SCHEDULE 14C
(RULE 14c-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(c) OF THE SECURITIES
EXCHANGE ACT OF 1934
Check the appropriate box:
[X ] Preliminary information [ ] Confidential, for use of the
statement Commission Only (as permitted
by Rule 14c-5(d)(2))
[ ] Definitive information statement
SILK BOTANICALS.COM, INC.
- ------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g)
and 0-11
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price of other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or schedule
and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
1
Preliminary Information Statement
Dated: June 12, 2002
Silk Botanicals.Com, Inc.
975 S. Congress Avenue, Suite 102
Delray Beach, Florida 33445
INFORMATION STATEMENT
This Information Statement is furnished to shareholders of Silk
Botanicals.Com, Inc., a Florida corporation, ("Silk") in connection
with certain corporate actions approved by the majority consent of
shareholders on December 5, 2001 and January 24, 2001. The corporate
actions have already been effected by Silk as of December
5, 2001 (acquisition of assets of BTSL Technologies Limited and
appointment of two new directors) and as of February 8, 2002 (name
change) and information concerning these actions is being provided
pursuant to Rule 14f-1 and Rule 14c-101 of the Securities Exchange
Act of 1934 ("Exchange Act"). All of the corporate actions were
unanimously approved and recommended by the board of directors of
Silk who obtained the consent of the majority of Silk's shareholders
to the actions.
The corporate actions (hereafter the "Corporate Actions")
provide for the following matters.
1. The acquisition of all of the assets of BTSL Technologies
Limited, an Irish limited liability company ("BTSL"), pursuant to the
terms of an Asset Purchase Agreement dated December 5, 2001 (the
"Acquisition Agreement"). Under the terms of the Acquisition
Agreement, Silk acquired the assets of BTSL and transferred the assets
into a newly formed, wholly owned subsidiary of Silk, and the
shareholders of BTSL received an aggregate of twenty million
(20,000,000) shares of Silk's common stock (the "Acquisition") at
January 6, 2002, the date of closing of the transaction (the
"Closing"). The twenty million (20,000,000) shares represented 87.8%
of the then issued and outstanding shares of Silk at the Closing.
2. The appointment as of December 5, 2001 of the following
nominees to serve as the directors of Silk in connection with the
Acquisition: Joseph R. Bergmann, Tim Coburn and Padraic Maloney.
3. The amendment to the articles of incorporation of Silk as of
February 28, 2002 to change the name of Silk to Consolidated
Resources Group, Inc.
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ONLY SHAREHOLDERS OF RECORD AT THE CLOSE OF BUSINESS ON May 2, 2002
(THE"RECORD DATE"), WERE ENTITLED TO NOTICE OF AND TO VOTE ON THE
CORPORATE ACTIONS. MEMBERS OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
WHO, COLLECTIVELY HOLD IN EXCESS OF 50% OF SILK'S ISSUED AND
OUTSTANDING SHARES HAVE VOTED IN FAVOR OF THE CORPORATE ACTIONS. AS A
RESULT, THE CORPORATE ACTIONS HAVE BEEN APPROVED WITHOUT THE
AFFIRMATIVE VOTE OF ANY OTHER SHAREHOLDER.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US
A PROXY.
3
CORPORATE ACTIONS
Introduction
- ------------
Silk has acquired (the "Acquisition") all of the assets (the
"Assets") of BTSL Technologies Limited ("BTSL"), an Irish limited
liability company, through the issuance of shares of its Common
Stock to BTSL. As part of the Acquisition, Silk has created a
wholly owned Irish limited liability company subsidiary
("TecEnergy Limited") into which the Assets were assigned. The
appointment of Tim Coburn and Padraic Maloney on December 5,
2001, to serve as additional members of the board of directors of
Silk constituted a change of control of Silk on that date
Each of the Corporate Actions set forth below, except for the
name change, was a negotiated term of the Acquisition with BTSL.
The board of directors approved the Corporate Actions believing
they were in Silk's and its shareholders' best interest.
ACQUISITION
-----------
The acquisition of the Assets from BTSL by Silk resulted in a
change of control of Silk with shareholders and management of
BTSL assuming control positions in Silk. The acquisition of the
Assets resulted in 20,000,000 shares of Silk Common Stock being
issued to BTSL. Additionally, since the Acquisition Agreement was
entered, Silk has issued 8,356,844 shares of Silk Common Stock
for acquisitions and professional services. Silk may seek to
raise capital in the future, but, at this time, the terms of any
such future capital is still unknown. The raising of future
capital would likely have a dilutive effect on current
shareholders. After the acquisition of the Assets and the
issuance of 20,000,000 shares of Silk Common Stock to BTSL, there
were 22,765,455 shares of Silk Common Stock outstanding, and
1,533,687 shares of Silk Preferred Stock with voting rights of
one vote per share outstanding. Accordingly, the present
shareholders of Silk, including those who own the additional
8,356,844 shares of Silk Common Stock recently issued, had
approximately 73.1% of Silk's outstanding shares of Silk Common
Stock and Preferred Stock with voting rights following the
Acquisition.
Reasons for the Transaction
- ---------------------------
Silk has been focused on the development, marketing and
distribution of
three lines of high-quality artificial flowers. These efforts
have produced barely profitable operations. Silk has limited
resources and has had to rely on funds from its officers and
shareholders to support its operations. Its artificial flowers
operations are only now reaching a break-even point and without
additional capital to develop new markets management feels its
artificial flowers operations, will, at best, only continue to
break even or produce a slight profit. After an extensive review
of Silk's history, current operations and future prospects, the
board of directors and management of Silk believed it is in the
best interest of Silk and its shareholders to explore alternative
business opportunities. These efforts led to BTSL Technologies
Limited, which is located in Dublin, Ireland.
4
Neither Silk nor BTSL had any prior dealings, contracts or
arrangements with the other party. Joseph R. Bergmann, the
President of Silk, handled the negotiations by Silk to acquire
the Assets from BTSL. Mr. Bergmann did not seek the advise of
any other experts or advisors in the determination of the
consideration to be offered to acquire BTSL. The eventual number
of shares to be received by BTSL came after extensive
negotiations between the two parties. Given the present state of
both companies at the time of the negotiations with neither
profitable, much of the negotiations on consideration was based
on non- empirical data. Instead the parties relied on their own
business acumen to come to the terms of the deal and what each
party thought would be fair to their shareholders given the state
of the Silk and BTSL. The negotiations took place over several
months as both parties explored other business deals, none of
which advanced beyond initial discussions. Silk had explored
potential acquisitions in the silk floral industry or potential
sale to a company in the decorative home accessories industry but
found no interest. Eventually the board of directors of the two
companies decided the acquisition by Silk of the Assets from BTSL
was the best alternative. Both sides recognized the risk involved
in the acquisition given neither company was profitable and both
needed additional funding. However, in the end the board of
directors of Silk felt the deal with BTSL was in the best
interest of Silk and its shareholders and BTSL's board of
directors felt the offer by Silk greatly enhanced BTSL's
potential to fulfill the opportunities provided by the Assets,
and was in the best interest of BTSL and its shareholders.
5
Although BTSL is in the beginning cycle of its product development,
the board of directors and management of Silk reviewed BTSL's
industry, its management, and products and decided it presented an
opportunity for potential growth that was not present in Silk's
current business. With BTSL having commenced product development on
several products, Silk's board of directors and management believed it
would be the right time to structure a deal with BTSL before it
started full product development and marketing efforts. Silk's board
of directors and management did weigh the potential risks associated
with a transaction with BTSL. However, after reviewing the potential
market for BTSL products, and Silk's current financial position,
Silk's board of directors and management believed the potential risks
associated with BTSL and its operations were outweighed by the
potential upside in BTSL's business. Additionally, Silk's board of
directors and management believed BTSL was the best business
opportunity the management of Silk had found in which a deal was
possible. Silk's management had found that Silk was somewhat limited
in potential deals based on Silk's own financial position.
Even in considering a transaction with BTSL, one of the requirements
was additional capital be raised to help fund BTSL's operations. Given
Silk's past performance in the artificial flowers industry, management
of Silk did not feel it was feasible to continue to raise capital for
the artificial flowers operations. However, after discussing BTSL and
its business with potential investors, Silk's management did find
interest in financing BTSL's business through Silk. The board of
directors and management felt the potential benefits outweighed the
risk of entering into a transaction with a company like BTSL which did
not have a proven operation, had a negative working capital and no
revenue. The board of directors and management of Silk believes the
market being pursued by BTSL has growth opportunity, that BTSL has
products that will be well received by potential customers, and BTSL
is ahead of its competitors in the development of certain products,
particularly its oxygen generation and gasification products which
Silk's management believes have strong potential.
Silk is and was limited in its ability to perform extensive research
on BTSL's product capabilities and future market potential given
Silk's limited resources. The ultimate decisions were based on a
belief in BTSL's management, discussions with potential customers of
BTSL and a review of existing and potential contracts held and being
sought by BTSL. Additionally, Silk's decisions were based on the
current state of Silk's business and financial position and the need
to move in another direction than the artificial flowers market.
Terms of the Acquisition
- ------------------------
On December 5, 2001, Silk entered into an Asset Purchase Agreement
with BTSL. Pursuant to the terms of the Acquisition Agreement, Silk
acquired the assets of BTSL through the exchange of twenty million
(20,000,000) shares of Silk Common Stock for all of BTSL's assets.
BTSL's business will be the main focus of Silk's operations going
forward. Management of BTSL will also assume similar roles with Silk.
The current director, Joseph R. Bergmann, and management of Silk
remained at the closing of the transaction, and Tim Coburn and Padraic
Maloney were appointed to fill vacancies as directors on December 5,
2001. Additional negotiated terms of the Acquisition call for the
appointment of two additional directors.
6
At the time of the negotiations with Silk, both Silk and BTSL were
looking at several financing alternatives. It is anticipated that
additional capital will need to be raised. At this time, the terms of
any future capital raising are not known. Current investors in BTSL
and Silk may be interested in making further investments but no
discussions have been had with current investors on whether they would
be interested in making further investments, and if so, on what terms
they would make the investments.
Upon completion of the Acquisition, Silk had the following shares of
Silk Common Stock and Voting Preferred Stock outstanding:
Class of Shareholder Shares of Silk Common Stock Percentage
- -------------------- --------------------------- ----------
Shareholders of 1,533,687 6.3%
Silk (Voting Preferred)
Shareholders of
Silk (Common) 2,765,455 11.4%
BTSL 20,000,000 82.3%
---------- ------
Total 24,299,142 100.00%
There are no provisions in the Acquisition Agreement or otherwise
which restrict the new management of Silk, following the Acquisition,
from issuing stock options or awards which would provide additional
dilution to current shareholders. There are no warrants and options
outstanding in Silk other than those reported in Silk's Form 10-KSB
for the period ended May 31, 2001.
Although current shareholders will be diluted by the acquisition, the
board of directors and management of Silk believe this transaction is
in Silk's and its shareholders' best interests. By acquiring the
assets of BTSL, management believes Silk is receiving operations with
a business plan that offers more potential than Silk's current
business model. As Silk currently is barely profitable and does not
have the resources to expand its artificial flowers operations, the
board of directors and management feels this acquisition is important
to creating value in Silk for its shareholders. The Acquisition
provides BTSL with a public market for its Silk stock for the future
benefit of its current shareholders and to enhance BTSL's ability to
seek future funding of its operations.
Effective Date
- --------------
The Acquisition became effective upon January 6, 2002.
