Dak, Inc. - Page 4

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          to operate Moonshadows for a period of 15 years.  The lease                 
          provided that petitioner would pay a minimum rent of $120,000 per           
          year.  The lease also required the payment of a percentage rent             
          of 7-1/2 percent of annual gross sales if that amount exceeded              
          the minimum rent of $120,000 per year.  The lease also provided             
          that Dr. Shlens had the right to conduct an audit of                        
          Moonshadows’s operations to verify the amount of its gross sales            
          for any given period.                                                       
               In 1992, Kenneth R. Chiate (Mr. Chiate) purchased                      
          Moonshadows from Mr. Kelson.  Mr. Chiate is an attorney.  He is             
          now the president and sole shareholder of Moonshadows and                   
          purchased the business for reasons other than running the                   
          restaurant.  He has had nothing to do with the operation of the             
          restaurant since he purchased it.                                           
               After Mr. Chiate purchased the restaurant from Mr. Kelson in           
          1992, Mr. Kelson became Moonshadows’s accountant and bookkeeper             
          from 1992 through 1995.                                                     
               In early 1995, Dr. Shlens hired a certified public                     
          accountant, Ms. Cecy Groom (Ms. Groom) to audit petitioner’s                
          financial records.  She was to verify the gross sales reported to           
          Dr. Shlens by petitioner in order to confirm that the amount of             
          rent being paid to Dr. Shlens by petitioner was correct.  Ms.               
          Groom’s audit was initially directed to the period June 1994                
          through May 31, 1995 (the applicable period), but was extended to           

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Last modified: May 25, 2011