Manaharlal C. Parekh and Elizabeth Parekh - Page 5

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          date, the bank and PEC agreed to a final maturity date sometime             
          in 1988.                                                                    
               From 1986 to 1989, there was a substantial decrease in oil             
          production from the wells that PEC had purchased.  Additionally,            
          the posted crude oil prices dropped from $28 per barrel in July             
          1985 to $14.85 per barrel in July 1988.  PEC reported gross sales           
          and net losses for tax purposes as follows:                                 

          Year Ending       Gross Oil &                                               
                   June 30         Gas Income       Net Loss                         
            1986                   $1,649,035       $36,219                           
            1987                        557,892        653,955                        
            1988                        642,479       305,313                         
            1989                        177,763        85,719                         

          Theft Loss                                                                  
               On November 11, 1985, petitioner and Cisneros suspected that           
          Wheeler had misappropriated about $100,000 of PEC's funds which             
          was supposed to be used to pay a commission.  In addition,                  
          petitioner believed that Wheeler cashed the blank checks                    
          petitioner gave him, and he misappropriated these funds for his             
          personal use.  Consequently, on November 12, 1985, petitioner               
          changed the locks to PEC's office and informed Wheeler that he              
          was not to enter the office.                                                
               In April 1986, petitioner and Cisneros met with                        
          representatives from the Texas Rangers--the law enforcement                 
          division for the State of Texas.  Petitioner and Cisneros                   





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