SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10- QSB
(Mark one)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended December 31, 1995
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________
Commission file number: 0-15967
EFI ELECTRONICS CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 75-2072203
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2415 South 2300 West, Salt Lake City, Utah 84119
(Address of principal executive offices)
Issuer's telephone number, including area code: (801) 977-9009
x Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
twelve 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.
Number of shares of the issuer's common stock outstanding at February
12, 1996: 3,165,700
<PAGE>
INDEX TO FORM 10-QSB
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Balance Sheets as of December 31, 1995
(Unaudited) and March 31, 1995 3
Statements of Operations for the three
months ended December 31, 1995 and
December 31, 1994 (Unaudited) 4
Statements of Operations for the nine
months ended December 31, 1995 and
December 31, 1994 (Unaudited) 5
Statements of Cash Flows for the nine
months ended December 31, 1995 and
December 31, 1994 (Unaudited) 6
Notes to Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
BALANCE SHEETS
As of December 31, and March 31, 1995
DECEMBER 31 MARCH 31
(Unaudited) (as Restated)
ASSETS
Current assets:
Cash and cash equivalents $2,955 $96,259
Receivables, net 2,497,786 3,125,562
Inventories 2,090,787 2,597,400
Prepaid expenses 81,995 65,806
Total current assets 4,673,523 5,885,027
Property - net 1,976,411 2,423,402
Other assets:
Investment in joint venture 90,979 49,880
Other assets 210,094 249,994
Total other assets 301,073 299,874
Total assets $6,951,007 $8,608,303
LIABILITIES
Current liabilities:
Current installments of
notes payable $2,087,774 $614,948
Accounts payable 1,598,727 1,841,741
Accrued liabilities 573,412 647,163
Total current liabilities 4,259,913 3,103,852
Notes payable, less current
installments 1,109,188 3,068,711
Total liabilities 5,369,101 6,172,563
STOCKHOLDERS' EQUITY
Common stock 369 357
Common stock to be issued for
settlement of litigation -0- 75,000
Additional paid-in capital 1,301,950 1,120,021
Retained earnings 1,896,148 2,856,923
Total 3,198,467 4,052,301
Less:
Treasury stock, at
cost - 370,278 shares (1,466,561) (1,460,012)
Stock subscriptions and
interest receivable from
management and employees (150,000) (156,549)
Total stockholders' equity 1,581,906 2,435,740
Total liabilities and
stockholders' equity $6,951,007 $8,608,303
See notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS
For the three months ended December 31, 1995 1994
(Unaudited) (Unaudited)
(As Restated)
Sales $2,784,479 $3,586,825
Cost of sales 1,907,592 2,512,597
Gross profit 876,887 1,074,228
Operating expenses:
Selling, general and
administrative expenses 1,109,863 1,199,813
Research and development 133,023 198,345
Total operating expenses 1,242,886 1,398,158
Operating loss (365,999) (323,930)
Other income (expense):
Equity in earnings of
joint venture 12,000 9,686
Other income 68,225 -0-
Interest expense, net
of interest income (80,618) (124,996)
Total other income
(expense) (393) (115,310)
Loss before income taxes (366,392) (439,240)
Benefit from income taxes -0- 159,524
Net loss $(366,392) $(279,716)
Net loss per common
and common equivalent share $(0.12) $ (0.10)
Weighted average common shares
outstanding 3,165,700 2,775,967
See notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS
For the nine months ended December 31, 1995 1994
(Unaudited) (Unaudited)
(As Restated)
Sales $8,866,691 $9,663,881
Cost of sales 5,989,317 6,304,603
Gross profit 2,877,374 3,359,278
Operating expenses:
Selling, general and
administrative expenses 3,340,227 3,790,227
Research and development 407,705 583,203
Total operating expenses 3,747,932 4,373,430
Operating loss (870,558) (1,014,152)
Other income (expense):
Equity in earnings of
joint venture 41,099 37,159
Other Income 68,225 -0-
Interest expense, net of
interest income (199,541) (248,556)
Total other income (expense) (90,217) (211,397)
Loss before income taxes (960,775) (1,225,549)
Benefit from income taxes -0- 452,691
Net loss $(960,775) $(772,858)
Net loss per common
and common equivalent share $(0.31) $(0.28)
Weighted average common shares
outstanding 3,137,315 2,715,094
See notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS
For the nine months ended December 31, 1995 1994
(Unaudited) (Unaudited)
