emerge interactive: merging technology with...

eMerge Interactive:Merging Technology with Tradition

2000 Annual Report

Emerge mech final_1 4/19/01 12:48 PM

We’re connecting the U.S. beef industry to new levels of productivity and prosperity.

eMerge Interactive, Inc., is a technology company providing supply-chainmanagement and marketing solutions for the $40 billion U.S. beef-produc-tion business – the single largest segment of U.S. agriculture. Our goals:

• Building an industry network to implement Beef Quality Assurance on anational level.• Helping cattlemen reduce production costs, improve beef quality andenhance beef safety.• Ultimately, enabling a large brandable beef supply to create addi-tional consumer value and open new export markets for U.S. beef.

The need for these solutions has never been more apparent, as the chal-lenges facing the U.S. cattle industry continue to multiply. Recent gains in beef demand haven’t made up for two decades of market-share loss toalternative proteins such as poultry and pork. The industry remains highlysegmented, geographically dispersed, plagued by inefficiency andgrowing safety concerns.

Yet challenges such as these present eMerge with enormous opportuni-ties. As virtually every other industry has demonstrated over the lastdecade, advanced information-management technologies can yieldtremendous gains in productivity, profitability, quality, and product safety. eMerge has made the necessary investment in assets, intellectual


capital and financial resources to help bring these advantages to the U.S. cattle industry.

In 2000 alone, our ranks grew to 300 employees, with nearly 70% coming from the cattle industry. And we invested more than $66 million in facility acquisitions and another $20 million in a state-of-the-art tech-nology business network to help ensure rapid, widespread adoption of our solutions.

The result is a continually evolving suite of products and services, including:

• A powerful information-management infrastructure to connect industry segments through advanced technologies and software applications for cattlemen.• An efficient on-site and online marketplace network to promote highly efficient, high-profit marketing of cattle nationwide.• Value-enhancing technologies to bring these capabilities to users nationwide – including technologies for life-long tracking of individual animals, to make America’s beef supply safer than ever.

Bottom line: eMerge is bringing together the tools that are needed to fun-damentally change the way U.S. beef is brought to market – and, in the process, help ensure a prosperous future for everyone who takes advan-tage of them.

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eMerge solutionsbenefit the entirebeef-supply chain –including the1,000,000 produc-ers who breed andraise cattle … the700 feedyards thathelp them reachmaturity … the 70packers who har-vest the meat …and the millions ofconsumers whomake their prefer-ences known inretail stores acrossthe nation.


• Successfully raised $107 million through the February 2000 Initial PublicOffering;

• Invested $66 million to create a national network of 12 Interactive Facilities™ with the capacity to market 4 million head-of-cattle in 2001,representing a 14 % market share;

• Invested $20 million to build a state-of-the-art technology business net-work, including CattleinfoNet™, an industry-wide information-manage-ment and marketing infrastructure;

• Introduced powerful business applications with high-bandwidth capabili-ties to 330 feedyards across the country, representing more than 60% ofU.S. feedyard capacity;

• Marketed over 1.7 million head-of-cattle, including 120,000 cattle thatwere electronically identified;

• Launched industry’s first live Internet cattle auction via CattleinfoNet,enabling potential for better price realization;

• Conducted a record-breaking online cattle auction via CattleinfoNet,connecting 140 participants from 11 states in a 2–hour sale duringwhich more than 9,000 head-of-cattle were offered;

• Successfully marketed 120,000 head-of-cattle via the online CattleinfoNet Interactive MarketPlace™ and effectively positioned theInteractive MarketPlace to market over 500,000 head in 2001;

• Assembled a cohesive management group consisting of technology andcattle-industry experts and advisors;

• Implemented actions to streamline operations – actions that are expectedto result in the Company achieving profitability, before amortizationexpense, in the third quarter of 2001;

• Ended 2000 with $43 million in cash and cash equivalents, $149 mil-lion in assets, no long-term debt and $130 million in stockholders’ equity.

We continue to strengthen our position as the beef industry’s technology partner.

