U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
Commission file number 0-023769
AmeriCom USA, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 52-2068322
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
825 Buckley Road, Suite B
San Luis Obispo, CA 93401
(Address of principal executive offices)
805/542-6705
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the last 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 _____
------
Number of shares outstanding of the issuer's common stock,
as of November 15, 2000
Class: Number of Shares Outstanding:
Class A Common Stock, par value $0.0001 per share 42,696,746
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INDEX
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements:
Unaudited Condensed Consolidated Balance Sheets-
September 30, 2000 and June 30, 2000
Unaudited Condensed Consolidated Statements of
Operations - Three months ended September 30, 2000
and September 30, 1999
Unaudited Condensed Consolidated Statements of Cash Flows-
Three months ended September 30, 2000
and September 30, 1999
Notes to Unaudited Condensed Consolidated Financial
Statement
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
Item 2: Changes in Securities and Use of Proceeds
Item 3: Defaults Upon Senior Securities
Item 4: Submission of Matters to a Vote of Security Holders
Item 5: Other Information
Item 6: Exhibits and Reports on Form 8-K
SIGNATURE
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AMERICOM USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, 2000
(Unaudited) June 30, 2000
--------------------- ----------------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 36,594 $ 247,971
Accounts receivable, net 175,540 249,400
Other current assets 328,185 319,899
--------------- --------------
Total Current Assets 540,319 817,270
--------------- --------------
PROPERTY AND EQUIPMENT, NET 593,519 627,595
--------------- --------------
OTHER ASSETS
Accounts receivable - long term, net 321,912 321,912
Deposits 46,890 47,968
Goodwill and other intangibles, net 2,201,132 2,539,684
--------------- --------------
Total Other Assets 2,569,934 2,909,564
--------------- --------------
TOTAL ASSETS $ 3,703,772 $ 4,354,429
=============== ==============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
September 30, 2000
(Unaudited) June 30, 2000
------------------- ------------------
CURRENT LIABILITIES
Cash overdraft $ 83,509 $ 121,445
Accounts payable 1,465,087 1,203,179
Accrued liabilities 1,691,076 1,439,023
Factor payable 663,115 663,115
Notes and loans payable - current portion 2,932,085 1,496,289
------------- -------------
Total Current Liabilities 6,834,872 4,923,051
------------- -------------
STOCKHOLDERS' DEFICIENCY
Preferred stock, $0.0001 par value, 20,000,000 shares authorized, none
issued and outstanding - -
Common stock, Class A, $0.0001 par value, 99,000,000 shares authorized,
42,696,746 issued and outstanding 4,270 4,270
Common stock, Class B, $0.0001 par value, 1,000,000 shares authorized,
none issued and outstanding - -
Additional paid-in capital 28,771,159 28,771,159
Accumulated deficit (31,906,529) (29,344,051)
------------- --------------
Total Stockholders' Deficiency (3,131,100) (568,622)
------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 3,703,772 $ 4,354,429
============== ==============
See accompanying notes to condensed consolidated financial statements.
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AMERICOM USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
2000 1999
-------------- --------------
REVENUES $ 109,108 $ 264,755
------------- --------------
Costs and Expenses Cost of sales 376,063 222,291
Selling, general and administrative 1,912,599 2,067,672
Amortization of goodwill/other intangibles 338,552 288,551
------------- --------------
Total Operating Expense 2,627,214 2,578,514
Operating Loss (2,518,106) (2,313,759)
Other Income/Expense (44,372) (22,489)
------------- --------------
NET LOSS $ (2,562,478) $ (2,336,248)
============= ==============
Net loss per share - basic and diluted (0.06) (0.07)
------------- --------------
Shares used in per share computations -
basic and diluted 42,696,746 32,931,618
------------- --------------
See accompanying notes to condensed consolidated financial statements.
