Page 129 of 1078 AAO PRECEDENTS IIUSA DOC# : USCIS EB-5 Training Materials (2012) Obtained by IIUSA via FOIA 10/

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1 Page 129 of 1078 AAO PRECEDENTS

2 Page 130 of 1078 I The Decisions Matter of Soffici, 22 I&N Dec. 158 (Comm. "1998) Matter of lzummi, 22 I&N Dec. 169 (Comm. 1998) Matter of Hsiung, 22 I&N Dec. 201 (Comm. 1998) Mfjtter of Ho, 22 I&N Dec. 206 (Comm. 1998)

3 Page 131 of 1078 Matter of Soffici Petitioner FACT PATTERN Ames $25,000 in earnest money deposits Inc $1.7 mil. borrowed from 1st United Bank- $2.4 mil. $705,298 cash at settlement I Howard Johnson's In business since 1950's... w 0

4 Page 132 of 1078 I Holdings - Targeted Employment Area (TEA) o 150% of- the national unemployment rate. o Or rural... o At the time of filing. Remember, 8 C.F.R (e) requires the area be a TEA at the time of investment, so if years apart, check both.,_.. w,_..

5 Page 133 of 1078 I Soffici Holdings (cont.) Balance sheet for hotel reflected $922,136 as "shareholder loans." Thus, $705,298 cash at settlement and $25,000 earnest money merely loaned to company. Definition of "invest," 8 C.F.R (e) precludes debt arrangements. Thus, the $922,136 cannot be considered part of the petitioner's investment.... w IV

6 Page 134 of 1078 I Soffici Holdings (cont.) Balance of hotel purchase price, $1.7 mil. financed by Ames through Bank, secured by the hotel. o Loan by corp. is not loan by individual. o Loans secured by assets of NCE specifically precluded in 8 C.F.R (e). o Personal guarantee doesn't help, not primarily liable.... w

7 Page 135 of 1078 I Where relevant: Loans from third parties used to finance cash. investment or capital expenses. - Promises to pay BY the investor TO the business at a later date as an alleged investment are discussed in lzummi and Hsiung.

8 Page 136 of 1078 I Resources to Invest Net worth statement from unknown source includes hotel as an asset of the petiti.o.ner and its mortgage as his liability. Own net worth only $61, Unknown proportion of joint accounts with father. Funds of the company for whom he serves as. secretary are not his.... w ltl

9 Page 137 of 1078 I.Soffici Holdings (cont.) Source of Funds o Claimed: $450,000 from personal savings and sale of house $500,000 from sale of "our business." o No sales contract or deed submitted. o "Simply going on record without supporting documentary evidence is not sufficient... " Matter of Treasure Craft of California, 14 I&N Dec. 190 (Reg. Comm. 1972).... w 0\

10 Page 138 of 1078 I Soffici Holdings (cont.) Establish a New Comm. Enterp. (NCE) o "It is the job-creating business that must be examined in determining whether a new commercial enterprise has been created." o HoJq's motor lodge was an ongoing business at the time of purchase - 24 years. Ames merely replaced the former owner. o No claim of 40o/o expansion. NEW LAW OVERRULES THIS HOLDING!

11 Page 139 of 1078 I Soffici Holdings (cont.) Reorganization - o A hotel prior to purchase, still being operated as a hotel. o "A few cosmetic changes to the decor and a new marketing strategy for success do not constitute th.e kind of restructuring contemplated by the regulations, nor does a simple change in ownership.",.. w ())

12 Page 140 of 1078 I Soffici Holdings (cont.) Employment creation: o Payroll journal did not establish all employees worked at least 35 hours. o At most, 20 full-time employees. Hotel previously employed 29 full and part-time employees. o No evidence 10 new jobs created, "marketing plan" does not address hiring. NOT OVERTURNE_D BY NEW LAW!... w 1.0

13 Page 141 of 1078 Matter of Izummi [Izumii] -- AEP (Reg. Cntr.) Gen. Partner Est I FACT PATTERN I AELP Est Carolina I Credit Co. Atlanta (AELP stockholder) (Loans to export co's) I I Export Co. Export Co. Export Co. Georgia Florida Georgia --Limited Partners (Alien investors) $125,000 cash+ pr. note ovr 6 yrs. I

14 Page 142 of 1078 I Holdings Regional Center: o Letter designating AEP a regional center indicated status applied to 8 coastal areas of S. Carolina, expanded to include 22 other. counties in S. Carolina. o Loans from credit company in Atlanta to companies in GA and FL. o As neither credit co. nor export co. in reg. cntr, can't rely on ind. employment. No "improved regional productivity.'' (m)(3{i).

