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David, I got the file you sent me. I was able to open it with PE-Design 7.0, it looks perfectly fine to me.

Are you saying PED-Basic won't recognize it or will your embroidery machine not recognize it?

On a chance, I resaved the file you sent me as a version 4.0 file and emailed it back to you. Let me know if you can open that version?
 
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