SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q SB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
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For Quarter Ended February 28, 2001 Commission file number 0-21 725
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SILK BOTANICALS.COM, INC.
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(Exact name of registrant as specified in its charter)
FLORIDA 65-0886132
- ------------------------------- ---------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
975 S. Congress Ave. #102
Delray Beach, Fl. 33445
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(Address of principal executive offices)
Registrant's telephone number, including area code: ( 561) 265-3600
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes: [ X ] No: [ ]
REGISTRANT IS A CORPORATION
SILK BOTANICALS.COM, INC.
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FINANCIAL STATEMENTS
QUARTERS ENDED
FEBRUARY 28, 2001
AND FEBRUARY 29, 2000
TABLE OF CONTENTS
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Page
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Independent Accountants' Review Report 1
Financial Statements:
Balance Sheet 2
Statements of Operations 3
Statements of Changes in Stockholders' Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 6-13
Independent Accountants' Review Report
- --------------------------------------
To the Board of Directors and Stockholders
of Silk Botanicals.com, Inc.
Delray Beach, Florida
We have reviewed the accompanying balance sheet of Silk
Botanicals.com, Inc. (a Florida corporation) as of February 28, 2001
and the related statements of operations for the quarters and nine-
month periods ended February 28, 2001 and February 29, 2000. We have
also reviewed the related statements of cash flows for the nine-month
periods ended February 28, 2001 and February 29, 2000, as well as the
related statements of changes in stockholders' equity (deficit) for
the years ended May 31, 2000 and 1999, and for the nine-month period
ended February 28, 2001. All information included in these financial
statements is the responsibility of the Company's management.
A review consists principally of inquiries of company personnel and
analytical procedures applied to financial data. It is substantially
less in scope than an audit in accordance with generally accepted
auditing standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications
that should be made to the accompanying financial statements in order
for them to be in conformity with generally accepted accounting
principles.
April 11, 2001
1
SILK BOTANICALS.COM, INC.
BALANCE SHEET
February 28, 2001
ASSETS
CURRENT ASSETS:
Cash $ 18,835
Accounts receivable (net of allowance for 262,277
doubtful accounts of $5,000)
Inventory 88,959
Prepaid expenses -
------------
Total Current Assets 370,071
------------
PROPERTY & EQUIPMENT, net of 1,994
accumulated depreciation
OTHER ASSETS:
License rights (net of valuation allowance & 30,110
accumulated amortization)
Deferred tax asset 1,165
------------
Total Other Assets 31,275
------------
TOTAL ASSETS $ 403,340
============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 31,059
Income taxes payable 3,927
Accounts payable due to related party 150,652
Other current liabilities 4,528
------------
Total Current Liabilities 190,166
------------
TOTAL LIABILITIES 190,166
STOCKHOLDERS' EQUITY:
Series A preferred stock, $.001 par value,
1,900 shares authorized, issued and
outstanding 2
Series 2001 convertible preferred stock,
$.001 par value, 2,000,000 shares
authorized, none issued and outstanding 0
Series 2000 convertible preferred stock, $.001
par value, 4,042,687 shares authorized,
issued and outstanding 4,043
Series 2000A convertible preferred stock,
$.001 par value, 2,444,532 shares authorized,
none issued and outstanding 0
Preferred stock, $.001 par value, 41,510,881
shares authorized, none issued and outstanding -
Common stock, $.001 par value, 300,000,000 shares
authorized, 31,533 shares issued and outstanding 31
Additional paid-in capital 853,636
Deficit accumulated during the development stage (699,126)
Retained earnings 54,588
------------
Total Stockholders' Equity 213,174
------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 403,340
============
See Accountants' Review Report and Accompanying Notes
2
SILK BOTANICALS.COM, INC.