15 Page 143 of 1078 I Izummi Holdings (cont.) Footnote 4, related business (manuf.) need not be in regional center. Targeted Employment Area (TEA) o Employment benefits must take place in a TEA to qualify for reduced investment amount. o Export companies will create employment. Not all. in TEAs. Thus, minimum investment amount is $1,000,000.

16 Page 144 of 1078 I Change's to petition Amendments to Partnership agreement - rejected on appeal pwrsuant to Katigbak. Acknowledged unpublished decision which accepted, revised business.plan (from tro~bled business to non-troubled business) was 1 n error.

17 Page 145 of 1078 I Qualifying Investment -. Promissory Note: o Initial deposit of $120,000 into escrow. o Five annual payments of $18,000 ~ ~ ~ ~ ~ Final "balloon" payment of $290, $30,000 of dep. for partnership expenses Reserve accounts required by L.P., agreement

18 Page 146 of 1078 I Partnership Expenses $30,000 from $120,000 in escrow to be I immediately released from escrow for partnership expenses. "The full amount of money must be made available to the business(es) most closely responsible for creating the employment upon whic h the petition is based."

19 Page 147 of 1078 I Annual Payments Five annual payments of $18,000, totaling. $90, /o per annum return guaranteed on amount contributed IN ADDITION to share of profits.

20 Page 148 of 1078 I Money to AELP Over 5 Years Owed (Net) Return. $18k ($3,600) $14,400. $18k ($1,440) $16,560 $18,000 $18,720 $18,000 $20,880 $18,000 $23,040 Ca leu lation 12 /o of $120k 12 /o of $138k 12 /o of $156k 12 /o of $174K 12 /o of $192k

21 Page 149 of 1078 I Annual Payments (cont.) Obligation to pay AELP is conditioned on - payment of guaranteed returns. Problem is that annual returns are gua-ranteed, m_ight be paid out of capital. No infusion of$$ ($93,600 tn retur.ns, only owe $90,000) Not at risk.

22 Page 150 of 1078,.Redemption Agreements After 6th year, limited partner has the. "right to require" AELP to purchase his/her interest. Price :::; total capital - first six payments + pro rate share of profits or $290,000 plus profits. In essence, $290,000 is a loan payable to the investor in six years.

23 Page 151 of 1078 I Redemption Agreements "For the alien's money truly to be at risk, the alien cannot enter into a partnership knowing that he already has a willing buyer in a certain number of years, nor can he be assured that he will receive a- certain price.. Otherwise, the arrangement is nothing more than a loan, albeit an unsecured one." Risk that partnership will default is no greater than risk for any loan.,_. ltl 0

24 Page 152 of 1078 I Redemption Agreements Can sell interest eventually, just can't have agreement ahead of time. Even if sale price is "fair market value" - fmv not applicable, no market for these alien investor interests. No risk of profit or loss, if profit, AELP can force sale, if loss, alien investor can force sale.... ltl...

25 Page 153 of 1078 I Cash Reserves Partnership agreement requires AELP to Place sufficient funds in reserve to meet its obligations under the sell-back provisions. Funds not available to employmentgenerating entity./... ltl IV

26 Page 154 of 1078 I Promissory Notes / As Capital - must determine Fair Market Value of promissory note. o Look at future value, $500,000 today is not $500,000 in six years. o Take into account costs of seizing collateral. o Bank. accounts securing note- easily dissipated. o FMV far short of face value. o If last payment optional, decreases FMV... Ul w

27 Page 155 of 1078 I Promissory Notes. As evidence of intent to invest. o Must "substantially complete his payments on the note prior to the end of the two-year conditional period." o See 8 C.F.R (c)(1 )(ii). ~ o If approved, petitioner would only have paid $123,600 of own funds at end of two years. Not a good faith commitment of funds.

