development of our joint ventures.
o Our cash reserves may not be adequate to cover our costs of operations. To
date, we have covered our operating losses by privately placing securities.
We expect to fund our general operations and marketing activities for 2001
with our current cash reserves, which were obtained from the sale of
securities. However, our cost estimates do not include provisions for any
contingencies, unexpected expenses or increases in costs that may arise.
o We may not be able to raise the capital we need. It is likely that we will
need to raise additional capital at some point in the future. If additional
funds are raised through the issuance of equity, our shareholders'
ownership will be diluted. There can be no assurance that additional
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financing will be available on terms favorable to us, or at all. If funds
are not available or are not available on terms acceptable to us, we may
not be able to continue the development of our product, respond to our
competitors or continue our business.
o Our business depends on the protection of our intellectual property and may
suffer if we are unable to adequately protect our intellectual property.
The success of our business depends on our ability to patent our engine.
Currently, we have been granted one U.S. Patent for an Axial Piston Rotary
Engine. We have one patent application pending in Australia for an Axial
Piston Rotary Engine. We also have patent applications pending in countries
throughout the world. We believe that our ability to establish and maintain
our position in the market depends on these patents. We cannot provide
assurance that our patent will not be invalidated, circumvented or
challenged, that the rights granted under the patents will give us
competitive advantages or that our patent applications will be granted.
o If we are found to infringe on the intellectual property rights of others,
we may not be able to continue the development and production of our
engine, or we may have to enter into costly license or settlement
agreements. Third parties may allege infringement by us with respect to
past, current or future intellectual property rights. Any claim of
infringement, regardless of merit, could be costly, time consuming and
could require us to develop non-infringing technology or enter into
royalty, licensing or settlement agreements. These agreements could be on
terms unfavorable or unacceptable to us and could significantly harm the
development of our product, and ultimately, our business. In the future, we
may also have to enforce our patent and other intellectual property rights
through litigation. Any such enforcement could also result in substantial
costs and could materially affect our financial condition and our business.
o Our business is dependent on our relationships with other parties.
Research, development and testing of our engine is being carried out in
conjunction with UCR. Steven Manthey, the inventor of the engine is also
actively participating in the research and development. In addition, we
have a joint venture agreement with Carroll Shelby, to further develop and
promote our engine. Completion of the research, development and testing is
essential to the success of our business. Until such testing, research and
development has been completed, we will not have a finished product to
introduce to the market. Thus, if we are unable maintain our relationships
with UCR, Steven Manthey and Carroll Shelby, our business will be adversely
affected.
o We have a history of losses. We have a history of operating losses, and an
accumulated deficit, as of June 30, 2000, of $3,546,906. Our ability to
generate revenues and profits is subject to the risks and uncertainties
encountered by development stage companies.
o Our future revenues and profitability are unpredictable. We are currently
have no signed contracts that will produce revenue and we do not have an
estimate as to when we will be entering into such contracts. Furthermore,
we cannot provide assurance that management will be successful in
negotiating such contracts.
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o Rapid technological changes could adversely affect our business. The market
for internal combustion engines is characterized by rapidly changing
technology, evolving industry standards and changing customer demands.
Thus, if we are unable to adapt to rapidly changing technologies and to
adapt our product to evolving industry standards, our business will be
adversely affected.
o Our common stock is not widely traded, which may result in illiquidity and
increased volatility. Our common stock is not widely traded, and, as a
result, the prices quoted for our stock may not reflect its fair market
value. Because of the low volume of trading in our common stock, our
stockholders may find it difficult to sell their shares.
o Our principal stockholders can exercise significant control over us and
could limit the ability of our other stockholders to influence the outcome
of transactions requiring shareholder vote. As of June 30, 2000,
approximately 65% of our outstanding common stock is owned by our executive
officers, directors and principal stockholders. These stockholders will
have the ability to exercise influence over all matters requiring approval
by our stockholders, including the election of directors and approval of
significant corporate transactions.
Item 2. Description of Property
We lease office space for our headquarters in Los Angeles, California
and work space for engine development in Gardena, California.
