FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1997
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
For Quarter Ended Commission File Number
September 30, 1997 0-12716
Novitron International, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 04-2573920
(State or other jurisdiction
of incorporation or organization) (IRS Employer Identification No.)
One Gateway Center, Suite 411, Newton, MA 02158
(Address of principal executive offices) (Zip Code)
Registrant's Telephone number, including area code: (617) 527-9933
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or 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 __
The number of shares of common stock outstanding, as of November 10, 1997,
is 1,322,005.
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
FORM 10-Q
Index
Page
Part I: FINANCIAL INFORMATION
Item 1: Consolidated Financial Statements
Unaudited consolidated balance sheets at
September 30, 1997 and March 31, 1997 3
Unaudited consolidated statements of operations for the
three and six months ended September 30, 1997 and 1996 5
Unaudited consolidated statements of stockholders'
investment for the years ended March 31, 1997 and 1996 and
the six months ended September 30, 1997 6
Unaudited consolidated statements of cash flows for
the six months ended September 30, 1997 and 1996 7
Notes to unaudited consolidated financial statements 9
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Part II: OTHER INFORMATION 16
SIGNATURE 17
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
<TABLE>
<CAPTION>
UNAUDITED CONSOLIDATED BALANCE SHEETS
ASSETS
<S> <C> <C>
September 30, 1997 March 31, 1997
CURRENT ASSETS:
Cash and cash equivalents $ 2,288,700 $ 1,634,270
Marketable securities 74,480 99,472
Accounts receivable, less
reserves of $99,000 at
September 30, 1997
and $102,000 at March 31,
1997, respectively 1,866,002 2,546,221
Inventories 2,974,710 2,526,389
Prepaid expenses 327,926 280,915
Other current assets 34,849 83,257
Total current assets 7,566,667 7,170,524
EQUIPMENT, at cost:
Manufacturing and computer 1,968,076 1,896,432
equipment
Furniture and fixtures 384,815 403,882
Leasehold improvements 220,119 232,237
Vehicles 69,337 101,818
2,642,347 2,634,369
Less- Accumulated depreciation
and amortization 2,086,390 2,053,107
555,957 581,262
OTHER ASSETS, net 880,980 816,047
$ 9,003,604 $ 8,567,833
<FN>
The accompanying notes are an integral part of these
consolidated financial statements.
</FN>
</TABLE>
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
<TABLE>
<CAPTION>
UNAUDITED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' INVESTMENT
<S> <C> <C>
September 30, 1997 March 31, 1997
CURRENT LIABILITIES:
Short-term notes payable and current
portion of long-term debt $ 64,768 $ 54,375
Accounts payable 2,307,220 1,464,128
Accrued expenses 1,576,620 1,219,551
Customer advances 236,144 193,572
Accrued income taxes 28,999 33,287
Total current liabilities 4,213,751 2,964,913
LONG-TERM DEBT, net of current portion 35,238 41,029
DEFERRED TAXES 116,191 347,993
MINORITY INTEREST 231,793 240,830
COMMITMENTS AND CONTINGENCIES
(Note 5)
STOCKHOLDERS' INVESTMENT:
Preferred stock, $.01 par value,
Authorized--1,000,000 shares
Issued and outstanding--none
Common stock, $.01 par value,
Authorized--6,000,000 shares
Issued-1,322,005 shares at
September 30, and March 31, 1997 13,220 13,220
Capital in excess of par value 4,882,390 4,882,390
Cumulative translation adjustment (92,556) 148,696
Retained earnings (396,423) (71,238)
Total stockholders' investment 4,406,631 4,973,068
$ 9,003,604 $ 8,567,833
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
<TABLE>
<CAPTION>
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For Three Months For the Six Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
REVENUES $ 2,608,696 $2,735,402 $ 5,480,004 $ 7,390,954
COST OF REVENUES 1,880,680 2,007,058 4,045,269 5,487,049
Gross profit 728,016 728,344 1,434,735 1,903,905
OPERATING EXPENSES:
Sales and marketing 191,053 271,550 430,521 578,844
Research and development 294,846 418,344 593,169 767,475
General and
adminstrative 442,046 562,547 857,334 1,016,465
927,945 1,252,441 1,881,024 2,362,784