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2000 Highlights


From the cattleman’s viewpoint, the need for change has never been more apparent.For the first time in 20 years, demand forbeef protein in the U.S. is on the rise. Yetthis realization is overshadowed by the chal-lenges that continue to confront the Ameri-can beef industry, from bovine diseases inEurope to dealing with the effects of theworst drought in U.S. history.

eMerge Interactive has dedicated itsefforts to developing solutions to such chal-lenges for industry participants large andsmall – solutions that are focused on:

• Enabling industry Beef Quality Assuranceprograms that lay the foundation for main-taining high levels of consumer confidencein beef safety.• Eliminating unnecessary costs and ineffi-ciencies in the production, procurement,and handling of U.S. cattle.• Creating the industry-wide supply-chainrecord-management system needed forprocess verification, electronic tracking ofanimals, and ultimately, a brandable beefsupply.

I’m pleased to report that cattlementhroughout the country are increasinglycoming to understand the impact our solu-tions should have on their businesses andtheir long-term success, and are adoptingour technologies at a record pace. Amongthe milestones we reached last year, whichwas essentially our first full year of operation:

• The number of cattle marketed online andon-site through our CattleinfoNet informa-tion-management and marketing networkjumped from 82,000 in 1999 to 1,700,000 –more than a 20-fold increase.• Our gross margin-per-head rose from$3.03 in the first quarter to $5.74 in the last.• The number of animals sold onlinethrough our Interactive MarketPlace climbedfrom 35,000 to 120,000.• The number of feedyards introduced toour high-bandwidth business application –the eMerge Interactive Platform – grew froma handful to 330, who together account formore than 60% of U.S. feedyard capacity.

For reasons such as these, Forbes ASAPrecently awarded eMerge the #10 spot on its

Ramp Champ 100 list – a ranking, based onyear-over- year sales growth, of the nation’s100 fastest growing technology companies.

And that’s just the beginningAs the 2000 Highlights (left) suggest, 2000was a year of many major accomplishmentsfor eMerge.

In February, we launched a highly suc-cessful IPO, raising $107 million. Practicallyovernight, we went from a virtual start-up toa major industry force with a 14% share ofthe U.S. cattle market. And our revenuesincreased from $42 million to $802 million.

We also expanded our internal resourcesat a carefully controlled but aggressive pacethroughout the year. By December, we hadbuilt a team capable of addressing many ofthe industry’s most difficult challenges, withmany bringing Fortune 100 managementexperience to the table. We had grown from90 to 300 employees, including both cattle-industry and Florida “space coast” technol-ogy experts. We purchased 12 leading live-stock markets and order-buying operations,with the former being transformed into Cat-tleinfoNet Interactive Facilities and the latterbeing integrated into our own sales opera-tions. And we were doing major-league busi-ness in every major cattle state, from eMergeoffices in Colorado, Kentucky, Florida,Kansas, Mississippi, Oklahoma, South Car-olina, South Dakota, Montana and Texas.

We made a $20 million investment indeveloping an exciting technology infrastruc-ture consisting of an exclusive portfolio ofproducts and services, including the Cattle-infoNet information-management and mar-keting network … and we invested over $1million in innovative, bacteria-battling FecalDetection technology, winner of the presti-gious R&D 100 Award for 2000.

During 2000, we also introduced a rangeof groundbreaking capabilities to the indus-try. The list includes the first live NetworkPremium Auction and video on-site Pre-mium Auctions, through which progressive

To Our Stakeholders

Charles L. Abraham

Revenues(Dollars in millions)

00Q4

900

600

300

Q3Q2Q1

■ By quarter – 2000■ Full year – 2000

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producers are able to earn up to $80 moreper head in exchange for delivering pre-con-ditioned, process-verified animals. The listalso includes the introduction of innovative,Internet-enabled application-services pack-ages designed to meet the needs of specificparticipants, such as feedyard managersand their medical and nutritional consul-tants.

Positioned for major successWhat’s more, we accomplished our keyfinancial goals throughout the year against abackdrop of a challenging stock market.Even more important, we positioned eMergeto capitalize on tremendous opportunities in2001 – a year in which you will see our sys-tems fully enabled, our processes and tech-nologies integrated uniformly across ourInteractive Facilities, and our organizationenjoying new levels of efficiency and pro-ductivity.