Item 3. Legal Proceedings
There are two pending lawsuits that name us as a defendant. One action
was filed in the State of New Mexico and the other in the state of California.
Both actions have been filed by the Estate of Paul Ebbage (the "Estate") and
concern the Estate's beneficial entitlement to a percentage of Shares, which
were originally issued to OX2 ("Disputed Shares"). Neither lawsuit alleges or
seeks to recover any monetary damages from us. We are a disinterested
stakeholder as to the Disputed Shares, which we will deposit with the Superior
Court of Los Angeles so the court can then determine who rightfully owns the
Disputed Shares as between the plaintiff and the named defendants (other than
us). The two lawsuits are:
1) Raymond J. Ebbage, as executor of the Estate of Paul Gerrard Ebbage
v. Steven Charles Manthey, et.al. Superior Court of the State of
California, County of Los Angeles, No. BC 232758.
2) Raymond J. Ebbage, as executor of the Estate of Paul Gerrard Ebbage
v. Steven Charles Manthey, et.al. Second Judicial District, County
of Bernalillo, State of New Mexico, CV No. 2000-02628.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
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Part II
Item 5. Market for common equity and related stockholder matters
Since the first quarter of 1998, our Common Stock has traded in the
over-the-counter market and has been quoted on the Bulletin Board of the NASDAQ
under the symbol: AENG.
Set forth below are the range of prices by quarter since trading
commenced.
High Low
---- ---
July-September 1997 7 1/2 1 3/4
October-December 1997 29 1/4 6 1/2
January-March 1998 21 7 1/2
April-June 1998 26 7/8 6 3/4
July-September 1998 17 1/2 7 3/4
October-December 1998 9 5/8 4 7/8
January-March 1999 9 3/4 5 1/8
April-June 1999 8 5 1/8
July-September 1999 14 7/8 4 1/2
October-December 1999 4 1/2 2
January-March 2000 4/78 3
April-June 2000 3 1/4 2 1/8
As of June 30, 2000, we had 290 shareholders of record.
We have not paid any dividends since inception. We do not anticipate
paying any dividends in the future even if we were to have earnings.
Item 6. Management's Discussion and Analysis or Plan of Operation
We plan to continue the development of prototypes and marketing during
the 2001 fiscal year. The planned activities include: (1) demonstrations to
prospective original equipment manufacturers of products using internal
combustion engines; (2) work with our joint venture partners and shareholders to
continue the development, in the shorter term, of an engine for stationary
generator applications and, in the longer term, of an engine for automobile
and/or aircraft applications; and (3) the development of additional joint
venture partners to market the engine. While prototypes of the OX2 engine exist,
there can be no assurance that we will be successful in our marketing efforts,
the development of our joint ventures or in the ultimate development of the
engine for commercial applications.
We expect that our cash flow requirements to fund general operations in
2001 will total approximately $750,000 including outside consulting fees and
expenditures for equipment. We expect to fund these costs with our cash
reserves, which were $1,026,990 as of June 30, 2000. Our cost estimates do not
include provisions for any contingencies or unexpected expenses that may arise
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or any unanticipated increases in costs. As a result, our cash reserves may not
be adequate to cover the actual costs of operations in the 2001 fiscal year, in
which event we will be required to raise additional capital. Historically we
have obtained cash through private placements of securities.
Our net loss since inception (September 23, 1996) is $3,546,906. Our
net loss for the 2000 Fiscal Year is $2,170,657.
Currently, there are no signed contracts that will produce revenue, and
we can provide no assurance that management will be successful in negotiating
these contracts.
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Item 7. Financial Statements
ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
Page
INDEPENDENT AUDITORS' REPORT 9
FINANCIAL STATEMENTS
Balance Sheet 10
Statements of Operations 11
Statements of Stockholders' Equity 12
Statements of Cash Flows 14
Notes to Financial Statements 15
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<PAGE>
NEFF & RICCI LLP
____________________________
CERTIFIED PUBLIC ACCOUNTANTS
7001 PROSPECT PLACE NE
ALBUQUERQUE, NM 87110
Independent Auditors' Report
Advanced Engine Technologies, Inc.