Loss from operations (199,929) (524,097) (446,289) (458,879)
Interest expense (25,114) 617 (39,173) (27,087)
Interest income 16,896 12,746 31,208 24,172
Other income (expense) 23,924 (96,501) 32,293 (93,232)
(184,223) (607,235) (421,961) (555,026)
Benefit from income
taxes (33,918) (160,922) (87,739) (64,903)
(150,305) (446,313) (334,222) (490,123)
Minority interest 3,702 16,436 9,037 10,427
Net loss $ (146,603) $ (429,877) $ (325,185) $ (479,696)
Net loss per share $ (0.11) $ (0.33) $ (0.25) $ (0.36)
Weighted Average
Common Shares
Outstanding 1,322,005 1,322,005 1,322,005 1,322,005
<FN>
The accompanying notes are an integral part of these consolidated financial
statements
</FN>
</TABLE>
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
FOR THE YEARS ENDED MARCH 31, 1996, AND 1997
AND FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997
Common Stock Excess Cumulative
Number of Translation Retained
of Shares Par Value Par Value Adjustment Earnings
<S> <C> <C> <C> <C> <C>
BALANCE at March 31, 1995 1,322,005 $ 13,220 $ 4,882,390 $ 1,068,490 $ 2,016,945
Translation adjustment - - - (283,267) -
Net loss - - - - (1,505,633)
BALANCE at March 31, 1996 1,322,005 13,220 4,822,390 785,223 511,312
Translation adjustment - - - (636,527) -
Net loss - - - - (582,550)
BALANCE at March 31, 1997 1,322,005 13,220 4,822,390 148,696 (71,238)
Translation adjustment - - - (241,252) -
Net loss - - - - (325,185)
BALANCE at September
30, 1997 1,322,005 $ 13,220 $ 4,822,390 $ (92,556) $ (396,423)
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
<TABLE>
<CAPTION>
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30,
<S> <C> <C>
1997 1996
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss $ (325,185) $ (479,696)
Adjustments to reconcile
net loss to net cash provided
by (used in) operating
activities-
Depreciation and 159,954 206,690
amortization
Minority interest (9,037) (10,427)
Accounts receivable 552,533 1,929,407
Inventories (579,470) 768,125
Prepaid expenses (61,314) (12,836)
Other current assets 44,337 (168,552)
Accounts payable 921,313 (902,348)
Accrued expenses 416,774 (141,517)
Customer advances 52,653 481
Accrued income taxes 581 (41,294)
Deferred income taxes (214,902) 41
Net cash provided by
operating activities $ 958,237 $ 1,148,074
CASH FLOWS FROM
INVESTING ACTIVITIES:
Marketable securities $ 24,992 $ 99,890
Other assets (127,255) 295
Purchases of equipment (164,005) (162,136)
Sales of equipment 16,224 24,584
Other, including foreign
Exchange effects on cash (63,269) (113,344)
Net cash used in
Investing activities $ (313,313) $ (150,711)
<FN>
Continues on next page
</FN>
</TABLE>
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
<TABLE>
<CAPTION>
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30,
(Continued)
<S> <C> <C>
1997 1996
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from short-term debt $ 13,219 $ 80,999
Proceeds from (payments on)
long-term debt (3,713) 6,055
Net cash provided by
financing activities $ 9,506 $ 87,054
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS $ 654,430 $ 1,084,417
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 1,634,270 1,018,501
CASH AND CASH EQUIVALENTS
AT September 30, 1997 and 1996 $ 2,288,700 $ 2,102,918
<FN>
The accompanying notes are an integral part of these
consolidated financial statements.
</FN>
</TABLE>
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
Basis of Presentation
Novitron International, Inc. ("the Company") prepared the consolidated
financial statements included herein pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information normally
included in footnote disclosures in financial statements prepared in
accordance with generally accepted accounting principles was condensed or
omitted pursuant to such rules and regulations. In management's opinion,
the consolidated financial statements and footnotes reflect all adjustments
necessary to disclose adequately the Company's financial position at
September 30, 1997 and September 30, 1996. Management suggests these
condensed consolidated financial statements be read in conjunction with the
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1997.