Conditions to the Acquisition
- -----------------------------
The obligation of Silk and BTSL to consummate the Acquisition were
subject to certain conditions, including the following:
1) BTSL had to pay $50,000 to Silk's auditors to enable the
completion and filing by Silk of reports on Form 10-QSB and Form 10-
KSB (which reports were filed), and BTSL paid an additional $200,000
to Silk for operating capital for Silk's artificial flower business.
2) The representations and warranties made by or on behalf of each of
the parties in the Acquisition Agreement or in any certificate or
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document delivered by a party pursuant to the provisions of the
Acquisition Agreement shall be true in all material respects at and as
of the Closing as though such representations and warranties were made
at and as of such time.
3) The parties shall each have performed and complied with all
covenants, agreements and conditions required by the Acquisition
Agreement to be performed or complied with prior to or at the Closing.
These conditions include Silk delivering financial information to
BTSL, and BTSL providing funds to allow Silk to complete its financial
reporting requirements to the SEC.
4) The present board of directors of Silk caused the appointment of
all BTSL nominees to the board of directors of Silk as directed by
BTSL and arranged for the retention of the existing officers and
director of Silk.
Representations and Warranties
- ------------------------------
Silk and BTSL have made certain representations and warranties to each
other with respect to, among other things, the organization and good
standing of each of Silk and BTSL, authorization of the Acquisition
Agreement, capitalization, stock ownership, validity and legality of
stock, ownership of assets, contractual and other commitments,
liabilities, financial statements, absence of material adverse
changes, disclosure of material facts, availability of certain
documents and records, accuracy of certain documents, and legal and
other proceedings. Each party verified the accuracy of these
representations up through the Closing of the Acquisition.
Expenses
- --------
Silk and BTSL each paid their own expenses of the Acquisition.
Presently, the only expenses of the parties are for legal, accounting,
printing and mailing cost. Silk's costs were approximately $20,000
for legal and accounting, and Silk estimates its printing and mailing
cost to be around $2,000 but may be higher. BTSL's legal and
accounting costs were approximately $20,000. Neither party paid
outside consultants to assist in the acquisition other than the
attorneys and accountants.
Accounting Treatment
- --------------------
The Acquisition of Assets is accounted for as a "reverse acquisition"
which results in a recapitalization treatment on the financial
statements of Silk with BTSL deemed to be the acquiring entity for
financial accounting purposes. The legal status of Silk as the parent
corporation will not change.
Regulatory Approval
- -------------------
No specific federal or state regulatory approvals must be obtained by
Silk in order to consummate the Acquisition other than general
compliance with applicable corporation law and state and federal
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securities laws.
BTSL Reasons for the Acquisition
- --------------------------------
BTSL has been in need of capitalization to continue to develop its
products. BTSL's board of directors and management had reviewed
several financing possibilities and believed that the potential to
raise capital through the sale of securities and the ability to
potentially have a trading market for those securities was in the best
interest of BTSL's shareholders.
Interest of Certain Persons in the Acquisition
- ----------------------------------------------
In considering the recommendation of Silk's board of directors and
management with respect to the Acquisition Agreement, neither Silk's
board of directors or management nor BTSL's board of directors or
management will receive any benefits arising from their ownership of
Silk's common stock as a result of the acquisition that will not be
equally extended to all of Silk's and BTSL's shareholders. No member
of Silk's management had an ownership interest in BTSL, and BTSL
shareholders had no material ownership interest in Silk prior to the
completion of the acquisition. Management and employees of both Silk
and BTSL may receive options in Silk for ongoing services to Silk.
Tax Aspects of the Acquisition
- ------------------------------
The proposed acquisition of BTSL by Silk is intended to qualify as a
tax-free reorganization under the Internal Revenue Code of 1986. If
the acquisition qualifies as a tax-free reorganization, no gain or
loss will be recognized for income tax purposes by either Silk or BTSL
as a result of the acquisition. There will not be any material tax
effects on Silk's existing shareholders after the merger. However,
neither Silk nor BTSL has requested a tax ruling from the Internal
Revenue Service with respect to the merger. Accordingly, no assurance
can be given that the merger will qualify as a tax-free
reorganization. If the acquisition does not qualify for tax free
treatment, BTSL will be deemed to have sold its Assets for Silk stock
and be taxed on the difference between their basis in BTSL Assets and
the value of the Silk stock. Silk shareholders should have no tax
effect since they are not receiving any new shares.
Restricted Nature of Securities
- -------------------------------
The shares of Silk's Common Stock issued to BTSL in connection with
the sale of Assets will not be registered under the Securities Act of
1933, as amended (the "Act") and will be deemed "restricted
securities" as that term is defined in the Act. Accordingly, such
shares were issued in reliance on the exemption from such registration
requirements provided by Section 4(2) of the Act. BTSL has made
representations to Silk with respect to the acquisition of Silk's
shares, including that it has such knowledge and experience in
financial and business matters that he or she is capable of evaluating
the merits and risks of the prospective investment, such that Silk
reasonably believes that BTSL comes within the scope of the exemption.
Such shares will be restricted securities, and the certificates will
bear legends restricting their subsequent resale in the absence of
registration under the Securities Act or the availability of an
exemption therefrom. BTSL has been provided information regarding Silk
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and its business and financial condition including copies of Silk's
most recent annual report on Form 10-KSB for the year ended May 30,
2001.
No Dividends
- ------------
Silk has not paid dividends in the past and there are no
dividends in
arrears or interest due on Silk Securities.
ELECTION OF DIRECTORS
---------------------
In accordance with the terms of the Acquisition Agreement, the sole
director of Silk, Joseph R. Bergmann, agreed to appoint nominees of
BTSL to the board of directors to serve with Mr. Bergmann. BTSL
nominated Tim Coburn and Padraic Maloney for the board of directors.
The individuals will serve until the next annual shareholders' meeting
and until their successors are duly elected and qualified. Certain
biographical information on Joseph R. Bergmann and the appointees is
set forth below.
Joseph R. Bergmann, age 54, President, Chief Executive Officer and
Director, oversees the entire operation of Silk. He is responsible for
merchandising of products, as well as the formation and implementation
of the Company's marketing plans. From October 1990 to the present
Mr. Bergmann serves as President of JRB Enterprises Inc. Prior to his
tenure with JRB Enterprises, from 1986 to 1989 he was President of
Jewelmasters, Inc., a public multimillion dollar fine jewelry company.
Prior to Jewelmasters, from 1972 through 1986 Bergmann also served as
Senior Vice President of Federated Department Stores. Mr. Bergmann.is
a graduate of Queens College in New York with a degree in Economics.
Padraic Maloney, age 36, Director, has many business interests in
property, leisure and blood stock industries. He has been involved in
the waste industry for the past number of years and in 1998 founded a
company that carried out a feasibility study and completed research
and development for the manufacture of a refuse derived fuel in pellet
form for the production of electricity. This fuel consisted totally of
material such as garbage and other waste products which are in today's
world an unused source of energy. Mr. Maloney's knowledge and
experience in this field is a valuable asset to Silk.
Having qualified as an Engineer in 1985, Mr. Tim Coburn, age 40,
Director, was immediately recruited by a multinational company based
in Holland to spearhead international turnkey projects in various
countries. This involved extensive travel in the Middle East and
Africa, where he was responsible for the setting up of an integrated
project for the production of food. This involved the building of
state of the art production facilities, integrating these facilities
into one operation, and designing and developing a complete software
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system to monitor and control production operations. During this
period he became proficient in the Arabic language. In 1989, Mr.Coburn
was recruited by an Irish company, as Development Manager in charge of
all production facilities, where he successfully directed and
implemented several company reorganizations that resulted in
substantial increase in production, and a dramatic increase to
profitability.
In 1993, Mr. Coburn set up an environmental control system in Canada
for the monitoring of commercial greenhouses, and gained valuable
experience in environmental control regulations. He returned to
Ireland where he successfully directed and implemented several company
reorganizations, refinancing programs, and company turnabouts. He then
became a major shareholder in a precision engineering manufacturing
company, creating an international market in precision engineering
products. He has created an extensive marketing network worldwide
based on product development and customer satisfaction. In 1995 Mr.
Coburn met Jacques Ribesse, founder of Jarix Limited, an international
scientist and expert in the fields of gas and chemical engineering and
research. Together they have developed technologies for gas separation
and combustion.
MANAGEMENT
The names of Silk's executive officers and directors and the
positions held by each of them are set forth below:
Name Position
---- --------
Joseph R. Bergmann President, Secretary & Director
Padraic Maloney Director
Tim Coburn Director
The term of office of each director is one year and until his
successor is elected at Silk's annual shareholders' meeting and is
qualified, subject to removal by the shareholders. The term of office
for each officer is for one year and until a successor is elected at
the annual meeting of the board of directors and is qualified, subject
to removal by the board of directors.
Silk does not have a standing audit, nominating or compensation
committee. The size of Silk's board has not permitted the board of
directors to divide up some of the corporate governance provisions. It
is anticipated as BTSL's nominees assume control and the business
develops, that board of director committees will be formed. At this
time, however, the exact timing and the nature of such committees is
unknown. The enlarged board of directors has had five meetings with
most action handled through unanimous consents given the fact there
were only three directors.
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Biographical Information
- ------------------------
Biographical information with respect to each
of Silk's officers and directors has been set forth above.
EXECUTIVE COMPENSATION
The table below summarizes the annual compensation for services in all
capacities to the company for the (i) person(s) serving as our Chief
Executive Officer; and (ii) our four most highly compensated executive
officers other than the CEO as determined at May 31, 2001, the end of
Silk's last completed fiscal year:
NAME TITLE SALARY/FISCAL YR. BONUS AWARDS
- ---- ----- ----------------- ----- ------
Joseph R. Bergmann President $35,000.00 N/A N/A
(ii) Not applicable
Joseph R. Bergmann is also an officer and director of JRB Enterprises,
Inc. Together Silk and JRB Enterprises, Inc. have engaged in numerous
transactions including, but not limited to, a Manufacturing
Agreement, a Sub-Lease Agreement, and a Licensing Agreement. Mr.
Bergmann's role in these transactions was to negotiate and procure the
agreements and he received no compensation save for his income
received in the ordinary course of business.
For the Officers and Directors of JRB Enterprises, Inc. the following
outlines compensation received for the last three fiscal years:
NAME TITLE YEARS COMPENSATION PER YEAR
- ---- ----- ----- ---------------------
Joseph R. Bergmann Director 1996-2001 0
Joseph R. Bergmann President 1996-2001 $150,000
Regina M. Bergmann Director 1996-2001 0
Regina M. Bergmann Secretary 1996-2001 $ 25,000
Options/SAR Grants in Last Fiscal Year
- --------------------------------------
None
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Bonuses and Deferred Compensation:
- ---------------------------------
None
Compensation Pursuant to Plans:
- ------------------------------
None
Pension Table:
- -------------
Not Applicable
Other Compensation:
- ------------------
None
Compensation of Directors:
- -------------------------
Silk has no policy for compensation of Directors.
Termination of Employment and Change of Control Arrangement
- -----------------------------------------------------------
None of Silk's officers have employment contracts.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth certain information regarding the
beneficial ownership of the Company's common stock as of April 20,
2002, by (i) each person or entity known by the Company to be
beneficial owner of more than 5% of the outstanding shares of common
stock, (ii) each of the Company's directors and named executive
officers, and (iii) all directors and executive offices of the
Company as a group.
Amount and Nature of Percent of
Title of Class Name & Address Beneficial Owner Class
- -------------- -------------- -------------------- ----------
Common Joseph R. Bergmann 3,569,000 Shares(1) 10.9%
Stock 975 S. Congress Ave. President & Director
Delray Beach, Fl 33445
Common BTSL Technologies 20,000,000 Shares(2) 51.4%
Stock Limited
975 S. Congress Ave.
Delray Beach, Fl 33445
Common Graham Energy, Inc. 4,000,000 Shares 12.3%
Stock 975 S. Congress Ave.