STATEMENTS OF OPERATIONS
FOR THE QUARTERS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000, AND
YEAR-TO-DATE THROUGH FEBRUARY 28, 2001 AND FEBRUARY 29, 2000
FOR THE QUARTERS ENDED YTD THROUGH
FEB. 28 FEB. 29 FEB. 28 FEB. 29
2001 2000 2001 2000
---------- ---------- ---------- ----------
SALES $ 323,189 $ 226,190 $ 663,472 $ 507,434
COST OF SALES 252,997 168,501 501,966 380,466
---------- ---------- ---------- ----------
GROSS PROFIT 70,192 57,689 161,506 126,968
---------- ---------- ---------- ----------
MARKETING EXPENSES 12,110 12,592 28,276 35,811
GENERAL AND ADMINISTRATIVE
EXPENSES 35,068 33,357 92,234 85,963
OTHER EXPENSES, net 2,653 - 4,028 -
INCOME BEFORE PROVISION FOR
INCOME TAXES 20,361 11,740 36,968 5,194
Provision for Income Taxes - - - -
---------- ---------- ---------- ----------
NET INCOME $ 20,361 $ 11,740 $ 36,968 $ 5,194
========== ========== ========== ==========
Income (loss) per share
(after preferred
dividends):
Basic and diluted $ 0.29 $ 0.10 $ 0.36 $ (0.04)
========== ========== ========== ==========
Weighted average shares
outstanding -
basic & diluted 60,520 89,286 79,697 89,286
========== ========== ========== ==========
See Accountants' Review Report and Accompanying Notes
3
SILK BOTANICALS.COM, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MAY 31, 2000 AND 1999
AND FOR THE NINE MONTHS ENDED FEBRUARY 28, 2001
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE
PREFERRED STOCK COMMON STOCK PAID-IN DEVELOPMENT RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE EARNINGS TOTAL
---------- -------- ---------- -------- ---------- ---------- -------- ---------
BALANCE, MAY 31, 1998 - $ - 4,435,813 $ 4,436 $ - $ (4,436) $ - $ -
Issuance of preferred stock 1,900 2 - - - - - 2
Issuance of stock to additional - - 335,187 335 - - - 335
founding stockholders
Issuance of stock in a 504 offering - - 1,452,750 1,453 671,460 - - 672,913
Issuance of stock for services rendered - - 26,250 26 - - - 26
Net (loss) - - - - - (694,690) - (694,690)
---------- -------- ---------- -------- ---------- ---------- -------- ---------
BALANCE, MAY 31, 1999 1,900 2 6,250,000 6,250 671,460 (699,126) - (21,414)
---------- -------- ---------- -------- ---------- ---------- -------- ---------
Issuance of warrants 180,000 180,000
Preferred stock dividend - - - - - - (8,550) (8,550)
Net income - - - - - - 34,720 34,720
---------- -------- ---------- -------- ---------- ---------- -------- ---------
BALANCE, MAY 31, 2000 1,900 2 6,250,000 6,250 851,460 (699,126) 26,170 184,756
---------- -------- ---------- -------- ---------- ---------- -------- ---------
Issuance of Series 2000 convertible 4,042,687 4,043 (4,042,687) (4,043) - - - -
preferred stock in exchange for like
number of shares of common stock
70:1 reverse split, common stock - - (2,175,780) (2,176) 2,176 - - -
Preferred stock dividend - - - - - - (8,550) (8,550)
Net income - - - - - - 36,968 36,968
---------- -------- ---------- -------- ---------- ---------- -------- ---------
BALANCE, FEBRUARY 28, 2001 4,044,587 $ 4,045 31,533 $ 31 $ 853,636 $ (699,126) $ 54,588 $ 213,174
========== ======== ========== ======== ========== ========== ======== =========
See Accountants' Review Report and Accompanying Notes
4
SILK BOTANICALS.COM, INC.
