Idaho Strategic Resources, Inc. - Quarter Report: 2019 September (Form 10-Q)

The accompanying notes are an integral part of these consolidated financial statements.

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The accompanying notes are an integral part of these consolidated financial statements.

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The accompanying notes are an integral part of these consolidated financial statements.

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New Jersey Mining Company

Notes to Consolidated Financial Statements (Unaudited)

1. The Company and Significant Accounting Policies 

These unaudited interim consolidated financial statements have been prepared by the management of New Jersey Mining Company (the “Company”) in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements. In the opinion of the Company’s management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation of the interim consolidated financial statements have been included.

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of the Company's financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions, which could have a material effect on the reported amounts of the Company's financial position and results of operations. Operating results for the three and nine month periods ended September 30, 2019 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2019.

For further information refer to the financial statements and footnotes thereto in the Company’s audited financial statements for the year ended December 31, 2018 as filed with the Securities and Exchange Commission.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its majority-owned subsidiary, the New Jersey Mill Joint Venture (“NJMJV”). Intercompany accounts and transactions are eliminated. The portion of entities owned by other investors is presented as non-controlling interests on the consolidated balance sheets and statements of operations.

Revenue Recognition

Gold Revenue Recognition and Receivables-Sales of gold sold directly to customers are recorded as revenues and receivables upon completion of the performance obligations and transfer of control of the product to the customer. For concentrate sales, the performance obligation is met, the transaction price can be reasonably estimated, and revenue is recognized generally at the time of shipment at estimated forward prices for the anticipated month of settlement. Due to the time elapsed from shipment to the customer and the final settlement with the customer, prices at which sales of our concentrates will be settled are estimated. Previously recorded sales and accounts receivable are adjusted to estimated settlement metals prices until final settlement by the customer. For sales of dore’ and metals from doré, the performance obligation is met, the transaction price is known, and revenue is recognized at the time of transfer of control of the agreed-upon metal quantities to the customer by the refiner.

Sales and accounts receivable for concentrate shipments are recorded net of charges by the customer for treatment, refining, smelting losses, and other charges negotiated with the customers. Charges are estimated upon shipment of concentrates based on contractual terms, and actual charges typically do not vary materially from estimates. Costs charged by customers include fixed costs per ton of concentrate and price escalators. Refining, selling and shipping costs related to sales of doré and metals from doré are recorded to cost of sales as incurred. See Note 4 for more information on our sales of products.

Other Revenue Recognition-Revenue from harvest of raw timber is recognized when the performance obligation under a contract and transfer of control have both been completed. Sales of timber found on the Company’s mineral properties are not a part of normal operations.

Inventories

Inventories are stated at the lower of full cost of production or estimated net realizable value based on current metal prices. Costs consist of mining, transportation, and milling costs including applicable overhead, depreciation, depletion and amortization relating to the operations. Costs are allocated based on the stage at which the ore is in the production process. Supplies inventory is stated at the lower of cost or estimated net realizable value.

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New Jersey Mining Company

Notes to Consolidated Financial Statements (Unaudited)

1. The Company and Significant Accounting Policies, Continued 

Fair Value Measurements

When required to measure assets or liabilities at fair value, the Company uses a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used. The Company determines the level within the fair value hierarchy in which the fair value measurements in their entirety fall. The categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Level 1 uses quoted prices in active markets for identical assets or liabilities, Level 2 uses significant other observable inputs, and Level 3 uses significant unobservable inputs. The amount of the total gains or losses for the period that are included in earnings are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date.

At September 30, 2019 and December 31, 2018, the Company determined they had no assets or liabilities that required measurement at fair value on a recurring basis.

Reclassifications

Certain prior period amounts have been reclassified to conform to the 2019 financial statement presentation. Reclassifications had no effect on net income (loss), stockholders’ equity, or cash flows as previously reported.

New Accounting Pronouncement

Accounting Standards Updates Adopted

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02 Leases (Topic 842). The update modified the classification criteria and requires lessees to recognize the assets and liabilities on the balance sheet for most leases. The update was effective for fiscal years beginning after December 15, 2018, with early adoption permitted. Adoption of this update as of January 1, 2019 did not have a material impact on the Company’s consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07 Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The update involves simplification of several aspects of accounting for nonemployee share-based payment transactions by expanding the scope of Topic 718 to include nonemployee awards. The update was effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. Adoption of this update as of January 1, 2019 did not have a material impact on the Company’s consolidated financial statements.

