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the consigned merchandise, less $100,000 which had been sold,
remained on hand.
VIG, which prepared the financial statements for tax year
ended June 30, 1991, inquired in July 1991 as to why the $2,031,778
of trade accounts payable had been eliminated from the books. Mr.
Rosales represented that CPI's officers had assumed responsibility
for the debt and that the amount was recorded as additional paid-in
capital. VIG requested and received a letter2 signed by
2 The letter states:
In connection with the audit of the financial
statements of Cleo Perfumes, Inc., for the
years ended June 30, 1990 and 1991, we have
made available to you all information related
to stockholder's equity.
During 1991, the Company's stockholders
assumed personally and subsequently
capitalized as part of paid-in capital a note
receivable from stockholder in the amount of
$371,157, a trade accounts payable to an
unaffiliated company in the amount of
$2,031,778, and a note payable to bank in the
amount of $200,000. The netting of these
transactions increased paid-in capital by
$1,860,621.
The undersigned stockholders of Cleo
Perfumes, Inc. hereby confirm to you that the
afore-mentioned [sic] transactions were in
due time properly and adequately approved by
the Board of Directors and also that Mr.
Oscar Campos, Sr., President of our
(continued...)
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