STATEMENTS OF CASH FLOWS
YEAR-TO-DATE THROUGH FEBRUARY 28, 2001 AND FEBRUARY 29, 2000
YTD THROUGH
FEB. 28 FEB. 29
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 36,968 $ 5,195
Adjustments to Reconcile Net Loss to
Net Cash Used in Operating Activities:
Depreciation and amortization 6,183 5,688
Changes in assets and liabilities:
(Increase) in accounts receivable (140,695) (114,719)
(Increase) decrease in inventory (26,621) 7,443
(Increase) in prepaid expenses 3,275 -
Increase in accounts payable 265 22,955
Increase in due to related parties 119,680 81,736
Increase in other current liabilities 14,885 19,504
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NET CASH PROVIDED BY OPERATING ACTIVITIES 13,940 27,802
CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred stock dividend (8,550) (8,550)
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NET CASH USED IN FINANCING ACTIVITIES (8,550) (8,550)
------------ ------------
NET INCREASE (DECREASE) IN CASH 5,390 19,252
CASH AT BEGINNING OF PERIOD 13,445 -
CASH AT END OF PERIOD $ 18,835 $ 19,252
============ ============
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 4,028 $ -
Cash paid for income taxes - -
See Accountants' Review Report and Accompanying Notes
5
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED FEBRUARY 28, 2001 and FEBRUARY 29, 2000
(See Independent Accountants' Review Report)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization:
- -------------
Silk Botanicals.Com, Inc. (the "Company"), formally known as
Diversified Restaurant Holdings, Inc., was organized November 20,
1998 in the State of Florida. The Company was a development
stage company until June 1999, when it commenced operations. The
Company develops, markets and distributes high-quality artificial
flowers, artificial greenery and floral arrangements under the
trademark names Forever Freshr, Living SilkT and Silk BotanicalsT
in the wholesale market. All of the Company's product is
purchased from a company related by common ownership. Major
customers include wholesale store chains and supermarkets.
On April 9, 1999, the Company acquired all the outstanding common
stock of JRB Marketing of South Florida, Inc. ("JRB"), a Florida
corporation formed October 2, 1996. For accounting purposes, the
transaction was treated as a reverse acquisition of the Company
by JRB and as a recapitalization of JRB. The recapitalization
resulted in the issuance of 4,435,813 shares of the Company and
the recording of $4,436 in expenses. The historical financial
statements prior to November 20, 1998 are those of JRB. No pro
forma information is presented, as the acquisition was not a
business combination. At the time of this transaction, JRB had
no assets, liabilities or operations. As such, the financial
statements of the Company reflect the accounting for JRB as if
JRB had been the reporting entity from inception.
Prior to acquiring JRB, the Company owned 99% of the stock of
Southern Dragon, Inc. ("Southern"), a development stage company
in the restaurant industry. On March 31, 1999, the Company sold
the stock of Southern back to Southern and began concentrating on
the development, marketing and distribution of artificial
flowers, greenery and floral arrangements.
On August 2, 1999, the Company officially changed its name to
Silk Botanicals.Com, Inc. from Diversified Restaurant Holdings,
Inc.
On August 20, 1999, the Company's Board of Directors approved a 1
for 4 reverse split of its common stock, retroactively effective
as of May 31, 1999. On January 2, 2001, the Company's Board of
Directors approved a 70 for 1 reverse split of its common stock,
effective February 5, 2001. This split did not change the
number of authorized shares of the Company, nor the par value of
$0.001. All common shares and the per share amounts in the
accompanying reviewed financial statements have been restated for
the effects of the reverse splits.
Revenue Recognition:
- --------------------
Revenue is recognized, net of discounts and estimated returns,
upon shipment of product.
6
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED FEBRUARY 28, 2001 and FEBRUARY 29, 2000
(See Independent Accountants' Review Report)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventory:
- ----------
Inventory consists primarily of finished floral and greenery
arrangements and is valued at the lower of cost (first-in, first-
out method) or market.
Furniture and Equipment:
- ------------------------
Furniture and equipment are recorded at cost. Depreciation is
calculated on a straight-line basis over the estimated useful
lives of the assets.
License Rights:
- ---------------
The license rights acquired by the Company have been recorded at
cost less a valuation allowance. The rights and valuation
allowance are amortized on the straight-line basis over the term
of the license right agreements, which is six years.
Fair Value of Financial Instruments:
- ------------------------------------
The carrying amount of trade receivables and payables approximate
fair value.
Income Taxes:
- -------------
The Company accounts for income taxes on an asset and liability
approach to financial accounting. Deferred income tax assets and
liabilities are computed annually for the difference between the
financial statement and tax basis of assets and liabilities that
will result in taxable or deductible amounts in the future, based
on enacted tax laws and rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense
is the tax payable or refundable for the period, plus or minus
the change during the period in deferred tax assets and
liabilities.
