SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q SB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended August 31, 2001
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Commission file number 000-21725
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SILK BOTANICALS.COM, INC.
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(Exact name of registrant as specified in its charter)
FLORIDA 65-0886132
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(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
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.
FINANCIAL STATEMENTS
QUARTERS ENDED
AUGUST 31, 2001
AND AUGUST 31, 2000
(Unreviewed)
1
TABLE OF CONTENTS
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Page
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Financial Statements:
Balance Sheet 3
Statements of Operations 4
Statements of Changes in Stockholders' Equity 5
Statements of Cash Flows 6
Notes to Financial Statements 7-14
2
SILK BOTANICALS.COM, INC.
BALANCE SHEET
AUGUST 31, 2001
(Unreviewed)
ASSETS
CURRENT ASSETS:
Cash $ (1,150)
Accounts receivable (net of allowance for 87,877
doubtful accounts of $20,000)
Accounts receivable (related party) 188,779
Inventory 118,210
-----------
Total Current Assets 393,716
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PROPERTY & EQUIPMENT, (net of 1,412
accumulated depreciation of $2,069)
OTHER ASSETS:
License rights (net of valuation allowance & 26,570
accumulated amortization)
Prepaid Investment Banking Services 20,139
Deferred tax asset 5,825
-----------
Total Other Assets 52,534
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TOTAL ASSETS $ 447,662
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LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 117,136
Income taxes payable 24,192
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Total Current Liabilities 141,328
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TOTAL LIABILITIES 141,328
STOCKHOLDERS' EQUITY (DEFICIT):
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 -
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 2,445
Preferred stock, $.001 par value, 41,510,881
shares authorized, none issued and outstanding -
Common stock, $.001 par value, 300,000,000 shares
authorized, 40,533 shares issued and outstanding 40
Subscribed capital 45,000
Additional paid-in capital 871,627
Deficit accumulated during the development stage (699,126)
Retained earnings 82,303
Total Stockholders' Equity 306,334
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) $ 447,662
===========
See Accompanying Notes
3
SILK BOTANICALS.COM, INC.
STATEMENTS OF OPERATIONS
FOR THE QUARTER ENDED AUGUST 31, 2001 AND AUGUST 31, 2000
(Unreviewed)
FOR THE QUARTERS ENDED
AUG. 31 AUG. 31
2001 2000
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SALES $ 301,307 $ 165,682
COST OF SALES 210,261 122,022
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GROSS PROFIT 91,046 43,660
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MARKETING EXPENSES 30,574 9,410
GENERAL AND ADMINISTRATIVE
EXPENSES 42,583 37,535
INCOME FROM OPERATIONS 17,889 (3,285)
---------- ----------
OTHER INCOME (EXPENSES):
OTHER INCOME 2,725 -
INTEREST EXPENSE (6,935) (835)
INCOME BEFORE PROVISION FOR
INCOME TAXES 13,679 (3,920)
Provision for Income Taxes - -
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NET INCOME (LOSS) $ 13,679 $ (3,920)
========== ==========
ACCUMULATED DEFICIT, BEGINNING
OF PERIOD: $ (627,651) $ (672,955)
---------- ----------
Preferred Stock Dividend: (2,850) (2,850)
ACCUMULATED DEFICIT, END
OF PERIOD: $ (616,822) $ (679,725)
Earnings (loss) per share
(after preferred dividends):
Basic & diluted $ 0.33 $ (0.08)
__________ __________
Weighted average shares
Outstanding -
basic & diluted 33,033 89,286
========== ==========
See Accompanying Notes
4
SILK BOTANICALS.COM, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unreviewed)
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE
PREFERRED STOCK COMMON STOCK PAID-IN DEVELOPMENT RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE EARNINGS TOTAL
---------- -------- ---------- -------- ---------- ---------- -------- ---------
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 - - - - - - 34,721 34,721
---------- -------- ---------- -------- ---------- ---------- -------- ---------
BALANCE, MAY 31, 2000 1,900 2 6,250,000 6,250 851,460 (699,126) 26,171 184,757
---------- -------- ---------- -------- ---------- ---------- -------- ---------
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
Issuance of Series 2000A 2,444,532 2,445 - - - - - 2,445
Convertible preferred stock as
Prepayment for various future
Services
70:1 reverse split, common stock - - (2,175,780) (2,176) 2,176 - - -
Preferred stock dividend - - - - - - (8,550) (8,550)
Net income - - - - - - 53,854 53,854
---------- -------- ---------- -------- ---------- ---------- -------- ---------
BALANCE, MAY 31, 2001 6,489,119 $ 6,490 31,533 $ 31 $ 853,636 $ (699,126) $ 71,475 $ 232,506
========== ======== ========== ======== ========== ========== ======== =========
Issuance S8 Shares - - 9,000 9 17,991 - - 18,000
Subscribed Capital - - - - 45,000 - - 45,000
Preferred Stock Dividend - - - - - - (2,850) (2,850)
Net Income - - - - - - 13,679 13,679
---------- -------- ---------- -------- ---------- ---------- -------- ---------
BALANCE, AUG. 31, 2001 6,489,119 $ 6,490 40,533 40 $ 916,627 $ (699,126) $ 82,304 $ 306,335
========== ======== ========== ======== ========== ========== ======== =========
See Accompanying Notes
5
SILK BOTANICALS.COM, INC.