28 Page 156 of 1078 I Where relevant: Promise BY Investor TO Business to pay cash at a later date. Third party loans to obtain investment funds or to pay capital expenses are discussed in Soffici.... Ul Ul

29 Page 157 of 1078 I Source of Funds Submitted evidence of bank. accounts with large balances and foreign company's earn1ngs. No evidence of source of funds in accounts. Insufficient to demonstrate company's earnings, must demonstrate personal earn1ngs.... Ul 0\

30 Page 158 of 1078 I New Commercial Enterprise AELP established March 25, Petitioner executed the partnership documents October 14, AELP is "new," however, "the petitioner had no hand in its creation and was not present at its inception." May pool investors, but must gather ahead of time.

31 Page 159 of 1078 I NCE (cont.) Must be there at the beginning. Should be established prior to filing. o Footnote 29 rejects arg-ument that "establishment" is a process which is not complete until all investors obtained. If that interpretation were adopted, petition filed prematurely as all investors not yet obtained. Would be too speculative.... ljl (X)

32 Page 160 of 1078 I NCE (cont.) Expansion: o Claimed 95 investors previously approved. If true, and all invested $500,000, one investment of $500,000 cannot increase net worth 40 /o. o Not in case, but net worth is a defined accounting term: assets - liabilities. Other measures of a business' worth - such as appraised value are no good. Two balance sheets are required (before and after inv).... Ul 1.0 \

33 Page 161 of 1078 I NCE (cont.) Reorganization: o Doing same business prior to investment. No reorganization.... 0\ 0

34 Page 162 of 1078 I THAT'S ALL FOR IZUMMI! ( \, (. (Two short precedents to go!)

35 Page 163 of 1078 I Matter of Hsiung Fact Pattern Petitioner Sole Shareholder $50,000 cash +, Promissory Note I NCE Corporation Clinic ~ Clinic - Clinic... _ I

36 Page 164 of 1078 I Matter of Hsiung Payment Plan: o $50,000 initially. o $50,000 within 30 days of approval. o $200,000 one year after entry. o $200,000 prior to removal of conditions. Promise to pay secured by property with FMV of $500,000. Property was not in petitioner's name.... 0\ w

37 Page 165 of 1078 I Hsiung (cont.) Assets securing note must be o Owned by petitioner (not his business). o Specifically identified. Not "my assets everywhere." o Must be perfected. Interest is recorded Petitioner's burden o Fully amenable to seizure Foreign entities can't seize assets in China.

38 Page 166 of 1078 I Hsiung (cont.) Assets (-cont.) o Worth $$ in note. (Mortgage on property made property worth less than note.) o Cover costs of seizing assets overseas. Who are parties to note? o Solely owned shareholder loaning mon'ey to corporation, fun ds not really at risk.

39 Page 167 of 1078 I Where relevant: Promise BY investor TO business to pay, capital investment at a later date. Soffici covers loans by business or investor to pay a cash investment or capital expenses.... 0\ 0\

40 Page 168 of 1078 I Hsiung (cont.) Employment Creation. o NCE planned to purchase preexisting clinics. o "A petitioner c.annot directly cause a net loss of employment." o In other words, must create 10 new job opportunities. Look at Part _5 of how many jobs prior to investment? Need wage and withholding reports of previous bu.siness.

41 Page 169 of 1078 I Matter of Ho Fact Pattern Petitioner Sole Shareholder 500,000 shares NCE $500,

42 Page 170 of 1078 I Matter of Ho Facts: o $500,000 placed into a corporate account (King's Wheel Corporation). o Petitioner was the sole owner of the corporation, issued 500,000 shares. o Business plan indicated sales would commence in 3-6 months. o Office/warehouse lease, but no purchase of equip., negotiations with suppliers/buyers.

43 Page 171 of 1078 I Ho (cont.). " A mere deposit into a corporate moneymarket account, such that the petitioner himse.lf still exercises sole control over the funds, hardly qualifies as an active, at-risk investment. Simply formulating an idea for future business activity, without taking meaningful concrete action, is similarly insufficient... "

44 Page 172 of 1078 I Ho (cont.) Must commence operations, the petitioner must present evidence of the "actual undertaking of business activity." If only activity prior to investment - original business issue. Not discussed in Ho, but simply showing a. deposit is also insufficient because the money might not constituted "capital."