(1) Operations and Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries: Clinical Data BV, Clinical Data (Australia), Pty.
Ltd., NovaChem BV, Spectronetics NV, and Vital Scientific NV (94% owned
subsidiary). All significant intercompany accounts and transactions have
been eliminated in consolidation.
(b) Cash and Cash Equivalents
Cash and cash equivalents are stated at cost, which approximates market,
and consist of cash and marketable financial instruments with original
maturities of 90 days or less. Cash and cash equivalents consist of the
following at September 30, and March 31, 1997.
<TABLE>
<S> <C> <C>
September 30, 1997 March 31, 1997
Cash and money market 2,285,325 1,630,638
instruments
Time deposits 3,375 3,632
2,288,700 1,634,270
</TABLE>
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(Continued)
(c) Marketable Securities
The Company accounts for marketable securities under Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities" ("SFAS No. 115"). Under SFAS No. 115, marketable
securities which the Company has the ability and positive intent to hold to
maturity are recorded at amortized cost and classified as "held to
maturity" securities. For the periods ended September 30, and March 31,
1997, marketable securities consisted of United States Treasury securities
and were stated at cost, which approximated market value.
(d) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market, include material, labor and manufacturing overhead, and consist of
the following at September 30, and March 31, 1997:
<TABLE>
<S> <C> <C>
September 30, 1997 March 31, 1997
Raw materials $ 738,614 $ 496,248
Work-in-process 1,445,092 1,252,249
Finished goods 791,004 777,892
$ 2,974,710 $ 2,526,389
</TABLE>
(e) Revenue Recognition
The Company recognizes revenue from the sale of products and supplies at
the time of shipment.
(f) Net Loss per Share
Net loss per share for the three and six month periods ended September 30,
1997 and 1996 is based on the weighted average number of common shares
outstanding during the respective fiscal period. Effective for all
reporting periods ending after December 15, 1997, the Company is required
to adopt Statement of Financial Accounting Standards No. 128, "Earnings per
Share," ("SFAS No. 128"). SFAS No. 128 has new guidelines about the
calculation of earnings per share and requires the restatement of
previously stated earnings per share for comparability purposes. The
Company does not believe that the adoption of SFAS No. 128 will have a
material impact on the Company's historical earnings per share.
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(Continued)
(g) Financial Instruments
The estimated fair value of the Company's financial instruments, which
include cash equivalents, marketable securities, accounts receivable and
long-term debt, approximates their carrying value.
(h) Foreign Currency Translation
The Company accounts for foreign currency transaction and translation gains
and losses in accordance with SFAS No. 52, "Foreign Currency Translation."
The functional currency of Clinical Data BV, Vital Scientific NV and
Spectronetics NV is the Dutch guilder. During fiscal 1997, the functional
currency of Clinical Data Australia became the Australian dollar in
recognition of the shift of its operations to a more domestic focus. Also
in fiscal 1997, NovaChem BV changed its functional currency to the United
States dollar because the majority of its operations are now based in the
United States. Gains and losses from translating asset and liability
accounts that are denominated in currencies other than the respective
functional currency and foreign currency transaction gains and losses are
included in other expense in the consolidated statements of operation. The
translation adjustment required to report those subsidiaries whose
functional currency is other than the United States dollar into U.S.
dollars is credited or charged to cumulative translation adjustment,
included as a separate component of stockholders' investment in the
accompanying consolidated balance sheets.
(i) Depreciation and Amortization of Equipment and Intangibles
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," ("SFAS No. 121"), requires the Company to continually evaluate whether
events and circumstances have occurred that indicate that the estimated
remaining useful life of long-lived assets and such intangibles as goodwill
may warrant revision or that the carrying value of those assets may be
impaired. To compute whether assets have been impaired, the estimated gross
cash flows for the estimated remaining useful life of the asset are
compared to the carrying value. To the extent that the gross cash flows are
less than the carrying value, the assets are written down to the estimated
fair value of the of the asset. At September 30, and March 31, 1997, the
Company's remaining goodwill relates to its investment in Vital Scientific
NV.