We expect to close the books on 2001 bymarketing 4-million head-of-cattle, on-siteand online, through the CattleinfoNet net-work. As a result, we expect to be cash-flowpositive before amortization expense in the3rd quarter of this year, based on growingrevenues from the sale of cattle, products,technology and information services. Ourgrowth has indeed been significant, and theindustry’s adoption of our solutions is accel-erating at a record pace.

The opportunities before us are virtuallyboundless. The timing is right, our businessmodel is sustainable, and we are forging aclear path to profitability in an industrywhere the financial barriers to entry are likelyto remain high for other organizations forsome time to come.

I would like to extend my sincere thanksto all the customers who share our goals andhave embraced our solutions … to everymember of our industry Advisory Council,whose guidance continues to be invaluable… and, of course, to the employees whohave positioned us for such great success.Together, we’ll make sure that our goals arereached, justifying stakeholders’ continuingconfidence in our vision and our ability toachieve it.

Charles L. AbrahamChief Executive Officer

April 19, 2001

Financial Highlights

Millions, except per share amounts 2000 1999 % change

Sales and Earnings(1)

Revenue $ 802 $ 42 1,810%Gross profit 9 1 800%Adjusted net loss (19) (12) -58%Adjusted net loss per share (0.59) (1.76) 66%

Financial ConditionCash $ 43 $ 12 258%Total assets 149 26 473%Total liabilities 18 16 13%

Cash FlowCash flow from operations $(30,694) $ (15,619) -97%Cash flow used in investing activities (56,805) (1,592) 3,468%Cash flow from financing activities 117,994 29,528 300%

Head-of-Cattle(In millions)

00Q4

1.8

1.2

0.6

Q3Q2Q1


Gross Margin/Head(Dollars)

00Q4

6.0

4.0

2.0

Q3Q2Q1


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(1) Sales and earnings information is provided on an adjusted basis and excludes amortization expense, non-cash sev-erance costs, impairment and related charges and assumes that the discontinuance of NutriCharge and InfraredImaging products occurred at the beginning of 1999.


Knowledge ispower. It’s alsowhat’s neededto improve efficiency, profitmargins andthe demand forU.S. beef.


In recent years, many of the industry’s stateassociations have launched their own BeefQuality Assurance programs to meet theincreasingly urgent need to ensure that ourbeef supply remains safe. But no singleorganization had dedicated the resourcesand manpower needed to apply state-of-the-art solutions nationwide across this highlysegmented and entrepreneurial industry.

Enter eMerge Interactive – and a growingportfolio of powerful, technology-enabledtools designed to help cattlemen across thenation:

• Capture and add value to their livestock, inessence “decommoditizing” their animals toimprove their profit margins.• Enhance operational efficiency, and there-fore profitability.• Preserve both their independence andtheir treasured way of life.• Improve the demand for U.S. beef, here athome and around the globe.

For the industry as a whole, perhapseMerge’s greatest contribution in this arenais the establishment of the industry-wide,Internet-enabled infrastructure called CattleinfoNet – the information-managementand marketing network that is poised to rev-olutionize the U.S. beef business. Readilyaccessible at CattleinfoNet.com, this infra-

CattleinfoNet provides the infrastructure to help ensure cattlemen’sprosperity and consumers’ safety.

Thanks toeMerge’s Cattle-infoNet networkand CattleLog™system, processverification isbecoming a real-ity in the U.S. cat-tle industry. Theresult should ulti-mately improveproductivity andprofitability forthe entire beef-supply chain.


system called CattleLog™. It’s the only sys-tem of its kind to offer the power, affordabil-ity, security and ease of use that cattlemenneed to make process and source verifica-tion a reality for the beef industry.

With CattleLog, users are able to elec-tronically identify and track individual ani-mals from producer to packing plant. Todocument the care they’ve provided, fromweaning and vaccination to feeding regi-mens. To buy and sell animals in large lotsbased on detailed specifications, earningmore every step of the way. And to tap a vari-ety of web-based reports to assess virtuallyany parameters impacting their operations’success, for more informed and profitabledecision-making.

