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 November 30, 2001
Commission file number 0-21 725
SILK BOTANICALS.COM, INC.
------------------------------------------------------
(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
----------------------------------------
(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
FOR THREE MONTHS AND SIX MONTHS ENDED NOVEMBER 30, 2001
AND THREE MONTHS AND SIX MONTHS ENDED NOVEMBER 30, 2000
TABLE OF CONTENTS
-----------------
Page
----
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
Independent Accountants' Review Report
- --------------------------------------
To the Board of Directors of 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 November 30, 2001 and the related statements of
operations for the three month and six month periods ended November 30, 2001
and November 30, 2000. We have also reviewed the related statements of cash
flows for the six-month periods ended November 30, 2001 and November 30,
2000, as well as the related statements of changes in stockholders' equity
(deficit) for the years ended May 31, 2001 and 2000, and for the six month
period ended November 30, 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.
January 11, 2002
2
SILK BOTANICALS.COM, INC.
BALANCE SHEET
November 30, 2001
ASSETS
CURRENT ASSETS:
Cash $ 12,916
Accounts receivable (net of allowance for 180,905
doubtful accounts of $20,000)
Inventory 365,345
Prepaid expenses 4,662
-----------
Total Current Assets 563,828
-----------
PROPERTY & EQUIPMENT, (net of 1,121
accumulated depreciation of $2,360)
OTHER ASSETS:
License rights (net of valuation allowance & 24,800
accumulated amortization)
Prepaid Investment Banking Services 121,142
Deferred tax asset 5,825
------------
Total Other Assets 151,767
------------
TOTAL ASSETS $ 716,715
============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 88,568
Accounts Payable due to asset-based lender 150,393
Note payable 25,000
Income taxes payable 29,679
------------
Total Current Liabilities 293,640
------------
TOTAL LIABILITIES 293,640
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 -
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,
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, 102,104 shares issued and outstanding 102
Subscribed capital 35,000
Additional paid-in capital 984,707
Deficit accumulated during the development stage (699,126)
Retained earnings 95,903
Total Stockholders' Equity 423,076
------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 716,715
============
See Accompanying Notes
3
SILK BOTANICALS.COM, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED NOVEMBER 30, 2001 AND
THREE MONTHS AND SIX MONTHS ENDED NOVEMBER 30, 2000
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
NOV. 30 NOV. 30 NOV. 30 NOV. 30
2001 2000 2001 2000
---------- ---------- ---------- ----------
SALES $ 259,235 $ 174,601 $ 560,542 $ 340,283
COST OF SALES 183,641 126,947 393,902 248,969
---------- ---------- ---------- ----------
GROSS PROFIT 75,595 47,654 166,640 91,314
---------- ---------- ---------- ----------
MARKETING EXPENSES 25,432 6,755 56,180 16,166
GENERAL AND ADMINISTRATIVE
EXPENSES 10,548 19,633 52,957 57,167
INCOME FROM OPERATIONS 39,613 21,266 57,502 17,981
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSES):
OTHER INCOME 1,562 - 4,287 -
INTEREST EXPENSE (17,303) (740) (24,240) (1,375)
---------- ---------- ---------- ----------
INCOME BEFORE PROVISION FOR
INCOME TAXES 23,872 20,526 37,549 16,606
Provision for Income Taxes 7,422 - 7,422 -
---------- ---------- ---------- ----------
NET INCOME $ 16,450 $ 20,526 $ 30,127 $ 16,606
========== ========== ========== ==========
ACCUMULATED DEFICIT,
BEGINNING OF PERIOD: $ (627,651) $ (672,955) $ (627,651) $ (672,955)
---------- ---------- ---------- ----------
Preferred Stock Dividend: (2,850) (2,850) (5,700) (2,850)
ACCUMULATED DEFICIT, END
OF PERIOD: $ (614,051) $ (655,279) $ (603,224) $ (659,199)
Earnings per share
(after preferred dividends):
Basic & diluted $ 0.17 $ 0.20 $ 0.42 $ 0.15
---------- ---------- ---------- ----------
Weighted average shares
Outstanding -
basic & diluted 79,211 89,286 58,778 89,286
========== ========== ========== ==========
See Accompanying Notes
4
SILK BOTANICALS.COM, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
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 (5,700) (5,700)
Issuance S8 Shares - - 51,571 52 103,090 - - 103,142
Conversion of subscribed capital 10,000 10 (10) -
Net Income - - - - - - 30,127 30,127
---------- -------- ---------- -------- ---------- ---------- -------- ---------
BALANCE, NOV. 30, 2001 6,489,119 $ 6,490 102,104 102 $1,019,707 $ (699,126) $ 95,902 $ 423,075
========== ======== ========== ======== ========== ========== ======== =========
See Accompanying Notes
5
SILK BOTANICALS.COM, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED NOVEMBER 30, 2001 AND NOVEMBER 30, 2000
SIX MONTHS ENDED
NOV. 30 NOV. 30
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 30,127 $ 16,606
Adjustments to Reconcile Net Income (Loss)
To Net Cash Used in Operating Activities:
Depreciation and amortization 582 4,122
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (14,797) 28,355
Decrease in due from related parties 115,226 -
(Increase) in inventory (313,053) (38,430)
(Increase) decrease in other assets (1,100) 1,000
(Decrease)in accounts payable and
Accrued expenses (31,069) (1,337)
Increase in accounts payable due asset-based
Lender 150,393 -
(Decrease) in due to related parties - (30,576)
Increase in other current liabilities 30,700 20,456
------------ ------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ (32,991) $ 196
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock $ 62 $ -
Receipt of Stock Subscription 35,000 -
Receipt of additional paid-in capital 12,383 -
Preferred stock dividend (5,700) (5,700)
------------ ------------
NET CASH PROVIDED BY (USED IN ) FINANCING
ACTIVITIES $ 41,744 $ (5,700)
------------ ------------
NET INCREASE (DECREASE) IN CASH $ 8,754 $ (5,504)
CASH AT BEGINNING OF PERIOD 4,162 13,445
------------ ------------
CASH AT END OF PERIOD $ 12,916 $ 7,941
============ ============
SUPPLEMENTAL DISCLOSURES:
Relating to investing and financing not
affecting cash flow:
Services rendered S-8 registration $ 121,242 -
Common stock issued for above registration 121,242
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 24,240 $ 1,375
Cash paid for income taxes - -
See Accompanying Notes
6
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS ENDED NOVEMBER 30, 2001 AND
THREE MONTHS AND SIX MONTHS ENDED NOVEMBER 30, 2000
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[R], 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 perations.