(A Development Stage Company)
We have audited the accompanying balance sheet of Advanced Engine Technologies,
Inc. (a development stage company) as of June 30, 2000, and the related
statements of operations, stockholders' equity, and cash flows for the years
ended June 30, 2000 and 1999, and for the period from September 23, 1996
(inception) through June 30, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also include
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in all
material respects, the financial position of Advanced Engine Technologies, Inc.
as of June 30, 2000 and the results of its operations and its cash flows for the
years ended June 30, 2000 and 1999, and for the period from September 23, 1996,
(inception) to June 30, 2000, in conformity with generally accepted accounting
principles.
/s/ Neff & Ricci, LLP
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Albuquerque, New Mexico
September 20, 2000
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ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
June 30, 2000
ASSETS
Current Assets
Cash and cash equivalents $ 1,026,990
Prepaid expenses 22,768
Due from related party 26,000
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Total current assets 1,075,758
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Fixed Assets
Automobile 10,000
Furniture 12,242
Computer equipment 44,156
Manufacturing equipment and tooling 67,922
Less accumulated depreciation (46,636)
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Total fixed assets 87,684
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Other Assets
Patent rights, net of accumulated
amortization of $177,353 1,344,365
Patent, copyrights and designs, net of
accumulated amortization of $13,854 29,896
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Total other assets 1,374,261
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Total assets $ 2,537,703
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 115,359
Accrued payroll 5,000
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Total current liabilities 120,359
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Commitments and Contingencies
Stockholders' Equity
Common stock-50,000,000 shares authorized,
22,950,000 issued and outstanding; $.001 par value 22,950
Additional paid-in capital 5,941,300
Deficit accumulated during the development stage (3,546,906)
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Total stockholders' equity 2,417,344
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Total liabilities and stockholders' equity $ 2,537,703
============
See Notes to Financial Statements.
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ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
Years Ended June 30, 2000 and 1999 and the
Period From September 23, 1996 (Inception)
Through June 30, 2000
9/23/96
(Inception)
Through
2000 1999 6/30/00
Operating expenses $ 899,985 400,161 1,798,430
Research and development expenses 1,341,376 525,000 1,866,376
-----------------------------------------
Loss from operations (2,241,361) (925,161) (3,664,806)
Interest income 70,704 22,780 117,900
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Net loss $ (2,170,657) (902,381) (3,546,906)
=========================================
Basic net loss per share $ (.10) (.04) (.17)
=========================================
Weighted average number of common
shares outstanding 22,787,500 21,947,500 21,364,237
=========================================
See Notes to Financial Statements.
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ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended June 30, 2000 and 1999
Period From September 23, 1996 (Inception)
Through June 30, 2000
<TABLE>
<CAPTION>
(Deficit)
Accumulated
Common Stock Additional During the
----------------------- Paid-in Development
Shares Amount Capital Stage Total
<S> <C> <C> <C> <C> <C>
Issuance of common stock
to parent corporation for
license rights 20,000,000 $ 20,000 (18,000) -- 2,000
Issuance of common stock
for services 600,000 600 5,400 -- 6,000
Issuance of common stock
for cash 499,200 499 498,701 -- 499,200
Net loss -- -- -- (164,233) (164,233)
----------------------------------------------------------------
Balance, June 30, 1997 21,099,200 21,099 486,101 (164,233) 342,967
Issuance of common stock
for cash 500,800 501 500,299 -- 500,800
Net loss -- -- -- (309,635) (309,635)
----------------------------------------------------------------
Balance, June 30, 1998 21,600,000 21,600 986,400 (473,868) 534,132
Issuance of stock for assets
and services 325,000 325 568,425 -- 568,750
Issuance of common stock
for cash 400,000 400 1,999,600 -- 2,000,000
Net loss -- -- -- (902,381) (902,381)
----------------------------------------------------------------