Use of Estimates:
- -----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Reclassifications:
- ------------------
Certain reclassifications were made to the 2000 financial
statements presentation in order to conform to the 2001 financial
statements presentation.
7
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED FEBRUARY 28, 2001 and FEBRUARY 29, 2000
(See Independent Accountants' Review Report)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Start-Up Costs:
- ---------------
In April 1998, the Accounting Standards Executive Committee of
the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5 requires that start-up costs,
including organizational costs, be expensed as incurred. The
Company has accepted early adoption of SOP 98-5 and expensed all
start-up costs.
Earnings per Share:
- -------------------
The Company has utilized Financial Accounting Standards No. 128
"Earnings per Share" ("FAS 128"). FAS 128 requires presentation
of earnings or loss per share on basic and diluted earnings per
share. Basic earnings or loss per share is computed by dividing
net income available to common shareholders by the weighted
average number of common shares outstanding for the period.
Diluted earnings per share is computed using the weighted average
number of common shares outstanding and potentially diluted
common shares during the period. The warrants were anti-dilutive
at February 28, 2001 as the exercise price was in excess of the
market price. The computation of fully diluted earnings per share
is not presented as it would be anti-dilutive.
Impairment of Long-Lived Assets
- -------------------------------
The Company evaluates the recoverability of its property and
equipment, and other assets in accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets to be Disposed of" ("SFAS 121").
SFAS 121 requires recognition of impairment of long-lived assets
in the event the net book value of such assets exceeds the
estimated future undiscounted cash flows attributable to such
assets or the business to which such intangible assets relate.
No impairments were required to be recognized during the quarters
ended February 28, 2001 and February 29, 2000.
Segment Reporting:
- ------------------
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS
131"). This statement requires companies to report information
about operating segments in interim and annual financial
statements. It also requires segment disclosures about products
and services, geographic areas and major customers. The Company
has determined that it did not have any separately reportable
operating segments as of February 28, 2001 and February 29, 2000.
8
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED FEBRUARY 28, 2001 and FEBRUARY 29, 2000
(See Independent Accountants' Review Report)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Advertising:
- ------------
Advertising costs ($1,307 and $1,570 for the quarters ended
February 28, 2001 and February 29, 2000, respectively) are
charged to expense as incurred.
Contingencies:
- --------------
Certain conditions may exist as of the date the financial
statements are issued, which may result in a loss to the Company
but which will only be resolved when one or more future events
occur or fail to occur. The Company's management and its legal
counsel assess such contingent liabilities, and such assessment
inherently involves an exercise of judgement. In assessing loss
contingencies related to legal proceedings that are pending
against the Company or unasserted claims that may result in such
proceedings, the Company's legal counsel evaluates the perceived
merits of any legal proceedings or unasserted claims as well as
the perceived merits of the amount of relief sought or expected
to be sought therein. If the assessment of a contingency
indicates that it is probable that a material loss has been
incurred and the amount of the liability can be estimated, then
the estimated liability would be accrued in the Company's
financial statements. If the assessment indicates that a
potentially material loss contingency is not probable but is
reasonably possible, or is probable but cannot be estimated, then
the nature of the contingent liability, together with an estimate
of the range of possible loss if determinable and material, would
be disclosed. Loss contingencies considered remote are generally
not disclosed unless they involve guarantees, in which case the
nature of the guarantee would be disclosed.
Basis of Presentation:
- ----------------------
The accompanying interim financial statements contain all
adjustments necessary in management's opinion for a fair
presentation of financial position and results of operations.
Those adjustments included only normal recurring accruals.
2. CONCENTRATIONS
Business Risk:
- --------------
The Company's revenues and profitability are affected by many
conditions, including changes in economic conditions, inflation,
and political events. Because these factors are unpredictable
and beyond the Company's control, earnings may fluctuate from
year to year.
Major customers accounted for 25% of revenues for the quarter
ended February 28, 2001 and 57% for the quarter ended February
29, 2000.
9
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED FEBRUARY 28, 2001 and FEBRUARY 29, 2000
(See Independent Accountants' Review Report)
3. PROPERTY AND EQUIPMENT
Property and Equipment consists of the following as of February
28, 2001:
Computer equipment $ 3,481
Less: Accumulated depreciation (1,487)
-------
$ 2,284
Depreciation expense was $291 and $126 for the quarters ended
February 28, 2001 and February 29, 2000, respectively.
