FORM 10-QSB
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999_
[ ] 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: 0-18344
SOONER HOLDINGS, INC.
(Exact name of small business issuer as specified in its charter)
Oklahoma 73-1275261
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2680 W. I-40, Oklahoma City, OK 73108
(Address of principal executive offices)
Issuer's telephone number, including area code:
(405) 236-8332
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES [ ] NO [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by court.
YES [ ] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: 8,471,350 shares of
common stock as of March 31, 2000.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SOONER HOLDINGS, INC.
Consolidated Balance Sheet
(unaudited)
June 30,
1999
-----------
ASSETS
Current assets:
Cash and cash equivalents ................................... $ 227,671
Accounts receivable ......................................... 192,717
Other current assets ........................................ 17,189
-----------
Total current assets ...................................... 437,577
Property and equipment, net .................................... 2,983,949
Intangible assets, net of amortization of $210,986 ............. 1,541,808
Other assets, net .............................................. 264,188
-----------
$ 5,227,522
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable ............................................ $ 80,593
Accrued liabilities to related parties ...................... 210,146
Accrued liabilities ......................................... 136,136
Current portion of notes and royalty payable ................ 9,045
Deferred revenue ............................................ 34,007
-----------
Total current liabilities ................................. 469,927
Notes payable, less current portion and net of
discount of $358,401 ......................................... 5,043,494
Royalty payable, less current portion and net of
discount of $854,516 ......................................... 430,529
Commitments and contingencies .................................. --
Stockholders' deficit:
Preferred stock; undesignated, authorized 10,000,000
shares, no shares issued and outstanding .................. --
Common stock; $.001 par value, authorized 100,000,000 shares,
8,471,350 shares issued and outstanding ................... 8,471
Additional paid-in-capital ..................................... 5,532,907
Accumulated deficit ............................................ (6,257,806)
-----------
Total stockholders' deficit ............................... (716,428)
-----------
$ 5,227,522
===========
The accompanying notes are an integral part of this consolidated balance sheet.
<TABLE>
<CAPTION>
SOONER HOLDINGS, INC.
Consolidated Statements of Operations
(unaudited)
For the quarter ended For the six months ended
June 30, June 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Rental revenues ................ $ 417,590 $ 88,838 $ 806,927 $ 88,838
Service revenues ............... 82,422 74,261 160,203 146,076
----------- ----------- ----------- -----------
Total revenues ............... 500,012 163,099 967,130 234,914
----------- ----------- ----------- -----------
Operating expenses:
General and administrative ..... 402,169 98,829 693,135 128,661
Depreciation and amortization .. 72,518 24,058 143,474 39,571
----------- ----------- ----------- -----------
Total operating expenses ..... 474,687 122,887 836,609 168,232
----------- ----------- ----------- -----------
Income from operations ............ 25,325 40,212 130,521 66,682
Interest expense .................. (144,707) (86,383) (285,681) (141,727)
Other income (expense) ............ 15,000 (995) 15,000 215
----------- ----------- ----------- -----------
Net loss from continuing operations (104,382) (47,166) (140,160) (74,830)
Loss from discontinued operations . -- -- (17,301) --
----------- ----------- ----------- -----------
Net loss .......................... $ (104,382) $ (47,166) $ (157,461) $ (74,830)
=========== =========== =========== ===========
Net loss per common share ......... $ (.01) $ (.01) $ (.02) $ (.01)
=========== =========== =========== ===========
Weighted average common shares
outstanding ....................... 8,471,350 7,637,096 8,471,350 7,637,096
=========== =========== =========== ===========
<FN>
The accompanying notes are an integral part of these
consolidated financial statements.
</FN>
</TABLE>
SOONER HOLDINGS, INC.