Balance, June 30, 1999 22,325,000 22,325 3,554,425 (1,376,249) 2,200,501
----------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
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ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
Period From September 23, 1996 (Inception)
Through June 30, 2000
<TABLE>
<CAPTION>
(Deficit)
Accumulated
Common Stock Additional During the
----------------------- Paid-in Development
Shares Amount Capital Stage Total
<S> <C> <C> <C> <C> <C>
Balance forward 22,325,000 $ 22,325 3,554,425 (1,376,249) 2,200,501
Issuance of stock
for cash 400,000 400 1,999,600 -- 2,000,000
Issuance of stock for
services 225,000 25 387,275 -- 387,500
Net loss -- -- -- (2,170,657) (2,170,657)
---------------------------------------------------------------
Balance June 30, 2000 22,950,000 $ 22,950 5,941,300 (3,546,906) 2,417,344
---------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
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ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
Years Ended June 30, 2000 and 1999
and the Period From September 23, 1996 (Inception)
Through June 30, 2000
<TABLE>
<CAPTION>
9/23/96
(Inception)
Through
2000 1999 6/30/00
<S> <C> <C> <C>
Reconciliation of net losses to net
cash provided by operations:
Net loss $(2,170,657) (902,381) (3,546,906)
Depreciation and amortization 188,207 47,834 237,843
Issuance of common stock for
assets and services 387,500 568,750 964,250
Changes in current assets and liabilities:
Prepaid expenses (14,552) (8,216) (22,768)
Due from related party (26,000) - (26,000)
Accounts payable 112,479 (28,402) 115,360
Accrued payroll 5,000 - 5,000
------------------------------------------
Net cash flows used by
operating activities (1,518,023) (322,415) (2,273,221)
-------------------------------------------
Cash flows from investing activities:
Fixed asset purchases (16,782) (95,757) (134,321)
Intangible asset purchases - (1,565,468) (1,565,468)
------------------------------------------
Net cash flows used by
investing activities (16,782) (1,661,225) (1,699,789)
------------------------------------------
Cash flows from financing activities:
Issuance of common stock 2,000,000 2,000,000 5,000,000
Loan proceeds - - 50,000
Loan payments - - (500,000)
------------------------------------------
Net cash flows provided by
financing activities 2,000,000 2,000,000 5,000,000
------------------------------------------
Net increase in cash 465,195 16,360 1,026,990
Cash at beginning of period 561,795 545,435 -
------------------------------------------
Cash at end of period $ 1,026,990 561,795 1,026,990
==========================================
</TABLE>
See Notes to Financial Statements.
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<PAGE>
ADVANCED ENGINE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
NOTE 1. NATURE OF BUSINESS
Advanced Engine Technologies, Inc. (the Company) was incorporated under the laws
of Colorado and began operations on September 23, 1996. The Company was formed
to acquire the rights to manufacture, distribute and market an OX2 Engine
(Distribution) Ltd. (OX2) combustion engine throughout the United States, Canada
and Mexico. On October 18, 1996 the Company entered into a contract with OX2, a
company incorporated in the laws of the Republic of Vanuatu, whereby the Company
acquired the rights to manufacture, distribute and market the OX2 combustion
engine. Performance under this contract required the Company to forthwith issue
20,000,000 shares of its common stock plus an additional 19,000,000 upon the
completion of certain emission tests (see Note 3). In addition, OX2 was given
the right to appoint two of the Company's directors. In December 1998, both
parties agreed to cancel the requirement to issue the additional 19,000,000
shares. As of June 30, 1998, OX2 owned approximately 62 percent of the Company's
outstanding shares.
During the year ended June 30, 1999, OX2 sold, transferred, assigned and/or
otherwise conveyed its stock to various individuals, companies, and other legal
entities, none of which individually has a controlling interest. Certain of
these legal entities have common ownership and, as a group, may have a
controlling interest in the Company.
A dispute has arisen related to the shares originally owned by OX2. As a result,
two lawsuits were filed which included the Company as a defendant. The suits
seek to have the disputed shares surrendered to the Company and the stock
records amended to reflect OX2 as the beneficial owner of these shares. In
August 2000, the Company accepted the surrender of 10,713,238 shares of its
common stock which it subsequently deposited with the court. As a result, the
Company's legal counsel expects the Company to be dismissed from the litigation.