45 Page 173 of 1078 Other places to get "capital" numbers from: - Corp. tax return, schedule L Partnership tax return (also used for LLC) o Schedule L, line 21 o Schedule M-2, Analysis of Partners' Capital Accounts o Schedule K-1 for individual partners, members, shareholders of S-Carps - see section J.

46 Page 174 of 1078 I Ho (cont.) Source of Funds: o No evidence of marital relationship, medical practice, or income over 5 years.

47 Page 175 of 1078 I Ho (cont.).- Employment Evidence presented: o Two l-9s for jobs allegedly created, business plan calling for 8 new employees within 1 yr. l-9s insufficient' evidence of full-time employment. Need payroll records. Business plans: o Must make sense. o Have a time table for hiring

48 Page 176 of 1078 I Ho (cont.) Business Plans (cont.) o Job descriptions o Explain why the employees are needed Y. o Include market analysis competition process sources of suppliers marketing structure projections (credible!)

49 Page 177 of 1078 THAT'S ALL FOLI<S-! GOOD LUCK!

50 Page 722 of 1078 I AAO PRECEDENTS 2010 I The Decisions 11 Matter of Soffici, 22 I&N Dec. 158 (Comm'r 1998) 111 Matterof/zummi, 221&N Dec. 169 (Comm'r 1998) m Matter of Hsiung, 22 I&N Dec. 201 (Comm'r 1998) ra Matter of Ho, 22 I&N Dec. 206 (Comm'r 1998) I Matter of Soffici FACT PATTERN ~ "-'--""-.."- - " -r Petitioner i Ames $25,000 In earnest money deposits t- Inc $1.7 m~. borrowed from 1st Urited Bank; $2.4 mn. $705,298 cash atsetuement i L-----,-----' r H(,;;;;;dOhnson~~~i jln business since 1950's! 721

51 Page 723 of 1078 I Holdings m Targeted Employment Area (TEA) o 150% of the national unemployment rate CJ Or rural... o At the time of filing. I Soffici Holdings (cont.) / (,(K;t-\11 Jotrvultuk l m Balance shee1f for hotel reflected $922,136 as "shareholder loans." Thus, $705,298 cash at settlement and $25,000 earnest money merely loaned to company. Definition of "invest," 8 C.F.R (e) precludes debt arrangements. Thus, the $922,136 cannot be considered part of the petitioner's investment / Soffici Holdings (cont.) m Balance of hotel purchase price, $1.7 mil. financed by Ames through Bank, secured by the hotel. CJ Loan by corp. is not loan by individual. o Loans secured by assets of NCE specifically precluded in 8 C.F.R (e). CJ Personal guarantee doesn't help, not primarily liable. 722

52 Page 724 of 1078 I Where relevant: m Loans from third parties used to finance cash investment or capital expenses. 11 Promises to pay BY the investor TO the business at a later date as an alleged investment are discussed in lzummi and Hsiung. / Resources to Invest m Net worth statement from unknown source includes hotel as an asset of the petitioner and its mortgage as his liability. Own net worth only $61, m Unknown proportion of joint accounts with father. m Funds of the company for whom he serves as secretary are not his. 1. Soffici Holdings (cont.) m Source of Funds o Claimed: $450,000 from personal savings and sale of house $500,000 from sale of "our business. o No sales contract or deed submitted. o "Simply going on record without supporting documentary evidence is not sufficient.. : Matter of Treasure Craft of California, 14 I&N Dec. 190 (Reg'l Comm'r 1972). 723

53 Page 725 of 1078 J Soffici Holdings (cont.) Ill Establish a New Comm. Enterp. (NCE) o "It is the job-creating business that must be examined in determining whether a new commercial enterprise has been created." o HoJo's motor lodge was an ongoing business at the time of purchase- 24 years. Ames merely replaced the former owner. a No claim of 40% expansion. a 2002 LAW no longer requires establishment- NCE must still be established by someone on or after November 29,1990 to be new. I Soffici Holdings (cont.) m Reorganization - a A hotel prior to purchase, still being operated as a hotel. a "A few cosmetic changes to the decor and a new marketing strategy for success do not constitute the kind of restructuring contemplated by the regulations, nor does a simple change in ownership." I Soffici Holdings (cont.) m Employment creation: a Payroll journal did not establish all employees worked at least 35 hours. a At most, 20 full-time employees. Hotel previously employed 29 full and part-time employees. a No evidence 10 new jobs created, "marketing plan" does not address hiring. ~~ NOT IMPACTED BY 2002 LAW! 724