4. RELATED PARTY TRANSACTIONS
The Company purchases its silk botanical products from
established manufacturers owned by the Company's president and
majority stockholder (herein after, "Manufacturer"); however, the
Company may purchase its products from other suppliers. On April
1, 1999, the Company entered into a non-exclusive manufacturing
and distribution agreement with the Manufacturer for a term of
six years with the right to extend the agreement for six
additional six-year terms. The Manufacturer will invoice the
Company for products and distribution of products at rates to be
negotiated periodically between the Company and the Manufacturer.
On January 2, 2001, the Manufacturer entered into an agreement
with an established out-of-state assembler and manufacturer of
high-quality artificial plants, trees and floral arrangements.
This marketing, manufacturing and distribution agreement will
significantly increase the manufacturing capabilities for the
Company's product, thereby positioning the Company to potentially
increase its customer base and sales revenue.
Additionally, the Company subleases office facilities and certain
office equipment from the Manufacturer. The Company issued 1,900
shares of preferred stock to the Manufacturer for the license
rights to the trademarks Living Silkr and Silk BotanicalsT, and
for certain manufacturing processes. The Company owed the
Manufacturer $150,652 at February 29, 2001, which is recorded as
an accounts payable, for operational expenses. During the
quarters ended February 28, 2001 and February 29, 2000, the
Company paid $108,610 and $158,333, respectively, to the
Manufacturer.
No formal arrangement on terms and conditions relating to
advances, should they be required, had been entered into by the
Company with the Manufacturer.
5. LICENSE RIGHTS
On December 21, 1998, the Company purchased an exclusive license
for the right to assemble and distribute the "water-look" floral
arrangements and the trademark and copyright
10
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED FEBRUARY 28, 2001 and FEBRUARY 29, 2000
(See Independent Accountants' Review Report)
5. LICENSE RIGHTS (continued)
materials of Forever Freshr from a third party manufacturer and
distributor in South Florida. The term of the license agreement
is for six years with the right to extend for additional terms of
six years each, unless terminated by either party at the end of
any six-year term. As part of the agreement, the Company paid
$42,500 for the license rights. The Manufacturer advanced the
funds for the payment. Additionally, the Company agreed to make
royalty payments to the licensor of 5% of the net amount invoiced
by the Company or any affiliate, for Forever Freshr products
during the initial six year term. For additional periods of up
to six, six-year terms, the Company agreed to pay to the licensor
one quarter of one percent (.25%) of its net sales per annum of
all Forever Freshr products sold to any third party. At February
28, 2001 license rights of $42,500 are presented net of $12,390
of accumulated amortization.
During April 1999, the Company entered into an exclusive license
agreement to market and distribute artificial greenery and floral
arrangements with the Living Silk and Silk Botanicals trademarks
owned by the Manufacturer. Additionally, the license agreement
granted the
Company the exclusive right to use the manufacturing process of
the Living SilkT and Silk BotanicalsT products. As consideration
for the license agreement, the Company issued preferred stock to
the Manufacturer valued at $190,000. Since the transaction was
a nonmonetary transaction between related parties, a valuation
allowance of $190,000 has been provided against the license
rights and as an offset to stockholder equity. The Company
further agreed to pay the Manufacturer, royalty payments of 5% of
the net amount invoiced by the Company or any affiliates for
Living SilkT or Silk BotanicalsT products invoiced to any third
party during the initial six-year term. For additional periods
of up to six, six-year terms, the Company agreed to pay one
quarter of one percent (.25%) of its net sales per annum for all
Living SilkT and Silk BotanicalsT products sold to any third party.
6. EQUITY
Preferred Stock - On October 6, 2000, the Company increased the
number of authorized shares of preferred stock from 5,000,000 to
50,000,000, of which a total of 1,900 shares had previously been
designated as Series A preferred stock. This series is entitled
to receive dividends at the rate of $6.00 per share per annum,
payable quarterly. Such dividends are cumulative and hold a
preference over any other distribution. This series has no
voting rights or conversion features.