In May of 1999, the Company acquired the worldwide patent rights for the OX2
engine pursuant to a written agreement with OX2, OX2 (Intellectual Property) and
Advanced Engine Technology (PTY). The Company has assumed responsibility for
worldwide patent maintenance and enforcement.
As of June 30, 2000, the Company's operations consisted of marketing, testing,
and developing the OX2 combustion engine for commercial applications, and
raising any necessary capital investment. Management does not expect to generate
significant sales revenue until fiscal year 2001. Accordingly, planned principal
operations have not commenced and the Company is a development stage enterprise.
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NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents. Cash and cash equivalents include all cash balances
and highly liquid debt instruments with an original maturity of three months or
less. The Company's cash is deposited in financial institutions and is insured
only up to $100,000 by the Federal Deposit Insurance Corporation. Cash
equivalents consist of commercial paper and other securities.
Fixed Assets. Fixed assets are stated at cost. Depreciation expense is
calculated using the straight-line method over the estimated useful lives of the
assets, which range from 5 to 10 years.
Other Assets. Patent rights are amortized on a straight-line basis over the
remaining estimated useful life of 10 years. The patents, copyrights and designs
are amortized on a straight-line basis over the remaining estimated useful life
of 5 years. The Company continually reviews other assets to assess
recoverability from estimated future net cash flows. To date, these reviews have
not resulted in a reduction of other assets.
Income Taxes. The Company accounts for its income taxes using the liability
method. Under this method, deferred tax liabilities and assets are determined
based on the difference between the financial statement carrying amounts and tax
basis of assets and liabilities using enacted tax rates in effect in the years
in which the differences are expected to reverse. The Company has provided a
valuation allowance to offset the benefit of any net operating loss
carryforwards or deductible temporary differences.
Research and Development Costs. Research and development costs are expensed as
incurred.
Advertising Costs. The Company expenses advertising costs as incurred.
Advertising costs amounted to $174,500 from September 23, 1996 (inception) to
June 30, 1999, including $84,249 for the year ended June 30, 2000, and $1,895
for the year ended June 30, 1999.
Loss Per Share. Loss per share is computed on the basis of the weighted average
number of common shares outstanding during the year and did not include the
effect of common stock equivalents as their effect would be antidilutive. The
numerator for the computation is the net loss and the denominator is the
weighted average shares of common stock outstanding.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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NOTE 3. RELATED PARTY TRANSACTIONS
The Company paid consulting fees to its former President, who is also a
shareholder and former director, in the amount of $290,303 from September 23,
1996 (inception) to June 30, 2000 including $82,505 for the year ended June 30,
1999, and $79,100 for the year ended June 30, 2000.
The Company paid administrative fees and reimbursed expenses to a company that
is owned by one of its shareholders in the amount of $101,570 from September 23,
1996 (inception) to June 30, 2000 including $31,293 for the year ended June 30,
1999, and $51,560 for the year ended June 30, 2000.
The Company has paid research and development costs and rent to a company owned
by its current President in the amount of $124,437 from September 23, 1996
(inception) to June 30, 2000, including $124,437 for the year ended June 30,
2000. Also, starting in May 2000, monthly salary of $5,000 is paid to the
President, who is also a shareholder and director.
The Company has paid legal fees and reimbursed expenses, including rent, to a
company that is owned by its Secretary/Treasurer in the amount of $187,985 from
September 23, 1996, (inception) to June 30, 2000, including $187,985 for the
year ended June 30, 2000.
The Company has paid for services to a company that is a shareholder in the
amount of $71,956 from September 23, 1996, (inception) to June 30, 2000,
including $71,956 for the year ended June 30, 2000.
In May 2000, the Company paid engine development costs to an individual who is a
shareholder of OX2 in the amount of $300,000.
In October 1996, the Company issued 600,000 shares of its common stock to one of
its founders in exchange for his services in organizing the Company. The
transaction was recorded at the estimated fair market value of the services
provided ($6,000), as this was more readily determinable than the fair market
value of the stock.