Consolidated Statements of Cash Flows
(unaudited)
For the six months ended
June 30,
1999 1998
----------- -----------
Cash flows from operating activities:
Net loss ...................................... $ (157,461) $ (74,830)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Net assets of discontinued operation ...... 17,301 --
Amortization of discount .................. 100,880 --
Depreciation and amortization ............. 143,474 39,571
Changes in assets and liabilities:
Accounts receivable ...................... (55,700) 1,667
Other current assets ..................... 19,453 (2,317)
Accounts payable ......................... (58,111) (8,279)
Accrued liabilities to related parties ... 27,422 44,568
Accrued liabilities ...................... (45,403) 74,396
Deferred revenue ......................... 125 2,630
----------- -----------
Net cash provided by (used in)
operating activities ................... (8,020) 77,406
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment ........... (218,574) (134,791)
----------- -----------
Net cash used in investing activities ..... (218,574) (134,791)
----------- -----------
Cash flows from financing activities:
Repayments of notes payable ................... (1,982,539) (16,670)
Royalty payments .............................. (36,000) (6,000)
Borrowings on notes payable ................... 2,510,000 76,781
Repayments of notes payable to related parties (113,988) 16,338
----------- -----------
Net cash provided by financing activities . 377,473 70,449
----------- -----------
Net increase in cash ............................. 150,879 13,064
Cash at beginning of year ........................ 76,792 4,482
----------- -----------
Cash at end of period ............................ $ 227,671 $ 17,546
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest ...... $ 128,456 $ 104,149
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
SOONER HOLDINGS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 1999
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and operations
- ---------------------------
Sooner Holdings, Inc., an Oklahoma corporation (the "Company"), operates
primarily through two of its subsidiaries. New Directions Acquisition Corp.
(NDAC) owns and operates a community correction business in Oklahoma City,
Oklahoma and Charlie O Business Park Incorporated (Business Park) is engaged in
the ownership and rental of a business park in Oklahoma City, Oklahoma. The
Company also owns 100% of SD Properties, Inc. (SDPI) which acts as a marketing
representative for construction contractors to develop business opportunities
for those contractors for a fee. Effective January 15, 1999, the Company
completed the spin-off of Charlie O Beverages, Inc. (Beverages) which operated
the original in-home soda fountain business.
Basis of presentation
- ---------------------
The unaudited consolidated financial statements presented herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations for interim financial information and the instructions to Form
10-QSB and Regulation S-B. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted. These unaudited
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1998 (the "1998 Form
10-KSB"). In the opinion of management, the unaudited consolidated financial
statements reflect all adjustments (consisting of normal recurring accruals
only) which are necessary to present fairly the consolidated financial position,
results of operations, and changes in cash flow of the Company. Operating
results for interim periods are not necessarily indicative of the results which
may be expected for the entire year.
Management Plans
- ----------------
The unaudited consolidated financial statements have been prepared contemplating
continuation of the Company as a going concern. The Company has sustained
recurring operating losses in recent years and is expected to need additional
amounts of working capital for its operations. At June 30, 1999, the Company has
a shareholders' deficit of $716,428 and has a working capital deficiency of
$32,350. In view of these matters, realization of a major portion of the assets
is dependent upon continued operations of the Company, which in turn is
dependent upon the Company's ability to meet its financing requirements and the
success of its future operations. Management believes that its plans to revise
the Company's operating and financial requirements as described more fully in
the 1998 Form 10-KSB provide the Company the opportunity to continue as a going
concern. However, there can be no assurance that these plans will be successful.
Principles of consolidation
- ---------------------------
The unaudited consolidated financial statements have been prepared on
the basis of generally accepted accounting principles and include the accounts
of Sooner Holdings, Inc. and its subsidiaries. All significant intercompany
transactions have been eliminated.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1999 is comprised of the following:
Land ..................................................... $1,311,400
Buildings and improvements ............................... 2,101,871
Machinery and equipment .................................. 49,988
Vehicles ................................................. 51,281
----------
3,514,540
Less accumulated depreciation ............................ 530,591
----------
Property and equipment, net .............................. $2,983,949
==========
NOTE 3 - OTHER ASSETS
Other assets at June 30, 1999 is comprised of the following:
Loan commitment fee, less amortization of $2,250 ............... $ 37,188
Certificates of deposit ........................................ 227,000
--------
Other assets, net .............................................. $264,188
========
NOTE 4 - NOTES PAYABLE
Notes payable as of June 30, 1999 consists of the following:
Installment note payable to bank, interest at 8.8% per
annum, due June 1, 2009. Secured by real estate. $ 2,510,000
Notes payable to related parties, interest ranging from 10%
to 15% per annum, due January 1, 2000. 993,244
Note payable to individual, no stated interest rate, due on
demand. 4,090
Balloon promissory note payable to related party (see Note
8), 10% stated interest per annum, 15% effective interest
rate, principal and interest due June 1, 2001;
collateralized by a second mortgage on land and facility
owned by the Company, net of discount of $358,401. 972,599
Note payable to bank, interest at New York prime plus 2%,
due April 20, 2000, collateralized by a first mortgage on
land and facility owned by the Company. 567,651
-----------
5,047,584
Less current portion 4,090
-----------
Notes payable $ 5,043,494
===========
In June 1999, the Company refinanced several notes payable that were due
to mature during 1999. These notes were replaced by a single note payable to a
bank bearing an 8.8% interest rate and maturing in June 2009.
