Al Zuni of Arizona, Inc. - Page 7

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          return, no gain or loss was reported with respect to the                    
          September 15, 1992, transfer of Al Zuni’s jewelry inventory to              
          Khalaf.                                                                     
               There was reflected on Al Zuni’s 1992 corporate Federal                
          income tax return a loan to Khalaf in the amount of $460,600.               
          This $460,600 purported loan apparently related to the $671,413             
          stated total purchase price for the jewelry transferred to                  
          Khalaf, less the $196,510 loan that Al Zuni owed to Khalaf and              
          that was treated by Al Zuni and Khalaf as paid off upon transfer            
          to Khalaf of the jewelry inventory.                                         
               The purported $460,600 loan from Al Zuni to Khalaf in                  
          connection with the transfer of jewelry inventory to Khalaf was             
          not reflected by a promissory note or by any other loan                     
          documentation.  No payments of principal or interest were ever              
          made by Khalaf on the $460,600 purported loan owed to Al Zuni.              
               On Al Zuni’s corporate Federal income tax returns for 1983             
          and subsequent years, the amount of Khalaf’s capital investment             
          in his shares of stock in Al Zuni was reflected as $486,000.                
               On his 1992 Federal income tax return, Khalaf did not report           
          income or gain with respect to his receipt of jewelry from Al               
          Zuni.                                                                       
               On American Silver’s corporate Federal income tax return for           
          its taxable year ending September 30, 1993, a loan payable to               
          Khalaf in the total amount of $671,412 was reflected relating to            






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