Delray Beach, Fl 33445
Common Vance Energy Ltd. 3,316,000 Shares 10.2%
Stock 975 S. Congress Ave.
Delray Beach, Fl 33445
Common Directors & Officers 23,569,000 Shares 62.3%
Stock as a group (3 persons)
(1) Includes 1,000,000 shares of Series 2000 Convertible Preferred
stock convertible into 1,000,000 shares of Common Stock. Of this
number of Common Stock, 1,042,687 shares are issued to Joseph R.
Bergmann IRA.
(2) Tim Coburn and Padraic Maloney, directors of Silk, are also
managing directors of BTSL Technologies Limited.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Silk shares office facilities, certain office equipment and certain
employees with JRB Enterprises, Inc. At May 31, 1999, Silk had issued
1,900 shares of preferred stock to JRB Enterprises, Inc. for the
license rights to the trademark "Living Silk" and certain manufacturing
processes. JRB Enterprises, Inc. is owned by Joseph R. Bergmann,
President of Silk.
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On January 2, 2001 Silk and JRB Manufacturing, Inc. ("JRB"), the
primary manufacturer of Silk's silk botanical products (and which is
owned by Silk's President, Joseph R. Bergmann and his wife) entered
into a marketing, manufacturing and distribution agreement with an
established out-of-state assembler and
manufacturer of high quality artificial plants, trees and floral
arrangements.
On February 15, 2002, JRB Manufacturing, Inc. ("JRB")
and its two shareholders completed a Stock Purchase Agreement with
Silk regarding the sale of 100% of the outstanding shares of
JRB to Silk in exchange for 100,000 shares of Silk's common
stock in a tax-free reorganization. The transaction was effective as
of January 1, 2002. JRB has been Silk's primary manufacturer of its
silk botanical products, and Silk intends that JRB will continue to
do so. JRB's assets consist of certain inventory and equipment for
manufacturing silk botanical products. The main purpose of
the reorganization transaction was to simplify and consolidate Silk's
silk botanical products business.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Information Statement contains certain forward-looking statements
with respect to the financial condition, results of operations,
business strategies, operating efficiencies or synergies, competitive
positions, growth opportunities for existing products, plans and
objectives of management, markets for stock of Silk and other matters.
Statements in this Information Statement that are not historical facts
are hereby identified as "forward-looking statements." Such forward-
looking statements, including, without limitation, those relating to
the future business prospects, revenues and income, in each case
relating to Silk, wherever they occur in this Information Statement,
are necessarily estimates reflecting the best judgment of the
management of Silk and involve a number of risks and uncertainties
that could cause actual results to differ materially from those
suggested by the forward-looking statements. Such forward-looking
statements should, therefore, be considered in light of various
important factors, including those set forth in this Information
Statement. Important factors that could cause actual results to differ
materially from estimates or projections contained in the forward-
looking statements include without limitation:
the performance of Silk's products within, and the overall strength
of,
- - the prevailing business environment
- - customer acceptance of newly-introduced product lines
- - changes in the costs of raw materials and labor and advertising
- - the effects of vigorous competition in the markets in which Silk
intends to operate
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Words such as 'estimate', 'project', 'plan,' 'intend', 'expect',
'believe' and similar expressions are intended to identify forward-
looking statements. These forward-looking statements are found at
various places throughout this Information Statement. Silk's
stockholders are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date they were
made.
BUSINESS OF TECENERGY LIMITED
Introduction
- ------------
As a result of the Acquisition Agreement with Silk, the assets and
business opportunities owned by BTSL Technologies Limited ("BTSL") and
described below were assigned to the newly formed Irish company,
TecEnergy Limited, which is a 100% owned subsidiary of Silk. Four
subsidiary companies required to operate the business were
subsequently formed as wholly owned subsidiaries of TecEnergy Limited.
BTSL Technologies Limited ("BTSL") is an Irish Limited Company whose
principal business is the acquisition and development of proven
technologies and businesses with a high potential for future revenue
and profits. The focus of BTSL has been on two technologies,
Gasification and Oxygen Generation.
a. Gasification: The gasification process converts any carbon-
containing material into a synthesis gas composed primarily of
carbon monoxide and hydrogen, which can be used as a fuel to
generate electricity or steam or used as a basic chemical
building block for a large number of uses in the petrochemical
and refining industries. Gasification adds value to low- or
negative-value feed stocks by converting them to marketable
fuels and products.
b. Oxygen Generation: Oxygen Generation is the process of
separating oxygen from air using a Pressure Swing Adsorption
(PSA) or Vacuum Swing Adsorption system. Oxygen generators have
many uses in Medical (Hospital) and Industrial applications.
BTSL acquired registered worldwide patents and the technology
rights in the areas of Gasification, Oxygen Generation and other
products from a Belgium company, Jarix Scrl, that is owned and
managed by a European scientist, Mr. Jacques Ribesse. These products
were to be manufactured in Ireland by international engineering
manufacturing companies who have many years experience of exporting
products worldwide. BTSL intended to provide and operate a turnkey
solution for its customers.
BTSL had entered into a contract for the processing of certain
materials using its proprietary Gasification technology and was in
discussions with foreign governments that it is believed will result
in orders for the company's Oxygen Generation equipment.
BTSL had earlier agreed to form four operating subsidiary companies
for manufacture and sales of its products. These four subsidiaries
were subsequently formed as wholly owned subsidiaries of TecEnergy
Limited on completion of the Acquisition Agreement with Silk.
The Assets transferred to Silk include patents, equipment, prototypes
and the investments that were advanced to Silk which were part of the
acquisition transaction. The total orders pending approval by foreign
governments approximates US $7,500,000.
The Assets transferred to Silk include operating expenses related to
the patents and development costs. For further information on the
Acquisition Agreement and the Assets, see Silk's Form 10-QSB for the
quarter ending February 28, 2002 and its Form 8-KA filed January 16,
2002.
16
VOTE
----
Silk received the votes of 4,042,687 shares of its issued and
outstanding shares totaling 97.1% of its 4,159,713 outstanding shares
on December 5, 2001, the record date, to approve (a) the acquisition
of all of the assets of BTSL, pursuant to the terms of an Asset
Purchase Agreement dated December 5, 2001, and (b) the appointment of
Tim Coburn and Padraic Maloney to serve as directors of Silk. All
shareholders who voted on the transaction were contacted by Joseph R.
Bergmann who received no compensation for contacting the shareholders.
AMENDMENT TO THE ARTICLES OF INCORPORATION-NAME CHANGE
------------------------------------------------------
Subsequent to completion of the Acquisition, Silk's board of directors
and management agreed that a corporate name change would be beneficial
for Silk and recommended amending the articles of incorporation to
change its name to "Consolidated Resources Group, Inc." The articles
of incorporation have been amended to change the name to "Consolidated
Resources Group, Inc."
Silk wanted to change the corporate name to better reflect the changed
nature of its business after the Acquistion, and to reflect the fact
that the technologies acquired in the Assets are applicable to natural
resources.
Silk received the votes of 24,042,687 shares of its issued and
outstanding shares totaling 99.5% of its 24,159,713 outstanding shares
on January 24, 2002, to approve the corporate name change set forth
herein at Exhibit A below and the name change was effected on February
8, 2002. All shareholders who voted on the transaction were contacted
by Joseph R. Bergmann who received no compensation for contacting the
shareholders.
FURTHER INFORMATION
-------------------
Attached below for your convenient reference are:
(1) ARTICLE OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF
SILK BOTANICALS, INC. (EXHIBIT A)
(2) COMPANY AUDITED FINANCIAL STATEMENTS FOR YEARS ENDED MAY 31,
2001 AND 2000 (EXHIBIT B)
(3) COMPANY UNAUDITED FINANCIAL STATEMENTS FOR FEBRUARY 28, 2002
(EXHIBIT C)
(4) BTSL TECHNOLOGIES LIMITED FINANCIAL STATEMENTS FOR THE PERIOD
ENDED DECEMBER 31, 2001, AND (b) COMPANY UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL DATA AS OF NOVEMBER 30, 2001
(EXHIBIT D)
All references to each document referred to in this Information
Statement are qualified in their entirety by reference to the complete
contents of such document. Additional information concerning Silk,
including its annual and quarterly reports for the past twelve months
which have been filed with the Securities and Exchange Commission, may
be accessed through the Securities and Exchange Commission's EDGAR
archives at www.sec.gov.
Silk Botanicals.Com, Inc.
By order of the Board of Directors
Joseph R. Bergmann, President
Delray, Florida
June 12, 2002
17
EXHIBIT A
ARTICLE OF AMENDMENT
TO THE ARTICLES OF INCORPORATION OF
SILK BOTANICALS.COM, INC.
1. The following provision of the Articles of Incorporation of
Silk Botanicals.Com, Inc., a Florida corporation (the
"Company") filed in Tallahassee on November 20, 1998, and
pursuant to Sections 607.0704, 607.0726, 607.1001 and 607.1003
of the Florida Business Corporation Act, be and hereby is
amended to read as follows:
ARTICLE FIRST be and hereby is amended to read as follows:
The name of the corporation is Consolidated Resources
Group, Inc.
2. The foregoing amendment was adopted by a majority of the
Company's Shareholders on the 24th of January, 2002, in
accordance with the provisions of the Florida Business
Corporation Act. The number of votes cast by the shareholders
were sufficient for approval.
IN WITNESS WHEREOF, the undersigned President and Secretary of the
Company has executed this Article of Amendment on the 26th day of
January, 2002.
SILK BOTANICALS.COM, INC.
______________________________
Joseph R. Bergman,
President and Secretary
[notary acknowledgment]
EXHIBIT B
---------
SILK BOTANICALS.COM, INC.
FINANCIAL STATEMENTS
YEARS ENDED
MAY 31, 2001 AND 2000
Exhibit B
TABLE OF CONTENTS
-----------------
Page
----
Independent Auditor's Report F-1
Financial Statements:
Balance Sheets F-2
Statements of Operations F-3
Statements of Changes in Stockholders' Equity (Deficit) F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6 - F-15
Exhibit B
[MICHAELSON & CO., P.A. LETTERHEAD]
Independent Auditor's Report
- ----------------------------
To the Board of Directors and Stockholders
of Silk Botanicals.Com, Inc.
Delray Beach, Florida
We have audited the accompanying balance sheets of Silk
Botanicals.Com, Inc. (a Florida corporation) as of May 31, 2001 and
2000 and the related statements of operations, changes in
stockholders' equity (deficit), and cash flows for the years then
ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Silk
Botanicals.Com, Inc. as of May 31, 2001 and 2000 and the results of
its operations and its cash flows for the fiscal years then ended, in
conformity with accounting principles generally accepted in the United
States of America.
/s/ Michaelson & Co., P.A.
West Palm Beach, Florida
November 29, 2001
Exhibit B - F-1
SILK BOTANICALS.COM, INC.