(As restated)
Cash flows from operating activities:
Net loss $(960,775) $(772,858)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation 479,823 484,363
Amortization 33,362 12,867
Equity in earnings of joint
venture (41,099) (37,159)
Stock subscriptions interest
receivable -0- 13,926
Increase (decrease) in cash,
net of the sale of the UPS
line, due to change in:
Receivables 748,414 (559,852)
Inventories 43,505 45,075
Prepaid expenses (16,189) 40,439
Other assets (6,098) 499
Accounts payable (243,014) 803,186
Accrued liabilities (73,751) 53,272
Net cash provided by (used in)
operating activities (35,822) 83,758
Cash flows from investing activities:
Capital expenditures (323,791) (513,927)
Other assets 12,636 -0-
Proceeds from sale of fixed
assets related to UPS line 290,959 -0-
Proceeds from sale of UPS line 342,470 -0-
Net cash provided by (used in)
investing activities 322,274 (513,927)
Cash flows from financing activities:
Proceeds from sale of
common stock 104,273 -0-
Net repayments under revolving
credit agreement (136,942) (474,451)
Proceeds from borrowing on
notes payable -0- 2,410,375
Principal payments on notes
payable (349,755) (1,505,288)
Proceeds from exercise of
stock options 2,668 -0-
Net cash provided by (used in)
financing activities (379,756) 430,636
Net increase (decrease) in cash and
cash equivalents (93,304) 467
Cash and cash equivalents at beginning
of period 96,259 25,640
Cash and cash equivalents at end
of period $2,955 $26,107
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest $199,541 $248,556
Supplemental disclosures of non cash investing and financing activities:
Note issued for sale of UPS line $493,498 $-0-
Common stock issued for legal
settlement, accrued at
March 31, 1995 $75,000 $-0-
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
In the opinion of management, the accompanying financial statements
contain adjustments, consisting of normal recurring accruals, necessary
for a fair presentation of the financial position of EFI Electronics
Corporation (the "Company") at December 31, 1995, and the results of
its operations and its cash flows for the nine months ended December
31, 1995 and December 31, 1994. The results of operations for the
period ended December 31, 1995 are not necessarily indicative of
results for the full year period.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these financial statements be read in conjunction with the
Company's 1995 Annual Report to Shareholders.
1. RECEIVABLES
Receivables consisted of the following at December 31, and March 31,
1995:
December 31 March 31
(Unaudited)
Trade receivables $2,167,736 $2,744,890
Receivable from UPS sale 120,638 -0-
Warranty premium receivable 28,773 27,745
Income tax refund 199,949 536,670
2,517,156 3,309,305
Allowance for doubtful accounts (19,370) (183,743)
Total Receivables $2,497,786 $3,125,562
2. INVENTORIES
Inventories consisted of the following at December 31, and March 31,
1995:
December 31 March 31
(Unaudited) (As Restated)
Raw materials $1,249,190 $1,909,155
Work-in-process 335,546 342,406
Finished goods 506,051 345,839
Total $2,090,787 $2,597,400
3. NET LOSS PER COMMON AND COMMON EQUIVALENT
SHARE
Net loss per common and common equivalent share is computed based
on the number of common and dilutive common stock equivalent shares
outstanding and is adjusted for the assumed conversion of shares
issuable upon exercise of options or warrants, after the assumed
repurchase of common shares with the related proceeds. The stock
subscriptions receivable are treated as warrants for purposes of this
computation.
4. BENEFIT FROM INCOME TAX
The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards No. 109, "Accounting for Income
Taxes". Deferred income taxes are provided primarily for the
temporary difference between financial reporting and income tax
recognition of depreciation. Research and development tax credits are
used to reduce income taxes payable in the year such credits are
realized.
<PAGE>
NOTES TO FINANCIAL STATEMENTS - Continued (Unaudited)
4. BENEFIT FROM INCOME TAX, continued
There is no provision for income taxes for the three and nine months
ended December 31, 1995 because the Company had both a book and
taxable loss for the periods. The Company has concluded that a full
valuation allowance should be provided for losses during these periods
because all future reversals of existing tax liabilities have been offset by
previous operating loss and research and development credit
carryforwards.