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AMERICOM USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
2000 1999
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (2,562,478) $ (2,336,248)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 48,255 29,816
Amortization 338,552 288,551
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 73,860 (34,485)
Other assets (8,286) (219,565)
Deposits 1,078 -
Increase (decrease) in:
Cash overdraft (37,936) -
Accounts payable and accrued expenses 261,908 558,404
Accrued liabilities 461,488 408,108
----------- ------------
Net Cash Used In Operating Activities (1,423,559) (1,305,419)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (14,179) (513,481)
----------- ------------
Net Cash Used In Investing Activities (14,179) (513,481)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock issuance - 1,596,674
Payment of notes and loans payable (20,000) -
Proceeds from notes and loans payable 1,246,361 248,015
----------- ------------
Net Cash Provided By Financing Activities 1,226,361 1,844,689
----------- ------------
Net Increase (Decrease) In Cash (211,377) 25,789
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 247,971 8,696
----------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 36,594 $ 34,485
=========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 45,530 $ 21,119
=========== ============
See accompanying notes to condensed consolidated financial statements.
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NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles and the rules and regulations of the Securities and Exchange
Commission for interim financial information. Accordingly, they do not
include all the information and footnotes necessary for a comprehensive
presentation of financial position and results of operations.
It is management's opinion, however, that all adjustments (consisting
of a normal recurring adjustments) have been made which are necessary
for a fair financial statements presentation. The results for the
interim period are not necessarily indicative of the results to be
expected for the year.
For further information, refer to the consolidated financial statements
and footnotes included in the Company's Form 10-KSB for the year ended
June 30, 2000.
NOTE 2 NOTES PAYABLE
On August 3, 2000, the Company executed a Promissory Note with a bank
for $1,660,000. The Note bears interest at the bank's prime rate plus
1% and is secured by a lien on substantially all the Company's assets
and a personal guarantee of a director of the Company. The Note is due
December 31, 2000.
NOTE 3 STOCKHOLDERS' EQUITY
In September 2000, the founders and certain members of management
agreed to cancel or materially reduce their stock option grants. A
total of 8,395,000 stock options were cancelled.
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
In the three-month period ended September 30, 2000 we generated
consolidated revenue of $109,108 from business operations resulting in a net
loss of $2,562,478. Of that revenue, $89,045 was derived from advertising on the
DAI.Net network, $8,900 was derived from the Kiosk Software, Inc., subsidiary,
and the balance of $11,163 was derived from MyLine telephone services.
During the comparable three-month period of 1999, consolidated revenue
was $264,755, resulting in a net loss of $2,336,248. Of that revenue, $1,219 was
derived from advertising, $163,536 was derived from the Kiosk Software, Inc.,
subsidiary, and $100,000 was recognized from an extraordinary license fee for
the AdCast System.
The change in revenue derivation primarily reflects our current
concentration on developing our DAI.Net advertising business. In the quarter
ended September 30, 2000, our primary focus was to refine our network
performance and internal advertising campaign management tools, and to recruit
outside sales representative firms, brokers and exchanges. In the process, we
were able to expand the reach of the network by approximately 1 million unique
visitors per month. The network grew from approximately 6 million monthly unique
viewers at the start of the reporting quarter, to approximately 7 million at the
end of the quarter. Going forward we will be focusing our marketing and sales
efforts on continuing to expand the reach and quality of the network while our
outside rep firms concentrate on selling advertising.
Cost of sales incurred for the quarter ended September 30, 2000,
totaled $376,063, all of which was attributable to website owner compensation on
the DAI.Net network. Cost of sales was $222,291 for the same period a year ago,
of which $3,429 was attributable to the Kiosk Software subsidiary, and the
balance of $218,862 was site owner compensation. The increase in site owner
compensation reflects growth in the total number of DAI.Net affiliate websites
and total unique viewers visiting those sites.
During the quarter ended September 30, 2000, selling, general and
administrative ("SG&A") expenses totaled $1,912,599 as compared with $2,067,672
for the same quarter in 1999.
Future prospects for our financial condition and results of operations
will be dependent on our continued ability to grow the DAI.Net network and our
sales representative firms' ability to sell advertising at prices and volumes
that cover our cost of sales at sufficient margins. Since we compensate site
owners on the basis of $0.01 per daily unique visitor, as the network grows in
number of sites, and the sites grow in number of visitors, cost of sales dollars
will continue to increase. It is further anticipated that in the near term, cost
of sales will continue to exceed revenue as the Company continues to
aggressively grow the network at a rate that exceeds the rate of growth in
advertising sales and margin rates. Long-term profitability will depend on our
ability to increase sales dollars per unique viewer at advertising rates that
provide sufficient margin to exceed our SG&A costs.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resources
Our operations in future periods will be dependent upon the availability of
adequate liquid funds for continuing technology development and capital
expenditures, and on our ability to meet income deficits associated with the
operational roll-out of DAI.Net and its associated advertising
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services. In order to meet our need for sufficient liquid funds during the
current reporting quarter, we have made the following arrangements.