BALANCE SHEETS
MAY 31, 2001 AND 2000
ASSETS
2001 2000
------------ ------------
CURRENT ASSETS:
Cash $ 4,162 $ 13,445
Accounts receivable (net of allowance
for doubtful accounts of $20,000 and $4,000 166,246 121,582
at May 31, 2001 and 2000, respectively)
Accounts receivable - related party 115,226 -
Inventory 52,174 62,338
Other current assets - 3,275
------------ ------------
Total Current Assets 337,808 200,640
------------ ------------
PROPERTY & EQUIPMENT, net of accumulated
depreciation of $1,778 and $614 at
May 31, 2001 and 2000, respectively) 1,703 2,867
OTHER ASSETS:
License rights (net of valuation allowance
& accumulated amortization) 28,340 35,420
Other assets 8,270 1,165
------------ ------------
Total Other Assets 36,610 36,585
------------ ------------
TOTAL ASSETS $ 376,121 $ 240,092
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 50,652 $ 7,194
Accounts payable due to factors 31,820 -
Income taxes payable 24,221 3,927
Accounts payable due to related party - 30,972
Other current liabilities 36,922 13,242
------------ ------------
Total Current Liabilities 143,615 55,335
------------ ------------
TOTAL LIABILITIES 143,615 55,335
STOCKHOLDERS' EQUITY (DEFICIT):
Series A preferred stock, $.001 par value,
1,900 shares authorized, issued and
outstanding 2 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 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, 31,533 shares issued and
outstanding 31 31
Additional paid-in capital 853,636 853,636
Deficit accumulated during the development stage (699,126) (699,126)
Retained earnings 71,475 26,171
------------ ------------
Total Stockholders' Equity (Deficit) 232,506 184,757
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) $ 376,121 $ 240,092
============ ============
See Independent Auditor's Report and Accompanying Notes
Exhibit B - F-2
SILK BOTANICALS.COM, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MAY 31, 2001 AND 2000
2001 2000
------------- ------------
SALES $ 1,053,857 $ 690,621
COST OF SALES 789,225 499,399
------------- ------------
GROSS PROFIT 264,632 191,222
------------- ------------
MARKETING EXPENSES 36,545 63,331
GENERAL AND ADMINISTRATIVE EXPENSES 142,464 88,129
------------- ------------
INCOME FROM OPERATIONS 85,623 39,762
------------- ------------
OTHER INCOME/(EXPENSES):
Interest Expense (16,135) (2,279)
------------- ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 69,488 37,483
Provision for Income Taxes 15,634 2,762
------------- ------------
NET INCOME 53,854 34,721
ACCUMULATED DEFICIT, BEGINNING OF PERIOD (672,955) (699,126)
Preferred Stock Dividend (8,550) (8,550)
------------- ------------
ACCUMULATED DEFICIT, END OF PERIOD $ (627,651) $ (672,955)
============= ============
Earnings per share (after preferred
dividends):
Basic and diluted $ 0.69 $ 0.39
============= ============
Weighted average shares outstanding
- basic & diluted 65,222 89,286
============= ============
See Independent Auditor's Report and Accompanying Notes
Exhibit B - F-3
SILK BOTANICALS.COM, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED MAY 31, 2001 AND 2000
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 preferred 4,042,687 4,043 (4,042,687) (4,043) - - - -
stock 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
========== ========= ========== ========= ========== =========== ========== ==========
See Independent Auditor's Report and Accompanying Notes
Exhibit B - F-4
SILK BOTANICALS.COM, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 2001 AND 2000
2001 2000
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 53,854 $ 34,721
Adjustments to Reconcile Net Gain to
Net Cash Used in Operating Activities:
Depreciation and amortization 8,244 7,694
Changes in assets and liabilities:
(Increase) in accounts receivable (44,664) (121,582)
(Increase) in accounts receivable
- related party (115,226) -
(Increase) decrease in inventory 10,164 (4,985)
(Increase) decrease in prepaid expenses 3,275 (3,275)
(Increase) in deferred tax asset (4,660) (1,165)
Increase (decrease) in accounts payable 43,458 (14,220)
Increase in accounts payable due to
factors 31,820 -
Increase in income taxes payable 20,294 3,927
(Decrease) in due to related parties (30,972) (70,381)
Increase (decrease) in other current
liabilities 23,680 13,242
---------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (733) (156,024)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment - (1,981)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES - (1,981)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of warrants - 180,000
Preferred stock dividend (8,550) (8,550)
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES (8,550) 171,450
---------- ----------
NET INCREASE IN CASH (9,283) 13,445
CASH AT BEGINNING OF PERIOD 13,445 -
---------- ----------
CASH AT END OF PERIOD $ 4,162 $ 13,445
========== ==========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 16,140 $ 2,038
Cash paid for income taxes - -
See Independent Auditor's Report and Accompanying Notes
Exhibit B - F-5
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2001 and 2000
(See Independent Auditor's 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 Fresh[R], Living Silk[TM] and Silk
Botanicals[TM] 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
audited 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.
Exhibit B - F-6
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2001 and 2000
(See Independent Auditor's 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.
Exhibit B - F-7
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2001 and 2000
(See Independent Auditor's Report)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Reclassifications
- -----------------
Certain reclassifications were made to the 2000 financial
statements presentation in order to conform to the 2001 financial
statements presentation.
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 May 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. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS
144 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 years ended May 31,
2001 and 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
Exhibit B - F-8
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2001 and 2000
(See Independent Auditor's Report)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
------------------------------------------
Segment Reporting (continued):
- ------------------------------
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 May 31, 2001 and 2000.
Advertising:
- ------------
Advertising costs ($5,362 and $9,947 for the years ended May 31,
2001 and 2000, respectively) are charged to expense as incurred.
Cash and Cash Equivalents:
- --------------------------
The Company considers all short-term highly liquid investments
with maturities of three months or less at the date of their
acquisition and all cash on hand and in checking and savings
accounts to be cash and cash equivalents.
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.
Exhibit B - F-9
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2001 and 2000
(See Independent Auditor's Report)
2. PROPERTY AND EQUIPMENT
Property and Equipment consists of the following as of May 31,
2001 and 2000:
2001 2000
-------- --------
Computer equipment $ 3,481 $ 3,481
Less: Accumulated depreciation (1,778) (614)
-------- --------
$ 1,703 $ 2,867
======== ========
Depreciation expense was $1,164 and $614 for the years ended May
31, 2001 and 2000, respectively.
3. RELATED PARTY TRANSACTIONS
The Company purchases its silk botanical products from an
established manufacturer owned by the Company's president and
majority stockholder (herein after, the "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.
The Company subleases office facilities and certain office
equipment from the Manufacturer, who also provides insurance
coverage on the Company's property, equipment and inventory. 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. The Company was owed $115,226 by the Manufacturer at
May 31, 2001 (recorded as an accounts receivable), and owed the
Manufacturer $30,972 at May 31, 2000 (recorded as an accounts
payable, for the purchase of inventory, a computer and software,
operational expenses, license fees and advances to acquire the
trademark and manufacturing process rights to the Forever Fresh[R]
line of floral arrangements.) During the years ended May 31, 2001
and 2000, the Company paid $796,324 and $553,816, respectively,
to the Manufacturer.
Exhibit B - F-10
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2001 and 2000
(See Independent Auditor's Report)
3. RELATED PARTY TRANSACTIONS (continued)
No formal arrangement on terms and conditions relating to
advances, should they be required, had been entered into by the
Company with the Manufacturer.
4. 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
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 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
Freshr products sold to any third party. At May 31, 2001 license
rights of $42,500 are presented net of $14,160 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[TM] 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 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 Silk[TM] 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 Silk[TM] and Silk
BotanicalsT products sold to any third party.
5. 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
Exhibit B - F-11
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2001 and 2000
(See Independent Auditor's Report)
5. EQUITY (continued)
Preferred Stock (continued) -
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.
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 and issued 2,444,532
shares of Series 2000A convertible preferred stock in exchange
for various services to be provided in the future. 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 shares
of preferred stock will be determined by the Board of Directors.
Dividends in arrears at May 31, 2001 are $12,825.
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
Exhibit B - F-12
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2001 and 2000
(See Independent Auditor's Report)
5. EQUITY (continued)
Common Stock (continued) -
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.
6. INCOME TAXES
The provision for income taxes for the year ended May 31, 2001
of $15,634 is made up of federal income tax expense of $15,859
and state income tax expense of $4,435 less the current deferred
tax asset of $4,660. The deferred tax asset consists of timing
differences related to the allowance for doubtful accounts.
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of $2,777 in
trade accounts payable and $47,875 in accrued expenses at May
31, 2001 and $2,656 in trade accounts payable and $4,538 in
accrued expenses at May 31, 2000.
Accounts payable due to factors consists of balances paid by
customers in error on outstanding invoices that had been
factored.
8. OTHER CURRENT LIABILITIES
Other current liabilities consist of credit card debt at
weighted-average interest rates of 17.9% and 15.4% as of May 31,
2001 and May 31, 2000, respectively. This debt, which is
assumed on behalf of companies owned by the Company's president
and majority stockholder, is recorded as a receivable from these
related party companies (see Note 3).
Exhibit B - F-13
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2001 and 2000
(See Independent Auditor's Report)
9. 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.
10. 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 44% and 53% of revenues for the
years ended May 31, 2001 and 2000, respectively.
11. COMMITMENTS - RELATED PARTY
The Company has a lease, which expires April 30, 2003, 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 years ended May 31, 2001 and 2000, rental expenses
incurred were $20,000 and $20,000, respectively. Minimum future
rental payments under the non-cancelable operating lease as of
May 31, 2001 are as follows:
2001 - $ 11,667
2002 - 20,000
2003 - 6,667
Total - $ 38,334
12. SUBSEQUENT EVENTS
On October 30, 2001, the Company began negotiations of intent
with a European limited liability company (the "LLC") to acquire
certain assets and business opportunities of the LLC. The
Company intends to purchase 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
Exhibit B - F-14
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2001 and 2000
(See Independent Auditor's Report)
12. SUBSEQUENT EVENTS (continued)
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 a contemplated 1:2 reverse stock split after
the closing.
Exhibit B - F-15
EXHIBIT C
---------
SILK BOTANICALS.COM, INC.
FINANCIAL STATEMENTS
FOR THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 28, 2002 AND
THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 28, 2001.
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
Exhibit C - 2
SILK BOTANICALS.COM, INC.
Consolidated Balance Sheet
February 28, 2002
2002
------------
ASSETS
CURRENT ASSETS:
- ---------------
Cash $ 178,178
Accounts receivable (net of allowance for doubtful
accounts of $20,000) 273,276
Inventories 352,460
Prepaid expenses 231,620
------------
Total Current Assets $ 1,035,534
------------
PROPERTY & EQUIPMENT, (net of accumulated
depreciation of $42,581) $ 7,676,265
OTHER ASSETS:
- -------------
License rights (net of valuation allowance &
accumulated amortization) 23,030
Deferred tax asset 5,825
Patents (net of amortization of $8,350) 291,650
------------
Total Other Assets $ 320,505
------------
TOTAL ASSETS $ 9,032,303
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
- --------------------
Accounts payable and accrued expenses $ 140,293
Accounts payable due to asset-based lender 107,269
Income taxes payable 24,221
Accounts payable, officers 3,100
Deferred income taxes 2,498
Current portion of long term debt 124,341
------------
Total Current Liabilities $ 401,722
------------
LONG TERM LIABILITIES:
- ----------------------
Long term debt 124,341
------------
Total Long Term Liabilities $ 124,341
------------
TOTAL LIABILITIES $ 526,063
------------
STOCKHOLDERS' EQUITY:
- ---------------------
Series A preferred stock, $.001 par value,
1,900 shares authorized, none issued
and outstanding -
Series 2001 convertible prefer red stock,
$.001 par value, 2,000,000 authorized,
none issued and outstanding -
Series 2000 convertible preferred stock,
$.001 par value, 4,042,687 shares
authorized, 1,000,000 issued and outstanding 1,000
Series 2000A convertible preferred stock, $.001
par value, 2,444,553 shares authorized,
2,008,138 issued and outstanding 2,008
Preferred stock, $.001 par value, 41,510,860
shares authorized, none issued and outstanding -
Common stock, $.001 par value, 300,000,000 shares
authorized, 27,800,557 issued and outstanding 27,801
Additional paid in capital 8,964,937
Subscribed capital 265,000
Deficit accumulated during the development stage (699,126)
Retained earnings (55,379)
------------
Total Stockholders' Equity $ 8,506,241
------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 9,032,303
============
See Accompanying Notes
Exhibit C - 3
SILK BOTANICALS.COM,INC.
