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The King’s Taxes part 1

Kerry Kelly —  February 4, 2015 — 3 Comments

So you want to be an artist at the renaissance festival?

What a great way to express your inner soul! Freedom to draw, to sculpt, to perform and let out that hidden child! And to get paid for it! You pour your heart and soul into your creations. And the people flock to see you perform, or to buy your art … waiting to see you, standing there.

And, at the end of the year, there stands one more person … the tax man.

Tax

 

Wait! What? You thought you would be ‘an outlaw’, that you could live ‘outside the system’.

Well, in a sense, yes. Our life as artists and performers do give us a wonderful, free lifestyle. But if you are in this for a living – and especially for profit – taxes are a part of it.

Paying taxes is a part of any small business, and that’s really all we are – small businesses. Small Business is defined by the Small Business Administration (and the IRS) as being a business with less than 500 full time employees. I think most of us fall under that.

For some of us, taxes are easy. For others, it’s an impossible labyrinth to navigate. Working in “the other world”, we file our 1040EZ, 1040A or 1040, and sometimes take a few familiar deductions or credits – education, home mortgage, child care or unreimbursed business expenses. But as a small business, there are more forms and more paperwork than that.

There are few of us who would file as anything more than ‘sole proprietor’. Sole proprietor can be an individual or a married couple, same as on your standard 1040; you can choose to designate one person as the primary business owner or you can mark ‘jointly owned’. You can form a partnership (for those committed but unmarried partners not in a personal relationship) or S-Corporation, if either of those structures best suit your needs. Partnerships and S-Corporations do not pay taxes themselves, but they are what you call ‘pass-through’ entities, and the partners will pay taxes on the profits. But partnership and S-Corporations filings are for another article, as they are more complex in paperwork.

In a ruling in late August in 2013, the Department of Treasury and the IRS will recognize same-sex marriages for those filing MFJ and MFS (married filing jointly and married filing separately) status on your federal return. You must be legally married in a state that recognizes such marriages, but you don’t have to be living in or filing from a state that recognizes same sex marriages. However, the ruling does not apply to registered domestic partnerships, civil unions or similar formal relationships recognized under state law.

Tax

Sole Proprietors – we small artistes and thespians – will file a Schedule C along with our 1040. Known by tax nerds as “Business Profit or Loss”.   There isn’t a lot to it. It’s all of 2 pages long, unless you have depreciation. But don’t panic! Learning the tax end of making a living at renaissance faires and outdoor festivals only takes up a little of your time, but it is a very important part of your time.

As a small business, you have to remember to put aside some of that very, very hard earned money to pay your federal taxes. Remember that, back in the old world job, they withheld that very, very hard-earned money with each paycheck. Not so now, young entrepreneur, you have to do it yourself. You also have to set aside the monies yourself to pay for your SE tax – nerdy for Self Employment tax.

Holy Mother of Unicorns! SE tax? What the heck is that? “I thought I left the other world to get away from the system!” Explained simply, your SE tax is your Social Security replacement. It goes towards your retirement. No, we WON’T get into any type of debate or discussion about whether or not Social Security will be there for you when you’re ready. This is not part of the scope of my expertise.

But filing as a self employed person has its perks. You can get away with deducting a lot of your funny clothing. Costumes are a required part of what we do for our job and therefore are legitimate business deductions, and many of our costumes cost a lot. And I’ve noticed a lot of us wear our costumes out in the real world. Keep in mind that in order to deduct ‘business clothing’ that it must be substantially for business use and cannot be clothing that you wear in normal life activities such as going shopping, or out to dinner with friends, or to a wedding. I know, I know, some of us will do that anyway. And you can still write off a lot of your funny clothes.

 

Learning to file your own quarterly taxes – both state and federal – is just another part of being a successful small business. I enjoyed Ronn Bauman’s article “So you want to work at at Renaissance Festival?”, and his discussion on the different levels of participation. Being a self employed artist or performer brings a myriad of new jobs into your life. Bookkeeping is one of them.

Receipt bundles for tax accountant small business owner

And taxes aren’t just for the full time renaissance artist or performer. Do you work a regular 9 to 5 in the city and you just come out and work weekends for your artist friend?

