AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 16, 2000
REGISTRATION NO. 333-37110
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SILK BOTANICALS.COM, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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FLORIDA 5190 65-0886132
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(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer Identification No.)
of Incorporation or Organization) Classification Code Number)
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975 S. Congress Avenue, Suite 102
Delray Beach, FL 33445
561-265-3600
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
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Joseph R. Bergmann
975 S. Congress Avenue, Suite 102
Delray Beach, FL 33445
561-265-3600
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
COPIES TO:
Robert C. Hackney
HACKNEY & MILLER, P.A.
CITY CENTRE
2000 PGA BLVD., SUITE 4410
N. PALM BEACH, FLORIDA 33408
(561) 627-0677
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS AMOUNT TO BE PROPOSED MAXIMUM PROPOSED REGISTRATION
OF SECURITIES TO REGISTERED OFFERING PRICE AGGREGATE FEE
BE REGISTERED- -- PER SHARE OFFERING
Common stock............. 5,000,000 $2.00 $ 10,000,000 $2640
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<FN>
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule
457 of Regulation C promulgated under the Securities Act of 1933.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OF
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SEC, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
<PAGE>
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SILK BOTANICALS.COM, INC.
CROSS REFERENCE SHEET
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ITEM NUMBER AND CAPTION PROSPECTUS HEADING
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1. Front of Registration Statement and Forepart of Registration Statement and
Outside Front Cover of Prospectus....... Prospectus Cover Page
2. Inside Front and Outside Back Cover Pages Inside Front and Outside Back Cover Pages
of Prospectus........................... of Prospectus
3. Summary Information and Risk Factors..... Prospectus Summary and Risk Factors
4. Use of Proceeds.......................... Use of Proceeds
5. Determination of Offering Price.......... Risk Factors and Plan of Distribution
6. Dilution................................. Dilution and Capitalization
7. Selling Security Holders................. Not Applicable
8. Plan of Distribution..................... Plan of Distribution
9. Legal Proceedings........................ Not Applicable
10. Directors, Executive Officers, Promoters
and Control Persons..................... Management and Principal Stockholders
11. Security Ownership of Certain Beneficial
Owners and Management.................... Management and Principal Stockholders
12. Description of Securities
to be Registered......................... Description of Securities
13. Interest of Named Experts and Counsel.... Legal Matters
14. Disclosure of SEC Position on
Indemnification for Securities Act
Liabilities.............................. Not Applicable
15. Organization Within Last Five Years...... Certain Relationships and Related Transactions
16. Description of Business.................. Business
17. Management's Discussion and Analysis or
Plan of Operation........................ Plan of Operation
18. Description of Property.................. Business of the Company
19. Certain Relationships and Related
Transactions............................. Not Applicable
20. Market for Common Equity and Related
Stockholder Matters...................... Not Applicable
21. Executive Compensation................... Management
22. Financial Statements..................... Financial Statements
23. Changes In and Disagreements With
Accountants on Accounting and Financial
Disclosure............................... Not Applicable
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE SEC. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO
BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN
WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION
OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
Prospectus
Subject to Completion, dated June 16, 2000
Silk Botanicals.Com, Inc.
5,000,000 shares of Common Stock
This is our initial public offering, which is being made on a best
efforts basis. The price at which we will offer our shares will be $2.00 per
share. This price may not reflect the market price of our shares after this
offering. We intend to directly place these shares without the use of an
underwriter; however, we may use underwriters or securities brokers to assist in
the distribution. There are no escrow arrangements pertaining to this offering
and there is no minimum amount we are required to raise in this offering before
we may have access to funds received from investors. The minimum subscription is
1,000 shares and investors who meet the qualification requirements set forth in
this prospectus may purchase the shares from us.
Our common stock is not listed on a national securities market or the
Nasdaq stock market. Our shares are currently traded on the OTC Bulletin Board
under the trading symbol SIBO.
There are no pre-existing contractual agreements for any person to
purchase the shares.
----------------------
Investing in our common stock involves a great amount of risk.
See "Risk Factors" beginning on page 3.
----------------------
Public Offering Price Per Share..................... $2.00
Underwriting Discounts and Commissions............. -0-
Proceeds Before Expenses (1)........................ $10,000,000
(1) Proceeds to the Company are calculated before the deduction of
expenses in connection with this offering and payable by the Company, which are
estimated to be $65,000 if the maximum number of shares of Common stock offered
hereby are sold, and include registration, blue sky, filing, printing,
accounting and legal fees and other miscellaneous fees.