Consolidated Statements of Operations
For the Three Months and Nine Months Ended February 28, 2002 and 2001
For the Quarters Ended YTD Through
----------------------------- -----------------------------
February 28, February 28, February 28, February 28,
2002 2001 2002 2001
------------ ------------ ------------ ------------
SALES $ 324,461 $ 323,189 $ 885,004 $ 663,472
COST OF SALES 207,785 252,997 601,687 501,966
------------ ------------ ------------ ------------
GROSS PROFIT 116,677 70,192 283,317 161,506
------------ ------------ ------------ ------------
MARKETING EXPENSES 7,414 12,110 62,796 28,276
GENERAL AND ADMINISTRATIVE EXPENSES 253,141 35,068 306,896 92,234
INCOME FROM OPERATIONS (143,878) 23,014 (86,376) 40,996
------------ ------------ ------------ ------------
OTHER INCOME/ (EXPENSES):
OTHER INCOME 1,001 - 5,177 -
OTHER EXPENSE (11,671) (2,653) (35,800) (4,028)
------------ ------------ ------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES (154,548) 20,361 (116,999) 36,968
Provision for Income Taxes (6,115) - 1,307 -
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (148,433) $ 20,361 $ (118,306) $ 36,968
============ ============ ============ ============
ACCUMULATED DEFICIT, BEGINNING OF PERIOD (603,223) (662,048) (627,651) (672,955)
Preferred Stock Dividend (2,850) (2,850) (8,550) (8,550)
============ ============ ============ ============
ACCUMULATED DEFICIT, END OF PERIOD $ (754,507) $ (644,537) $ (754,507) $ (644,537)
============ ============ ============ ============
Earnings per share (after preferred
dividends):
Basic & diluted $ (0.01) $ 0.29 $ (0.02) $ 0.36
============ ============ ============ ============
Weighted average shares outstanding
- basic & diluted 14,738,06 60,520 5,926,159 79,697
============ ============ ============ ============
See Accompanying Notes
Exhibit C - 4
SILK BOTANICALS.COM, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Period Ended February 28, 2002
DEFICIT
ACCUMULATED
ADDT'L DURING THE
PREFERRED STOCK COMMON STOCK PAID-IN SUBSCRIBED DEVELOPMENT RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL CAPITAL STAGE EARNINGS TOTAL
--------- ------- --------- ------- ---------- ---------- ----------- -------- ---------
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 preferred stock 4,042,687 4,043 (4,042,687) (4,043) - - - - -
70:1 reverse split, common
stock - - (2,175,780) (2,176) 2,176 - - - -
Preferred stock dividend - - - - - - - (8,550) (8,550)
Issuance of Series 2000A
convertible preferred stock 2,444,553 2,445 - - - - - - 2,445
Net income - - - - - - - 53,854 53,854
--------------------------------------------------------------------------------------------------
BALANCE, May 31, 2001 6,489,140 $ 6,489 31,533 $ 32 $ 853,636 $ - $ (699,126) $ 71,476 $ 232,507
--------------------------------------------------------------------------------------------------
Receipt of capital subscription
agreement - - - - - 45,000 - - 45,000
Receipt of subscribed capital - - - - - 265,000 - - 265,000
Preferred stock dividend - - - - - - - (8,550) (8,550)
Issuance S-8 shares - - 60,571 61 121,081 - - - 121,142
Conversion of subscribed
capital - - 10,000 10 9,990 (10,000) - - -
Acquisition of JRB
Manufacturing, Inc. (533,687) (534) 533,687 534 65,929 - - - 65,929
Cancellation of subscribed
capital - - - - - (2,000) - - (2,000)
Conversion of series 2000
convertible preferred stock (2,509,000) (2,509) 2,509,000 2,509 - - - - -
Redemption of series A
preferred stock (1,900) (2) - - (189,998) - - - (190,000)
Reduction in series 2000A
convertible preferred stock (436,415) (436) 436,415 436 65,026 - - - 65,026
Investment in Graham Energy - - 4,000,000 4,000 7,636,590 - - - 7,640,590
Investment in BTSL Technologies - - 20,000,000 20,000 275,000 - - - 295,000
Receipt of additional paid-in
capital to Gary Blum Trust - - - - 95,000 - - - 95,000
Cancellation of subscribed
capital - - - - - (33,000) - - (33,000)
Issuance of Common Stock for
Services Rendered - - 219,351 219 32,683 - - - 32,902
YTD net income - - - - - - - (118,306) (118,306)
--------------------------------------------------------------------------------------------------
BALANCE, February 28, 2002 3,008,138 $ 3,008 27,800,557 $27,801 $8,964,937 $ 265,000 $ (699,126) $ (55,379)$8,506,241
--------------------------------------------------------------------------------------------------
See Accompanying Notes
Exhibit C - 5
SILK BOTANICALS.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended February 28, 2002 and 2001
2002 2001
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (118,306) $ 36,968
Adjustments to Reconcile Net Income to Net Cash
Used in Operating Activities:
Depreciation amortization and depletion 33,262 6,183
Services Rendered for common stock issuance 219,694 -
Changes in assets and liabilities:
(Increase) in accounts receivable (84,464) (140,695)
Decrease in due to/from related parties 115,226 119,680
(Increase) in inventory (300,168) (26,621)
Increase) decrease in other current assets (201,598) 3,275
Increase (decrease) in accounts payable
and accrued expenses (232,657) 265
Increase in accounts payable due to
asset-based lender 107,269 -
Increase (decrease) in other current liabilities 15,556 -
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ (446,186) $ (945)
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) in property, plant & equipment (74,775) -
NET CASH (USED IN) INVESTING ACTIVITIES $ (74,775) $ -
CASH FLOWS FROM FINANCING ACTIVITIES:
Receipt of subscribed capital 265,000 -
Receipt of paid in capital 160,929 -
Renegotiated Liability Payable Over Two Years 248,682 -
Preferred stock dividend (8,550) (8,550)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 666,061 (8,550)
----------- -----------
NET INCREASE (DECREASE) IN CASH 145,100 5,390
CASH AT BEGINNING OF PERIOD 33,078 13,445
----------- -----------
CASH AT END OF PERIOD $ 178,178 $ 18,835
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Relating to investing and financing not
affecting cash flow:
Acquisition of Graham Energy of NV, Inc. (7,640,590) -
Acquisition of BTSL Technologies Limited (295,000)
Increase in additional paid in capital due
to merger 7,935,590
Conversion of preferred stock to common stock 2,509
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest 35,800 4,028
Cash paid for income taxes - -
See Accompanying Notes
Exhibit C - 6
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 28, 2002 AND
THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 28, 2001
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.
On December 5, 2001 BTSL Technologies Limited ("BTSL"), an Irish limited
liability company, entered into an Asset Purchase Agreement with Silk
Botanicals.Com, Inc. ("The Company") regarding the sale of certain of the
assets and business opportunities of BTSL to The Company in exchange for
20,000,000 shares of common stock in a tax-free reorganization. The
transaction closed on January 6, 2002. The assets were transferred to
TecEnergy Limited, a newly-formed wholly-owned subsidiary of The Company
and as a consequence of the exchange for 20,000,000 shares of common stock,
BTSL owned a majority of the issued and outstanding voting securities of
The Company after the closing. Concurrently, with execution of the
Agreement, Padraic Maloney and Tim Coburn were appointed to The Company's
Board of Directors to serve with Joseph R. Bergmann, The Company's Chief
Executive Officer, who has been a director since 1999.
The purchase included patents (cost basis) used in the gasification and
oxygen generation process which are proven technologies in Europe. BTSL
also provided the public company $250,000 as additional paid-in capital for
The Company's working capital requirements. The Patents were then
transferred to a wholly owned subsidiary that will over view the operations
of two other manufacturing entities that will make equipment from the
patents that will serve several different industries in recycling waste
materials. BTSL acquired these patents and the technology rights for
gasification and oxygen generation from a Belgian corporation. The owner
of that corporation can receive up to 200,000 shares of preferred stock
which is convertible (on a one to one basis) into new common stock of the
Company based on performance criteria over the next two years. The
conversion price is based on a $5 market price. BTSL entered into a
contract for the processing of certain materials using its proprietary
gasification technology. As part of this contract that service company can
potentially earn up to 1,000,000 shares of convertible preferred stock
(one to one basis to convert) over five years if certain performance
measurement are met. BTSL is currently in discussions with foreign
governments with orders approximating $7.5 million dollars (USA).
A second wholly owned subsidiary was formed called "Decorative Accessories
International" consisting of The Company's existing business which markets
and distributes high-quality decorative accessories, artificial greenery
and floral arrangements in baskets and containers and artificial floral
arrangements in clear glass vases set in epoxy providing the illusion of
fresh flowers in water.
On December 6, 2001 Graham Energy NV, Inc. ("GENV"), a Nevada corporation,
and its shareholders entered into a Stock Purchase Agreement with Silk
Botanicals.Com, Inc. regarding the sale of 100% of the outstanding shares
of GENV to The Company in exchange for 4,000,000 shares of The Company's
common stock in a tax-free reorganization. The transaction closed on
February 6, 2002. The transaction allows GENV to appoint one person to
The Company's Board of Directors. The transaction has been approved by
consent of a majority of The Company's shareholders. GENV's assets
consist of six oil and gas fields in Texas, which includes 24 currently
producing wells; 50 additional wells that can be re-activated upon
completion of a work-over; 86 proven but undeveloped off-set well locations;
and 24 additional probable well locations.
The purchase price was arrived at through negotiation between GENV and The
Company. Prior to the consummation of the Acquisition, neither GENV nor
any of its affiliates, officers or directors owned, directly or indirectly,
any of the voting securities of The Company.
On February 15, 2002, JRB Manufacturing, Inc. ("JRB"), a Florida corporation,
and its two shareholders entered into a Stock Purchase Agreement with Silk
Botanicals.Com, Inc. regarding the sale of 100% of the outstanding shares of
JRB to The Company in exchange for 100,000 shares of The Company's common
stock in a tax-free reorganization. The transaction was effective
January 1, 2002. The transaction has been approved by consent of a majority
of The Company's shareholders. JRB has been The Company's primary
manufacturer of its silk botanical products, and The Company intends that JRB
will continue to do so. JRB's assets consist of certain inventory and
equipment for manufacturing silk botanical products. The main purpose of
the reorganization transaction was to simplify and consolidate The Company's
silk botanical products business.
The resulting transaction was less than 10% of the Company's assets. The net
assets transferred were approximately $65,000.
On January 9, 2002 The Company entered into an agreement to acquire 100% of
the shares of Capital Equities Group, Inc. (Capital) in return for 10,000,000
shares of the Company's common stock. It is expected that upon completion,
this acquisition will provide substantial financing for The Company over a
two year period. The Company requested that certain criteria be met before
completion of a contract. Capital has been working to meet these criteria.
The Company received $265,000 before February 28, 2001 and is treating such
funds as subscribed common stock at $1 per share. As of April 15, 2002, the
Company has received a total of $445,000. The $180,000 received after
February 28, 2002 will be negotiated as debt or equity or a combination
thereof as if Capital cannot fulfill its funding requirements.
Exhibit C - 7
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 28, 2002 AND
THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 28, 2001
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D):
a. Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiary. Inter-company accounts and transactions
have been eliminated in the consolidated financial statements.