Yes, you are supposed to report that cash he/she pays you. Oh, they gave you a $300 leather vest in exchange for your pass and time worked? According to IRS Publication 17, you’re supposed to report the fair market value of that as income too (and the value of the pass).   But as long as your 1040 is in good shape otherwise, I wouldn’t stay awake nights worrying if the IRS is going to bust down your doors to audit you if you don’t mention it. If you worked a couple of festivals for different booths, but you still have your 9-5 in the city, whether or not you get a 1099-MISC from your artist friends in January, you will have to file a Schedule C with your 1040 and pay SE tax on that income unless the total of that income for the entire year is less than $400. And you will do the same if you are a full time working rennie, one who isn’t a booth owner or performer, but you just travel around working for those who do own booths. Because you are in business for yourself; you just sell your labor instead of stuff.

Now bears the big question. Do you HAVE to pay the King’s Tax? Well, it is the law of the land. It’s your own personal moral issue if you want to roll the dice that way. But there are a few thoughts that might help you out.

The IRS does not require you to file a tax return if you do not owe any tax, and with personal deductions and exemptions, there is a minimum amount you need to make before you will owe any tax. Bear in mind, however, that while you may not owe any federal tax, you may likely owe SE tax. However, it is highly recommended that you DO file a tax return if you are owed any refund or are eligible for one of several refundable credits. After all, it’s your money. You do want it back, don’t you? And if you are just starting out a new business, the IRS doesn’t care if you don’t show a profit for the first few years. Generally you need to show a profit within 5 years, preferably 3. But be careful about red flags – things that make the IRS notice you. Don’t tell the IRS that you haven’t make a dime of profit for the last 10 years or they might ask you “What are you living on?” And if you tell them you are living off of your boyfriend, don’t tell them that your boyfriend hasn’t filed a tax return in 15 years (that really happened).

 

Taxes are seldom difficult. They just take time, just as your marketing does. There are sometimes issues that are confusing to the right brainers of the world. But learning your way around tax talk will take a couple of tries and there are plenty of reliable resources – from professional tax preparers to the www.irs.gov website – out there to consult for the legal and safe answers. In future articles I will address more specific subjects such as depreciation and sales of business assets, and pretty soon you’ll be as comfortable with those terms as you are swinging fire poi at a Funky Formal.

Everywhere I’ve gone this month, the conversation seems to be about the intersection of Entertainment and Commerce in the Festival or Theme Park world.

Permanent parks and themed environments are not entry-level venues, whether speaking of crafts, services, or food & beverage sales. Too often participants leap into an investment in a park or festival with no thought to Proof of Concept. Vendors enter the themed milieu without an appreciation for the experience that the customer is seeking by attending such a venue.

Buy-in can mean so many things … in permanent parks it can refer to the cost involved in procuring a building from which to vend. However there is also the cultural buy-in that includes the joy of wearing a costume and interacting with festival attendees in a way that enhances the escape they purchased upon entry of the park’s front gate.

To quote Ben Franklin: “Diligence is the mother of good luck” 

It is wise to work for a while in any industry before deciding one is ready to own a business there. The restaurant business is a glaringly obvious example of how wrong people can be about their own understanding of a business model when they decide to launch their dream restaurants with no prior foodservice experience. In the festival business, the mistake manifests more often with unproven crafts concepts. Lack of sales is most often blamed on a Vendor Coordinator’s influence on booth placement, or a PR team “not bringing in the right people”. The truth is often that the craft hasn’t sold remarkably in ANY venue, but due diligence was never exercised before building a business around it.

If you’ve spent years in any industry, you’ll have a better understanding of what works and what doesn’t. Themed events are such a blend of entertainment and commerce; they can be a difficult place to attempt a trial run of a product. However, if that item itself is a mixture of these elements … if there is an experience connected to the purchase … then that product has a better chance of working in that realm. But for goodness sake, take the time to make at least a rudimentary business plan.

No Evil

Proof of Concept can be worked out in real-time, inside an event. But the money invested has a higher level of risk. Also, bigger parks sometimes require proof that you’ve spent serious time researching your project. Fifteen years ago, an application to the Texas Renaissance Festival was not a form one filled out. It was a multi-page presentation, which included all of the following points:

 Legend:

Mission:

Creed:

Motto:

Theme:

 Demeanor:

 Costumes:

 Strategies:

 Heraldic Symbol:

 Income Projections:

 Festival Compensation:

 Expense Budget:

 3yr Expansion Plan:

 Details and dimensions of workspace:

 How did we get here? (Business/Personal Biography)

 Breakdown and description of items for sale:

 

In Eleanor Whitney’s book GROW, How to take your D.I.Y. project and passion to the next level & quit your job! She coaches a similar set of questions. (She has other great advice as well.)