Also in October 1996, the Company entered into a contract with OX2 whereby the
Company acquired the rights to manufacture, distribute and market the OX2
combustion engine in the United States, Canada and Mexico for the life of the
world-wide patent. As part of this contract, the Company issued 20,000,000
shares of its common stock and was to issue an additional 19,000,000 upon the
completion of emission tests. In December 1998, both parties agreed to rescind
and terminate the requirement to issue the additional 19,000,000 shares. The
Company was also to pay a royalty of 15 percent of the gross proceeds of its
revenue. In addition, OX2 had the right to appoint two of the Company's
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NOTE 3. RELATED PARTY TRANSACTIONS (CONTINUED)
directors. As of June 30, 2000, OX2 had appointed one director who was also the
Company's President, until December 1999 when he resigned. In May 1999, the
Company acquired the worldwide patent and manufacturing rights to the OX2 engine
in a four party agreement between the Company, OX2, OX2 (Intellectual Property)
and Advanced Engine Technology (PTY). The Company has assumed responsibility for
patent maintenance and enforcement.
The Company has an outstanding receivable from one of its secretary/treasurer.
The receivable at June 30, 2000 is $26,000.
NOTE 4. INCOME TAXES
At June 30, 2000 the Company had deferred tax assets amounting to approximately
$1,350,000. The deferred tax assets consist primarily of the tax benefit of net
operating loss carryforwards and are fully offset by a valuation allowance of
the same amount.
The net change in the valuation allowance for deferred tax assets was an
increase of approximately $842,000 and $328,000 for the year ended June 30, 2000
and 1999, respectively. The net change is due primarily to the increase in net
operating loss carryforwards.
At June 30, 2000, the Company had net operating loss carryforwards of
approximately $3,500,000 available to offset future state and federal taxable
income. These carryforwards will expire in 2017 to 2020 for federal tax purposes
and at various times for state tax purposes.
NOTE 5. COMMON STOCK
The Company offered one million shares of its common stock at the price of one
dollar per share in an offering memorandum pursuant to Rule 504 of Regulation D
of the Securities Act of 1933. The Company sold 499,200 shares as of June 30,
1997, and 500,800 during fiscal year 1998. As of June 30, 1997, the Company had
stock subscribed in the amount of $74,000 that was recorded as a receivable and
subsequently received in fiscal year 1998.
On August 6, 1998, the Company entered into a joint venture agreement with
Carroll Shelby under which the Company was to issue 300,000 shares of restricted
common stock in exchange for services related to the future production of a
street vehicle that utilizes the OX2 combustion engine. These shares were issued
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NOTE 5. COMMON STOCK (CONTINUED)
in November 1998. They were valued at $525,000 and expensed as research and
development costs. In addition, the Company will issue an additional 250,000
shares upon completion of the vehicle utilizing the OX2 combustion engine.
Subsequent to this transaction, Carroll Shelby was appointed to the Board of
Directors and became President.
In November 1998, the Company issued 25,000 shares of restricted stock to
purchase patents, copyrights, designs and prototypes to be used with the
Company's technology. This transaction was valued at $43,750 and recorded as an
intangible asset.
In April 1999, the Company issued 400,000 shares of common stock for $2,000,000
in a private placement. During the quarter ended September 30, 1999, the Company
issued an additional 400,000 shares of common stock to the same party for
$2,000,000 in a private placement.
In June 1999, the Company agreed to issue 1,000,000 shares of its common stock
to the University of California Riverside Foundation. The stock is to be issued
in five annual installments of 200,000 shares each. The first installment was
issued in July of 1999. The donated stock is to provide an endowment for
research funds for the College of Engineering-Center for Environmental Research
and Technology.
In January 2000 the Company issued 25,000 shares of common stock in exchange for
services related to the performance testing of the OX2 engine. This transaction
was valued at $87,500 and was charged to research and development expense.
NOTE 6. SUBSEQUENT EVENTS
In August 2000, the Company entered into a subscription agreement with a current
shareholder to issue 10 million shares at one dollar per share in a private
placement.