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(Continued)
(j) Concentration of Credit Risk
Statement of Financial Accounting Standards No. 105, "Disclosure of
Information about Financial Instruments with Off-Balance Sheet Risk and
Financial Instruments with Concentrations of Credit Risk," requires
disclosure of any significant off-balance sheet and credit risk
concentrations. The Company has no significant off-balance sheet credit
risk such as foreign exchange contracts, option contracts or other foreign
hedging arrangements. The Company maintains the majority of its cash
balances with financial institutions.
(k) Postretirement Benefits
The Company has no obligations for post retirement benefits.
(l) Management's 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.
(m) Warranty Policy
The Company provides for a warranty reserve on its manufactured products
for one year, which covers parts and materials.
(n) Software Development Costs
In connection with the development of software included as a significant
component of a new analysis product, the Company has applied the provisions
of Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed" ("SFAS
No. 86"). SFAS No. 86 requires the Company to capitalize those costs
incurred for the development of computer software that will be sold, leased
or otherwise marketed once technological feasibility has been established
up to the time at which the product is available for sale to the customer.
These capitalized costs are subject to an ongoing assessment of
<PAGE>
Novitron International, Inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(Continued)
(n) Software Development Costs (continued)
the recoverability based on anticipated future revenues and changes in
hardware and software technologies.
Amortization of the capitalized software development costs begins when the
product is available for general release. Amortization is provided on a
product-by-product basis on either the straight-line method over periods
not exceeding five years or the sales ratio method. Unamortized capitalized
software development costs determined to be in excess of net realizable
value of the product are expensed immediately.
During the six-month period ended September 30, 1997 and the year ended
March 31, 1997, the Company capitalized $154,757 and $502,331,
respectively, under SFAS No. 86, included as a component of other assets in
the accompanying consolidated balance sheets. The Company has not recorded
any amortization for the year then ended, as the capitalized costs pertain
to a product that is not yet available for general release.
(o) Reclassifications
Certain reclassifications have been made to the prior year's presentation
in order to conform to that of the current year.
(2) Reverse Stock Split
On November 12, 1996, the Company declared a 1 for 3 reverse stock split of
the Common Stock payable on December 4, 1996 to stockholders of record on
November 25, 1996. No fractional shares were distributed and the Common
Stock issued to each stockholder was rounded up to the nearest whole number
of shares. The financial statements for the periods presented were restated
to reflect an estimated number of shares outstanding. As of September 30,
1997, the actual number of shares outstanding was verified; all share and
per share amounts for all periods presented have been restated to reflect
the final number of shares outstanding after the reverse stock split.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Second Quarter ended September 30, 1997 compared to the Second Quarter
ended September 30, 1996
Revenues for the three-month period ended September 30, 1997 decreased 4.6%
from the three months ended September 30, 1996 and the year-to-date
revenues have declined 25.9% from the same period last year. For the
quarterly reporting period when expressed in Dutch Guilders, there was a
12.7% increase in sales at Vital Scientific. When translated, however, into
U.S. dollars, the increase was offset by a 17.2% decline in the value of
the Dutch Guilder. For the year-to-date comparison, the primary factor in
the sales decline is the aforementioned strengthening of the U.S. dollar
against the Company's primary functional currency, the Dutch Guilder. The
remainder of the decrease is primarily due to a reduction in purchases by a
major customer.
The gross profit margin improved from 26.6% to 27.9% for the three-month
periods ending September 30, 1996 and 1997, respectively and from 25.8% to
26.5% for the six-month reporting periods ended on the aforementioned
respective dates. The increase in gross profit is attributable to improving
margins from the sales of instruments and spare part at Vital Scientific
and diagnostic assays at Clinical Data (Australia).
When analyzing the comparative figures for the three and six month
reporting periods, the aforementioned 17.2% decline in the value of the
Dutch Guilder against the U.S. dollar affected each of the expense
categories noted below.
Sales and marketing expenses decreased 29.4% and 25.6% for the three and
six month periods, respectively. The exchange rate was the primary factor
and secondarily, the decline is attributable to a reduction in sales
expenses at NovaChem BV and Clinical Data (Australia) offset by an increase
in sales expenses at Vital Scientific.
