Cleo Perfume, Inc. - Page 4

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          Credit Line With Barnett Bank and Certified Financial Statements            
               In 1989, petitioner obtained a $1.5 million line of credit             
          with Barnett Bank.  A security interest in petitioner's accounts            
          receivable and inventory and a guaranty by Mr. Campos, Sr., were            
          given as collateral for this line of credit.  Mr. Campos, Sr.'s             
          guaranty was secured by a first mortgage on his residence.                  
               To maintain the line of credit, petitioner was required to             
          deliver to the bank certified financial statements.  Barnett Bank's         
          credit department analyzed the certified financial statements               
          prepared for petitioner.  On a quarterly basis, Barnett Bank sent           
          a group of its own auditors to conduct a review of petitioner's             
          accounts receivable, accounts payable, and inventory in order to            
          verify the correctness of the certified financial statements as             
          well as petitioner's books and records.  From 1989 through 1994,            
          there were no disparities among these various documents.                    
               Petitioner hired Verdeja, Iriondo & Gravier (VIG), certified           
          public accountants, to perform the audit and prepare the certified          
          financial statements for Barnett Bank.  Oscar Rosales performed the         
          initial audit for VIG.  Petitioner later hired Mr. Rosales as its           
          comptroller.  (Before Mr. Rosales was hired, petitioner never had           
          a comptroller.)  Mr. Rosales worked for petitioner through 1992.            

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Last modified: May 25, 2011