STATEMENTS OF CASH FLOWS
YEAR-TO-DATE THROUGH AUGUST 31, 2001 AND AUGUST 31, 2000
(Unreviewed)
QUARTER ENDING
AUG. 31 AUG. 31
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 13,679 $ (3,920)
Adjustments to Reconcile Net Income (Loss)
to Net Cash Used in Operating Activities:
Depreciation and amortization 2,061 2,061
Changes in assets and liabilities:
Decrease in accounts receivable 78,369 23,040
(Increase) in due from related parties (73,553) -
(Increase) in inventory (66,036) (23,497)
(Increase) decrease in other assets (17,694) -
Increase in accounts payable and
Accrued expenses 66,484 12,126
(Decrease) in accounts payable
due to factors (31,820) -
(Decrease) in income tax payable (30) -
(Decrease) in due to related parties - (3,392)
(Decrease)Increase in other current
liabilities (36,922) 6,907
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NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ (65,463) $ 12,725
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock $ 18,000 $ -
Receipt of Stock Subscription 45,000 -
Preferred stock dividend (2,850) (2,850)
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NET CASH PROVIDED BY FINANCING
ACTIVITIES $ 60,150 $ (2,850)
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NET INCREASE IN CASH $ (5,312) $ 9,875
CASH AT BEGINNING OF PERIOD 4,162 13,445
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CASH AT END OF PERIOD $ (1,150) $ 23,320
============= ============
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 6,935 $ 635
Cash paid for income taxes - -
See Accompanying Notes
6
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED AUGUST 31, 2001 and AUGUST 31, 2000
(Unreviewed)
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 Fresh, Living Silk[TM] and Silk Botanicals[TM] in
the wholesale market. The majority 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 4 for 1
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.
7
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTER ENDED AUGUST 31, 2001 and AUGUST 31, 2000
(Unreviewed)
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.
8
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTER ENDED AUGUST 31, 2001 and AUGUST 31, 2000
(Unreviewed)
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 August 31, 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 August 31, 2001 and August 31, 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 August 31, 2001 and August 31, 2000.
9
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTER ENDED AUGUST 31, 2001 and AUGUST 31, 2000
(Unreviewed)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Marketing:
- ---------
Marketing costs ($30,574 and $9,410 for the quarters ended August 31, 2001
and August 31, 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
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.
10
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTER ENDED AUGUST 31, 2001 and AUGUST 31, 2000
(Unreviewed)
3. PROPERTY AND EQUIPMENT
Property and Equipment consists of the following as of August 31, 2001:
Computer equipment $ 3,501
Less: Accumulated depreciation (2,089)
--------
$ 1,412
4. RELATED PARTY TRANSACTIONS
The Company purchases the majority of its silk botanical products from an
established manufacturer 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 Company and its 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
Silk[R] and Silk Botanicals[TM], and for certain manufacturing processes. The
Company was owed by the Manufacturer $188,779 at August 31, 2001, which is
recorded as an accounts receivable, for operational expenses. During the
quarters ended August 31, 2001 and August 31, 2000, the Company paid $201,261
and $122,022, respectively, to the Manufacturer for cost of goods sold.