Accounting Standards Updates to Become Effective in Future Periods

In August 2018, the FASB issued ASU No. 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The update removes, modifies and makes additions to the disclosure requirements on fair value measurements. The update is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. Management is evaluating the impact of this update on the Company’s fair value measurement disclosures.

2.Going Concern 

The Company is currently producing from both the open-pit and underground at the Golden Chest Mine. In early March 2019, the Company increased production by 40% as more ore became available from the open pit and underground which has contributed to positive cash flows from operating activities in the last two quarters. In the past, the Company has been successful in raising required capital from sale of common stock, forward gold contracts, and additional debt. As a result of its planned production, equity sales and ability to restructure debt, management believes cash flows from operations and existing cash are sufficient to conduct planned operations and meet contractual obligations for the next 12 months.

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New Jersey Mining Company

Notes to Consolidated Financial Statements (Unaudited)

3. Inventories 

At September 30, 2019 and December 31, 2018, the Company’s inventories consisted of the following:

At September 30, 2019, gold concentrate inventory is carried at allocated production costs as they are lower than estimated net realizable value based on current metal prices.

4. Sales of Products 

Our products consist of both gold floatation concentrates which we sell to a broker (H&H Metal), and an unrefined gold-silver product known as doré which we sell to a precious metal refinery. Revenue is recognized upon the completion of the performance obligations and transfer of control of the product to the customer, and the transaction price can be determined or reasonably estimated.

For gold flotation concentrate sales, the performance obligation is met when the transaction price can be reasonably estimated and revenue is recognized generally at the time when risk is transferred to H&H Metal based on contractual terms. Based on contractual terms, we have determined the performance obligation is met and title is transferred to H&H Metal when the Company receives its first provisional payment on the concentrate because, at that time, 1) legal title is transferred to the customer, 2) the customer has accepted the concentrate lot and obtained the ability to realize all of the benefits from the product, 3) the concentrate content specifications are known, have been communicated to H&H Metal, and H&H Metal has the significant risks and rewards of ownership to it, 4) it is very unlikely a concentrate will be rejected by H&H Metal upon physical receipt, and 5) we have the right to payment for the concentrate. Concentrates lots that have been sold are held at our mill from 30 to 60 days, until H&H Metal provides shipping instructions.

Judgment is required in identifying the performance obligations for our concentrate sales. We have determined that the individual performance obligation is satisfied at a point in time when control of the concentrate is transferred to H&H Metal which is when H&H Metal pays us the first provisional payment on the concentrate based on contractual terms.

Our concentrate sales sometimes involve variable consideration, as they can be subject to changes in metals prices between the time of shipment and their final settlement. However, we are able to reasonably estimate the transaction price for the concentrate sales at the time of shipment using forward prices for the estimated month of settlement, and previously recorded sales and accounts receivable are adjusted to estimated settlement metals prices until final settlement for financial reporting purposes. Also, it is unlikely a significant reversal of revenue for any one concentrate lot will occur. As such, we use the expected value method to price the concentrate until the final settlement date occurs, at which time the final transaction price is known. At September 30, 2019, metals contained in concentrates and exposed to future price changes totaled 1,643 ounces of gold.

Sales and accounts receivable for concentrate shipments are recorded net of charges for treatment and other charges negotiated by us with H&H Metal, which represent components of the transaction price. Charges are estimated by us upon transfer of risk of the concentrates based on contractual terms, and actual charges typically do not vary materially from our estimates. Costs charged by the customer include fixed treatment, refining and costs per ton of concentrate and may include penalty charges for arsenic, lead and zinc content above a negotiated baseline as well as excessive moisture.

For sales of metals from doré, the performance obligation is met, the transaction price is known, and revenue is recognized at the time of transfer of control of the agreed-upon metal quantities to the customer.

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New Jersey Mining Company

Notes to Consolidated Financial Statements (Unaudited)

4. Sales of Products, continued 

Sales of products by metal for the three and nine month periods ended September 30, 2019 and 2018 were as follows:

Sales by significant product type for the three and nine month periods ended September 30, 2019 and 2018 were as follows:

At September 30, 2019 and December 31, 2018, our gold sales receivable balance related to contracts with customers of $182,604 and $74,673, respectively, consist only of amounts due from H&H Metal. There is no allowance for doubtful accounts.

