0000849145-95-000005.txt : 19950815 0000849145-95-000005.hdr.sgml : 19950815 ACCESSION NUMBER: 0000849145-95-000005 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDCROSS INC CENTRAL INDEX KEY: 0000849145 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISC HEALTH & ALLIED SERVICES, NEC [8090] IRS NUMBER: 592291344 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-17973 FILM NUMBER: 95562593 BUSINESS ADDRESS: STREET 1: 3227 BENNET ST NORTH CITY: ST PETERSBURG STATE: FL ZIP: 33713 BUSINESS PHONE: 8135211793 MAIL ADDRESS: STREET 1: 3227 BENNET STREET NORTH CITY: ST PETERSBURG STATE: FL ZIP: 33713 10QSB 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1995 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-17973 MEDCROSS, INC. (Exact name of small business issuer as specified in its charter) FLORIDA 59-2291344 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3227 Bennet Street North, St. Petersburg, Florida 33713 (Address of principal executive offices) (813) 521-1793 (Issuer's telephone number) 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 issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. Class Outstanding at July 30, 1995 Common Stock, par value $0.007 1,749,163 Traditional Small Business Disclosure Format (Check One): Yes No X PART I - FINANCIAL INFORMATION Item 1 - Financial Statements MEDCROSS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (unaudited)
Assets June 30 1995 Current assets Cash and cash equivalents $ 270,084 Accounts receivable less allowance of $773,958 913,727 Inventory 799,849 Prepaid expenses 63,764 Total current assets 2,047,424 Property and equipment 3,386,165 Less accumulated depreciation 1,584,319 Net property and equipment 1,801,846 Investment in unconsolidated subsidiary 7,500 Intangible assets, net of amortization of $203,386 583,176 Other assets 67,901 Total assets $ 4,507,847 Liabilities and Stockholders' Equity Current liabilities Accounts payable and accrued expenses $ 522,853 Advance deposits received 192,093 Reserve for warranty liability 87,119 Note payable - related party 218,000 Note payable - other 450,000 Current portion of long-term debt 206,220 Current obligations under capital lease 258,643 Total current liabilities 1,934,928 Long-term debt 600,380 Obligations under capital leases 22,702 Minority equity interest in consolidated subsidiaries 393,260 Commitments and contingencies - Stockholders' equity Preferred stock 2,075,000 Common stock 12,244 Other stockholders' deficit ( 530,667) Total stockholders' equity 1,556,577 Total liabilities and stockholders' equity $ 4,507,847 The accompanying notes are an integral part of these consolidated financial statements. MEDCROSS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months Ended Six Months Ended June 30 June 30 1995 1994 1995 1994 Net operating revenue $ 758,359 $ 895,910 $ 1,875,852 $ 1,828,280 Cost of goods sold - equipment sales and service 54,641 - 239,798 - Salaries and benefits 311,487 316,049 640,418 609,052 Repairs and maintenance 77,542 82,094 154,488 162,131 Provision for doubtful accounts ( 3,943) 20,282 323,645 56,372 Depreciation and amortization 116,741 125,290 234,693 245,967 Other operating expenses 297,748 276,668 614,536 603,446 Operating profit (loss) ( 95,857) 75,527 ( 331,726) 151,312 Interest expense 41,692 43,724 80,820 86,178 Other income ( 19,583) ( 9,110) ( 23,399) ( 17,517) Equity in net income of unconsolidated subsidiary - 18,664 - 13,305 Income (loss) before minority interest in net income (loss) of consolidated subsidiaries and income tax provision ( 117,966) 22,249 ( 389,147) 69,346 Minority interest in net income (loss) of consolidated subsidiaries ( 20,623) 15,363 ( 7,844) 38,517 Income (loss) before income tax provision ( 97,343) 6,886 ( 381,303) 30,829 Income tax provision - 2,699 - 5,186 Net income (loss) $( 97,343) $ 4,187 $( 381,303) $ 25,643 Earnings (loss) per common share $( .01) $ - $( .06)$ - Weighted average common and equivalent shares outstanding 6,831,194 6,927,327 6,857,838 6,941,093 The accompanying notes are an integral part of these consolidated financial statements. MEDCROSS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Six Months Ended June 30 1995 1994 Cash provided by operating activities $ 155,982 $ 57,006 Cash flows from investing activities Purchase of property and equipment ( 15,375) ( 39,506) Proceeds from sale of property and equipment 4,500 75 Investment in unconsolidated subsidiary - ( 3,750) Net cash used by investing activities ( 10,875) ( 43,181) Cash flows from financing activities Proceeds of note payable - related party 218,000 - Proceeds (reduction) of note payable - other (101,000) 211,000 Reduction of long-term debt (194,571) ( 194,571) Reduction of capital lease obligations (120,251) ( 109,182) Additional paid-in capital - 260,417 Minority interest distributions ( 36,500) ( 20,867) Net cash provided (used) by financing activities (234,322) 146,797 Effect of foreign currency translation on cash flows ( 1,858) ( 86,941) Increase (decrease) in cash and cash equivalents ( 91,073) 73,681 Cash and cash equivalents at beginning of period 361,157 1,176,757 Cash and cash equivalents at end of period $ 270,084 $ 1,250,438 Supplemental cash flow information In February 1995 a holder of Class B Preferred Stock converted 9,350 shares into 227,714 shares of Common Stock. The accompanying notes are an integral part of these consolidated financial statements. MEDCROSS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Financial Statements In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of (a) the results of operations for the three-month and six-month periods ended June 30, 1995 and June 30, 1994, (b) the financial position at June 30, 1995, and (c) cash flows for the six-month periods ended June 30, 1995 and June 30, 1994, have been made. The unaudited consolidated financial statements and notes are presented as permitted by Form 10-QSB. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. The accompanying consolidated financial statements and notes should be read in conjunction with the audited financial statements and notes of the Company for the fiscal year ended December 31, 1994. The results of operations for the six-month period ended June 30, 1995 are not necessarily indicative of those to be expected for the entire year. Note 2 - Related Party Transactions The Company received advances from Mortgage Network International. The Company issued a promissory note bearing interest at one percent over the prime rate at Southwest Bank of Texas, N.A. with maturity of October 31, 1995. The Company's Vice Chairman/President has management control over Mortgage Network International. Note 3 -Earnings Per Common Share Earnings per common share are based upon the weighted average number of common shares outstanding and the dilutive effect of common stock equivalents consisting of stock options and convertible preferred stock. Fully diluted earnings per share are not presented because it approximates earnings per common share. Note 4 - Geographic Segment Information The Company's operations consist of providing diagnostic and clinical outpatient health care services domestically and the sale and service of used medical equipment in the People's Republic of China (PRC). The corporate office provides management and operational services for domestic outpatient health care services. The eliminations represent charges for these services to entities included in the consolidation. Financial information for the different geographic segments is as follows: Six Months Ended Corporate/ June 30, 1995 Domestic China Management Eliminations Consolidated Revenue $ 1,373,862 $ 337,889 $ 245,315 $( 81,214) $ 1,875,852 Operating Profit (Loss) $ 237,130 $( 242,151) $( 245,491) $( 81,214) $( 331,726) Identifiable Assets $ 3,340,780 $ 1,089,569 $ 220,668 $( 143,170) $ 4,507,847 Six Months Ended Corporate/ June 30, 1994 Domestic China Management Eliminations Consolidated Revenue $ 1,528,991 $ - $ 355,427 $( 56,138) $ 1,828,280 Operating Profit (Loss) $ 516,321 $( 95,776) $( 213,105) $( 56,138) $ 151,312 Identifiable Assets $ 3,991,714 $ 905,332 $ 1,095,681 $( 10,396) $ 5,982,331 Item 2 - Management's Discussion and Analysis The following discussion should be read in conjunction with the information contained in the financial statements of the Company and the notes thereto appearing elsewhere herein and in conjunction with Management's Discussion and Analysis set forth in the Company's Form 10-KSB for the fiscal year ended December 31, 1994. Results of Operations The following Table represents the net operating revenue and operating profit (loss) of the Company for each category of service offered. The net operating revenue and operating profit (loss) shown are net of intercompany transactions that were eliminated in consolidation. Three Months Ended Six Months Ended June 30 June 30 1995 1994 1995 1994 NET OPERATING REVENUE Diagnostic Imaging $ 677,044 $ 746,430 $ 1,373,862 $ 1,582,991 Sales and Service of Medical Equipment - - 337,889 - Management and Other 81,315 149,480 164,101 299,289 $ 758,359 $ 859,910 $ 1,875,852 $ 1,828,280 OPERATING PROFIT (LOSS) Diagnostic Imaging $ 90,945 $ 252,957 $ 237,130 $ 516,321 Sales and Service of Medical Equipment ( 31,164) ( 54,236) ( 242,151) ( 95,766) Management and Other ( 155,638) ( 123,194) ( 326,705) ( 269,243) $( 95,857) $ 75,527 $( 331,726) $ 151,312 Diagnostic Imaging Net operating revenue from diagnostic imaging services for the three-month and six-month periods ending June 30, 1995 decreased 9% and 10%, respectively, as compared to the same periods in 1994. MRI revenue of Tampa MRI decreased $56,538 (17%) for the three months ended June 30, 1995 and $184,187 (25%) for the six months ended June 30, 1995. This was a result of a decrease in the number of MRI procedures performed for the three- month and six-month periods ended June 30, 1995 of 18% and 26%, respectively, as compared to the same periods in the prior year. Tampa MRI has been successful in obtaining several managed care contracts. The Company's marketing activities have resulted in a 19% increase in the number of cases performed from the first quarter of 1995. Tampa MRI is continuing to pursue additional managed care contracts. Obtaining managed care contracts will cause the average revenue per case to decline, which should be