And that’s just the start. Because in thenot-too-distant future, CattleLog will becapable of:

• Receiving feedback on carcass perfor-mance, to support users’ internal continu-ous-improvement programs.• Helping users deliver the consistent-qual-ity, brandable beef products that consumersprefer.• Promoting consumer confidence andhelping producers isolate health risks.

structure also serves as the medium formost of the products and services we offer.

Meeting the demand for process-verified cattleFor decades, cattle have been the “widgets”of the livestock industry. They’ve been soldprimarily on the basis of weight, with fewindividualized specifications available to setthem apart as they move through the beef-supply chain.

That hasn’t helped an industry battlingintense competition from the vertically inte-grated pork and poultry businesses, whichhave profited immensely from brandingstrategies based on proven process-verifica-tion techniques. Nor has it helped assuagepublic fear of beef-related public-healthissues.

eMerge is helping change this scenariowith a unique, CattleinfoNet-enabled ani-mal-tracking and information-management

Improving the efficiency of individual operations CattleinfoNet also serves as the resource forthe expanding portfolio of Interactive Management Tools – application servicesdesigned to give cattlemen greater controlover their operations than ever before.

Already in use is Interactive Manager™,a patented, Internet-enabled programdesigned exclusively for feedyards. With thisapplication, feedyard managers are able tomanage their cattle pro-actively to minimizeillness and death and optimize the rate andcost of gain. They’re also able to determinethe most profitable times to buy and sell,based on current and projected market con-ditions and highly detailed data from theirown operations as well as regional bench-marks.

This rapidly evolving portfolio alsoincludes the fully compatible Interactive Veterinarian™ and Interactive Nutritionist™,tools to help these key consultants improveclient feedyards’ returns on investment. Inthe works are additional tools designed tohelp those who raise livestock improve boththeir efficiency and profitability.

EID* SexBreedColorGeneticsWeaning DataPerformance RecordsTreatment RecordsMedical RecordsShipment Records

EID* BuyerSellerPerformance RecordsShipment Records

EID* Performance RecordsTreatment RecordsMedical RecordsNutritional RecordsShipment Records

EID* Carcass IDCarcass Records

Producer

Cattle Supply Chain Record Management System

Interactive Facility Feedyard Packing Plant

Interactive Management Tools:Individual animal process verification tracking, and data management

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*Electronic identification


We’re expandingproducers’ marketing horizons. And buyers now have access to a National market.


Last year, most of these animals weremarketed through CattleinfoNet InteractiveFacilities – a growing network of eMerge-owned and franchised livestock marketschosen to help us quickly capture a majorshare of the U.S. cattle market. Some facili-ties – including health-certification pioneerJordan Cattle Auction and cattle-friendlyfacility designer LeMaster Livestock, Inc. –were selected for demonstrating truly vision-ary leadership. Others offered the strategiclocation, expert management, outstandingsales volume or sterling reputation neededto catapult eMerge to the forefront of cattlemarketing.

In the meantime, increasing numbers of CattleinfoNet-marketed cattle have beensold online through the CattleinfoNet Interactive MarketPlace, either brokeredthrough our online listings or sold directthrough semi-monthly online auctions.

Participants appreciate the convenienceof handling transactions in minutes, fromthe comfort of their offices. They welcomethe advantages of national price discoveryand a vastly expanded selection of cattle.They’re happy to be freed from unnecessarycommissions. And they value the tools CattleinfoNet provides to help them identifytheir most profitable buying and sellingopportunities.

In many ways, 21st Century cattlemen oper-ate in much the same way as their 19th Cen-tury counterparts. Selling or buying livestockand supplies normally means a trip to thenearest town to choose from a limited inven-tory … or investing much more time toexpand their universe of choices.

No more. Thanks to eMerge Interactive,members of the beef industry can now tap anationwide marketplace to get preciselywhat they need – if they like, simply by log-ging on to CattleinfoNet.com.

Just the right cattle, on-site or online In a few short years, the CattleinfoNet infor-mation-management and marketing networkhas become the largest single livestock mar-keter in the nation. In 2000, more than 1.7million animals changed hands through thisnetwork; by the end of this calendar year, weexpect that number to reach 4 million, or14% of the total U.S. feedyard cattle supply.