Our shares will initially be sold through our executive officers who
will not receive commissions and who will be registered as sales representatives
where required. We have not retained an underwriter or broker-dealer to assist
in the sale of our shares.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The offering of the Common stock hereunder will terminate not later than
, 2000 (the "Termination Date"), provided that, in the sole discretion of
the Company, the offering period may be extended for an additional period not to
exceed 90 days.
THE DATE OF THIS PROSPECTUS IS JUNE____________, 2000
<PAGE>
PROSPECTUS SUMMARY
Silk Botanicals.Com, Inc.
We are a marketing and distribution company that sells silk flowers, floral
arrangements and other artificial plants. We market and sell these products to
gift retailers, decorative accessory retailers, and the hospitality industry.
We are incorporated under the laws of the State of Florida and our offices are
located at 975 S. Congress Avenue, Suite 102, Delray Beach, FL 33445. Our
telephone number is (561) 265-3600.
Subscribers purchasing shares of Common stock should make checks payable to SILK
BOTANICALS.COM, INC . Subscribers in this offering must complete a Share
Purchase Agreement in the form attached as Appendix A to this Prospectus.
Additional copies of the Subscription Agreement may be obtained by writing or
calling or faxing us at our offices: Attn: Shareholder Relations Coordinator,.
All checks and Subscription Agreements should be forwarded to us at our offices.
The Offering
Securities Offered by the
Company....................... 5,000,000 shares of Common stock
Price per share: .............. $2.00
Common stock Outstanding
before Offering............... 6,250,000 Shares
Common stock Outstanding
After Offering. ........ 11,250,000 Shares
Use of Proceeds................. Marketing, new product introductions, and for
working capital and general corporate purposes.
We intend to offer all of the shares directly to the public without the use of
an underwriter. There is no minimum number of shares that must be sold. There
can be no assurance that all of the shares offered will be sold. Accordingly,
investors will bear the risk that we will accept subscriptions for less than
5,000,000 shares and then be unable to successfully complete all of the
anticipated uses of the proceeds of this offering as expected. If fewer than
5,000,000 shares are sold, our business, financial condition and results of
operations could be adversely affected.
Funds from this offering will not be placed in an escrow or trust account and
will be available for use as the funds are received. The minimum investment per
shareholder is 1,000 shares. There is no maximum investment per shareholder.
This offering will begin as of the effective date of this prospectus and
continue for 12 months or such earlier date as we may terminate the offering. If
this offering terminates, all subscription payments received after termination
will be promptly returned.
1
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SELECTED FINANCIAL INFORMATION
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Nine months ended
February 29, February 28, Year ended May 31,
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2000 1999 1999 1998
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Income Statement Information:
Revenue $ 507,434 $ -- $ -- $ --
Gross profit 152,230 -- -- --
Net income (loss) 5,194 -- (694,688) --
Preferred dividend requirement 8,550 -- -- --
Net loss available to common shareholders (3,356) -- (694,688) --
Loss per share (1) $ -- $ -- $ (0.14) $ --
Balance Sheet Information (at end of period):
Total assets $ 222,193 $ 328,338
Short-term liabilities 246,963 159,752
Long-term liabilities -- --
Stockholders' equity (24,770) (21,414)
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(1) After deduction of preferred dividend requirement.
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2
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RISK FACTORS
An investment in our common stock is very risky. You should be aware that you
could lose the entire amount of your investment. You should carefully consider
the following risks and other information when you evaluate our business and the
forward-looking statements that we make in this prospectus. Any of these risk
factors could materially and adversely affect our business, financial condition
or operating results. As a result, a market for our stock might not develop, the
trading price of our common stock could decline, and you could lose all or part
of your investment.
You should not place undue reliance on forward-looking statements in this
prospectus. In this prospectus words such as "anticipates", "believes", "plans",
"expects", "future", "intends" and similar expressions are used to identify
these forward-looking statements. This prospectus also contains forward-looking
statements regarding the growth in the use of the Internet and commerce over the
Internet, the demand for Internet advertising, and other similar forward-looking
statements. Our actual results could differ materially from those anticipated in
these forward-looking statements for many reasons, including the risks we face
as described in "Risk Factors" and elsewhere in this prospectus.
Risks Related to Our Business.
We may not be successful in our primary goal of servicing the wholesale market
for artificial florals.
