Pulsar Components International, Inc. - Page 13

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          decided that petitioner would pay these debts in the taxable year           
          ended July 31, 1985.                                                        
          5.  Petitioner's Employees                                                  
               Petitioner employed many individuals to buy and sell                   
          electronic components.  Most of petitioner's employees did not              
          have prior experience in the electronics industry before they               
          commenced their employment with petitioner.  The Officers taught            
          petitioner's new employees to be traders by sitting next to them,           
          having the new employees watch them, and answering the new                  
          employees' questions.  After a while, the new employees were                
          given simple tasks to do on their own, and if they performed                
          those tasks correctly, the new employees were given a few                   
          well-established accounts to manage in order to develop their               
          trading skills.  From 1980 through 1984, approximately eight                
          individuals terminated their employment with petitioner (or                 
          Components) in order to start a competing businesses.                       
               Petitioner also employed several individuals to support its            
          sales and purchasing operations.  Petitioner's support staff                
          ranged from one to three employees in the shipping and receiving            
          department, one to two secretaries, a bookkeeper, and an                    
          individual to perform administrative functions.                             
               a.  Compensation of Petitioner's Employees                             
               Petitioner generally paid its employees a rate of                      
          compensation which the Officers thought was commensurate with               





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