offset by an increase in the number of procedures performed. MRI revenue of Medcross Imaging, Ltd. decreased by $98,875 (24%) and $163,039 (27%), for the three-month and six-month periods ended June 30, 1995, respectively, as compared to the same periods in 1994. This was a result of a decrease in number of patients treated of 26% for the three- month and 20% for the six-month periods ended June 30, 1995 as compared to the same periods in 1994 and was caused by increased competition in the area. A mobile MRI company began providing service to a local hospital in the first quarter of 1995. The hospital closed in June 1995 and the mobile company opened an MRI center in St. Petersburg, Florida which creates direct competition for Medcross Imaging, Ltd. Urological Ultrasound Services of Tampa Bay (UUSTB) was acquired and included in the consolidated financial statements of the Company effective October 1, 1994. On May 1, 1995, the Company transferred its ultrasound operations to Tampa MRI. Ultrasound revenue for the three-month and six-month periods ended June 30, 1995 were $86,027 and $192,097, respectively. Ultrasound revenue increased 31% and 14% for the three-month and six- month periods of June 30, 1995, respectively, as compared to revenue of the unconsolidated joint venture for the same periods in 1994. The number of procedures increased 32% for the three-month period ended June 30, 1995 and 26% for the six-month period ended June 30, 1995 as compared to corresponding periods of the prior year. The operating profit from diagnostic imaging services decreased $128,179 and $279,191 for the three-month and six-month periods ended June 30, 1995, respectively, as compared to the same periods of the prior year. These decreases were caused by a decline in operating profit from MRI services of $179,673 and $346,808 for the three- month and six-month periods ended June 30, 1995, respectively, compared to the three-month and six-month periods ended June 30, 1994. These declines were offset by a $17,661 and $67,617 operating profit from ultrasound services for the three-month and six-month periods ended June 30, 1995. The decline in MRI operating profit for the three-month and six-month periods ended June 30, 1995 was a result of the decrease in MRI revenue and increase in the provision for doubtful accounts. During the past several years, there has been increasing pressure from federal and state regulatory and legislative bodies to prevent physicians from referring patients to diagnostic imaging facilities in which they have an ownership interest. Legislation passed in the State of Florida, where all of the Company's diagnostic imaging services operate, placed a fee cap on diagnostic imaging services. An injunction has been obtained preventing the State of Florida from enforcing the fee cap. See "Item 3. Legal Proceedings" in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1994. The State of Florida is seeking a review of that on appeal and there can be no assurances as to the outcome of such appeal. Sales and Service of Medical Equipment The Company sells and services used and refurbished computerized tomography (CT) scanners in the People's Republic of China through its own office in Beijing and a joint venture company, Shenyang Medcross Huamei Medical Equipment Company, Ltd. (SMHME), of which it owns 51%. During the last four months of 1994, the Beijing office completed the installation of two CT scanners and SMHME completed the installation of one CT scanner. In the first quarter 1995, the Company's Beijing office completed the installation of two additional CT scanners. On May 31, 1995, the Beijing office was closed and the responsibilities for the parts depot and the remaining inventory have been transferred to SMHME. Various issues have been raised by the purchasers in China regarding maintenance of the scanners, parts depot, etc. The Company's President, Henry Toh, personally traveled to China to resolve these issues and obtain payment. The Company received a $100,000 payment in June 1995, and Mr. Toh is confident that the issues will be resolved and payment received by the end of the third quarter of 1995. However, the Company has elected to fully reserve for all amounts due to the Beijing office for the four scanners installed. This resulted in an expense of $189,214 in the first six months of 1995 and $188,842 in the fourth quarter of 1994 and an allowance for doubtful accounts of $378,056 as of June 30, 1995. In June 1995, the Company has written down one of the CT scanners in inventory to what management believes is fair market value. This resulted in $49,122 of additional cost of goods sold. The Company has held preliminary discussions regarding the sale of the China operations. Nevertheless, the Company has not received any definitive offers at this time and there can be no assurance that such operations will be sold. Management and Other Net operating revenue from management and other activities decreased by $68,165 and $135,188 in the three- month and six-month periods ended June 30, 1995, respectively, compared to the same periods in 1994. The decrease was primarily related to the management contracts