On January 2, 2001, the Company authorized 2,000,000 shares of
Series 2001 convertible preferred stock, to be issued in a
private offering. Each share of this series is convertible into
common stock, one year after issuance, at a conversion ratio of
either $5.00 per share or 30% below the trading price of the
common stock as priced the prior trading day to conversion,
whichever is less. This series has no voting rights.
11
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED FEBRUARY 28, 2001 and FEBRUARY 29, 2000
(See Independent Accountants' Review Report)
6. EQUITY (continued)
On January 2, 2001, the Company authorized and issued 4,042,687
shares of Series 2000 convertible preferred stock in exchange
for a like number of shares of common stock owned by the
majority shareholder. Each share of this series is convertible
into fully paid and nonassessable shares of common stock, at the
option of the holder, on a one-for-one basis at any time after
January 5, 2002. Each share of this series entitles the holder
to one vote, either in person or by proxy, at meetings of
shareholders, and such vote shall be equal to the voting rights
of the common stock and shall be counted with the common stock
toward election of directors or such other action as the class
of common stock shall be entitled.
On January 2, 2001, the Company authorized 2,444,532 shares of
Series 2000A convertible preferred stock, to be issued pursuant
to an agreement between the Company and Coral Ridge, Inc. Each
share of this series is convertible into common stock, at any
time after twelve months from the date of execution of the
agreement, on a one-for-one basis. This series has no voting
rights.
The rights, preferences and limitations of any additional series
of preferred stock will be determined by the Board of Directors.
Dividends in arrears at November 30, 2000 are $8,550.
Common Stock - On November 20, 1998, the Company issued 4,788
shares of common stock to additional founders of the Company
and recorded an expense of $335 for the issuance. These shares
were issued at par value since no operations existed in the
Company. Between November 30, 1998 and March 31, 1999, the
Company issued 375 shares of common stock as compensation for
services rendered and recorded an expense of $26. From January
2, 1999 until March 31, 1999, the Company issued 1,414 shares of
common stock for cash of $49,500, which was utilized by Southern
prior to the recapitalization. The Company issued, from April
1, 1999 through April 6, 1999, 19,339 shares of common stock and
recorded an expense of $671,460, which approximates market
value. All of the stock issued has been restated to reflect the
reverse stock splits of 1 for 4 (effective as of May 31, 1999),
and 1 for 70 (effective February 2, 2001).
On October 6, 2000, the Company increased the number of
authorized shares of common stock from 25,000,000 to 300,000,000.
Warrants - In March of 2000 the Company issued warrants for 5,143
shares of common stock. The warrants were issued for $35.00 each
for a total of $180,000. The warrants have an exercise price of
$175.00 per share and are exercisable as follows; 3,428 from
April 30, 2000 to April 30, 2002 and 1,715 from May 7, 2000 to
May 7, 2002. The warrants carry a provision to issue options for
up to 5,143 shares exercisable over the same time frame as the
corresponding warrant at a price of $210.00 per share, if and
when the warrants are exercised. All of the warrants issued and
exercise prices have been restated to reflect the reverse stock
split of 1 for 70, effective February 2, 2001.
12
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED FEBRUARY 28, 2001 and FEBRUARY 29, 2000
(See Independent Accountants' Review Report)
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of $2,921 in
trade accounts payable and $28,138 in accrued expenses at
February 28, 2001.
8. OTHER CURRENT LIABILITIES
Other current liabilities consists of credit card debt at 15.4%
as of February 28, 2001.
9. COMMITMENTS - RELATED PARTY
The Company has a lease, which expires April 30, 2001, with the
Manufacturer for 500 square feet of furnished office space,
including office equipment, and approximately 1,500 square feet
of warehouse and shipping space at a cost of $10 per square
foot. For the fiscal quarters ended February 28, 2001 and
February 29, 2000, rental expenses incurred were $5,000 and
$5,000, respectively. Minimum future rental payments under the
non-cancelable operating lease as of February 28, 2001 are as
follows:
2001 $ 3,333
10. CONTINGENCIES
The Company is involved in various claims which have arisen as a
result of the funding of the warrants. The Company, after
conferring with its legal counsel, is unable to predict the
outcome of these matters but does not believe, based upon
currently available facts, that the ultimate resolution of such
matters will have a material adverse effect on the financial
statements of the Company.