Leveling the playing field for small producers The vast majority of cattle producers areindependent businessmen who usually mar-ket just a handful of animals at a time.Unfortunately, they’ve paid a steep price formaintaining their independence: Buyers paymore per pound for uniform lots of animals,because they don’t require sorting andaggregating into large groups for efficientfeeding.

CattleinfoNet Interactive Facilities arechanging that situation by offering small pro-ducers a unique service: pre-auction sortingof small groups of animals into larger,homogenous lots. As a result, even smallproducers can now earn the large-draft pric-ing once reserved for the industry’s majorplayers.

Pre-conditionedand process-verified cattle,like the ones mar-keted at our Jor-dan Cattle Auc-tion facility (left),bring higherprices for produc-ers, becausefeedyards nowknow what theyare buying.

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• Offer predictable performance in the feed-lot, arriving ready to feed and spending lesstime on feed. This translates directly intoconsistent performance at the packinghouse – a prerequisite to providing con-sumers with predictably palatable, differenti-ated beef products.

Delivering the products on which cattle businesses depend In late 2000, the CattleinfoNet InteractiveMarketPlace added another valuable dimen-sion to its offerings: products ranging frompharmaceuticals to office supplies. Whilecompetitive pricing has been a major attrac-tion for customers, more important has beenthe ability to procure the supplies they needto keep their operations running smoothly –all with a few clicks of the mouse, withoutspending another hour on the road.

Premium cattle for predictable performanceWhether these cattle are sold on-site oronline, via our brokering services or our auc-tions, CattleinfoNet users also can takeadvantage of special Premium Sales featur-ing weaned and pre-conditioned animalsthat have been process-verified with the CattleLog system.

These sales typically bring greater profitsfor sellers – profits that more than compen-sate for the slight increase in costs and laborassociated with participation. With good rea-son – buyers usually pay more becausethese animals:

• Are healthier, so they require less “doctor-ing” in the feedyard and are far less likely tomake other cattle sick. • Are under less stress, so they don’t experi-ence the anxiety-induced weight loss thatcan be overcome only through costly addi-tional rations of feed. • Carry with them electronically documentedhistories, so there’s no risk of unnecessarilyrepeating expensive health treatments.

Buying livestock isn’t the only reason cattlemen regularly visit CattleinfoNet.com.Here, they’re also able to get information oneverything from commodity pricingto weather toindustry trends, while shopping for the products they need to run their businesses.

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•CattleinfoNetInformation Management and Marketing Network

• Network ofInteractiveFacilities

• Buyers

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Laying the foundation for process verification We’ve also adapted technologies to thedemands of process-verifying uncooperativeanimals that can weigh a half-ton or moreeach.

The heart of our solution is the powerfulCattleinfoNet information-management andmarketing network, which facilitates timely,accurate sharing of information throughoutthe beef-supply chain. It’s this infrastructurewhich our CattleLog animal-tracking systemuses to enable process verification, applyingsuch advanced tools as electronic IDs (EIDs)– ear tags embedded with radio-frequencytransponders and tied to unique identifica-tion numbers. At just a few dollars each,they represent a very cost-effective way forcattlemen to differentiate their pre-condi-tioned cattle from run-of-the-mill livestock.

To this foundation, we’ve added a rangeof extraordinarily rugged tools to build, com-municate and analyze data on each animal’spersonal history – including handheld com-puters for field use, chuteside computers toautomatically gather data on parameters

eMerge has made significant investments inadapting advanced technologies to theunique requirements of the beef industry.

Connecting rural America to the InternetBelieve it or not, decades-old telephonelines have isolated much of rural Americafrom the Internet revolution of the 1990s.

That’s why we developed the eMergeInteractive Platform. It provides even themost remote operations with reliable, high-speed Internet access. It includes suchcomponents as a powerful personal com-puter loaded with exclusive CattleinfoNetsoftware, a top-quality satellite dish, and adedicated phone line. And it offers users arange of options, including multiple worksta-tions.