Our focus is to develop the wholesale market for artificial florals on a
nationwide basis. We are primarily a marketing and distribution company, and our
manufacturing is done for us by an affiliated entity. While we think that we can
be competitive at servicing the wholesale market for artificial florals on a
nationwide basis, we may not be successful. We believe that there is a
profitable place for our products among chain stores, department stores,
catalogs and gift retailers, although our research has been limited. If our
underlying business plan assumption proves to be incorrect, it would have a
material adverse affect upon our financial condition and business prospects.
We will need to be able to develop new products and properly manage product
introductions to be successful.
Our goal is to expand our product line of artificial florals through the
development of new products serving niche segments of the industry, such as
specialty gift retailers, and introduce such new products on a timely and
regular basis to maintain distributor and consumer interest and appeal to
varying consumer preferences. We may not be successful in acquiring, developing,
introducing and marketing new products on a timely and regular basis. If we are
unable to develop and introduce new artificial floral products or if our new
products are not successful, sales will be adversely affected as customers seek
competitive products. In addition, the introduction or announcement of new
products could result in reduction of sales of existing products, requiring us
to manage carefully product introductions in order to minimize disruption in
sales of existing products. If there are any such reductions of purchases or
consumption, it would have a material adverse effect upon our business,
operating results and financial condition.
We could incur delays and problems related to our foreign suppliers.
Many of the raw materials we use are produced and manufactured outside of the
United States. The foreign supply of materials used in artificial botanicals is
subject to a number of risks, including transportation delays and interruptions,
political and economic disruptions, the imposition of tariffs and import and
export controls and changes in governmental policies. Any such impediment could
have a material adverse impact on us. To date we have not experienced any
material adverse effects due to such risks, but they could occur in the future
with the result of losses of revenues and goodwill. See "Business of the
Company- Purchasing of Raw Materials."
3
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We purchase supplies with foreign currency and are subject to Foreign Exchange
Regulation.
As part of ordinary business operations, we are required to purchase raw
materials from foreign suppliers and could be required to accomplish such
purchases through the use of foreign currencies. As a result, fluctuations in
exchange rates of the United States dollar against foreign currencies could
adversely affect our results of operations. We may attempt to limit the exposure
to the risk of currency fluctuations by purchasing forward exchange contracts
which could also expose us to substantial risk of loss. In such a transaction,
we would purchase a predetermined amount of foreign currency to ensure that in
the future we will own a known amount of such currency to pay for goods at a
predetermined cost. We believe the use of such transactions will successfully
allow us to better determine costs involved in our operations, and thus better
manage currency fluctuations. Currency fluctuations could have a material
adverse effect on us.
We are a start-up company with limited operating history.
Our business prospects in the artificial florals industry must be considered in
light of the risks, expenses and difficulties frequently encountered by
companies with extremely limited operating histories, particularly companies in
the new and rapidly evolving markets related to the Internet. These risks
include uncertainty of revenues, markets and profitability, and the need to
raise capital to fund our ongoing operations. Our ability to address these risks
and carry out our business plan is unproven. As a new enterprise, we could also
be subject to risks we have not anticipated.
We may be unable to effectively manage our growth.
We intend to expand our level of operations, and we will need an effective
planning and management process to implement our business plan successfully.
With the introduction of our website, we may experience a period of significant
expansion of our business. Depending on the amount and timing of any increase in
business, this expansion could place a strain on our management, operational and
financial resources. Some areas that may be strained by growth include customer
support, customer billing and website support and maintenance. To accommodate
growth, if any, we may be required to implement and improve our management,
operating and financial systems, procedures and controls on a timely basis, and
also expand, train, motivate and manage our employees. There is a risk, however,
that our systems may be inadequate to support our existing and future operations
or that hiring, training and managing new employees will be more difficult then
we anticipate.
We have received a "going concern" opinion from our auditors
We have a history of losses and there is significant doubt about our ability to
continue as a going concern. We were a development stage company until June
1999 and our revenues for the foreseeable future will not be sufficient to
attain profitability. Since we began operations, we have generated minimal
revenues and have incurred substantial expenditures. We expect to continue to
experience losses for the foreseeable future. In view of this fact, our auditors
have stated in their report for the period ended May 31, 1999, that our ability
to meet our future financing requirements, and the success of our future
operations, cannot be determined at that time.
We will require substantial outside investment on a continuing basis to finance
capital expenditures and operations. Although we believe that the proceeds from
this offering, together with nominal funds expected to be generated from
operations, will be sufficient to finance our working capital requirements for
at least twelve months following completion of this offering, there can be no
assurances that we will generate sufficient funds from this offering to fund our
operations.