NOTE 5 - ROYALTY PAYABLE
As part of a business acquisition (see Note 8), the Company assumed a
royalty payable to an individual. The agreement calls for monthly payments of
the greater of $6,000 or 6% of the total gross monthly income of NDAC. The
agreement expires on April 30, 2017. Future minimum payments under this
agreement total $1,362,000. A discount of $854,516 was imputed by management
using a 15% interest rate.
NOTE 6 - RELATED PARTIES
The Company's related parties are discussed in the 1998 Form 10-KSB. The
following table reflects amounts owed to related parties at June 30, 1999:
Notes Accrued
Payable Liabilities
---------- ----------
President and chairman ........... $ 620,149 $ 66,109
Aztor and affiliates ............. 363,095 63,418
NDLLC ............................ 972,599 79,371
CRI .............................. 10,000 1,248
---------- ----------
Total related party liabilities .. $1,965,843 $ 210,146
========== ==========
NOTE 7 - COMMITMENTS AND CONTINGENCIES
In February 1998, a lawsuit was filed by one of the owners of NDLLC
against the Company relating to the purchase of New Directions (see Note 8). On
January 18, 2000 a settlement was reached which includes a payment of $76,000 by
NDAC. This amount is included in accrued liabilities at June 30, 1999.
The Company is involved in certain other administrative proceedings
arising in the normal course of business. In the opinion of management, such
matters, including the lawsuit described above, will be resolved without
material effect on the Company's results of operations or financial condition.
NOTE 8 - ACQUISITION
Effective June 1, 1998, the Company completed the acquisition of all the
assets and certain liabilities of New Directions Centers of America, L.L.C. (New
Directions) related to the operation of a community correction business in
Oklahoma City, Oklahoma. The purchase price for the assets acquired was the
issuance of 1,000,000 shares of common stock of the Company, $1,000,000 in a
note payable (the Note) and the assumption of approximately $1,464,000 of
liabilities.
The acquisition of these assets was accounted as a purchase in accordance with
Accounting Principles Board Opinion No. 16, with the cost allocated to the net
assets acquired based on their estimated fair values. The operations of the New
Directions business have been included in the financial statements of the
Company from the date of acquisition.
The assets acquired included a $227,000 Certificate of Deposit and the facility
and equipment which the business operates from which is zoned for use as a
community correction center valued at $450,000. Approximately $1,753,000 of the
purchase price was allocated to contract rights acquired. The contract rights
relate to an annually renewable contract with the Oklahoma Department of
Corrections. This asset is being amortized over a nine-year period which is
management's estimate of the expected life of the contract.
The Note issued to New Directions bears interest of 10% per annum with principal
and interest due in three years. The face value of the Note of $1,331,000 has
been discounted by management by $451,667 using a 15% effective rate of
interest.
NOTE 9 - DISCONTINUED OPERATION
Effective January 15, 1999, the Company spun-off its wholly-owned subsidiary,
Charlie O Beverages to all the Company's shareholders. Beverages operated the
original in-home soda fountain business. Beverages has been for sale since
December 1996 at which time the Company wrote-down the assets of Beverages to
their net realizable value. The Company issued 2,600,000 shares of common stock
of Beverages, which was distributed to the Company's shareholders at one share
of Beverages for each 3.2582 shares of the Company. The Company recorded a loss
of $17,301 at June 30, 1999 with regard to this transaction.
Item 2. Management's Discussion and Analysis or Plan of Operation
Introduction
The following discussion should be read in conjunction with the
Company's financial statements and notes thereto included elsewhere in this Form
10-QSB report. In addition, the discussion of the Company's expected Plan of
Operation, included in the 1998 Form 10-KSB, is incorporated herein in its
entirety as the discussion of the Plan of Operation as required by Item 303(a)
of Regulation S-B.
Plan of Operation
Effective June 1, 1998, NDAC completed the acquisition of the assets and
certain liabilities of New Directions related to the operation of a community
correction business. NDAC runs a community correction center, commonly known
as a halfway house, that currently has approximately 140 beds available but is
licensed to provide up to 300 beds. NDAC operates under a contract with the
Oklahoma Department of Corrections, which provides clients to NDAC.