5. NOTES PAYABLE
At December 31 and March 31, 1995 notes payable consisted of the
following:
December 31 March 31
(Unaudited)
Collateralized promissory notes $1,788,514 $2,137,019
Revolving line of credit 1,321,848 1,458,790
Uncollateralized promissory note 86,600 87,850
3,196,962 3,683,659
Less current installments of
long-term debt (2,087,774) (614,948)
Total notes payable, less
current installments $1,109,188 $3,068,711
The collateralized notes and revolving line of credit contain financial
covenants, the most restrictive of which require the Company to
maintain not less than $ 3.0 million of tangible net worth and a debt to
net worth ratio not to exceed 2.1 to 1. At March 31, 1995 and
December 31 ,1995, the Company was in violation of these and other
covenants. Appropriate waivers have been obtained from Key Bank as
of March 31, 1995, and through March 31, 1997.
6. POSSIBLE TAX LIABILITY
It has come to the attention of management that there is a possible tax
liability related to prior years' payroll taxes. The Company has not
received its 1994 Federal Income Tax refund and it is possible that this
refund has been offset against a tax liability being asserted by the IRS
relating to penalties and interest from late filings of payroll tax returns
for years prior to 1994. Management is currently working with the
Internal Revenue Service to determine the disposition of the 1994
Federal Tax refund and if, in fact, there are penalties and interest that
the Company is not aware of related to prior years. It is expected that
this issue will be resolved prior to March 31, 1996. Since management
believes that any additional liability is not probable they have elected
not to recognize any additional liability at December 31, 1995.
7. RESTATEMENT OF MARCH 31, 1995 FORM 10-KSB
During August 1995 the Company determined that payroll tax expense,
cost of sales, cash, inventories and accrued liabilities for the year ended
March 31, 1995 were incorrect. Additionally, a legal dispute was
settled subsequent to March 31, 1995 that was not properly reflected in
the March 31, 1995 financial statements. As a result, the financial
statements for the year ended March 31, 1995 have been restated to
reflect the appropriate account balances. The Company has amended
Form 10-KSB filed with the Securities and Exchange Commission to
reflect this restatement. In addition, this amendment has reflected a
restatement of these accounts for the three months and nine months
ended December 31, 1994. This amendment corrected errors in these
accounts reported in Form 10-QSB for the three months and the nine
months ended December 31, 1994. All references in this report to the
Form 10-QSB report and the financial statements for the periods ended
December 31, 1994 are to the financial statements as restated.
NOTES TO FINANCIAL STATEMENTS - Continued (Unaudited)
8. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of". The Statement requires that long-
lived assets and certain identifiable intangibles to be held and used by
an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Statement is effective for financial statements for
fiscal years beginning after December 15, 1995. The impact of the
Statement on the Company is not expected to be material.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation". This Statement defines a fair value
method of accounting for employee stock options or similar equity
instruments and encourages adoption of that method. The Statement
also requires that an employer's financial statements include certain
disclosures about stock-based compensation arrangements regardless of
the method used to account for them. The Statement is effective for
financial statements for fiscal years that begin after December 15,
1995. The Company has not determined how it will account for stock
options when the standard is adopted, nor has it estimated what impact
such adoption will have on the Company's financial statements.
9. SUBSEQUENT EVENT
On January 26, 1996 the Company executed an unsecured revolving
term loan with a major shareholder and director. The borrowing limit
of this facility is $500,000. The interest rate on this agreement is fixed
at 11% of the average outstanding balance and its term is 24 months.
In exchange for this facility, the lender was issued warrants for 20,000
shares of EFI common stock at an exercise price of $1.375 (the closing
bid price as of the loan date).<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations:
Sales for the three months ended December 31, 1995 decreased $802
thousand (22%) compared to the three months ended December 31,
1994. Year to date sales decreased $797 thousand (8%) from the same
period last year. Sales by major product line were as follows:
Revenue by Product
$(000s)
Three months ended Nine months ended
12/31/95 12/31/94 12/31/95 12/31/94
Plug-ins 2,000 2,391 6,186 6,069
Panels 722 608 2,033 2,092
UPS -0- 587 397 1,499
Other 62 1 251 4
Total 2,784 3,587 8,867 9,664
Contribution Margin 55% 52% 53% 55%
Gross Margin 31% 30% 32% 35%
Note: Contribution margin reflects only direct, unburdened material
and labor costs
Sales revenue for plug-in products for the three months ended
December 31, 1995 was $391 thousand (16%) less than the same three
months last year but increased for the nine months ended December 31,
1995 by $117 thousand (2%) compared to the previous year. During
the three months ended December 31, 1994, the Company sold
approximately $200 thousand of plug-in products to a national
distributor under a one time promotion which increased revenues for
these products significantly over the typical sales rates for this
customer. In addition, plug-in revenues for the current three months
were adversely affected by the shut down of government agencies
during November and December of 1995. Finally, the Company has
experienced lower sales of plug-in products to computer distributors as
emphasis has been placed on the future growth of private label
contracts.