Innovative shows are going to ask you to continue thinking about your business or businesses within their venue(s). Some recent homework I’ve completed would include reports on ongoing research in my field, and a two page paper on our company philosophy on Food and Entertainment.

As someone who is often asked for business consultations within the festival industry, I have to say that I think many missteps would be avoided if this type of esoteric questioning became more common in the festival world.

Just as writing an interesting application helps you land good summer employees, engaging in the right types of internal questions can save us from grief when we try to sell either an unproven product, or sell it in an unproven venue.

 

Those of you already in the industry, what are some of the questions you wished you had asked before starting your business? What questions do you think should be asked of show applicants? Let us know … we’re looking forward to the conversation.

If you have a lot to say on the matter … you might consider being a Guest Blogger with us.

Ok, let’s see, …..where were we? ….poker…matchsticks…20 pounds of quarters….profit/patron, cost/patron and patron/vendor ratios…big pies…..and little pieces. Remember? If not, you can refresh your memory by reading ‘playing by the numbers, part 1’

It’s a funny thing about numbers. When you ask someone the time of day, a baseball score, or the age of their children, the answers are straight forward….no qualifiers, no agenda, and no spin. “Two forty five”, Eight to Five, Cubs”, and “Little Jimmy is seven”. However, ask the same person “How much money did you make this week?” and a new dynamic kicks in and your question will be answered with a shocked look, another question “What?” or a declarative statement “That’s none of your @$##$ business!” My own answer to this question has always been “Not enough”, but I digress….

photo by AoLun1680 on Flickr

People and business concerns are guarded with their numbers not because of the numbers themselves. There are two basic reasons that we guard our actual numbers. The first is fear. If we are ‘successful’ we don’t want others to know of the level of our success for fear of inducing competition. If our day or year has been less than stellar we don’t want others to know for fear of being judged as incompetent or ‘unsuccessful’.
The second reason is…..it’s none of your @$##$ business! And yet, in all my years as an entertainer, craftsperson, and crafts coordinator, I have participated in the daily dance of trying to find out how others were doing numerically as they tried to find out the same from me.

Because we are all aware of the sanctity of our numbers we couch our inquiries into others’ numbers in non-specifics. Instead of “how much did you make?” we ask “How was your day?” The answers (both gotten and given) can range from “Grim” to “Great!” but usually are given in relative terms as well “Half of what we did yesterday” or “Not as well as we should have for the number of people”. Which is fine because, truth be known, it isn’t the actual number that is important, it is the relationship of that number to past numbers.

Was today up or down relative to last week? Was this year up or down from last year? Without these numbers I couldn’t effectively do my job as a crafts coordinator. How can a festival know how many potters is too many potters? You can’t ask the potters. As far as they’re concerned there are already too many potters unless, of course, they are the only potter, in which case the festival has the perfect number of potters.

Without these relative numbers, I, as a craftsperson, would have nothing outside of my own previous numbers by which to judge my current performance. Do I need to change my display? Develop a new product line? Change my prices? Have they juried in too many shops in my medium? It’s all guess work without having an idea if my fiscal variance is at odds with what others at the show are experiencing. Therefore on any given day you will hear amongst crafters, entertainers and management the veiled repartee of fiscal exploration “How was your day?” in an attempt to figure out if their own day was on track.

The fact that no numbers are discussed is, in most cases fine. It really isn’t any of my business how many turkey legs a festival sells. If they are kind enough to give me a relational statement great, if not no harm done, because, again, it’s none of my @#$# business. This holds true with all of the numbers a festival has save one….the actual gate count.

It is my business to know the accurate gate count of a festival if I’m going to invest in a booth on their grounds. It is also my business as a vendor of crafts or food to know how many people came through the gate on any given day, week, or year. A vendor cannot run their business efficiently without actual gate numbers. The more accurate the numbers supplied, the better they can carry on business, the more successful they will be, and the more they will invest in their booth and their business at that festival.