On August 3, 2000, the Company executed and delivered a promissory note in favor
of Sterling National Bank (the "Bank") evidencing a loan in the aggregate
principal amount of $1,000,000 (the "Note"). The Note was to mature on November
1, 2000 and bears interest, payable monthly, at a rate of 1% above the Bank's
base loan rate on the principal amount of the Note. As collateral for the Note,
the Company entered into a General Loan and Security Agreement, dated August 3,
2000 (the "Bank Security Agreement"), between the Company and the Bank, pursuant
to which the Company granted to the Bank a first priority security interest in
and lien on substantially all of the assets of the Company. As further security
for the Note, and at the request of the Company and the Bank, Giacomo Torrente,
a director of the Company, entered into a guaranty in favor of the Bank,
pursuant to which Mr. Torrente (i) guaranteed the obligations of the Company
under the Note and the Bank Security Agreement and (ii) deposited with the Bank
the sum of $1,000,000 (the "Deposit"). In consideration for Mr. Torrente making
the Deposit and entering into the guaranty, the Company and Kiosk Software,
Inc., a subsidiary of the Company, entered into a security agreement in favor of
Mr. Torrente, as secured party, dated as of August 3, 2000 (the "Torrente
Security Agreement"), pursuant to which the Company and Kiosk Software, Inc.
granted to Mr. Torrente a second priority security interest in and lien on
substantially all of the assets of the Company and Kiosk Software, Inc. On
September 15, 2000, the principal amount of the Note was increased to
$1,660,000. In connection with that increase, Mr. Torrente deposited an
additional $660,000 with the Bank and the Torrente Security Agreement was
amended to reflect this increase. The terms of the note and guaranty have
subsequently been extended to December 31, 2000 and the credit line amount and
matching cash collateral deposits by Mr. Torrente are expected to be increased
from $1,500,000 to $2,500,000. If $2,500,000 were deposited by Mr. Torrente and
the line of credit secured by Mr. Torrente's deposits were fully drawn, the new
note balance would total $4,160,000.
The Company considers that existing commitments and indications of intent for
equity and debt financing will be adequate to meet the Company's operational
funding requirements for the next 12 months. The Company cannot guarantee,
however, that those sources of funding will be realized, or that internally
generated funds will be developed sufficiently quickly to meet the Company's
needs if externally generated funds are exhausted. The Company continues to
incur liability for payment of goods and services supplied to the Company which
are not met in full within normal credit terms, and is thus reliant on the
continued goodwill and confidence of those vendors.
Historically, the Company has funded its operations primarily through private
placements of its securities and short term loans. As of September 30, 2000 and
September 30, 1999 the Company's working capital deficit was $6,294,553, and
$4,295,456, respectively. Proceeds from private placements and loans were used
for working capital.
FACTORS AFFECTING FUTURE OPERATING RESULTS
AmeriCom has incurred significant losses historically and may likely
incur future losses.
AmeriCom may not become profitable or significantly increase its revenue.
AmeriCom incurred a net loss of $272,569 and recorded no revenues for the year
ended June 30, 1998, a net loss of $7,700,999 with revenues of $143,591 in the
year ended June 30, 1999, and a net loss of $19,769,002 with revenues of
$1,023,297 in the year ended June 30, 2000.
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If use of the Internet and other communications networks based on
Internet protocols does not continue to grow, demand for AmeriCom's products may
not increase.