All the acquisitions described earlier except for BTSL were common
stock exchanges for 100% control of the subsidiary companies. The BTSL
transaction was an asset purchase subject to certain obligations owing
on the patents transferred to Silk Botanicals.Com. All of the acquisitions
were at the carrying cost of the acquired wholly owned subsidiaries
without any step in basis of the assets acquired.
b. 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.
c. Revenue Recognition:
Revenues from professional services, primarily from management fees,
are recognized on an accrual basis of accounting as services are performed
or the amounts earned (in compliance with SOP 00-2).
d. Cash and Cash Equivalents:
The Company considers all money market funds and highly liquid debt
instruments with maturities of three months or less when acquired to be
cash equivalents.
e. Accounts Receivable:
The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts
become uncollectible, they will be charged to operations when that
determination is made.
f. Prepaid Investment and Advisory Services:
Specific incremental costs directly attributable to proposed or
actual offering of securities are deferred and charged against the gross
proceeds of the offering. Management salaries and other general and
administrative expenses are not allocated as costs of the offering.
In the event that the offering does not take place, the prepaid
investment and advisory costs will be expensed immediately. Other
financial consulting services related to debt or equity financing is
amortized over the useful service life or term of agreed upon services.
g. Property, Equipment and Related Depreciation:
Property and equipment are stated at cost. Maintenance, repairs
and minor renewals and betterment's are expensed; major improvements are
capitalized.
Exhibit C - 8
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 28, 2002 AND
THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 28, 2001
Depreciation of property and equipment is provided for using the
straight-line method over the estimated useful lives of the assets
as follows:
Estimated
Useful Lives
------------
Leasehold improvements Life of lease
Computer, equipment and office furniture 5 - 10 Years
Gas and oil properties 30 Years
Equipment related to gas and oil properties 7 Years
Upon retirement, sale, or other disposition of property and equipment,
the costs and accumulated depreciation are eliminated from the accounts,
and any resulting gain or loss is included in operations.
h. Advertising Expenses:
All advertising expenses are expensed as incurred.
i. Income Taxes:
The Company is taxed at C Corporation income tax rates. The Company
recognizes deferred income tax under the asset and liability method of
accounting. This method requires the recognition of deferred income
taxes based upon the tax consequences of "temporary differences" by
applying enacted statutory tax rates applicable to future years to
differences between the financial statements carrying amounts and the
tax basis of existing assets and liabilities.
j. Adoption of Recent Accounting Standards:
Segment Reporting:
In June 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 131 ("SFAS" No. 131"),
"Disclosure About Segments of an Enterprise and Related Information."
SFAS No. 131 established standards for the way companies report information
about operating segments in annual financial statement. It also established
standards for related disclosures about products and services, geographic
areas and major customers.
The disclosures prescribed in SFAS No. 131 became effective for the year
ended December 31, 1998. The Company has determined that it operates in
three business segments.
The Company is not affected by the adoption of new accounting
standards for Accounting for Derivative Instruments and Hedging Activities
as well as the Accounting for Comprehensive Income as these activities
did not occur in its operations.
k. Business Combination:
SFAS 142 and SFAS 141, Business Combinations, are designed to
improve reporting and disclosure with respect to goodwill and other
acquired tangible assets. SFAS 141 eliminated the pooling of
interest method as an accounting option for business combination
while SFAS 142 modified the purchase method of accounting by
eliminating the amortization of goodwill and substituting an
impairment test. The FASB overcame several operation impediments
to non-amortization including: the reporting level at which to
conduct impairment reviews, consistency with SFAS 121 (Accounting for
the impairment of long-lived assets) and finite-lived goodwill. The
emphasis will be on the fair value measurements of assets and
liabilities instead of amortization. An impairment in the carrying
value of an asset is recognized when the fair value of the asset is
less than its carrying value.
On January 1, 2002, we adopted the provisions of SFAS No. 144,
Accounting For The Impairment Of Long-Lived Assets, that replaces
SFAS No. 121, Accounting Impairment Of Long-Lived Assets and for
Long-Lived Assets To be Disposed Of SFAS No.144 requires that
long-lived assets to be disposed of by sale, including those of
discontinued operations, be measured at the lower of carrying
amount or fair value less cost to sell, whether reported in
continuing operations or in discontinued operations. Discontinued
operations will no longer be measured at net realizable value or
include amounts for operating losses that have not been incurred.
SFAS No. 144 also broadens the reporting of discontinued operations
to include all components of an entity with operations that can be
distinguished from the rest of the entity in a disposal transaction.
The adoption of SFAS No. 144 has no impact on our current operations.
l. Other Comprehensive Income:
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 130 ("SFAS No. 130"), "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial
statements. Other comprehensive income, as defined, includes all changes
in equity during a period from non-owner sources. To date, the Company
has not had any transactions that are required to be reported as other
comprehensive income except for foreign currency translations.
m. Foreign Currency Translation:
For most international operations, local currencies are considered
their functional currencies. We translate assets and liabilities to
their U.S. dollar equivalents at rates in effect at the balance sheet
date and record translation adjustments in Shareholders' Equity. We
translate statement of income accounts at average rate for the period.
Transaction adjustments are recorded in Other Income - Net.
Exhibit C - 9
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 28, 2002 AND
THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 28, 2001
m. Foreign Currency Translation (cont'd):
For operations in highly inflationary economies, we translate the
balance sheet items as follows:
* monetary items (that is, assets and liabilities that will be
settled for cash) at rates in effect at the balance sheet date,
with transaction adjustments recorded in Other income - net
* non-monetary items at historical rates (that is those rates in
effect when the items were first recorded)
As of February 28, 2002, there were no balance sheet adjustments and
approximately $2,000 in operating expense adjustments.
n. 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 are computed
using weighted average number of common shares outstanding and
potentially diluted common share during the period. The warrants were
anti-dilutive at February 28, 2002 as the exercised 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.
o. 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 as exercise of judgment. In assessing less
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.
p. 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.
Exhibit C - 10
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 28, 2002 AND
THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 28, 2001
2. CONCENTRATIONS:
Business Risks:
---------------
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.
3. PROPERTY AND EQUIPMENT
Property and Equipment consists of the following as of February 28, 2002:
Oil and gas interests $ 7,580,590
Support equipment 60,000
Leasehold improvements 50,000
Computer hardware and software 15,981
Website development 9,000
Warehouse equipment 2,500
Property and equipment 775
----------
Total property and equipment 7,718,846
Less: Accumulated depreciation and
amortization (42,581)
----------
$ 7,676,265
4. RELATED PARTY TRANSACTIONS
On February 15, 2002, JRB Manufacturing, Inc. ("JRB"), a Florida
corporation, and its two shareholders, Joseph R. Bergmann, President
and a director of Silk Botanicals.Com, Inc. and his wife, Regina M.
Bergmann, entered into a Stock Purchase Agreement with Silk
Botanicals.Com, Inc. regarding the sale of 100% of the outstanding
shares of JRB to The Company in exchange for 100,000 shares of The
Company's common stock in a tax-free reorganization. The transaction
was effective January 1, 2002. The transaction has been approved by
consent of a majority of The Company's shareholders. JRB has been
The Company's primary manufacturer of its silk botanical products, and
The Company intends that JRB will continue to do so. JRB's assets
consist of certain inventory and equipment for manufacturing silk
botanical arrangements. The main purpose of the reorganization
transaction was to simplify and consolidate The Company's silk
botanical products business. However, The Company may purchase its
products from other suppliers.
Additionally, The Company subleases office facilities and certainoffice
equipment from JRB Enterprises, Inc., the owner and operator of silk
floral specialty stores. All JRB Enterprises, Inc. silk floral specialty
stores have become customers of Silk Botanicals.Com, Inc. The Company
issued 1,900 shares of preferred stock to JRB Enterprises, Inc. for the
license rights to the trademarks Living Silk[R] and Silk Botanicals[TM], and
for certain manufacturing processes. The Company pays a 6% dividend per
annum. Year to date dividends were $8,550 for both nine-month periods. The
1,900 shares of preferred stock were redeemed in January 2002. The above
Series A Preferred Stock when originally issued in April 1999 had the
following features:
The preferred stock will be redeemable any time after one year
of issuance or callable at the option of the holder upon the
completion of an IPO or an effective change in control of the
Company.
The Company's president and previous principal shareholder also converted
3,042,687 Series 2000 convertible preferred stock shares converted one-to-one
into common shares as follows:
* 2,509,000 shares to the previous principal shareholder of the Company.
* 533,687 shares to settle debt of JRB Manufacturing, Inc. owed to
outside lenders of approximately $970,000.
Exhibit C - 11
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 28, 2002 AND
THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 28, 2001
The 533,687 share transaction related in net assets transferred to the Public
company of $65,929 which was recorded as paid-in capital.
Series 2000 A Preferred Stock was converted into 436,415 shares of common
shares from preferred stock of 436,415 shares for services rendered of
$65,000 in connection with the reorganization of the Company with the
BTSL acquisition.
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 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. 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? products sold to any third party.
At February 28, 2002, license rights of $23,030 are presented net of
accumulated depreciation of $19,470.
6. DEBT RELATED - PURCHASE OF PATENTS:
The amount of $248,682 is due over a two-year period, half of which is due
in the current year amounting to $124,341.
7. EQUITY
On January 6, 2002, The Company issued 20,000,000 shares of common stock to
BTSL in exchange for patents and related technology in waste material
recycling activities involving the manufacturing of equipment to make the
environment clean. This transaction resulted in a change of ownership.
On February 6, 2002, The Company issued 4,000,000 shares of common stock to
Graham Energy NV, Inc. ("GENV") in exchange for 100% of the outstanding
shares of GENV, an oil and gas company with mostly proven but undeveloped
oil wells.
The Company has issued 60,576 of common stock valued at current market
prices at the time the financial services were rendered in connection with
an S-8 Registration statement at $2.00 per share totaling $121,142.
The Company acquisition of JRB Manufacturing, Inc. a related party with
shareholders under common control was done through an exchange of common
shares, which converted 533,687 shares of preferred stock into 533,687
common shares to purchase the Affiliated manufacturer. The transaction was
a recapitization of the Company at approximately $0.12 per share, which
combined the balance sheet of both as a result of the transaction.
The two individual shareholders who owned JRB Manufacturing, Inc. received
100,000 shares of common stock for restructuring the debt of the related
party manufacturer into common stock for the creditors who received the
533,687 shares of common stock above.
The Company also in a related party transaction redeemed at the option of
the holder the Series A 1,900 preferred stock shares as part of the
transaction with JRB Enterprises, Inc. and also because of the shareholders
right to convert upon a change in control of the public company.
8. 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.
9. SEGMENT INFORMATION AND GEOGRAPHIC DATA
Segment Information
-------------------
We operate in the following three business segments:
* Artificial Flower Manufacturer and Distributor of Plants and Floral
Arrangements to Furniture Makers, Decorators or Retailers.
* Oil and Gas Properties for the Production of Gas and Oil Products.
* Tech Energy related to the Gasification and Oxygen Generation
Process for the Recycling of Waste Materials to Governmental Bodies
and Industry.
$OMIT(000)
United States Ireland
Flowers Oil & Gas Tech Energy
------------------- -----------
Revenues for the nine months ended 2002 $ 866 $ 18 $ 0
Revenues for the nine months ended 2001 663 0 0
Segment profits nine months ended 2002 (52) (12) (39)
Segment profits nine months ended 2001 20 0 0
Identified assets nine months ended 2002 1,011 7,684 292
Identified assets nine months ended 2001 403 0 0
Geographic data (1)
-------------------
(1) Only Tech Energy an Irish subsidiary operates outside the U.S.