54 Page 726 of 1078 FACT PATTERN I Holdings m Regional Center: o Letter designating AEP a regional center indicated status applied to 8 coastal areas of S. Carolina, expanded to include 22 other counties in S. Carolina. o Loans from credit company in Atlanta to companies in GA and FL. o As neither credit co. nor export co. in reg. cntr, can't rely on ind. employment. No "improved regional productivity." 204.6(m)(3(i). I Izummi Holdings (cont.) I'! Footnote 4, related business (manuf.) need not be in regional center. li Targeted Employment Area (TEA) o Employment benefits must take place in a TEA to qualify for reduced investment amount. o Export companies will create employment. Not all in TEAs. Thus, minimum investment amount is $1,000,

55 Page 727 of 1078 I Ch-anges to petition--- s Amendments to Partnership agreement rejected on appeal pursuant to Matter of Katigbak, 141&N Dec. 45, 49 (Reg'l Comm'r 1971 ). m Acknowledged that an unpublished decision which accepted a revised business plan (from troubled business to non-troubled business) was in error. I Qualifying Investment m Promissory Note: o Initial deposit of $120,000 into escrow o Five annual payments of $18,000 o Final "balloon" payment of $290,000 m $30,000 of dep. for partnership expenses e The partnership was required to maintain reserve accounts by the L.P. agreement I Partnership Expenses llil $30,000 from $120,000 in escrow to be immediately released from escrow for partnership expenses. m This arrangement is disqualifying: "The full amount of money must be made available to the business(es) most closely responsible for creating the employment upon which the petition is based." 726

56 727 Page 728 of 1078 I Annual Payments tl Five annual payments of $18,000, totaling $90,000. m 12% per annum return guaranteed on amount contributed IN ADDITION to share of profits. I Money to AELP Over 5 Years owed (Net) Return {;;alculatiqd $18k ($3,600) $14,400 12% of $120k $18k ($1,440) $16,560 12% of $138k $18,000 $18,720 12% of $156k $18,000 $20,880 12% of $174K $18,000 $23,040 12% of $192k I Annual Payments (cont.) ru The obligation to pay AELP is conditioned on payment of guaranteed returns. m The problem is that the annual returns are guaranteed, so the partnership might pay them out of capital. m Disqualifying - No infusion of money ($93,600 in guaranteed returns to the investor when the investor only owes $90,000) m Not at risk.

57 Page 729 of 1078 I Redemption Agreements m After the 6th year, the limited partner has the "right to require" AELP to purchase his/her interest. m Price = total capital - first six payments + pro rate share of profits or $290,000 plus profits. m In essence, $290,000 is a loan payable to the investor in six years. I Redemption Agreements m "For the alien's money truly to be at risk, the alien cannot enter into a partnership knowing that he already has a willing buyer in a certain number of years, nor can he be assured that he will receive a certain price. Otherwise, the arrangement is nothing more than a loan, albeit an unsecured one." m Risk that partnership will default is no greater than risk for any loan. I Redemption Agreements 111 The alien investor can sell his/her interest eventually, the investor just can't have agreement ahead of time. a Even if sale price is "fair market value" - FMV is not applicable where there is no market for these alien investor interests. m No risk of profit or loss, if profit, AELP can force sale, if loss, alien investor can force sale. 728

58 729 Page 730 of 1078 I Cash Reserves Ill Partnership agreement requires AELP to place sufficient funds in reserve to meet its obligations under the sell-back provisions. m Funds not available to employment generating entity. I Promissory Notes 11 As Capital - must determine Fair Market Value of promissory note. o Look at future value, $500,000 today is not $500,000 in six years. o Take into account costs of seizing collateral. o Bank accounts securing note easily dissipated. o FMV far short of face value. o If last payment optional, decreases FMV Promissory Notes Ill As evidence of intent to invest. o The investor must "substantially complete his payments on the note prior to the end of the twoyear conditional period." See 8 C.F.R (c)(1 )(ii). o If approved, petitioner would only have paid $123,600 of own funds at end of two years. Not a good faith commitment of funds.