Also in August 2000, the Company adopted a stock option plan and reserved 5
million shares for the plan.
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Item 8. Changes in and Disagreements with Accountants
None
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Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons
Set forth below are the names and ages of all directors and executive
officers of the Company.
Name Age Position
---- --- --------
Carroll Shelby 76 President
George Hunt 70 Director
Noel Holmes 51 Director
Alexandria Phillips 52 Director
M. Neil Cummings 49 Secretary/Treasurer
Carroll Shelby - President
Carroll Shelby has over 50 years of successful experience in the engine
industries. He has been inducted into a number of automotive related Halls of
Fame. Mr. Shelby has been our president since May 2000.
Mr. Shelby is a Founder and Director of:
Shelby American, Inc
Carroll Shelby Licensing, Inc.
Shelby Technologies
Carroll Shelby Enterprises
Carroll Shelby Children's Foundation
International Chili Society
M. Neil Cummings- Secretary/Treasurer
M. Neil Cummings has been a practicing lawyer in the State of
California since 1977, and was a partner for many years in the Los Angeles law
firm of Walker, Wright, Tyler & Ward. In July of 1995, Mr. Cummings founded, and
is currently the owner and president of, M. Neil Cummings and Associates, a law
firm that focuses on the area of business law, with an emphasis on licensing and
intellectual property in the context of existing as well as emerging modes of
ground transportation. Mr. Cummings has been our secretary and treasurer since
1999.
George Hunt - Director
George Hunt has 36 years of experience in the marine industry as an
agent and supplier of related equipment, products and services. In 1972, he
established Sterling Marine, a Colorado company, gradually building the business
to four marine sales and service locations in the United States, and having been
recognized by Bayliner for multimillion-dollar sales achievements. Mr. Hunt has
been one of our directors since 1997.
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Alexandria Phillips-Director
Alexandria Phillips brings to AET her years of wide ranging experience
and expertise as a tax advisor and financial consultant to Robert E. Petersen
and entities controlled by Mr. Petersen. Ms. Phillips resides in Southern
California, and has been one of our directors since 1999.
Noel Holmes - Director
Mr. Holmes is a native of Australia, but spends a good deal of time in
Southern California, while maintaining a diverse international business and
accounting practice. Mr. Holmes has been one of our directors since 1999.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires that our officers and directors, and persons who beneficially own more
than ten percent of our common stock, file reports of ownership and changes in
ownership with the commission. These reporting persons are also required to
furnish us with copies of all Section 16(a) forms they file. To our knowledge,
based solely on our internal review of the reports we believe should have been
filed, we believe that none of the Section 16(a) reporting requirements were
complied with during the fiscal year ended June 30, 2000.
Item 10. Executive Compensation
We paid consulting fees to our former President, Murray Bailey who is
also a shareholder, in the amount of $79,100 for the fiscal year ended June 30,
2000. In addition, we pay a salary of $5,000 per month to our current president,
Carroll Shelby. Our board of directors has approved a stock incentive plan. No
awards have been granted under this plan.
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Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of June 30, 2000, with
respect to all shareholders known by us to be beneficial owners of more than 5%
of the outstanding common stock of the Company, all directors, and all directors
and executive officers as a group. Except as noted below, each shareholder has
sole voting and investment power with respect to shares owned.
Name & Address Number Of Common
of Beneficial Owner Shares Beneficially Owned Percent*
------------------- ------------------------- --------
Robert/Margaret Petersen 2,445,534 10.56%
6420 Wilshire Blvd./20th Floor
Los Angeles, CA. 90048
OX2 Engine (Distribution) Pty. Ltd. 10,963,238 47.35%***
1-2 Greg Chappell Road
Burleigh Heads
Queensland, Australia, 4220
Macro Management Group, Ltd. 1,179,820 5.1%
Windsor House 2nd Floor
Kummel Highway
Port Vila, Vanuatu
Carroll Shelby 360,000 1.55%
c/o Advanced Engine Technologies, Inc.