13
Item 2. Results of Operations and Management's Discussion & Analysis
of Financial Condition
1.) Sales Revenues for the third quarter ending February 28, 2001
increased to $323,189 which was a 42.9% increase over Sales Revenue for the
third quarter ending February 28, 2000 of $226,190. Cost of Goods Sold
ratio increased to 78.3%, compared to 74.5% last year, producing a Gross
Profit of $70,192, compared to $57,689 last year, which was a 21.7% increase
in Gross Profit. The Net Income was $20,361 this year, compared to $11,740
last year, a 73.3% improvement over last year.
Sales Revenues for the first nine months ending February 28, 2001
increased to $663,472 which was a 31% increase. Cost of Goods Sold
ratio increased to 75.6%, compared to 75.0% last year. Gross profit
increased $34,538 or 27.2% compared to the first nine months of last
year. Net income for the first nine months increased to $36,968
compared to $5,194 for the first nine months of last year, which was a
612% increase.
2.) Forward Looking Information
Certain statements in this section and elsewhere in this report are
forward-looking in nature and relate to trends and events that may affect
The Company's future, financial position and operating results. The words
"expect", "anticipate", "intend", and "project" and similar words or
expressions are intended to identify forward-looking statements. These
statements speak only as of the date of this report. The statements are
based upon current expectations, are inherently uncertain, are subject to
risks, and should be viewed with caution. Actual results and experience may
differ materially from the forward-looking statements as a result of many
factors, including: changes in economic conditions in the various markets
served by The Company's operations, increased competition, and other
unanticipated events and conditions. It is not possible to foresee or
identify all such factors. The Company makes no commitment to update any
forward-looking statement or to disclose any facts, events, or circumstances
after the date hereof which may affect the accuracy of any forward-looking
statement, except as may be required by law.
3.) On January 2nd, 2001, the Company's primary manufacturer of its
silk botanical products (which is owned by the Company's President &
Primary Stockholder) entered into a marketing, manufacturing &
distribution agreement with an established out-of-state assembler and
manufacturer of high quality artificial plants, trees and floral
arrangements. This agreement can significantly increase the
manufacturing capa-bilities of Silk Botanicals' products, thereby
positioning the company to potentially expand its customer base.
4.) On January 16th, 2001, the Company filed a Form 8-K with the
Securities and Exchange Commission, reporting the following.
14
I. The Board of Directors designated three different series of
Preferred Stock to be issued to three different groups. Namely,
2,000,000 of Series 2001 Convertible Preferred Stock; 4,042,687 shares
of Series 2000 Convertible Preferred Stock; and 2,444,532 shares of
Series 2000A Convertible Preferred Stock.
(i) Series 2001 Convertible Preferred Stock was approved to be
issued in a private offering as follows:
Holders of Series 2001 Convertible Preferred Stock shall
receive preference in the event of liquidation, dissolution or
winding up of the corporation. Shares of Series 2001 Convertible
Preferred Stock shall have no voting rights. Each share of
Series 2001 Convertible Preferred Stock may, at the option of the
holder, be converted no earlier than one year after issuance into
common stock of the corporation. The conversion ratio shall be
either $5.00 per share or 30% below the trading price of the
common stock as priced the prior trading day to conversion,
whichever is less.
(ii.) Series 2000 Convertible Preferred Stock was approved to be
issued to Joseph R. Bergmann in exchange for all of his outstanding
common stock, as follows:
Each share of 2000 Convertible Preferred Stock entitles the holder
thereof to one vote, either in person or by proxy, at meetings of
shareholders, and such vote shall be equal to the voting rights of
the common stock and shall be counted with the common stock toward
election of directors or such other action as the class of common
stock shall be entitled. Each share of Series 2000 Convertible
Preferred Stock may, at the option of the holder, be converted into
shares of common stock on a one for one basis at any time after
January 5, 2002.
(iii) Series 2000A Convertible Preferred Stock was approved to be
issued pursuant to an Agreement between the Company and Coral
Ridge, Inc.