At a cost of just a few dollars a day, thishigh-bandwidth business application hasalready been introduced to 330 major U.S.feedyards, representing more than 60% ofU.S. feedyard capacity.

from weight to temperature, and powerfuldesktop computers to link offices to the fullrange of CattleinfoNet capabilities.

The result: An easy and affordable way toadd value to livestock, while making the bestpossible management decisions.

Behind-the-scenes advances fuel future growth These technologies represent just the tip ofthe iceberg for eMerge. We’ve made signifi-cant investments in our own internal CattleTransaction System, to ensure the integrityof our animal-tracking processes while sup-porting our supply-chain management andbusiness-analysis activities.

Helping to stop E. coli in its tracks Chosen from a field of more than 80 techni-cal-development companies by the USDA’sAgricultural Research Service and IowaState University, eMerge is also commercial-izing a real-time device for detecting deadlyfood-borne bacteria such as E. coli O157:H7.

The recipient of R&D Magazine’s presti-gious R&D 100 Award for technologicallysignificant products, the device is an opticalinstrument capable of detecting minuteamounts of the fecal matter that can harborsuch bacteria. With this tool, packers will beable to remove even invisible traces of cont-amination, thereby making meats safer thanever before.

We’re applyingadvanced technologiesto connect the industry,add value, and makethe beef supply safer.

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Corporate Officers


Scott L. MathewsPresident and Chief OperatingOfficer

Executive Vice Presidents

Scott Crain, DVMStrategic Planning

Michael JanneyChief Financial Officer

Arvind SubramanianChief Marketing and TechnologyOfficer

Vice Presidents

Al GapschResearch and Development

Juris PagrabsInvestor Relations

Scott SandersCattle Sales

Rich StromanIntellectual Property andAdvanced Beef Technologies

Lars SvenssoneBusiness Applications

Dave UganeBusiness Systems

Board of Directors


Douglas A. AlexanderManaging DirectorInternet Capital Group, Inc.

Christopher J. DavisVice President Strategic DevelopmentSafeguard Scientifics, Inc.

James P. EbzeryVice President of OperationsInternet Capital Group, Inc.

Thomas C. LynchSenior Vice PresidentSafeguard Scientifics, Inc.

John W. PoduskaChairman of the BoardAdvanced Visual Systems, Inc.

John S. ScottChairman of the BoardXL Vision, Inc.

Thomas L. TippensPresidentWest Oak Commodities

Industry Advisory Council

Lee BorckPresidentWard Feed Yard, Inc.

Harvey DietrichOwnerCholla Livestock

Chet EnglandDirector of Quality and Food SafetyBurger King Corporation

Paul EnglerPresidentCactus Feeders, Inc.

Alan JanzenOwner/ManagerCircle Five Feeders

Lee LeachmanChief Executive OfficerLeachman Cattle Company

Bill MiesProfessor, Dept. of Animal SciencesKleberg CenterTexas A & M University

Wayne PurcellProfessor, Dept. of Agriculturaland Applied EconomicsVirginia Tech

Chuck SchroederChief Executive OfficerNational Cattlemen’s Beef Association

Tom WoodwardVice President & Manager, CattleOperationsBroseco Ranches

Transfer Agent and RegistrarMellon Investor Services LLCOverpeck Centre85 Challenger RoadRidgefield Park, NJ 07660(800) 851-9677

Independent AuditorsKPMG , LLP111 North Orange AvenueOrlando, FL 32801(407) 423-3426

Corporate Headquarters10305 102nd TerraceSebastian, Florida 32958(561) 589-5310

Form 10-KA copy of the eMerge Interactive2000 Annual Report on Form 10-K filed with the Securities andExchange Commission is avail-able, without charge, by requestto the Investor Relations Depart-ment at the Corporate Headquar-ters.

Investor InformationInvestor inquiries should bedirected to the Investor RelationsDepartment at (561) 581-7070.

World Wide Web SitePlease visit our website atwww.emergeinteractive.com forinformation about our Company,as well as online versions of our Annual Report, SEC reports,quarterly results and pressreleases.

Corporate Directory

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10305 102nd TerraceSebastian, Florida 32958(561) 589-5310


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