With the NDAC acquisition, the Company intends to shift its growth focus
to the community corrections business and either liquidate or totally
de-emphasize its other operating subsidiaries.
The Community Correction Business
The facility operated by NDAC is a non-secure residential facility for
adult male and female offenders transitioning from institutional to independent
living. Offenders are eligible for these programs based upon the type of offense
committed and behavior while incarcerated in prison. Offenders generally spend
the last six months of their sentence in a community corrections program. The
goal and mission of NDAC's community corrections business is to reduce the
likelihood of an inmate committing an offense after release by assisting in the
reunification process with family and the community. Offenders must be employed,
participate in substance abuse programs, submit to frequent random drug testing,
and pay a predetermined percentage of their earnings to the government to offset
the cost of the program. The Company supervises these activities and also
provides life skills training, case management, home confinement supervision and
family reunification programs at its facilities.
NDAC's facility has received accreditation from the American
Correctional Association (the ACA), the governing body for accreditation. The
ACA has 25 mandatory standards and 263 non-mandatory standards regarding staff
working conditions and correctional facility living conditions. A community
correction facility that is ACA accredited can take private clients as well as
Federal clients.
Business Strategy
The Company's business strategy is to be come a leading developer and a
manager of a quality privatized community correction facilities, initially in
Oklahoma and then expanding interstate. Management intends on seeking a larger
community corrections business by expanding into other zoned facilities, either
internally and through acquisitions. The Company intends on obtaining and
maintains ACA accreditation for all of its facilities.
The Company will operate each facility under its management. The Company
will also either directly or through subcontractors, provide health care and
food service. In the future, the facilities may offer special rehabilitation and
educational programs, such as academic or vocational education, job and life
skills training, counseling and work and recreational programs.
Liquidity and Capital Resources - June 30, 1999 (unaudited) compared to June 30,
1998 (unaudited)
The Company has had severe liquidity problems for the last several
years. The Company's liquidity is reflected in the table below, which shows
comparative deficiencies in working capital.
June 30, Dec. 31, 1998
1999 1998 (audited)
---- ---- -------
Deficiency in working capital $ (32,350) $ (243,642) $ (344,852)
========== ========== ==========
Although the Company's working capital is negative, the Company has been
able to meet its obligations as a result of the financial support received from
certain of the Company's related parties. The Company's current working capital,
which has been provided in the form of notes payable, has been primarily
supplied by either the Company's chairman and president, or by Aztor Holdings,
Inc. ("Aztor"). Aztor has agreed to restructure a majority of its liabilities as
part of the NDAC acquisition.
Exclusive of funds required for debt repayment, the Company believes
that it can borrow any additional funds from its related parties to maintain its
operations, although there can be no assurance that such funds will be available
when needed. In the event that the Company cannot refinance, or obtain
forbearance on its current liabilities or on its long-term liabilities as they
come due, the Company will undoubtedly face further severe liquidity problems
which may lead to litigation, the inability to transact business, and/or
foreclosure actions being initiated against a majority of the Company's assets.
In June 1999, the Company refinanced the debt on CO Park. The debt was
replaced by a single note in the amount of $2,500,000 payable to a bank with
interest at 8.8% that matures in June 2009.
As discussed above, the Company acquired certain assets related to the
operation of a community correction business subsequent to the quarter-end. The
purchase price for the assets acquired was the issuance of 1,000,000 shares of
common stock of the Company, $1,000,000 in a note payable and the assumption of
approximately $1,464,000 of liabilities. The note issued to New Directions bears
interest of 10% per annum and is due in three years.
The Company believes the operations of the community corrections
business will be cash flow positive and be profitable and that the cash flow
from the new business will be sufficient to service the debt payments under the
note and the mortgage payment on the facility. The Company also intends to
continue the rehabilitation of the facility in order to bring the inmate
occupancy up to 300 beds. In the event that cash flow is insufficient to satisfy
the Company's needs, management believes that it can borrow any additional funds
from its related parties to maintain its operations.