Increased demand for products depends in large part on the continued growth of
the Internet and Internet protocol-based networks and the widespread acceptance
and use of these mediums for electronic commerce and communications. Because
electronic commerce and communications over these networks are evolving, it is
impossible to predict the size of the market and its sustainable growth rate. A
number of factors may affect market size and growth rate. These factors include
the following:
o The demand for electronic commerce and communications may not
increase, or may increase more slowly than expected.
o The Internet infrastructure and communications services to support
electronic commerce may not be able to continue to support the
demands placed on them by continued growth.
o The growth and reliability of electronic commerce and communications
could be harmed by delays in development or adoption of new
standards and protocols to handle increased levels of activity or by
increased governmental regulation.
If AmeriCom does not respond to rapid technological changes, its
products and service offerings could become obsolete.
The markets served are characterized by rapidly changing technology, emerging
industry standards and frequent introduction of new products. The introduction
of products embodying new technologies and the emergence of new industry
standards may render products obsolete or less marketable. The process of
developing products and services is extremely complex and requires significant,
continuing development efforts. If AmeriCom fails to modify existing products
and develop new products that are responsive to changing technology and
standards and meet customer needs in a timely and cost effective manner,
business could be adversely affected.
If AmeriCom fails to establish and maintain strategic relationships,
its ability to develop and market products could be adversely affected.
The loss of any of existing strategic relationships, or the inability to create
new strategic relationships in the future, could adversely affect AmeriCom's
ability to develop and market products. AmeriCom depends on its partners to
develop and market products and to fund and perform their obligations as
contemplated by agreements with them. AmeriCom does not control the time and
resources devoted by partners to these activities.
These relationships may not continue or may require AmeriCom to spend
significant financial, personnel and administrative resources from time to time.
Resources may not be available to satisfy commitments, which may adversely
affect strategic relationships. Further, products and services may compete with
the products and services of AmeriCom's strategic partners. This competition may
adversely affect relationships with those strategic partners, which could
adversely affect business.
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AmeriCom depends on key management personnel.
The Company's success will depend largely on the continuing efforts of
AmeriCom's executive officers and senior management, especially those of Robert
M. Cezar, Chairman of the Board of Directors. Business may be adversely affected
if the services of any key personnel become unavailable.
There is significant competition in the industry for highly skilled
employees and failure to attract and retain technical personnel would adversely
affect business.
It may be impossible to successfully attract or retain highly skilled employees.
The inability to hire or retain highly qualified individuals may impede
AmeriCom's ability to develop, install, implement and service its software and
hardware systems, retain its customers, attract potential customers, and
otherwise efficiently conduct its operations. The information technology
industry is characterized by a high level of employee mobility, and the market
for highly qualified individuals in the computer-related fields is intense.
This competition means there are fewer highly qualified employees available to
hire and the costs of hiring and retaining these individuals are high. Even if
it is possible to hire these individuals, it may be difficult to retain them.
Furthermore, there is increasing pressure to provide technical employees with
stock options and other equity interests, which may dilute earnings per share.
Potential product defects could subject AmeriCom to claims from
customers.
Products as complex as those offered by AmeriCom may contain undetected errors
or result in failures when first introduced or when new versions are released.
Despite AmeriCom's product testing efforts and testing by current and potential
customers, it is possible that errors will be found in new products or
enhancements after commencement of commercial shipments.
The occurrence of product defects or errors could result in adverse publicity,
delay in product introduction, diversion of resources to remedy defects, loss of
or a delay in market acceptance or claims by customers against us, or could
cause AmeriCom to incur additional costs, any of which could adversely affect
business.
There may be exposure to potential liability for actual or perceived
failure to provide required products or services.
Because AmeriCom's customers rely on its products for critical applications,
there may be exposure to potential liability claims for damage caused to an
enterprise as a result of an actual or perceived failure of its products. An
actual or perceived breach of the enterprise network or data security systems of
a customer, regardless of whether the breach is attributable to AmeriCom's
products or solutions, could adversely affect AmeriCom's business reputation.
Furthermore, failure or inability to meet a customer's expectations in the
performance of services, or to do so in the time frame required by the customer,
regardless of responsibility for the failure, could result in a claim for
substantial damages by the customer, discourage customers from engaging AmeriCom
for these services, and damage AmeriCom's business reputation.
In addition, as a professional service provider, a portion of AmeriCom's
business involves employing people and placing them in the workplace of other
businesses. Therefore, there is also exposure to liability for actions taken by
employees while on assignment.