11150 W. Olympic Blvd. Suite 1020
Los Angeles, CA 90064
George Hunt 87,000** 0.38%
906 Holly
Sterling, Colorado 80751
M. Neil Cummings 1,402 0.006%
c/o Advanced Engine Technologies, Inc.
11150 W. Olympic Blvd. Suite 1020
Los Angeles, CA 90064
*Based upon 23,150,000 shares outstanding. Does not include 250,000 shares that
may be issued to Carroll Shelby in connection with the joint venture agreement.
**These shares are owned by Cecil L. Hunt, wife of George Hunt who disclaims
beneficial ownership.
***The ownership of these shares is disputed, and such dispute is the subject of
the lawsuit between the Estate of Paul Ebbage and Steven Manthey. The shares are
beneficially owned by OX2 Engine (Distribution) Pty. Ltd, but have been
deposited with the registry of the court in Los Angeles in the name of Advanced
Engine Technologies, Inc., pending the outcome of a lawsuit between the parties.
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Item 12. Certain Relationships and Related Transactions
We have paid research and development costs and rent to a company owned
by Carroll Shelby in the amount $124,437 for the year ended June 30, 2000. In
addition, we will pay (beginning in May 2000) a monthly salary of $5,000 to Mr.
Shelby, who is also a shareholder and director.
We have paid legal fees and reimbursed expenses, including rent, to a
company that is owned by our Secretary/Treasurer, Neil Cummings, in the amount
of $187,985 for the fiscal year ended June 30, 2000.
In May 2000, we paid engine development costs to Steven Manthey, who is
a shareholder of OX2, in the amount of $300,000.
As of June 30, 2000, we have an outstanding receivable of $26,000, from
a company owned by Neil Cummings, our Secretary/Treasurer, to reimburse Mr.
Cummings' company for the build-out of office space.
On July 15, 1998, we entered into a joint venture agreement with
Carroll Shelby, our president, to develop the OX2 engine for use in a standard
application for motor vehicles and to promote the OX2 engine to the automotive
industry. The agreement will expire on December 31, 2001. Mr. Shelby received
300,000 Shares for the initial joint venture agreement and will receive an
additional 250,000 Shares if the objective of the joint venture agreement is
obtained.
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Item 13. Exhibits, List and Reports; Reports on 8-K
Exhibits
EXHIBIT NO. TITLE
----------- -----
(1) 3.1 Certificate of Incorporation of Advanced Engine
Technologies, Inc.
(1) 3.2 Bylaws of Advanced Engine Technologies, Inc.
* 4.1 Advanced Engine Technologies, Inc. 2000 Stock
Incentive Plan
(1) 10.1 Cancellation of 19,000,000 Share Issuance
10.2 Deed of Agreement Concerning the Patents, Licensing
and Research and Development in Relation to the OX2
Engine, dated as of May 12, 1999
(1) 10.3 Joint Venture with Carroll Shelby, dated
July 15, 1998
* 10.4 Agreement with Steven Charles Manthey, dated as of
May 23, 2000.
* 10.5 Release Agreement between Steven Charles Manthey,
Advanced Engine Technology Pty. Ltd. and Advanced
Engine Technologies, Inc., dated as of May 23, 2000
(*) Filed herewith
(1) Incorporated herein by reference from the Company's previous filings
Reports on Form 8K
None
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this registration to be signed on its behalf by the
undersigned, thereunto duly authorized.
ADVANCED ENGINE TECHNOLOGIES, INC.
--------------------------------------------------------------------------------
(Registrant)
By: /s/ Carroll Shelby
------------------------------------------------------------------------
Carroll Shelby, President
Date: June 30, 2000
------------------------------------------------------------------------
By: /s/ Neil Cummings
-----------------------------------------------------------------------
Neil Cummings, Treasurer/Secretary
Date: June 30, 2000
------------------------------------------------------------------------
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ George Hunt
------------------------------------------------------------------------
George Hunt, Director
Date: June 30, 2000
------------------------------------------------------------------------
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Noel Holmes
------------------------------------------------------------------------
Noel Holmes, Director
Date: June 30, 2000
------------------------------------------------------------------------
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