Results of Operations - The quarter and six months ended June 30, 1999
(unaudited) compared to the quarter and six months ended June 30, 1998
(unaudited)
The following table illustrates the Company's revenue mix:
Quarter ended Six months ended
June 30, June 30,
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
Business Park revenue $ 82,422 $ 73,283 $160,203 $142,896
NDAC revenue ........ 417,590 88,838 806,927 88,838
Other revenue ....... -- 978 -- 3,180
-------- -------- -------- --------
Total revenue .. $500,012 $163,099 $967,130 $234,914
======== ======== ======== ========
Total revenues for the quarter and six months ended June 30, 1999
increased by $336,913 (206%) and $732,216 (312%), respectively over the
comparable periods in 1998. This increase was related to the Company's NDAC
subsidiary. In June 1998 the Company acquired through NDAC a community
correctional facility.
Business Park's revenues increased $9,139 (12%) and $17,307 (12%) for
the quarter and six months ended June 30, 1999, compared to the same quarter and
six month periods in 1998. This increase is attributable to the occupancy by one
tenant in May 1999 of 19,000 square feet or 15% of the total square footage. At
June 30, 1999 the Business Park was 97% occupied. Losses of tenants in the
future could affect future operations and financial position due to the cost of
new leasehold improvements to attract new tenants, increased leasing fees or
lower rent revenue due to vacancy. There is no assurance the Company will return
to its historically high occupancy rate.
Total operating expenses increased $351,800 (286%) and $668,377 (397%)
for the quarter and six months ended June 30, 1999, compared to the same quarter
and six-month periods in 1998. This increase is related to the acquisition of
the community correctional business in June 1998. The NDAC subsidiary accounted
for $330,082 or 94% of the increase in total operating expenses for the current
period. The amortization of the NDAC intangible asset resulted in an increase in
depreciation and amortization expense in the 1999 periods over the comparable
1998 periods. In addition general and administrative expense for the quarter and
six months periods increased due to the acquisition of the community
correctional business in June 1998.
Interest expense increased by $58,324 (68%) and $143,954 (102%) for the
quarter and six months ended June 30, 1999 as compared to the comparable periods
in 1998, primarily due to the NDAC subsidiary. The amortization of the royalty
payable and the purchase note in connection with the NDAC acquisition
represented $51,238 or 88% of the increase during the current period. In
addition, the Company assumed approximately $1,000,000 in liabilities with the
acquisition of the Correctional Business.
Loss from discontinued operations relates to the spin-off of the
Company's subsidiary, Beverages.
The Company recorded net loss for the quarter of $104,382 as compared to
a net loss of $47,166 for the comparable 1998 period. This increase in net loss
in 1999 was due to the acquisition of the community correctional business in
June 1998. The increase in revenues from NDAC was offset by an increase in
operating expenses also attributable to the NDAC subsidiary. Interest expense
was also up due to increased borrowings related to the acquisition.
Capital Expenditures and Commitments
During the quarter and six months ending June 30, 1999, the Company
spent approximately $220,000 on capital expenditures primarily for leasehold
improvements at the Business Park. The Company expects to spend an additional
$20,000 for leasehold improvements on its Business Park and correctional
facility.
Factors that may affect future results
A number of uncertainties exist that may affect the Company's future
operating results. These include the uncertain general economic conditions, the
ongoing support of the related parties, the ability of the Company to refinance
its notes payable on satisfactory terms, and the Company's ability to acquire
sufficient funding to sustain its operations and develop new businesses. A
majority of these issues directly or indirectly relate to the Company's ability
to sell additional equity or debt. The Company and all its subsidiaries have had
unsuccessful operating histories and have been consistently unprofitable and if
this trend continues the Company, or any subsidiary, may have to seek formal
court protection from creditors.
Forward-looking statements
This Form 10-QSB, including all documents incorporated by reference, includes
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. All statements other than statements of
historical facts included in this Form 10-QSB (and in documents incorporated by
reference), including without limitation, statements under "Management's
Discussion and Analysis or Plan of Operation" regarding the Company's financial
position, business strategy and plans and objectives of management of the
Company for future operations, are forward-looking statements. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by this section.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In February 1998, a lawsuit was filed by one of the owners of New
Direction Centers of America, L.L.C. against the Company relating to the
purchase of the community correctional business. On January 18, 2000, a
settlement was reached which includes a payment of $76,000.
The Company is involved in certain other administrative proceedings
arising in the normal course of business. In the opinion of management, such
matters, including the lawsuit described above, will be resolved without
material effect on the Company's results of operations or financial condition.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOONER HOLDINGS, INC.
---------------------------------
(Registrant)
Dated: March 29, 2000
---------------
By: R. C. Cunningham
----------------------------------
R. C. Cunningham, II, Chairman and
President
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<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
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0
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