The need for past gate counts is especially true for food vendors and live flower businesses, who deal in perishable products. With past gate counts, a weather forecast, and current gate counts for preceding weeks, it becomes easier to place your order for the upcoming weekend, with less of a chance for having to throw part of your profits in the garbage on Sunday night. Imagine, if you are a potter, that at the end of the weekend you had to throw away all the pots that you didn’t sell……welcome to the world of food.

However, even though a craftsperson doesn’t have to throw away product, without an idea of the gate, there is no reference point to determine how well they are doing with price points, display, and the overall demand curve for their product, nor the necessary data for an accurate supply curve for that festival. In addition, not only do vendors pay a fee (or in some cases several fees) to be at a show, but they also invest a large chunk of their capital in the show once they’ve decided to do it. To ask a vendor to do this without supplying them with data that would improve their business (and therefore increase their investment) is contrary not only to their best interest, but also to the festivals best interest.

So, assuming that festivals want the best for their vendors so they will further invest and expand, how can you as a current vendor or potential investor get these numbers? The first step would be to ask them. But be forewarned that there is a good chance that they won’t give them to you, or, worse, will give you the attendance numbers. “But why would they do that? And what’s the difference between the gate and the attendance?” That will have to wait until next time, even though that’s what I said last time.

Let me know, via a comment below, your thoughts or own experiences with gathering or sharing your numbers…..or anything else that might generate more comments! (Yes….I’m fishing for more comments.)

Next time—How to guesstimate what the actual gate count is so you can find the patron/vendor ratio….

really…no kidding…

I meant to do it this time, but it was too wordy.…

While I believe it differs little from a shopping mall lease agreement, the agreement between Vendors and Renaissance Festival Management involves the Vendor building and maintaining a structure on the Festival’s property, then paying a show fee to vend from that building during the event. (Mall leases involve Lessors paying for their own “build-out”; then paying rent for that space.)

This makes for an interesting dynamic, where the vendors who “own” their buildings share the responsibility of park maintenance where their buildings are concerned. Part of their agreement with the Festival is that they will maintain the building according to park wishes. However, Vendors are expected to take initiative in building maintenance for the betterment of the park.

In the vendor mix are shops referred to as Temporaries, or Temp Booths. These vendors are commonly dissed by shop owners as folks who don’t make real investments in the parks. However, some businesses not only fit better conceptually in a tent, they add a theatrical element to the lanes that is necessary for the park theme. It is difficult to tell the difference between a tent-user who is in a tent because it works best for the theme, and a tent-user who doesn’t want to sink money into someone else’s real estate.

Landscaping by the carnival company at the Houston Livestock Show and Rodeo 2013

Part of the disquiet that building owners have toward tent users, is related to the shared responsibility of park maintenance. How can Festival Management share the park beautification responsibilities with tent users, so that building owners do not feel unfairly targeted when told to repaint or landscape their booths? We can look to State Fairs for guidance. They are making entertainment spaces out of parking lots and roads, managing to import enough large plants to create lavish break spaces that only last a few weeks. I strongly doubt that the carnival company chooses to buy all of those lush plants on their own. They buy the plants because they want to land the contract with the state fair next year.

There is another way to get value for the building owners. (Let’s call them co-investors.) Temporary booths are most often located as a 360*. In other words, they are not on a booth line, but out in the middle of a lane somewhere. These temporary booths can and should be used as bumpers. Think of a pinball game. Now think of permanent shops as the targets where points are earned. Placement of temporary booths should benefit the folks who are sharing the responsibilities of park maintenance. Park layouts with cul-de-sacs necessitate bumpers, but they have value in other situations as well.  

When a group of neighboring shops communicate that their income or traffic is diminished (or their numbers reflect it to management in the case of shows with a percentage-based fee), relocation of the pinball bumpers can be used to try and redirect traffic to that underserved area. (As an aside, for Vendor Coordinators who might have to deal with push-back from 360* vendors who could get moved around a lot … those Vendors could always choose to invest in the show and have a permanent location.)

Carrying the pinball metaphor further, if everyone is doing their job correctly, Guests (the pinballs) are so entertained that they are bounced from park element to park element without realizing that park design and entertainment are steering their path. Perhaps we can consider the entertainment schedule as the flippers.