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AmeriCom operates in a market with intense competition from a number of
sources.
The markets for AmeriCom's products and services are intensely competitive and,
as a result, significant competition exists from a number of different sources.
It may be impossible to compete successfully as many of AmeriCom's competitors
are more established, benefit from greater name recognition and have
substantially greater financial, technical and marketing resources.
In addition, there are several competitive start-up companies with which
AmeriCom competes from time to time. It is also expected that competition will
increase as a result of consolidation in the industry.
Third parties could obtain access to AmeriCom's proprietary information
or independently develop similar technologies because of the limited protection
for intellectual property.
AmeriCom's business, financial condition and operating results could be
adversely affected if any of AmeriCom's proprietary information or technologies
are appropriated by others. Notwithstanding the precautions taken, third parties
may copy or obtain and use AmeriCom's proprietary technologies, ideas, know-how
and other proprietary information without authorization or independently develop
technologies similar or superior to AmeriCom's technologies.
In addition, the confidentiality and non-competition agreements between AmeriCom
and its employees, contractors, and clients may not provide meaningful
protection of the proprietary technologies or other intellectual property in the
event of unauthorized use or disclosure.
Policing unauthorized use of technologies and other intellectual property is
difficult, particularly because the global nature of the Internet makes it
difficult to control the ultimate destination or security of software or other
data transmitted. Furthermore, the laws of other jurisdictions may afford little
or no effective protection of intellectual property rights.
AmeriCom may face claims of infringement of proprietary rights.
AmeriCom knows of no challenge that has been made against any of its
technologies or against its rights to such technologies and has no reason to
believe that any such challenge could be made, but whether or not its products
infringe on proprietary rights of third parties, infringement or invalidity
claims may be asserted or prosecuted against AmeriCom and significant expense in
defending them could be incurred.
If any claims or actions are asserted against AmeriCom, it may be required to
modify products or seek licenses for these intellectual property rights. It may
be impossible to modify products or obtain licenses on commercially reasonable
terms, in a timely manner or at all. Failure to do so could adversely affect
business.
Efforts to expand international operations are subject to a number of
risks.
AmeriCom is currently seeking to increase international sales. The ability to
expand international operations could be subject to a number of risks, any of
which could adversely affect AmeriCom's future international sales, including
increased collection risks and uncertain political, regulatory and economic
developments.
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Stock prices could be extremely volatile.
The trading price of AmeriCom's common stock may be highly volatile as a result
of factors specific to AmeriCom or applicable to the market and industry in
general. These factors include: o variations in the annual or quarterly
financial results of AmeriCom or its competitors;
o changes by financial research analysts in their recommendations or
estimates of earnings;
o conditions in the economy in general or in the industry;
o announcements of technological innovations or new products or
services by AmeriCom or its competitors; and
o unfavorable publicity or changes in applicable laws and regulations,
or their judicial or administrative interpretations, affecting the
industry.
In addition, the stock market has been subject recently to extreme price and
volume fluctuations. This volatility has significantly affected the market
prices of securities issued by many companies for reasons unrelated to the
operating performance of these companies. In the past, following periods of
volatility in the market price of a company's securities, some companies have
been sued by their stockholders. If AmeriCom were sued, it could result in
substantial costs and a diversion of management's attention and resources, which
could adversely affect business.
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PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Not applicable.
ITEM 2 CHANGE IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 OTHER INFORMATION
On November 1, 2000 Mr. Lawrence M. Gress assumed the role of Acting Chief
Executive Officer of the Company, and was appointed to the Board of Directors.
Mr. Gress was formerly Chief Financial Officer of the Company and remains in
that capacity. Mr. Thomas J. Hopfensperger, previously Chief Executive Officer,
remains as a member of the Board of Directors and as President of wholly-owned
subsidiary DAI.Net, Inc., for its Advertising Sales Division.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K filed October 27, 2000 reporting appointment of Lawrence M. Gress as
Acting Chief Executive Officer and Director of the Company.
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SIGNATURES
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.
AMERICOM USA, INC.
Dated: November 20, 2000 By: /s/ Lawrence M. Gress
------------------------------
Lawrence M. Gress
Acting Chief Executive Officer
and Chief Financial Officer
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