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
11
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTER ENDED AUGUST 31, 2001 and AUGUST 31, 2000
(Unreviewed)
5. LICENSE RIGHTS (continued)
materials of Forever Fresh[R] 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 Fresh[R] 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 Fresh[R] products sold to any third party. At August 31,
2001 license rights of $26,570 are presented net 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 Silk and Silk Botanicals[TM]
products. As consideration for the license agreement, the Company issued
preferred stock to the Manufacturer valued at $190,000. Since the transaction
was a non-monetary 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 Silk[TM] or Silk Botanicals[TM] 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 Silk[TM] and Silk
Botanicals[TM] 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.
12
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED AUGUST 31, 2001 and AUGUST 31, 2000
(Unreviewed)
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 non-assessable 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 and issued 2,444,532 shares of
Series 2000A convertible preferred stock, pursuant to an agreement between
the Company and a third party. 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
August 31, 2001 are $2,850.
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.
13
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED AUGUST 31, 2001 and AUGUST 31, 2000
(Unreviewed)
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses was $117,136 at August 31, 2001.
8. OTHER CURRENT LIABILITIES
Other current liabilities consists of credit card debt at 15.4% as of August
31, 2001.
9. COMMITMENTS - RELATED PARTY
The Company has a lease, which expires at 2004, 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 August 31, 2001 and August
31, 2000, rental expenses incurred were $5,000 and $5,000, respectively.
Minimum future rental payments under the non-cancelable operating lease as
of August 31, 2001 are as follows:
2001 - $ 6,667 2002 - $20,000 2003 - $20,000 2004 - $16,667
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.
14
Item 2. Results of Operations and Management's Discussion & Analysis of
Financial Condition
---------------------------------------------------------------
1.) Sales Revenues for the first quarter ending August 31, 2001 increased to
$301,307 which was a 81.9% increase over Sales Revenue for the first quarter
ending August 31, 2000 of $165,682. Cost of Goods Sold was 69.8%, compared to
73.6% last year, producing a Gross Profit of $91,406, compared to $43,660 last
year, which was a 109% increase in Gross Profit. The Net Income was $13,679
this year, compared to ($3,920) last year.
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 and its 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 capabilities 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.
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 a third party, for
services to be performed.
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 a
third party.
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).
6.) On August 21, 2001, The Company filed an S-8 Registration Statement,
setting forth the number of shares of common stock issued or authorized
to be issued pursuant to consulting and/or employment agreements. As of
August 31, 2001, 9,000 shares of common stock were issued pursuant to this
Registration Statement.
7.) Subsequent Events. In October, 2001, The Company's stock was delisted
from OTC BB for failure to file Form 10KSB within the reporting requirements.
The 10KSB was filed on November 30th, 2001. The Company plans to reapply
simultaneously with the filing of 10-Q-SB.
On October 30, 2001, the Company began negotiations of intent with a European
limited liability company (the "LLC") to acquire certain assets of the LLC in
exchange for the Company's common stock in a tax-free reorganization. The
LLC will transfer the assets to a newly-formed subsidiary of the Company, and
the Company will issue restricted common stock to the LLC in an amount to be
determined so that, following the consummation of the transaction, the LLC
will own a majority of the issued and outstanding preferred and common stock
of the Company.
Both the Company and the LLC will also consider measures to prevent the
current shareholders of the Company from being further diluted by this
contemplated 1:2 reverse stock split after the closing.
16
PART II
-------
Item 1. Legal Proceedings
-----------------
None.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
Yes, See Form S8 filed 8/21/2001 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 S8 filed with the
Securities & Exchange Commission on August 21, 2001, no matter was
submitted during the quarter ending August 31, 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 (3) 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 (3) 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 (3) 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 (3) 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 Restaurant 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)
- ----------------------------------
(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.
(3) Incorporated herein by reference to the Company's Form 10-QSB
for the period ended February 28, 2001 and filed on April 13, 2001.
(b) One (1) report on Form S8 were filed during the quarter ended
August 31, 2001. It was filed on August 21, 2001. The Form S8 was
filed to set forth the number of shares of common stock issued or
authorized to be issued to consulting and/or employment agreements.
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: December 4, 2001
19