What are other pinball machine metaphors we can claim? Give us your suggestions in the comments for this post. We’d love to carry this discussion further.

AKA, The Harsh Conversation I had with a Young Carpenter.

A building I designed for a corset maker.

The dynamics of the Vendor/Builder/Festival Management matrix are complex, and there are many places where the deal can go wrong for one or more of the parties. All three legs must be considered for this table to stand. On the one hand, talented carpenters get to design and build whimsical structures. I’ve met architects who have many more years of study, be insanely jealous that my imaginative designs have actually been built, rather than collecting dust in a pile of drawings. Vendors, be they artists or service providers, need to have Builders who understand the Renaissance Faire aesthetic, comprehend traffic flow patterns necessary for sales, and can build to meet local codes. Festival Management needs for the dealings between the Vendor and the Builder to proceed smoothly, and on a time frame that ensures that the shop will be completed to code, and open, with an approved Vendor in place, when the festival is open to the public.

I think it will just be easier if I list some of the things that can go wrong here.

1) Builder runs out of money. This is often because of a misquote or mistake on the bid, but sometimes a permitting process throws extra expenses into a project. It is the Builder’s responsibility to draft a contract that allows for alterations in the price when governmental agencies are involved. Requiring complete drawings lowers this risk tremendously. With a complete set of drawings, a Builder can count every board necessary in the construction of the building prior to bidding the job. Also, by reviewing the drawings, a knowledgeable person, whether a Vendor or a Building Coordinator, or a Building Inspector, can tell quickly whether or not the Builder knows what he is doing.

2) Vendor runs out of money. This may be due to the above-mentioned governmental agencies involvement, but unfortunately it is often due to poor planning, or an attempt to use any loopholes in the contract with the Builder to pay for the building with revenues generated in the building to be built. (Say that 5 times fast; I dare you.) Builders are quite often banking the business growth of vendors due to their own mistakes in contract design. These loopholes have been exploited by Vendors for decades, and unfortunately, due to the presentation needs of the Festival Management … it is sometimes considered business as usual. Some Builders are writing contracts specifically allowing this practice, because it is considered the industry standard.

3) Water gets into the booth after completion. This can happen either because the Builder does not have a familiarity with the specific roofing materials required at a Renaissance Festival, or more often; it is a grade elevation issue. Grade elevations are usually agreed upon between the builder and the Site Manager. Maximum Exterior dimensions are sometimes set by the Site Manager as well, to control roof run-off from one shop to another. (Builders have to remember to include this work in the bid, often with an explanation, because it is almost always an invisible cost to the Vendor/Buyer.) Some of the biggest arguments I was involved in as Building Coordinator involved water, and the fact that a Builder was in the process of wasting a great deal of a Vendor’s money building something that was not in any way able to stay dry. In one case I lost a friend; in another, I made a friend for life when he realized I was saving him at least $50,000.

4) These building designs are each 100% unique. Getting a solid estimate is impossible without an investment of time and energy into the design process. Builders with solid reputations can usually negotiate a change in costs as it is discovered during construction, but it is very difficult for new Builders to adequately cover the risks of designing original buildings in these venues. Again, extensive drawing requirements can alleviate some of this risk, or at least give a clear discussion point with the often absentee Vendor/Buyer.

5) The Builder is such an artist that he designs more than the Vendor can actually afford, and leapfrogs his cashflow from project to project to fund his own artistic expression requirements. It’s hard to see who loses here, other than the Builder/Artist himself, whose standard of living is probably taking a hit. But the festival building market gets skewed to where Builders who do charge a reasonable wage for their time are priced out of the market; and that poor artistic soul cannot afford the help he needs to finish that last job onsite. Unfortunately neither can he afford the therapy he’ll need when his customers are still not appreciative of his work.

6) The Builder and the Vendor disagree on the balance owed. This is usually when the Builder/Vendor contract is unclear on change-orders. Making alterations in a building once it has started involves time and materials, which customers rarely understand. In most cases, the structure is the first time a Vendor has hired a contractor to build them a structure from scratch, and understandably, they may not have been able to picture the structure in its reality. Moving a door or a window is never cheaper than the original bid, often to the dismay of a customer.