Exhibit C - 12
EXHIBIT D
---------
EXHIBIT 99.4
------------
BTSL Technologies Limited
Financial Statements at December 31st 2001.
Exhibit 99.4
Registration Number 347818
BTSL Technologies Limited
(A Development Stage Company)
Directors' Report and Financial Statements
For the period ended December 31, 2001
[EXHIBIT D] Exhibit 99.4 - Pg. 1
BTSL Technologies Limited
Financial Statements at December 31st 2001.
Company Information
Directors Tim Coburn
Padraig Maloney
Secretary Padraig Maloney
Company Number 347818
Registered Office 5 Eglinton St
Galway
Co.Galway
Auditors Keogh Condron
6c Liosban Business Park
Tuam Rd
Galway
Business Address 5 Eglinton St
Galway
Ireland
[Exhibit D] Exhibit 99.4 - Pg. 2
BTSL Technologies Limited
Financial Statements at December 31st 2001.
Contents
Page
Directors' Report 4-5
Auditors' Report 6-7
Balance Sheet 8
Statement of Operations & Deficit Accumulated
during Development Stage 9
Statement of Change in Shareholders Equity 10
Cashflow Statement 11
Notes to the Financial Statements 12-15
[Exhibit D] Exhibit 99.4 - Pg. 3
BTSL Technologies Limited
Financial Statements at December 31st 2001.
The directors present their report and the financial statements for
the period ended December 31, 2001.
Principal Activity
The principal activity of the company to carry on the business of a
holding and management company
Results And Dividends
The (loss)/profit for the period after providing for depreciation
and taxation amounted to US $ (424,407)
The directors do not recommend payment of a final dividend.
Directors
In accordance with the Articles of Association, Tim Coburn and
Padraig Maloney retire by rotation and, being eligible, offer
themselves for re-election.
Directors and their Interests
The directors who served during the period and their interests in
the company are as stated below:
Ordinary shares
2001
Tim Coburn 2,700
Padraig Maloney 2,700
There were no changes in their shareholdings between December 31,
2001 and the date of signing the financial statements.
Directors' Responsibilities
Company law requires the directors to prepare financial statements
for each financial period, which give a true and fair view of the
state of the affairs of the company and of the profit or loss of the
company for that period. In preparing these accounts the directors
are required to:
- - select suitable accounting policies and apply them consistently;
- - make judgements and estimates that are reasonable and prudent;
- - prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the company will continue in
business.
- - state whether applicable accounting standards have been followed,
subject to any material departure disclosed and explained in the
financial statements.
The directors are responsible for keeping proper accounting records,
which disclose with reasonable accuracy at any time the financial
position of the company and to enable them to ensure that the
financial statements comply with the Companies Acts 1963 to 1999.
They are also responsible for safeguarding the assets of the company
and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
[Exhibit D] Exhibit 99.4 - Pg. 4
BTSL Technologies Limited
Financial Statements at December 31st 2001.
Auditors
The auditors, Keogh Condron, have indicated their willingness to
continue in office in accordance with the provisions of Section
160(2) of the Companies Act, 1963.
On behalf of the Board
Tim Coburn )
) Directors
Padraig Maloney )
[Exhibit D] Exhibit 99.4 - Pg. 5
BTSL Technologies Limited
Financial Statements at December 31st 2001.
Auditors' Report to the Shareholders of BTSL Technologies ltd (A
development stage company)
We have audited the financial statements on pages 8 to 11, covering
the period from 12th September 2001 to 31st December 2001 which have
been prepared under the historical cost convention and the
accounting policies set out on page 14.
Respective responsibilities of directors and auditors
As described on page 1 the company's directors are responsible for
the preparation of financial statements, which are required to be
prepared in accordance with applicable Irish Law and accounting
standards. Our responsibilities as independent auditors are
established in Ireland by statute, the Auditing Practices Board and
by our profession's ethical guidance.
We report to you our opinion as to whether the financial statements
give a true and fair view and are properly prepared in accordance
with the Irish statute comprising the Companies Acts, 1963 to 2001.
We also report to you whether in our opinion: Proper books of
account have been kept by the group; whether at the balance sheet
date, there exists a financial situation requiring the convening of
an extraordinary general meeting of the group ; and whether the
information given in the directors' report is consistent with the
financial statements. In addition, we state whether we have
obtained all the information and explanations necessary for the
purposes of our audit and whether the group's balance sheet and it's
profit and loss account are in agreement with the books of account.
We also report to you if, in our opinion, any information specified
by law regarding directors' remuneration and directors' transactions
is not given and, where, practicable, include such information in
our report.
Basis of opinion
We also report to you if, in our opinion, any information specified
by law regarding directors' remuneration and directors' transactions
is not given and, where, practicable, include such information in
our report.
We planned and performed our audit so as to obtain all the
information and explanations which we considered necessary in order
to provide us with sufficient evidence to give reasonable assurance
that the financial statements are free from material misstatement,
whether caused by fraud or other irregularity or error. However, the
company's system of control is generally dependent on the close
involvement of the directors. The directors have provided assurances
as to the completeness of the account records, but independent
confirmation by us that all transactions were properly recorded was
not possible in many areas
In forming our opinion we also evaluated the overall adequacy of the
presentation of information in the financial statements.
[Exhibit D] Exhibit 99.4 - Pg. 6
BTSL Technologies Limited
Financial Statements at December 31st 2001.
Opinion
In our opinion the financial statements give a true and fair view of
the state of the company's affairs as at the 31 December 2001 and of
its loss for the period then ended and have been properly prepared
in accordance with the Companies Acts 1963 to 2001.
We have obtained all the information and explanations we consider
necessary for the purposes of our audit. In our opinion the company
has kept proper books of account. The financial statements are in
agreement with the books of account.
In our opinion the information given in the directors' report on
pages 4-5 are consistent with the financial statements.
The net assets of the company, as stated in the Balance Sheet on
page 9, are more than half of the amount of its called up share
capital and, in our opinion, on that basis there did not exist at 31
December 2001 a financial situation which under Section 40(1) of the
Companies (Amendment) Act 1983 may require the convening of an
extraordinary meeting of the company.
/s/Keogh Condron
Registered Auditors
6c Liosban Business Park
Tuam Rd
Galway
[Exhibit D] Exhibit 99.4 - Pg. 7
BTSL Technologies Limited
Financial Statements at December 31st 2001.
BALANCE SHEET
As of December 31, 2001
ASSETS
US$
---------
Current Assets:
Cash 28,915
Total Current Assets 28,915
Other Assets:
Patents 300,000
Less Patents Amortization (5,000)
Investments 115,000 410,000
------- ---------
438,915
=========
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities:
Accrued Expenses: 281,352
Stockholders' equity:
Convertible Preferred Stock (Series A)
Authorized 10,000,000
Par Value $.00176964
43,426 shares issued and outstanding 768
Additional Paid in Capital 191,353
Common Stock,
Authorized 90,000,000 shares
Par value $ .00884828
20,000 shares issued and outstanding 178
Additional Paid in Capital 1,222,517
Deficit accumulated during the
Development stage (1,257,284)
---------
Total stockholders equity 157,532
---------
438,915
=========
[Exhibit D] Exhibit 99.4 - Pg. 8
BTSL Technologies Limited
Financial Statements at December 31st 2001.
STATEMENT OF OPERATIONS AND DEFICIT
ACCUMULATED DURING DEVELOPMENT STAGE
US$
---------
Revenue: 0.00
Expenses:
Research and development 846,994
General and administrative 410,290
---------
Net Loss (1,257,284)
Other Income 0.00
---------
Loss before income taxes (1,257,284)
Income taxes provision 0.00
---------
Net income (loss) (1,257,284)
=========
[Exhibit D] Exhibit 99.4 - Pg. 9
BTSL Technologies Limited
Financial Statements at December 31st 2001.
STATEMENT OF CHANGE IN SHAREHOLDERS EQUITY FROM
INCEPTION SEPTEMBER 12, 2001 TO DECEMBER, 2001
Additional Deficit Accumulated
Common Preferred Paid-In During the Total Stockholders
Shares Amount Shares Amount Capital Development Stage Equity
------ ------ ------ ------ ---------- ------------------- -------------------
Issuance of common
Stock Shares
issued 20,000 178 1,222,517 1,222,695
Issuance of
Convertible
Preferred Stock
Shares issued 43,426 768 191,533 192,121
Deficit
accumulated
during
development
stage (1,257,284) (1,257,284)
------ ------ ------ ------ ---------- ----------- -----------
Balance at
December 31, 2001 20,000 $ 178 43,426 $ 768 $1,413,870 $(1,257,284) $ 157,532
[Exhibit D] Exhibit 99.4 - Pg. 10
BTSL Technologies Limited
Financial Statements at December 31st 2001.
STATEMENT OF CASH FLOWS
FROM INCEPTION SEPTEMBER 12, 2001 TO DECEMBER 31, 2001
US$
----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(Loss) (1,257,284)
Non-cash expenses included in net income/(loss): 5,000
Accrued Expenses 281,383
Compensation and services for common stock 719,107
----------
Net cash provided (used) by operating activities 251,794
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Patents (300,000)
Investment in Other Companies (115,000)
Net cash provided (used) by investing activities (415,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Preferred Stock 192,121
----------
Net cash provided by financing activities 192,121
Net increase (decrease) in cash and
Cash equivalents 28,915
Cash and cash equivalents, beginning
of period 0.00
Cash and cash equivalents, end of period $ 28,915
==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes 0.00
==========
Cash paid during the period for interest expense 0.00
==========
[Exhibit D] Exhibit 99.4 - Pg. 11
BTSL Technologies Limited
NOTES TO FINANCIAL STATEMENTS
FROM INCEPTION September 12, 2001 to December 31, 2001
1. BTSL Technologies Limited (A development Stage Company)
Notes to the Financial Statements
From Inception to December 31st 2001
BTSL Technologies Limited is an Irish Limited Company formed n Sept
2001, whose principal business is of acquisition and development of
proven technologies and businesses with a high potential for future
revenue and profits.
The initial focus is two technologies, Gasification and Oxygen
Generation.
a. Gasification: The gasification process converts any carbon-
containing material into a synthesis gas composed primarily of
carbon monoxide and hydrogen, which can be used as a fuel to
generate electricity or steam or used as a basic chemical
building block for a large number of uses in the petrochemical
and refining industries. Gasification adds value to low- or
negative-value feed stocks by converting them to marketable
fuels and products.
b. Oxygen Generation: Oxygen Generation is the process of
separating oxygen from air using a Pressure Swing Adsorption
(PSA) or Vacuum Swing Adsorption system. Oxygen Generators
have many uses in Medical (Hospital) and Industrial
applications.
BTSL acquired registered worldwide patents and the technology
rights in the areas of Gasification, Oxygen Generation and other
products from a Belgium company, Jarix Scrl that is owned and
managed by a European scientist, Mr. Jacques Ribesse. As part of
the acquisition contract for these patents Jarix Scrl has the
potential to earn 200,000 convertible preferred series B shares as
per certain performance criteria. Following the transaction with a
US Public Company these convertible preferred series B shares will
be in the capital of that Company.
These products will be manufactured in Ireland by two international
engineering manufacturing companies who have many years experience
of exporting products worldwide. BTSL will provide and operate a
turnkey solution for its customers.
BTSL entered into a contract for the processing of certain materials
using its proprietary Gasification technology. As part of this
contract a service Company has the potential to earn 1,000,000
convertible preferred series B shares as per certain performance
criteria. Following the transaction with a US Public Company these
convertible preferred series B shares will be in the capital of that
Company.
BTSL is in discussions with foreign governments that it is believed
will result in orders for the Company's Oxygen Generation equipment.