Research and development expenses, as shown on the income statement,
decreased 29.5% from last year on a quarterly comparative basis and 22.7%
in the year-to-date figures. However, during the first six months of fiscal
year 1998, the Company spent an additional $155,000 ($79,000 during the
second quarter) which were capitalized on the consolidated balance sheet
pursuant to the precepts of Statement of Financial Standards No. 86 (see
Note 1(n) in the Notes to the Consolidated Financial Statements).
Therefore, the Company expended, on a cash basis, a total of $354,000
during the three months ended September 30, 1997 and $748,000 for the six
months then ended.
General and administrative expenses decreased by 21.4% for the three-month
and 15.7% for the six-month periods ended September 30, 1997 when compared
to the same periods as of September 30, 1996.
<PAGE>
Interest expense increased for the period and year-to-date as compared to
last year because of a special financing charge assessed to Vital
Scientific for participation in special programs in the Netherlands, which
provide support for research and development. Interest income has increased
for both the quarter and year-to-date because there are more funds
available. Other income and expense consists primarily of the effect of
foreign currency transaction gains and losses on the results of operations.
For the quarters ended September 30, 1997 and 1996, minority interest is
attributable to the six percent (6%) of Vital Scientific NV not held by the
Company.
Financial Condition and Liquidity
The effect of foreign currency transaction exchange on the result of
operations is included in other income and expense and is not material to
the financial statements. Any impact on the Company's liquidity is largely
dependent on the exchange rates in effect at the time the predominant
functional currency, the Dutch guilder, is translated into U.S. Dollars.
Approximately $231,000 of the September 30, 1997 balance of $2,289,000 in
cash, cash equivalents and marketable securities is denominated in U.S.
dollars. The effect of translation into U.S. dollars is reflected as a
separate component of stockholders' investment in the balance sheet. The
effects of currency exchange rates on future quarterly or fiscal periods on
the results of operations are difficult to estimate.
There are no formal hedging procedures employed by the Company. The primary
risk is to monetary assets and liabilities denominated in currencies other
than the U.S. dollar. Approximately $7.5 million of the $7.6 million of
current assets reside in the Company's foreign subsidiaries.
The Company generated approximately $958,000 of cash from operations during
the six months ended September 30, 1997. The increase in funds comes from
the decrease in the level of accounts receivable and an increase in
accounts payable and accrued expenses offset by an increase in the level of
inventory and a decrease in deferred income taxes. Approximately $313,000
was used by the Company during the six months for investing activities.
These included the capitalization of software development costs and the
purchase of equipment coupled with the effect of foreign currency exchange.
Financing activities have not been material thus far during fiscal year
1998. The Company's sources of cash include cash balances and a 2,000,000
Dutch guilder standby line of credit from a Dutch bank. The Company
believes that available funds will provide it with sufficient working
capital during the remainder of fiscal year 1998.
<PAGE>
Part II. OTHER INFORMATION
Items 1-3.
None
Item 4. Submission of Matters to a Vote of Security Holders:
At the Annual Meeting for the fiscal year ended March 31, 1997,
held on September 15,1997, the following matters were submitted to a vote of the
security holders:
(a) Directors elected as follows:
Israel M. Stein
Gordon B. Baty
Arthur B. Malman
(b) Matters voted on as follows:
Election of directors:
Israel M. Stein and Arthur B. Malman:
1,012,535 voted for
249,502 withheld authority to vote
Gordon B. Baty:
1,003,110 voted for
258,927 withheld authority to vote
Ratification of auditors:
1,000,114 voted for
7,417 voted against
16,908 abstained
Item 5. Other Information:
On October 20, 1997, Vital Scientific NV became a wholly-owned subsidiary
of the Company when the six (6%) percent of Vital Scientific held by a
third party was purchased for NLG400,000. The Company recorded the
acquisition as a purchase and accounted for the excess of the consideration
paid over the fair value of the assets acquired as goodwill to be amortized
over 15 years on a straight-line basis.
Item 6.
None
<PAGE>
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
Novitron International, Inc.
(Registrant)
Israel M. Stein MD
Date: November 13, 1997
Israel M. Stein MD
President
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