Panel sales for the current three months are $114 thousand (19%)
above last year, but are $59 thousand lower for the year to date
compared to the same period last year. The decrease for the nine
months ended December 31, 1995 was caused by a decrease in the
three months ended June 30, 1995 resulting from $170 thousand of one
time sales to an end user in the same period of the prior year. The
improvement in panel sales shown in the most recent three months is
expected to continue as management focuses its efforts on selling these
products into distribution.
UPS sales have been reduced to zero since the Company sold its UPS
business to Valence, L.L.C. in June 1995, as described elsewhere in
this report.
Other revenue includes income from contract sales to Valence, L.L.C.,
under an agreement dated June 14, 1995 to produce UPS products for
this company. This agreement concludes on June 14, 1997.
Gross Profit on sales for the three months ended December 31, 1995
decreased by $197 thousand (18%) compared to the same period last
year and by $482 thousand (14%) year to date. Gross profit as a
percentage of sales was 31% and 32% for the three months and nine
months ended December 31, 1995, respectively. This compares to
gross profit in the previous year of 30% and 35%, respectively. These
changes are the result of several factors:
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Continued
Margins on plug-in products declined by seven percentage points due to
a significant change in product mix. Sales of the Company's high end,
high margin plug-in products decreased while sales of low end and
specialty military plugstrip models increased, both of which have much
lower margins.
Panel sales for the three months ended June 30, 1995 were much lower
than the previous year as described above. These sales have much
higher margins than the Company average. A decline, therefore,
causes a lower overall margin percentage.
UPS margins in the first three months of the current year were much
lower than prior periods as the Company attempted to sell off
inventories by heavily discounting its average sales price. There were
no UPS sales in the three months ended December 31, 1995. Since
UPS margins are lower than the overall average Company margin,
absence of these products improved overall margin percentage for this
period.
Decreases in the dollar value of contribution margins were partially
offset by reductions in manufacturing costs; although these costs as a
percentage of sales increased due to larger decreases in sales than in
these costs.
Warranty expenses increased by $29 thousand for the three months
ended December 31, 1995 and $67 thousand year to date primarily as a
result of claims for triple crown warranty products that have been
discontinued. In November 1995, the Company also processed several,
extraordinary claims for one of its specialty products. These claims are
not expected to recur.
Operating Expenses decreased $155 thousand (11%) in the three
months ended December 31, 1995 compared to the prior year and $625
thousand (14%) year to date.
Research and development expenses decreased $65 thousand (33%) for
the current three months and $175 thousand (30%) year to date due to
the discontinuation of the UPS product line discussed above. Expense
reductions related to this discontinuance have been somewhat offset as
the Company has been aggressively developing new TVSS products.
Selling, general and administrative expenses decreased $90 thousand
(7%) for the three months ended December 31, 1995; expenses for the
nine months ended December 31, 1995 decreased $450 thousand
(12%). As previously reported, the Company is starting up a new
Network Response Systems (NRS) division based on proprietary
software owned by EFI. This effort offset other expense savings as
expenses of this startup added $129 thousand to selling, general and
administrative expenses for the three months ended December 31, 1995
and $335 thousand year to date.
Excluding these NRS expenses, expenses related to selling, general
and administrative expenses of the core TVSS business decreased by
$219 thousand (18%) for the three months and $785 thousand (21%)
for the nine months ended December 31, 1995. These reductions are
the result of a program implemented in March 1995 to reduce total
operating expenses by $1 million, annually. Expense savings resulted
from a reduction of headcount by about 40 people and reductions in
promotional and other expenses related to the UPS business.
Other Income for the three and nine months ended December 31, 1995
is primarily the result of the gain on sale of the UPS business reported
elsewhere in this report. Such income did not occur in the previous
year.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Continued
Net Loss before tax benefit for the three months ended December 31,
1995 improved over the prior year from $439 thousand to $366
thousand. The year to date loss before tax benefit improved from
$1,226 thousand to $961 thousand. These improvements were due to
substantial decreases in operating expense that offset decreases in gross
profit and startup costs associated with NRS.