Shares of Series 2000A Convertible Preferred Stock shall have no
voting rights. Each share of Series 2000A Convertible Preferred
Stock may, at the option of the holder, be converted into common
stock of the corporation on a one for one basis at any time after
twelve (12) months from the date of execution of the agreement
between the Company and Coral Ridge, Inc.
In the event we should, at any time, combine the outstanding common
stock into a smaller number of shares, such action will have no
effect upon the conversion ratio of the Series 2000A Convertible
Preferred Stock.
15
II. The Majority Shareholder and the Board of Directors approved a
reverse stock split as follows:
(i.) The reverse stock split was effective February 5, 2001. The
record date of the reverse stock split was February 2, 2001.
(ii.) A majority of the shareholders approved the reverse stock
split.
(iii.) The reverse stock split will be a seventy-for-one split of
Silk Botanical's common stock.
5.) On February 5th, 2001, The Company's symbol was officially changed
to SILK (OTC BB).
16
PART II
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
Yes, See Form 8K filed 1/16/2001 with Securities & Exchange Commission.
Item 3. Defaults In Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
Other than that voted upon by the Board of Directors and the Majority
Stockholder with regard to the events in the Form 8K filed with the
Securities & Exchange Commission on January 16. 2001, no matter was submitted
during the quarter ending February 28, 2001, covered by this report to a vote
of the Company's shareholders, through solicitation of proxies or otherwise.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits required to be filed herewith by Item 601 of
Regulation S-B, as described in the following index of exhibits,
are incorporated herein by reference, as follows:
Exhibit No. Description
- -----------------------------------------------------------------------------
3.(i).1 (1) Articles of Incorporation of Diversified Restaurant
Holdings, Inc.
3.(i).2 (1) Articles of Amendment of Articles of Incorporation of
Diversified Restaurant Holdings, Inc.
3.(i).3 (1) Articles of Amendment of Articles of Incorporation of
Silk Botanicals.Com, Inc.
3.(i).4 * Articles of Amendment of Articles of Incorporation of
Silk Botanicals.Com, Inc. authorizing an increase in Common
Stock and Preferred Stock dated October 6, 2000.
3.(i).5 * Articles of Amendment of Articles of Incorporation of
Silk Botanicals.Com, Inc. authorizing the issuance of
shares of Preferred Stock in three series, dated December
26, 2001.
3.(i).6 * Articles of Amendment of Articles of Incorporation of
Silk Botanicals.Com, Inc. authorizing a 1 for 70 reverse
split of the Company's Common Stock, dated February 20,
2001.
3.(ii).1 (1) Bylaws.
4.1 * Stock Exchange Agreement between Silk Botanicals.Com, Inc.
and Joseph Bergmann dated January 5, 2001.
10.1 (1) License Agreement between Forever Fresh, Inc. and JRG
Marketing of South Florida, Inc.
10.2 (1) Manufacturing and Distribution Agreement.
10.3 (1) Agreement between Diversified Restaruant Holdings, Inc. and
Joseph R. Bergmann.
10.4 (1) License Agreement between JRB Enterprises, Inc. and JRB
Marketing of South Florida, Inc./Diversified Restaurant
Holdings, Inc.
10.5 (1) Sublease Agreement.
17
16.1 (2) Letter on change of certifying accountant pursuant to
Regulation SK Section 304(a)(3).
16.2 (2) Letter from Sweeney, Gates and Company C.P.A.
16.3 (2) Letter on change of certifying accountant pursuant to
Regulation SK Section 304(a)(3)
23.1 * Review Letter of Michaelson and Company, P.A.
- ----------------------------------
* Filed herewith.
(1) Incorporated herein by reference to the Company's Registration
Statement on Form 10-SB.
(2) Incorporated herein by reference to the Company's Form 8-K
filed on August 7, 2000.
(b) One (1) report on Form 8-K were filed during the quarter
ended February 28, 2001. It was filed on January 16, 2001. The
Form 8-K was filed to announce the authorization of a one (1)
for seventy (70) reverse split, and the authorization of the
issuance of three (3) classes of Preferred Stock.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SILK BOTANICALS.COM, INC.
A Florida Corporation
By:_____/s/Joseph R. Bergmann___
Joseph R. Bergman
President
Date: April 13, 2001
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