7) The Builder runs out of time. Now, this is a somewhat grey area. Again, the contract should state a delivery date, and 1 hour before the festival opens does not give the Vendor (who in his mind may have just spent more on his business than ever before in his career) adequate time to move his product and displays into the new structure. Some festivals avoid this by having cut-off dates for construction that are months in advance of the event opening, but other climates do not have as many months of suitable weather, and thus festivals in these locations cannot use this safeguard.

8) Festival Management does not approve of the design. Okay, hopefully this issue is dealt with before construction begins, as most festivals have to approve a building design before it can be started. However, it has happened that a builder built something other than the drawing that was turned in for approval. In the situation I speak of, the Builder was a full-time employee of the Vendor for whom he was building, and they thought Festival Management wouldn’t notice if they eliminated the two tower portions of their structure. Fortunately this issue usually manifests as a simple request to repaint a structure, because the color that was described in the drawing was not the color that ended up on the wall or the trim. (I recommend paint color chips with all building applications provided to Festival Management. It saves a lot of grief in the long run.)

9) Builder doesn’t get paid, and there is no opportunity for an actual “Contractor’s Lien”. Okay, this is one of the biggest problems to be faced in this industry. All three players must get their needs met. I don’t know of anyone who has been able to get a business loan for a Renaissance Festival structure. Banks are not too keen on loaning money for a building when no Real Estate is attached. That being said, it is not an excuse to enter a contract with a Builder for a product that the small business cannot afford. By the same token, the Builder’s inability to meet the delivery date cannot be held against him if timed payments were not met. He very well may have needed that payment to buy the next round of materials for the structure. But testosterone-laden threats of “Husqvarna Collection Agency” action on the part of the stiffed Builder will not and cannot ever be supported by Festival Management. Festival Management’s first responsibility is to the event itself. Management has to ensure the paying guest has a complete experience of a finished and perfect park. While some festivals have been known to place a label of “Plague House” on a closed up structure due to incompletion or contested ownership; it is a last-ditch resort. Festival Management also has to balance the needs of the talented Builders, and the Artists who have hired them. If that does not sound like an easy task; it is because it is NOT an easy task.

The best contract I know of in the industry is that of a Designer/Builder who is also a furniture maker that has been accepted into several highly juried art shows. His contract (which Festival Management has to sign as well), states that if the customer does not finish paying for the structure, the Festival gets a new furniture maker as a Vendor, and all payments up until that point are forfeit by the Vendor with whom he originally contracted. If all of the Builders on the Renaissance Faire circuit had crafts that would pass a jury, this would be the solution. With this, everyone in the Builder/Vendor/Management Matrix gets their needs met. Unfortunately, most of the Builders express their art solely in the fanciful structures they design for Vendors.

 

There are surely some other problems, but these are the most common. I’m interested in what the best solutions might be. I know of one Festival General Manager who set up an escrow account through the festival office. Thus the Vendor had to have proven his ability to pay for the entirety before the building commenced, yet the final payment check was not cut to the Builder until all three parties sat together and agreed they were happy. Not every festival will want to be this involved. Some have referred to it as micro-managing, but I can assure you that during the tenure of that General Manager, more than half of these issues were eliminated from the list. He required a Delivery Date early enough that the sit-down meeting would not impact his own time requirements in opening the show, so it was at least two weeks before the opening date.

Some Festivals have a list of approved builders, and while I applaud the attempt to create some regulation in the industry, the reality is often that the Vendor audience for that list makes assumptions about the Builder’s abilities based upon their appearance on the list, when in fact the Builder may have no more skills than those necessary in buying Liability Insurance.

There are things to be said about absentee Vendor customers, and oversight of construction projects, but I will leave that for another article. Requests for a handbook on Festival Building Practices are being seriously considered, as all of my articles on this subject seem to lead to other questions and answers. Instead of answering in extensive phone calls, I’m going to start answering the questions here in this website.

Please, if you know of some “Best Practices” on this issue, mention them or the Festivals that utilize them, in the comments below. (Horror stories are welcome as well, but please do not mention names in those, thanks.)

There is some discussion in the industry about whether or not it is beneficial to have building inspectors involved when trying to mimic a 400 year old village. We are designing retail spaces that look like they belong in an English village in the 1600s. Levels and plumb-lines can make a structure look a bit “too crisp”.

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