Liquidity and Capital Resources:
Sale of UPS Product Line. During the three months ended June 30,
1995 the Company sold to Valence, L.L.C. (Valence) its line of UPS
products along with inventories and fixed assets associated with these
products for $883,746. In addition to the sale of the UPS product line,
Valence purchased 66,667 shares of common stock of the Company for
$100,000. The Company received total cash of $490,248 and a note
receivable of $493,498 with installments due in August, October and
December of 1995. The Company has received all of these payments
except for $100 thousand which is now due during the three months
ended March 31,1996. The Company has also signed a two year
contract to supply Valence with UPS products on a cost plus basis. The
purpose of this sale was to allow the Company to focus on its core
TVSS business lines and to expand into related products and services.
The impact of this transaction is reflected in the December 31, 1995
statement of cash flows as a sale of fixed assets and proceeds from sale
of the UPS line. Operating cash flows have been presented net of the
effects of the sale of the UPS line, as follows:
Accounts receivable $120,638
Inventories (463,108)
Cash flows provided by (used in) operating activities for the nine
months ended December 31, 1995 were $(36) thousand compared to
$84 thousand for the nine months ended December 31, 1994. The net
loss of $961 thousand was more than offset by a reduction of accounts
receivable ($748 thousand) and inventories ($44 thousand) and the
adjustment to cash flow from depreciation expense. The reduction in
receivables has been the result of increased collection efforts by
management. Cash flow from these areas has allowed the Company to
also reduce its accounts payable by $243 thousand. The reduction in
accrued liabilities is primarily the result of normal fluctuations resulting
from timing of accruals and payments.
Cash flows provided by (used in) investing activities for the nine
months ended December 31, 1995 were $322 thousand as compared to
$(514) thousand for the nine months ended December 31, 1994. Capital
expenditures during the current year have been $324 thousand primarily
for prepayments on molds and other tooling for a new line of plug-in
products to be introduced in early calendar 1996. Offsetting these
expenditures are proceeds from the sale of UPS assets. In the prior
year the Company spent $514 thousand on fixed asset acquisitions,
primarily for a new radial insertion machine.
Cash flows provided by (used in) financing activities for the nine
months ended December 31, 1995 were $(380) thousand as compared
to cash flows provided by financing activities of $431 thousand for the
nine months ended December 31, 1994. The Company has reduced its
debt by about $487 thousand
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Continued
due to scheduled payments. This has been offset by proceeds from the
sale of stock related to the UPS sale of $100,000. During the previous
year, the Company restructured a portion of its debt, generating
positive net cash flow from financing activities.
During the three months ended December 31, 1995 certain of the
Company's notes payable were classified as current liabilities because
they come due in June 1996. Although the Company usually extends
the terms of its notes payable beyond one year, it has elected not to do
so at this point since it is currently negotiating with other funding
sources to refinance a portion of this debt. The Company has received
a letter of intent from a major asset based lender to finance receivables
and inventories. This potential refinancing would allow the Company
to borrow money as its sales, inventories and receivables grow. When
this negotiation is complete, the Company expects to enter into a new
term debt agreement with its bank for a lesser principal amount and a
term beyond one year.
The Company has experienced significant negative cash flow resulting
from its losses, for several months. Thus far, reductions in receivables
and inventories, proceeds from the sale of the Company's UPS
business, refund of income taxes and other sources of cash have
provided adequate liquidity for ongoing operational needs. During the
three and nine months ended December 31, 1995 cash flow from
operating activities has been positive or near break-even. During the
first nine months of this year the Company has invested in tooling for
a new line of plug-in products and has paid down significant bank debt
as required by existing loan agreements.
The Company does not anticipate significant additional investments in
fixed assets for the remainder of the fiscal year. As discussed above,
management is also negotiating with new funding sources to
significantly reduce near term principal repayment obligations. In
addition, management has negotiated a $500,000, two year revolving
term loan with a director/shareholder as more fully disclosed in
footnote 9. of the Company's financial statements. Currently the
Company is operating near cash flow break-even. As a result of these
factors, management believes that it will have sufficient liquidity to
fund ongoing operations.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A) Exhibits.
Exhibit 27
B) There were no reports filed on form 8-K during
the quarter ended December 31, 1995.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
EFI ELECTRONICS CORPORATION
(Registrant)
Date: February 12, 1996
Richard D. Clasen
President and Chief Executive Officer
David G. Bevan
Vice President and Secretary
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0
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<OTHER-SE> 1581537
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<CGS> 5989317
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<OTHER-EXPENSES> 90217
<LOSS-PROVISION> 15000
<INTEREST-EXPENSE> 199541
<INCOME-PRETAX> (960775)
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<INCOME-CONTINUING> (960775)
<DISCONTINUED> 0
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<CHANGES> 0
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