We have determined our contracts do not include a significant financing component. For doré sales, payment is received at the time the performance obligation is satisfied. Consideration for concentrate sales is variable, and we receive payment for a significant portion of the estimated value of concentrate parcels at the time the performance obligation is satisfied.

We do not incur significant costs to obtain contracts, nor costs to fulfill contracts which are not addressed by other standards. Therefore, we have not recognized an asset for such costs as of September 30, 2019 or December 31, 2018.

5.Related Party Transactions 

At September 30, 2019 and December 31, 2018, the Company had the following notes and interest payable to related parties:

Related party interest expense for the nine month periods ended September 30, 2019 and 2018 is as follows:

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New Jersey Mining Company

Notes to Consolidated Financial Statements (Unaudited)

5.Related Party Transactions, continued 

Future principal payments of related party notes payable at September 30, 2019 are as follows:

As of September 30, 2019, and December 31, 2018, accrued interest payable to related parties was $1,688 and zero, respectively.

During the three and nine month periods ended September 30, 2019 and 2018 (up until May 2019), the Company paid $3,000 per month to the Company’s chairman of the board, Del Steiner for consulting purposes. The last two months ($6,000) are recorded in accounts payable and have not been paid as of September 30. 2019.

All sales of concentrate and the Company’s gold sales receivable are with H&H Metals, owner of 4% of the Company’s outstanding common stock. See Note 4.

6. Joint Ventures 

New Jersey Mill Joint Venture Agreement

The Company owns 65% of the New Jersey Mill Joint Venture and has significant influence in its operations. Thus the venture is included in the consolidated financial statements along with presentation of the non-controlling interest. At September 30, 2019 and December 31, 2018, an account receivable existed with Crescent Silver, LLC, the other joint venture participant (“Crescent”), for $6,402 and $2,051, respectively, for shared operating costs as defined in the JV agreement.

Butte Highlands JV, LLC (“BHJV”)

On January 29, 2016, the Company purchased a 50% interest in Butte Highlands JV, LLC (“BHJV”) from Timberline Resources Corporation for $225,000 in cash and 3,000,000 restricted shares of the Company’s common stock valued at $210,000 for a total consideration of $435,000. Highland Mining, LLC (“Highland”) is the other 50% owner and manager of the joint venture. Under the agreement, Highland will fund all future project exploration and mine development costs. The agreement stipulates that Highland is manager of BHJV and will manage BHJV until such time as all mine development costs, less $2 million are distributed to Highland out of the proceeds from future mine production. The Company has determined that because it does not currently have significant influence over the joint venture’s activities, it accounts for its investment on a cost basis. The Company purchased the interest in the BHJV to provide additional opportunities for exploration and development and expand the Company’s mineral property portfolio.

7.Earnings per Share 

Net income (loss) per share is computed by dividing the net amount excluding net income (loss) attributable to a non-controlling interest by the weighted average number of common shares outstanding during the year. Diluted net income (loss) per share reflects the potential dilution that could occur from common shares issuable through stock options, warrants, and other convertible securities. Such common stock equivalents are included or excluded from the calculation of diluted net income (loss) per share for each period as follows:

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New Jersey Mining Company

Notes to Consolidated Financial Statements (Unaudited)

8. Property, Plant, and Equipment 

Property, plant and equipment at September 30, 2019 and December 31, 2018 consisted of the following:

9.Mineral Properties 

Mineral properties at September 30, 2019 and December 31, 2018 consisted of the following:

The company received a non-refundable down payment of $50,000 toward the sale of the McKinley property in the third quarter.

Pursuant to the underlying agreement, a lease payment was due on September 30, 2019 for the Crown Point mineral property but was not made. The Company is currently in discussions with the previous property owner to modify terms of the agreement.

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New Jersey Mining Company

Notes to Consolidated Financial Statements (Unaudited)

10. Notes Payable 

At September 30, 2019 and December 31, 2018, notes payable are as follows:

All notes are collateralized by the property or equipment purchased in connection with each note. Future principal payments of notes payable at September 30, 2019 are as follows:

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New Jersey Mining Company

Notes to Consolidated Financial Statements (Unaudited)

11. Stockholders’ Equity 

The Company offered private placements in the first half of 2018. Under the private placements, the Company sold 8,858,577 units for net proceeds of $1,107,571. Each unit consisted of one share of the Company’s stock and one half of one stock purchase warrant with each whole warrant exercisable for one share of the Company’s stock at $0.22 for 24 months. In the second quarter of 2019, 1,200,000 warrants were exercised in exchange for 398,575 shares of the Company’s common stock in a cashless warrant exercise.