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 1 for
70 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 THREE MONTHS AND SIX MONTHS ENDED NOVEMBER 30, 2001 AND
THREE MONTHS AND SIX MONTHS ENDED NOVEMBER 30, 2000
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 THREE MONTHS AND SIX MONTHS ENDED NOVEMBER 30, 2001 AND
THREE MONTHS AND SIX MONTHS ENDED NOVEMBER 30, 2000
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 November 30, 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 November 30, 2001 and November 30, 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 November 30, 2001 and November 30, 2000.
9
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS ENDED NOVEMBER 30, 2001 AND
THREE MONTHS AND SIX MONTHS ENDED NOVEMBER 30, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Marketing:
- ----------
Marketing costs ($ 25,432 and $6,755 for the quarters ended November 30, 2001
and November 30, 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.
10
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS ENDED NOVEMBER 30, 2001 AND
THREE MONTHS AND SIX MONTHS ENDED NOVEMBER 30, 2000
3. PROPERTY AND EQUIPMENT
Property and Equipment consists of the following as of November 30, 2001:
Computer equipment $ 3,481
Less: Accumulated depreciation (2,360)
-------
$ 1,121
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
Silkr and Silk Botanicals[TM], and for certain manufacturing processes. During
the quarters ended November 30, 2001 and November 30, 2000, the Company paid
$183,641 and $126,947 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 materials of Forever Fresh[R] from a third party
manufacturer and distributor in
11
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS ENDED NOVEMBER 30, 2001 AND
THREE MONTHS AND SIX MONTHS ENDED NOVEMBER 30, 2000
5. LICENSE RIGHTS (continued)
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 November 30,
2001 license rights of $24,800 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 THREE MONTHS AND SIX MONTHS ENDED NOVEMBER 30, 2001 AND
THREE MONTHS AND SIX MONTHS ENDED NOVEMBER 30, 2000
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 2, 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
November 30, 2001 are $5,700.
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 THREE MONTHS AND SIX MONTHS ENDED NOVEMBER 30, 2001 AND
THREE MONTHS AND SIX MONTHS ENDED NOVEMBER 30, 2000
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses was $238,961 at November 30, 2001.
8. OTHER CURRENT LIABILITIES
Other current liabilities consists of a note payable of $25,000 and Income
taxes payable of $29,679 as of November 30, 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 November 30, 2001 and
November 30, 2000, rental expenses incurred were $5,000 and $5,000,
respectively. Minimum future rental payments under the non-cancelable
operating lease as of November 30, 2001 are as follows:
2001 - $ 1,667 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 three months ending November 30, 2001 were
$259,235, which was a 48.5 % increase over Sales Revenue for the three months
ending November 30, 2000 of $174,601. Cost of Goods Sold was 70.8%, compared
to 72.7% last year, producing a Gross Profit of $75,595, compared to $47,654
last year, which was a 58.6% increase in Gross Profit. The Net Operating
Income was $23,872 this year, compared to $20,526 last year.
Sales Revenues for the six months ending November 30, 2001 increased to
$560,542 which was a 64.7% increase over Sales Revenue for the six months
ending November 30, 2000 of $340,283. Cost of Goods Sold was 70.3%, compared
to 73.2% last year, producing a Gross Profit of $166,640, compared to $91,314
last year, which was a 82.5% increase in Gross Profit. The Net Operating
Income was $37,549 this year compared to $16,606 last year.
The increase in sales and gross profit for the three-month and six-month
periods this year was due to an increase in demand for the product and lower
unit operating costs and economies of scale.
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.
15
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 2, 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.
16
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 was a one-for-seventy 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 November
30, 2001, 60,571 shares of common stock were issued pursuant to this
Registration Statement.
7.) On October 20, 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 reapplied after the filing of 10-Q-
SB on December 3rd, 2001. On January 3, 2002, the Company was cleared to
begin trading on the OTC BB Exchange.
8.) Subsequent Events: On January 7, 2002, The Company purchased certain
assets and business opportunities from BTSL Technologies Limited ("BTSL"),
an Irish limited liability company, in exchange for 20,000,000 shares of the
Company's common stock in a tax-free reorganization. The transaction was
approved by consent of a majority of the Company's shareholders.
The purchased assets will become a newly formed Irish-based subsidiary of the
Company called TecEnergy Limited. BTSL current management will continue to
operate this portion of the business. A second subsidiary will be formed
called "Decorative Accessories International" consisting of the Company's
existing business.
17
PART II
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
Yes, 51,571 shares were issued pursuant to 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 November 30, 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.
18
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, filed on April 13, 2001.
19
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. Bergmann, President
Date: January 11, 2002
20