Al Zuni of Arizona, Inc. - Page 5

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          of the transfer of jewelry from Khalaf to American Silver are not           
          disclosed in the record.  In a special September 24, 1992,                  
          meeting of the board of directors of American Silver, the                   
          transfer of the jewelry from Khalaf to American Silver is                   
          referred to as a transfer “for sale by consignment” of jewelry              
          with “a value of $671,413”.                                                 
               The trial record does not reflect any further sales or other           
          disposition by American Silver of the jewelry inventory it                  
          received from Khalaf, nor does it reflect that Khalaf received              
          any payment from American Silver for the jewelry American Silver            
          received from Khalaf.  The record herein does not contain any               
          written inventory, documentation, cost records, or other                    
          description or list of the specific items of jewelry that during            
          the years in issue were bought and sold by Al Zuni, by Khalaf,              
          and by American Silver, nor of the items of jewelry that were               
          transferred on September 15 and 24, 1992, respectively, from Al             
          Zuni to Khalaf and from Khalaf to American Silver.                          
               Twice a year, Khalaf would take a physical inventory of Al             
          Zuni’s jewelry on hand.  Khalaf would provide to Murray Peck                
          (Peck), the certified public accountant who prepared Al Zuni’s              
          corporate Federal income tax returns and Khalaf’s individual                
          Federal income tax returns, information regarding the physical              
          inventory of Al Zuni’s jewelry that Khalaf had taken and of the             
          cost of jewelry that each year he had purchased with cash on                






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