[Exhibit D] Exhibit 99.4 - Pg. 12
BTSL Technologies Limited
BTSL entered into an agreement for the acquisition of Graham Energy
of NV Inc. Graham Energy of NV Inc is an independent oil and gas
company controlling six oil and or gas fields, with 24 currently
producing wells; 50 additional wells that will be re-activated upon
completion of a work-over; 86 legally established, proven but
undeveloped off-set well locations; and 24 additional highly
researched, probable well locations. This agreement was subject to
BTSL Technologies Limited completing a transaction that would give
BTSL the ability to acquire the oil and gas assets for publicly
traded stock.On February 6th 2002 "SILK" announced that it had
purchased 100% of the Graham Energy of N V Inc for 4,000,000 shares
of "SILK" common stock.
BTSL had agreed to form four operating subsidiary Companies for
manufacture and sales of its products. These four subsidiaries were
subsequently formed on completion of the agreement with Silk
Botanical.com Inc.
On January 6th, 2002 BTSL completed a contract with a US public
company called Silk Botanical.com Inc. (OTCBB-SILK) for the sale of
certain "assets and business opportunities" in return for 20,000,000
shares from the public company. The transaction gave the
shareholders of BTSL Technologies Limited a majority of the issued
and outstanding common stock of "SILK." The Public Company "SILK"
then completed the acquisition of Graham Energy of NV Inc.
As a result of the Contract with "SILK" the assets and business
opportunities owned by BTSL Technologies were assigned to a newly
formed Irish Company, TecEnergy Limited. TecEnergy Limited is 100%
owned and will operate as a subsidiary of the US Public Company. The
four subsidiary companies required to operate the business were
subsequently formed as wholly owned subsidiaries of TecEnergy
Limited.
Under generally accepted accounting principles, the assets transferred
to "SILK" are the patents and the investments that were advanced to
"SILK," which were part of the acquisition transaction. The total
orders pending approval by foreign governments approximates US
$7,500,000.
The assets transferred to the public company include accrued operating
expenses related to the patents and development costs. These assets
will be part of the 10-QSB financials of the public company for the
quarter ending February 28, 2002.
[Exhibit D] Exhibit 99.4 - Pg. 13
BTSL Technologies Limited
2. Summary of Significant Accounting Policies
A. Cash and Cash Equivalents:
The company considers all money market funds and highly
liquid debt instruments with maturities of three months
or less when acquired to be cash equivalents.
B. Property and Equipment:
Property and Equipment is recorded principally at cost
less accumulated depreciation.
Depreciation is computed using the straight line method
under the estimated useful lives of the assets.
C. Use of Estimates:
The preparation of the financial statements in conformity
with generally accepted accounting principles requires
management to make extensive use of estimates and
assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and
liabilities and the reported amounts of revenue and
expenses. Significant estimates in these financial
statements include useful lives for depreciation and
amortization, fair values of financial instruments and
income taxes. Actual results could differ from these
estimates.
D. Adoption of Significant Accounting Polices:
Other Comprehensive Income:
The Company has adopted the provisions of Statement of
Financial Standards No. 130 ("SFAS No. 130"), "Reporting
Comprehensive Income." SFAS No. 130 establishes
standards for reporting comprehensive income and its
components in financial statements. Other comprehensive
income, as defined, includes all changes in equity during
a period from non-owner sources. To date, the company
has not had any transactions that are required to be
reported as comprehensive income.
Segment Information:
In June 1997, the Financial Accounting Standards Board,
"FASB") issued Statement of Financial Accounting
Standards No. 131 ("SFAS No. 131), "Disclosures about
segment of an Enterprise and Related Information." SFAS
No. 131 established standards for the way companies
report information about operating segments in annual
financial statements. It also established standards for
related disclosures about products and services,
geographic areas, and major customers. The disclosures
prescribed in SFAS No. 131 became effective for the year
ended December 31, 1998.
Business Combination:
SFAS 142 and SFAS 141, Business Combinations, are
designed to improve reporting and disclosure with respect
to goodwill and other acquired tangible assets. SFAS 141
eliminated the pooling of interests method as an
accounting option for business combination while SFAS 142
modified the purchase method of accounting by impairment
test. The FASB overcame several operation impediments to
non-amortization including: the reporting level at which
to conduct impairment reviews, consistency with SFAS 121
(Accounting for the impairment of long-lived assets) and
finite-lived goodwill. The emphasis will be on the fair
value measurements of assets and liabilities instead of
amortization.
[Exhibit D] Exhibit 99.4 - Pg. 14
BTSL Technologies Limited
The Company periodically evaluates the net realizable
value of long-lived assets, including property and
equipment, relying on a number of factors including
operating results, business plans, economic projections
and future cash flows. An impairment in the carrying
value of an asset is recognized when the fair value of
the asset is less than its carrying value.
E. Patents
Patents are valued at cost less accumulated amortization.
Amortization is calculated to write off the cost in equal
annual instalments over their estimated useful life of 15
years.
F. Research and development
Research expenditure is written off to income in the year
in which it is incurred.
G. Investments
Fixed asset investments are stated at cost less provision
for diminution in value.
[Exhibit D] Exhibit 99.4 - Pg. 15
EXHIBIT 99.5
------------
Silk Botanicals.Com, Inc.
Unaudited Pro Forma Condensed
Combined Financial Data
The following unaudited, pro forma, condensed, combined balance
sheet has been prepared to present the combined financial position of
Silk Botanicals.Com, Inc. and its subsidiary as of November 30,
2001.
On January 6, 2002 BTSL Technologies Limited (BTSL) completed a
contract with a US public company called Silk Botanical.com Inc.
(SILK) for the sale of certain "assets, related liabilities and
business opportunities" in return for 20,000,000 shares from the
public company. The transaction gave the shareholders of BTSL a
majority of the issued and outstanding common stock of "SILK".
As a result of the Contract with SILK the assets, liabilities and
business opportunities owned by BTSL were assigned to a newly formed
Irish company, TecEnergy Limited. TecEnergy Limited is 100% owned
and will operate as a subsidiary of the US Public Company. TecEnergy
will be the holding company for any Irish acquisitions related to the
manufacture and sales of such gasification and oxygen generation
equipment products. Only the recurring normal operating expenses
were included in the pro forma financials.
Under generally accepted accounting principles, the assets transferred
to SILK are the patents and the investments that were advanced to
SILK which are part of the acquisition transaction.
The research and development costs resulting in the oxygen generation
equipment prototype is now being presented to foreign governments for
orders. The total orders pending approval by foreign
governments approximates US $ 7,500,000.
The assets transferred to the public company include accrued operating
expenses related to the patents and development costs. These assets
will be part of the 10-QSB financials of the public company for the
quarter ending February 28, 2002.
The purpose of the pro forma adjustments presented is to reflect the
change in capitalization of BTSL to the capitalization of SILK with
appropriate changes to earnings per share of the Company to reflect
the acquisition of BTSL.
The following unaudited pro forma condensed financial statements should
be read in conjunction with the selected financial data and notes
included elsewhere herein. The Pro forma Statement of Income is for
the fiscal year ended, May 31, 2001 and the six months ended November
30, 2001.
The following unaudited pro forma condensed financial statements are
not necessarily indicative of the results of combined operations that
would have occurred or the future results of the combined companies.
All material non-recurring changes are fully disclosed in the pro forma
financial statements.
[Exhibit D] Exhibit 99.5 - Pg. 1
Silk Botanicals.com, Inc.
Condensed Pro forma Balance Sheet
November 30, 2001
SILK BTSL Pro forma adjustment Pro forma
DR CR Total
--------- --------- ----------- ---------- ------------
Assets :
Current assets $ 563,828 $ 28,915 $ 592,743
Property and equipment 1,121 0 1,121
Other assets 151,766 410,000 561,766
--------- ---------- ---------- ---------- -----------
716,715 438,915 0 0 1,155,630
========= ========== ========== ========== ===========
Liabilities :
Current liabilities 293,639 281,383 0 0 575,022
--------- ---------- ---------- ---------- -----------
Stockholders' equity :
Preferred stock 6,490 768 (1) $ 768 6,490
Common stock 102 178 (1) 178 102
Subscribed capital 35,000 0 35,000
Additional paid in capital 984,707 1,413,870 (1) 1,413,870 (2) $ 115,000 1,099,707
Deficit accumulated during
the development stage (603,223) ( 1,257,284)(2) 115,000 1,414,816 ( 560,691)
--------- ---------- ---------- ---------- -----------
423,076 157,532 1,529,816 1,529,816 580,608
--------- ---------- ---------- ---------- -----------
$ 716,715 $ 438,915 $ 1,529,816 $1,529,816 $ 1,155,630
========= ========== ========== ========== ===========
(1) Combined elimination entries.
(2) Investment in SILK for $115,000 was a capital contribution on
SILK's books and should be treated as Paid in Capital.
[Exhibit D] Exhibit 99.5 - Pg. 2
Silk Botanicals.com, Inc.
Condensed Pro forma Statement of Income
For the fiscal year ending May 31, 2001 and six months ended
November 30, 2001
Fiscal Six months ended Six months ended Six months ended
Year Ended November 30, 2001 Pro forma adjustment November 30, 2001
05/31/01 SILK BTSL DR CR Pro forma Total
(1)
----------- ---------- ----------- --------- ---------- -----------------
Net sales $ 1,053,857 $ 560,542 $ 0 $ 0 $ 0 $ 560,542
Cost of sales 789,225 393,902 0 0 0 393,902
----------- ---------- ----------- --------- ---------- -------------
Gross profit 264,632 166,640 0 0 0 166,640
Operating expenses 179,009 109,138 1,257,284 0 (2) 985,295 381,127
----------- ---------- ----------- --------- ---------- -------------
Operating income/(loss) 85,623 57,502 (1,257,284) 0 985,295 ( 214,487)
Other income/(expense)
Other income 4,287 0 4,287
Interest expense ( 16,135) ( 24,240) 0 0 0 ( 24,240)
----------- ---------- ----------- --------- ---------- -------------
Income before provision
For income tax 69,488 37,549 (1,257,284) 0 985,295 ( 234,440)
Income taxes 15,634 7,422 0 0 0 7,422
----------- ---------- ----------- --------- ---------- -------------
Net income / (loss) $ 53,854 $ 30,127 $(1,257,284) $ 0 $ 985,295 $ ( 241,862)
=========== ========== =========== ========= ========== =============
Earnings/(loss) per share
basic & diluted $ 0.69 $ 0.42 $( 22.63) $ ( 2.12)
=========== ========== =========== ============
Weighted average
common shares
outstanding -
basic & diluted 65,222 58,778 55,556 114,334
=========== ========== =========== ============
(1) The fiscal year ended, May 31, 2001 includes only the Company,
Silk Botanicals.com, Inc.
(2) BTSL Technologies Limited was incorporated in September 2001 and
its fiscal year ends December 31. The above period is for
the four months ended December 31, 2001. The estimated recurring
general and administrative expenses approximated $272,000 of
which $ 5,000 was amortization charges for patents and
capitalized prototype expenditures.
Approximately $ 985,295 for non recurring operating expenses
over a six (6) years period of developing the Company's technology
were for the following:
Research and development costs $ 646,995
Travel and entertainment cost 222,600
Telephone expenses 50,000
Office expenses 41,700
Rent 24,000
-----------
Total $ 985,295
===========
The recurring general and administrative expenses is based on the
overhead needed to market and sell the gasification and oxygen
generation process to industry or governmental bodies.
(3) The above recurring expenses for the four months ended, November
30, 2001 were evaluated in light of the facts and
circumstances for the sufficient continuity of the acquired
entities operation prior to and after the transaction.
[Exhibit D] Exhibit 99.5 - Pg.3