with Bay Area Renal Stone Center (BARSC) and UUSTB. The BARSC contract accounted for $36,684 and $72,959 for the three-month and six-month periods ended June 30, 1995, respectively. The UUSTB contract accounted for $24,994 and $51,490 in the three-month and six-month periods ended June 30, 1994, respectively. Since UUSTB became a wholly owned subsidiary in October 1994, management and billing fees have been eliminated in consolidation. The net operating loss from management and other activities increased by $32,444 and $57,462 in the three- month and six-month periods ended June 30, 1995, respectively, as compared to the same periods in 1994. This increased loss was related to the decrease in revenues from management and other activities, offset by a decrease in corporate expense of $35,591 and $77,726 in the three-month and six-month periods ended June 30, 1995 as compared to the same periods in 1994. Corporate expenses will be reduced in the third and fourth quarters of 1995 due to the resignation of the Vice President of Acquisitions, Bijan Taghavi, effective July 26, 1995 and the resignation of the Senior Vice President/CFO, Timothy R. Barnes, effective August 6, 1995. These positions will not be replaced at this time. The Company has actively begun pursuit of imaging centers in the United States and will use outside third party consultants in its efforts to expand its ownership and operation of MRI facilities. Consolidated Operating Results Net operating revenue of the Company decreased 15% for the three-month period ended June 30, 1995 as compared to the same period in 1994. The decrease is a result of the decline in management fee revenue and revenue from MRI services, offset by the inclusion of ultrasound revenues. The cost of goods sold in the second quarter was mainly related to the writedown of CT scanner inventory to fair market value. The decrease in salaries and benefits was due to a decrease in the corporate office, offset by an increase in diagnostic imaging (due to the inclusion of UUSTB) and China operations. The provision for doubtful accounts decreased significantly due to the collection of receivables from China clients, which were reserved at 100%. The increases in the China operations and ultrasound services were offset by the reduction of other operating expenses in the corporate office. The decline in operating profit was the culmination of the decline in operating profit from diagnostic imaging and the corporate office, offset by an increase in operating profit for China operations. Net operating revenue of the Company increased by 3% in the first six months of 1995 as compared to the same period of 1994. This increase was the result of new sources of revenue from the sale and service of medical equipment in China and the acquisition of UUSTB. The increase in revenue from these new sources was offset by the decline in management fee revenue and revenue from MRI services. The cost of goods sold was related to the sale and service of CT equipment in China and the write-down of inventory to fair market value. While the cost of the first two CT scanners sold in 1994 was greater than revenue, there was a significant gross margin on the two scanners installed in the first quarter of 1995. This increase in the gross margin was due to efficiencies gained through the Company's prior experience in purchasing, refurbishing, shipping, and installing the equipment in China. The increase in salaries and benefits was primarily related to the inclusion of UUSTB in the consolidation. The large increase in the provision for doubtful accounts was a result of recording a reserve for receivables from China clients, as previously discussed. The reductions of other operating expenses in the corporate office and Tampa MRI were offset by increases in other operating expenses in the China operations and UUSTB. The overall decline in operating profit was the culmination of the decline in operating profit from diagnostic imaging services, foreign operations, and the corporate office. Liquidity and Capital Resources Working capital provided by operations during the first six months of 1995 was $173,212, compared to $351,455 in 1994. The working capital decreased mainly due to the decline of net income. The working capital position of the Company declined by $350,136 during the six-month period ended June 30, 1995. Working capital position of the Company was $112,496 at June 30, 1995 and $462,632 at December 31, 1994. Cash flow provided by operating activities was $155,982 in the first six months of 1995 compared to $57,006 in the same period in 1994. This was mainly due to the collection of $100,000 from China receivables. Investing activities expenditures during the first six months of 1995 related to the purchase of additional equipment for the Tampa MRI unit. During the six months of 1995, the Company reduced its long term debt and capital lease obligations by $314,822 and the outstanding balance of its line of credit by $101,000. The Company was in violation of loan covenants regarding cash balances, consolidated equity, debt to equity ratios, and cash flow coverage ratios, under the line of credit at June 