George Georgiou and Judith Georgiou A.K.A. Judy Georgiou, et al. - Page 6

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            Georgiou's name in return for Georgiou's capital contribution.                                 
            JAI, as Georgiou's nominee, used the funds to purchase the Petite                              
            assets from the bankruptcy trustee for $1,250,000.  As part of                                 
            the sale, Georgiou was required to guarantee personally eight of                               
            the Petite retail leases that JAI purchased.  The value of the                                 
            eight leases with the guarantees was approximately $5.9 million.                               
            Georgiou's liability under the guarantee continued whether the                                 
            leases were extended, modified, altered, or assigned and                                       
            irrespective of any bankruptcy, reorganization, or insolvency of                               
            JAI.                                                                                           
                  GRS and JAI were administered identically from their                                     
            inception.  Both purchased their merchandise wholesale from                                    
            Kolonaki, and they shared management personnel.  Georgiou                                      
            micromanaged the operations of Kolonaki, GRS, and JAI.  All                                    
            decisions, from clothing design to personnel, required his final                               
            approval.                                                                                      
                  In 1989, JAI, in addition to GRS, was being considered for a                             
            public offering.  Ernst and Young was retained to perform certain                              
            financial audits and prepare tax returns.  Ernst and Young                                     
            prepared tax returns for GRS and JAI for the year ended                                        
            September 30, 1989.  The GRS and JAI returns were prepared as                                  
            separate returns for submission to the Internal Revenue Service                                
            (IRS).  GRS and JAI each filed a separate 1989 return.  The JAI                                
            return listed Georgiou as the sole stockholder.  GRS was wholly                                
            owned by Kolonaki.                                                                             




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