Stock Purchase Warrants Outstanding

The activity in stock purchase warrants is as follows:

These warrants expire as follows:

12. Stock Options 

In June 2019, 2,100,000 stock options were granted to non-officer employees. These options vested immediately and are exercisable at $0.14 for 3 years. Total stock based compensation recognized on these options was $190,019. The weighted average fair value of stock option awards granted and the key assumptions used in the Black-Scholes valuation model to calculate the fair value of the options are as follows: volatility of 98.6%, risk-free interest rate of 1.81%, and an expected term of three years.

No options were granted in 2018, however $34,580 in stock based compensation was recognized during the nine month period ended September 30, 2018 for vesting of options granted prior to 2018.

Activity in the Company’s stock options is as follows:

At September 30, 2019, outstanding stock options have a weighted average remaining term of approximately 1.23 years and an intrinsic value of approximately $76,560. During the nine months ended September 30, 2018, stock options for 108,000 shares of common stock with an exercise rate of $0.15 were exercised for total proceeds of $16,200. The intrinsic value of the options on the date of exercise was $1,340. No stock options were exercised in 2019.

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New Jersey Mining Company

Notes to Consolidated Financial Statements (Unaudited)

13. Asset Retirement Obligation 

The Company has established asset retirement obligations associated with the ultimate closing of its mineral properties where there has been or currently are operations. Activity for the nine months ended September 30, 2019 and 2018 is as follows:

14. Note Receivable 

On June 6, 2018, the Company loaned $250,000 to West Materials, Inc. and William J. West (collectively “West”) which bore interest at 8% if the loan went into default and had a term of fifteen months. Five equal payments were due quarterly with the first two payments received in cash during 2018 and the remaining outstanding $150,000 received in 2019. The note receivable was collateralized by a mortgage on the Butte Gulch real property and a related net smelter royalty rights.

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Plan of Operation

New Jersey Mining Company is a gold producer focused on diversifying and building its asset base and cash flows through a portfolio of mineral properties located in historic producing gold districts in Idaho and Montana.

The Company’s plan of operation is to generate positive cash flow, while reducing debt and growing its production and asset base over time while being mindful of corporate overhead. The Companies management is focused on utilizing its in-house skills to build a portfolio of producing mines and milling operations with a primary focus on gold and secondary focus on silver and base metals.

The Company’s properties include: the Golden Chest Mine (currently in production), the New Jersey Mill (majority ownership interest), and a 50% carried to production interest in the past producing Butte Highlands Mine located in Montana. In addition to its producing and near-term production projects, New Jersey Mining Company has additional exploration prospects, including the McKinley and Eastern Star located in Central Idaho, and additional holdings near the Golden Chest in the Murray Gold Belt.

Highlights during the third quarter of 2019 include:

 For the quarter ending September 30, 2019 approximately 13,620 dry metric tonnes (dmt) were processed at the Company’s New Jersey mill at a head grade of 3.46 grams per tonne (gpt) with gold recovery of 87.3%. Gold sales for the quarter were 1,414 ounces. 

Open pit mining progressed from the 1003 bench to the 994 bench. The trend of lower stripping ratios in the open pit continued during the third quarter (3.78 to 1.0) as the Skookum shoot was fully exposed in the pit. Open pit mine production averaged 1,185 tonnes per day (mineralized material and waste). 

Underground mining focused on the 848 South stope and the development of the access ramp for the 836 stope. Long-hole drilling from the 848 South stope towards the west discovered a zone where the Idaho vein has widened. The drilling allowed for a second cut adjacent to the primary cut which provided an additional 750 tonnes at 6.0 gpt gold. Based on a review of core drilling data, it appears this wider zone on the Idaho vein will continue at depth. 

Results of Operations

Our financial performance during the quarter is summarized below:

The Company had a gross profit for the three and nine month periods ending September 30 2019 of $447,185 and $584,649 compared to a gross loss of $194,821 and $801,616 for the comparable periods in 2018. Gross profit increased as a result of improved grade from the open pit and increased production from the underground operations. 

Cash costs per ounce decreased to $927 per ounce and $984 per ounce for the three and nine month periods ending September 30, 2019. Likewise, the all in sustaining costs decreased to $1,071 and $1,147 per ounce for the three and nine month periods ending September 30, 2019. An increase in gold grade in 2019 over 2018 from the mining operation as well as an increase in tonnage processed at the mill drove the decrease in unit costs per ounce.  

