It is now March 2022.Kae and Jin have formed Kae-Jin, Inc. ("KJI") and

are looking to open a third restaurant in Cabo San Lucas, Mexico.They are thinking of utilizing an issuance of debentures to finance the costs of opening this new restaurant, estimated to be $1,000,000.Kae and Jin ask you to conduct an audit in connection with the planned offering of debentures by KJI.In the course or your audit, you discover the following:

A.A default judgment against KJI in a New Jersey State Court for $1,000,000 arising out of a contract negotiation which took place in Atlantic City, New Jersey.The default judgment was entered against KJI because it failed to answer the complaint.Jin tells you he signed what he believed was a "letter of intent" with Missile Marketing Inc., a New Jersey corporation, ("Missile") after three days of negotiations with representatives of Missile in Atlantic City.Jin had hoped to conclude a contract with Missile to help KJI expand its current advertising in the New Jersey market.While in Atlantic City, Jin stayed in an apartment KJI rents both for the personal use of its officers and for business meetings in the Atlantic City area.In its complaint, Missile alleged that the document signed by Jin is a binding contract of KJI.Jin tells you not to be concerned about the judgment because KJI is not registered to do business in New Jersey, so the court lacked jurisdiction over KJI.

B.An e-mail from Aunt Agatha advising that she needs US$10,000 cash "to take care of some local politicians" in order to obtain a building permit and zoning variance in Mexico.

C.A brokerage account in the name of KJI showing ownership of 10,000 shares of Macrosoft, Inc. with a total value of $250,000.This represents thirty percent of the net assets of KJI.Kae tells you she and Jin decided to buy Macrosoft stock on the advice of Sally Scienter, Kae's cousin and a regular customer of the Manhattan restaurant.Macrosoft is a Delaware corporation whose shares are publicly traded on NASDAQ. Sally is a securities analyst for a large investment firm and frequently takes customers to dinner at the restaurant.Sally always pays the bill and leaves a big tip.One evening last month, Sally told Kae that she wanted the best table in the restaurant because her dinner guest was going to be the CEO of Macrosoft.Sally ordered two bottles of very expensive wine during dinner and, as usual, paid the check.Afterward Sally thanked Kae for making the evening a success and, as an additional "tip", suggested that Kae buy stock in Macrosoft because Macrosoft was about to announce publicly that it was being acquired by Apple, Inc.

Jin and Kae bought 10,000 shares of Macrosoft stock on behalf of KJI the next day.A week later they saw an article in the Wall Street Journal reporting that Apple had announced its entry into an agreement to buy Macrosoft.The stock of Macrosoft increased twenty-five percent after the public announcement of Apple's agreement to buy Macrosoft.

Write a brief memo summarizing the issues you see arising from the facts in paragraphs A-C above.