30, 1995. The bank has waived those covenant violations. During the first quarter of 1995, the Company received advances totaling $218,000 from Mortgage Network International, payable on demand. The Company's Vice Chairman/President has management control over Mortgage Network International. The advances were subsequently formalized by the Company issuing a promissory note bearing interest at one percent over the prime rate of Southwest Bank of Texas, N.A. with a maturity of October 1, 1995. The $260,417 minority interest contribution during the first quarter of 1994 represents a contribution made by the Company's joint venture partner in SMHME. The joint venture agreement requires that capital contributions and distributions of capital are exchanged at a rate of 5.76 Renminbi per U.S. Dollar. The actual exchange rate at the time the contributions were made was in excess of 8.5 Renminbi per U.S. Dollar. The effects of foreign currencies on cash flows in 1994 is almost entirely related to the difference between the stipulated exchange rate in the joint venture agreement and the actual exchange rate at the time the contributions were made. Capital requirements of the Company for 1995 consist primarily of funding ongoing operations, repayment of Mortgage Network International advances, and the reduction of the outstanding balance of the Company's line of credit with First Union National Bank of Florida. The Company has no material commitments for capital expenditures other than for ordinary expenses incurred during the usual course of business. To the extent that the Company is unable to collect the receivables from China operations, the Company will need to reduce future expenses or raise additional capital to meet its operating cash flow requirements. Additional investment in the Company's China or domestic operations will require that the Company raise additional capital through public or private debt or equity financing. The availability of these capital sources will depend upon prevailing market conditions, interest rates and the then existing financial position and results of operations of the Company. Therefore, no assurances can be made by the Company that such additional capital will be available. PART II - OTHER INFORMATION Item 5 - Other Information Timothy R. Barnes the Senior Vice President/CFO, Secretary/Treasurer of the Company has resigned his position, effective August 6, 1995, to pursue other opportunities. Bijan Taghavi the Vice President of Acquisitions and a Director of the Company has resigned his position, effective July 26, 1995, to pursue other opportunities. Item 6(a) - Exhibits 11 Statement regarding computation of earnings per common share. Item 6(b) - Reports on Form 8-K None. 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 thereunder duly authorized. MEDCROSS, INC. (Registrant) Date: August 14, 1995 By: /s/ HENRY TOH Henry Toh President (Acting Principal Financial Officer & Acting Principal Accounting Officer)
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EXHIBIT 11 COMPUTATION OF EARNINGS PER COMMON SHARE Three Months Ended Six Months Ended June 30 June 30 1995 1994 1995 1994 Earnings per common and common equivalent share Net income (loss) available to common and equivalent shares $( 97,343) $ 4,187 $( 381,303) $ 25,643 Weighted average common shares outstanding 1,749,163 1,503,305 1,690,970 1,503,305 Adjustments Assumed issuance of shares purchased under stock option and stock purchase plans 4,026 92,580 5,669 103,680 Assumed exercise of warrants - 8,713 25,000 11,380 Assumed conversion of: Class A Variable Rate Cumulative Convertible Preferred Stock 4,894,463 4,894,463 4,894,463 4,894,463 Class B Variable Rate Cumulative Convertible Preferred Stock 183,542 428,265 241,736 428,265 Total common and equivalent shares 6,831,194 6,927,326 6,857,838 6,941,093 Earnings (loss) per common and equivalent share $( .01) $ - $( .06)$ - Fully diluted earnings per common and common equivalent share Net income (loss) available to common and equivalent share $( 97,343) $ 4,187 $( 381,303) $ 25,643 Weighted average common shares outstanding 1,749,163 1,503,305 1,690,970 1,503,305 Adjustments Assumed issuance of shares purchased under stock option and stock purchase plans 4,409 92,580 5,861 103,680 Assumed exercise of warrants - 8,713 25,000 11,380 Assumed conversion of: Class A Variable Rate Cumulative Convertible Preferred Stock 4,894,463 4,894,463 4,894,463 4,894,463 Class B Variable Rate Cumulative Convertible Preferred Stock 183,542 428,265 241,736 428,265 Total common and equivalent shares 6,831,577 6,927,326 6,858,030 6,941,093 Earnings (loss) per common and equivalent share $( .01) $ - $( .06)$ -
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5 THIS DOCUMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MEDCROSS, INC AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S FORM 10-QSB FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS. 6-MOS DEC-31-1995 JUN-30-1995 270084 0 1687685 773958 799849 2047424 3386165 1584319 4507847 1934928 0 12244 0 2075000 (530667) 4507847 337889 1875852 239798 239798 1644135 323645 80820 (381303) 0 (381303) 0 0 0 (381303) (.06) (.06)