Revenue was $1,852,636 and $4,544,964 for the three and nine month periods ending September 30, 2019 compared to $1,032,845 and $2,623,792 for the comparable periods of 2018. This was also a result of improved grade from the open pit and increased production from the underground operations. 

A net income of $165,242 for the three month period and net loss of $357,240 for the nine month period ending September 30, 2019 compared to net loss of $588,275 and net income of $1,134,856 in the comparable periods of 2018. In the second quarter of 2018 the Company sold its Little Baldy/Toboggan properties to Hecla Mining Company for a net gain of $2,947,862 which is reflected in the net income for 2018. 

The consolidated net loss for the first nine months included non-cash charges as follows: depreciation and amortization of $429,626 ($249,551 in 2018), accretion of asset retirement obligation of $6,757 ($9,028 in 2018), stock based compensation of $190,019 ($34,580 in 2018), change in fair value of forward gold contracts, none in 2019 ($15,983 in 2018), and gain on sale of mineral property none in 2019 ($2,947,862 in 2018). 

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Cash Costs and All In Sustaining Costs Reconciliation to GAAP

Reconciliation of cost of sales and other direct production costs and depreciation, depletion and amortization (GAAP) to cash cost per ounce and all-in sustaining costs (AISC) per ounce (non-GAAP).

The table below presents reconciliations between the most comparable GAAP measure of cost of sales and other direct production costs and depreciation, depletion and amortization to the non-GAAP measures of cash cost per ounce and all in sustaining costs per ounce for the Company’s gold production in the three and nine month periods ending September 30, 2019 and 2018.

Cash cost per ounce is an important operating measure that we utilize to measure operating performance. AISC per ounce is an important measure that we utilize to assess net cash flow after costs for pre-development, exploration, reclamation, and sustaining capital. Current GAAP measures used in the mining industry, such as cost of goods sold do not capture all of the expenditures incurred to discover, develop, and sustain gold production.

Financial Condition and Liquidity

The Company is currently producing from both the open-pit and underground at the Golden Chest Mine. In the past, the Company has been successful in raising required capital from sale of common stock, forward gold contracts, and additional debt. As a result of its planned production, equity sales and ability to restructure debt, management believes cash flows from operations and existing cash are sufficient to conduct planned operations and meet contractual obligations for the next 12 months.

Not required for small reporting companies.

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Disclosure Controls and Procedures

At September 30, 2019, our President who also serves as our Chief Accounting Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), which disclosure controls and procedures are designed to insure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized, and reported within required time periods specified by the Securities & Exchange Commission rules and forms.

Based upon that evaluation, it was concluded that our disclosure controls were effective as of September 30, 2019, to ensure timely reporting with the Securities and Exchange Commission. Specifically, the Company’s corporate governance and disclosure controls and procedures provided reasonable assurance that required reports were timely and accurately reported in our periodic reports filed with the Securities and Exchange Commission.

Changes in internal control over financial reporting

None

Neither the constituent instruments defining the rights of the Company’s securities filers nor the rights evidenced by the Company’s outstanding common stock have been modified, limited or qualified.

During the first half of 2018 the Company issued 8,858,577 shares of unregistered common stock at $0.13 per share for net proceeds of $1,107,571 net of commission and brokerage costs as a result of a private placement offering, additionally 8,000 shares were issued in exchange for stock options at $0.15 per share for net proceeds of $1,200. In the second quarter of 2019 1,200,000 warrants were exercised in exchange for 398,576 shares of the Company’s common stock in a cashless warrant exercise.

The Company relied on the transaction exemption afforded by Section 4(a)(2) of the Securities Act of 1933, as amended, and Regulation D Rule 506(b). The common shares are restricted securities which may not be publicly sold unless registered for resale with the Securities and Exchange Commission or exempt from the registration requirements of the Securities Act of 1933, as amended.

The Company has no outstanding senior securities.

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None

* Filed with the Registrant’s Form 10 on June 4, 2014. 

**Filed July 2, 2014 

***Filed March 31, 2015. 

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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 thereunto duly authorized. 

NEW JERSEY MINING COMPANY 

By:   /s/ John Swallow 

John Swallow, 

its: President and Chief Executive Officer 

Date November 14, 2019 

By:   /s/ Grant Brackebusch 

Grant Brackebusch, 

its: Vice President and Chief Financial Officer 

Date: November 14, 2019 

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