59 Page 731 of 1078 I Where relevant: m Promise BY Investor TO Business to pay cash at a later date. 11 Third party loans to obtain investment funds (mortgage) or to pay capital expenses are discussed in Soffici. I Source of Funds m The investor submitted evidence of bank accounts with large balances and foreign company's earnings. 111 The record contained no evidence of the source of funds in those accounts. 111 It is insufficient for the investor to demonstrate his/her company's eamings, must demonstrate personal eamings. I Establishment of New Commercial Enterprise LAW OVERTURNS a AELP established March 25, m Petitioner executed the partnership documents October 14, m AELP is "new," however, "the petitioner had no hand in its creation and was not present at its inception." 11 May pool investors, but must gather ahead of time. 730

60 Page 732 of 1078 w Must be there at the beginning. i Should. be established prior to filing. o Footnote 29 rejects argument that "establishmenf' is a process which is not complete until all investors obtained. If that interpretation were adopted, petition filed prematurely as all investors not yet obtained. Would be too speculative. I NCE (cont.) lil Expansion: o Claimed 95 investors previously approved. If true, and all invested $500,000, one investment of $500,000 cannot increase net worth 40%. o Not in case, but net worth is a defined accounting term: assets - liabilities. other measures of a business' worth - such as appraised value are no good. Two balance sheets are required (before and after inv). I NCE (cont.) a Reorganization: o Doing same business prior to investment. No reorganization. 731

61 Page 733 of 1078 I THAT'S ALL FOR IZUMMI! = (Two short precedents to go!) I Matter of Hsiung Fact Pattern lmatter of Hsiung w Payment Plan: o $50,000 initially. o $50,000 within 30 days of approval. o $200,000 one year after entry. o $200,000 prior to removal of conditions. m Promise to pay secured by property with FMV of $500,000. Property was not in petitioner's name. 732

62 Page 734 of 1078 I Hsiung (cont.) Ill Assets securing note must be: o Owned by petitioner (not by his business). o Specifically identified. Not "my assets everywhere." o Must be perfected. ; Interest is recorded Petitioners burden o Fully amenable to seizure Foreign law relevant. m Assets (cont.) o Worth value promised in note. (Mortgage on property made property worth less than note.) o Value must cover the costs of seizing the assets overseas. m Who are parties to note? a Solely owned shareholder loaning money to corporation, funds not really at risk.!where relevant: m Promise BY investor TO business to pay capital investment at a later date. m Soffici covers loans by business or investor to pay a cash investment or capital expenses. 733

63 Page 735 of 1078 m Employment Creation. o NCE planned to purchase preexisting clinics. o "A petitioner cannot directly cause a net loss of employment." o In other words, must create 10 new job opportunities. Look at Part 5 of how many jobs prior to investment? Need documentation of employment prior to the investment if the investor invested in an existing business. I Matter of Ho Fact Pattern I Matter ofho Iii Facts: o $500,000 placed into a corporate account (King's Wheel Corporation). o Petitioner was the sole owner of the corporation, issued 500,000 shares. o Business plan indicated sales would commence in 3-6 months. o Office/warehouse lease, but no purchase of equip., negotiations with suppliers/buyers. 734

64 Page 736 of 1078 Ho (cont.) m " A mere deposit into a corporate moneymarket account, such that the petitioner himself still exercises sole control over the funds, hardly qualifies as an active, at-risk investment. Simply formulating an idea for future business activity, without taking meaningful concrete action, is similarly insufficient... " I Ho (cont.) - -- m Must commence operations, the petitioner must present evidence of the "actual undertaking of business activity." m If only activity prior to investment- original business issue. w Not discussed in Ho, but simply showing a deposit is also insufficient because the money might not constitute "capital." {See Soffici regarding shareholder loans.) I Ho (cont.) 1:1 Source of Funds: o No evidence of marital relationship, medical practice, or income over 5 years. 735

65 Page 737 of 1078 I Ho (cont.) - Employme~~ Evidence presented: a Two l-9s for jobs allegedly created, business plan calling for 8 new employees within 1 yr. m 1-9s insufficient evidence of full-time employment. Need payroll records. 111 Business plans: o Must make sense. a Have a time table for hiring (cont.) m Business Plans (cont.) a Job descriptions o Explain why the employees are needed o Include market analysis competition process sources of suppliers marketing structure projections (credible!) THAT'S ALL FOLKS! m GOOD LUCK! 736

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