We do not have a bank line of credit and there can be no assurance that any
required or desired financing will be available through bank borrowings, debt,
or equity offerings, or otherwise, on acceptable terms.
4
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To the extent that future financing requirements are satisfied through the
issuance of equity securities, investors may experience significant dilution in
the net book value per share of common stock.
We do not know how many of the shares offered will be sold. Therefore, investors
will bear the risk that we will accept subscriptions for a nominal number of
shares and then be unable to exist as a going concern or accomplish our plans as
discussed in the Use of Proceeds in this prospectus. If no shares, or a nominal
number of shares are sold, our financial condition and our ability to continue
as a going concern could suffer.
The market for artificial florals is extremely competitive and highly
fragmented.
There are numerous companies in the industry selling products to retailers. Most
of these companies are privately held and we are unable to precisely assess the
size of our competitors or where we rank in comparison to such privately held
competitors with respect to sales to retailers. No company is believed to
control more than 10% of this market.
The principal competitive factors affecting the market for our products includes
product quality, packaging, brand recognition, price and distribution
capabilities. We compete with a variety of domestic and international suppliers
of artificial florals, many of whom have substantially greater financial,
distribution and marketing resources and have achieved a higher level of brand
recognition than us. Increased competition could result in price reductions,
reduced profit margins and loss of market share, all of which would have a
material adverse effect on our business, financial condition and results of
operations. See "Business of the Company -- Competition."
We are dependent on the services of key individuals and the loss of any of these
individuals could significantly affect our ability to operate our business.
Our development and success is significantly dependent upon Joseph R. Bergmann,
Chairman, President and Chief Executive Officer, as well as Regina M. Bergmann,
Jerry Frenz, Joyce Bernard and Gail Scheel. We do not currently have key man
insurance for any of these officers. Any loss of the services of these members
of our senior management personnel could seriously harm our business.
We also believe that our success depends in large part on our ability to hire
skilled managerial, sales, technical and administrative personnel whose talents
are necessary in allowing us to develop our services and operate our business.
We will need to hire a substantial number of additional people to allow us to
implement our business plan. Because employees with these skills are in high
demand, we anticipate encountering considerable competition in attracting those
persons. As a result, we may experience a shortage of qualified personnel.
The success of our business plan requires the development and maintenance of an
effective Internet website.
For our website to be perceived as a viable business tool, the website must
provide accurate and timely information about the artificial florals industry in
general and our products in particular, on a consistent, easy-to-use and
reliable basis. We may not be successful in our plans to develop and maintain
our website on such a basis. The performance of the website will depend upon the
successful operation of the Internet, certain third parties and services, such
as Internet service providers, Internet backbone providers and Web browsers.
Users may experience difficulties resulting from system failures unrelated to
our internal systems and services. If the Internet were to become regularly
unavailable for many hours at a time, or if its ability to handle traffic loads
were to deteriorate enough to cause frequent unavailability or slow response
times, there would be less traffic to our website. Furthermore, the perception
of the quality of our services could suffer.
5
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We may be unable to protect our intellectual property rights.
Our success depends in part on our ability to protect our trademarks. We rely on
trademark laws, trade secrets and confidentiality and other contractual
provisions to establish and protect our proprietary rights. We own two
trademarks that represent the majority of our products, "Living Silk/registered
mark/" and "Forever Fresh/registered mark/" and may file for additional patents
in the future. However, others may independently develop similar products,
duplicate any of our products or use similar sounding trade names, and the
trademarks may not provide us competitive advantages. Litigation, which could
result in substantial costs and diversion of effort by us, may also be necessary
to enforce any trademarks issued or licensed to us or to determine the scope and
validity of third-party proprietary rights. Any such litigation, regardless of
outcome, could be expensive and time consuming, and adverse determinations in
any such litigation could seriously harm our business. We have not yet sought
trademark protection for any of our marks in any country other than the United
States. The laws of other countries vary with respect to intellectual property
protection, and some jurisdictions may provide substantially less protection
than those of the United States. As a consequence, our ability to protect our
intellectual property and prevent competitors from using our intellectual
property may be much more limited.
Ongoing Year 2000 problems could disrupt our business.
Prior to January 1, 2000, many computer systems and software products were coded
to accept or recognize only two digit entries for the date. Those systems were
subject to the risk that they would recognize a date using "00" as the year 1900
rather than the year 2000. We did not experience any known effects as a result
of the year 2000 change-over. However, there may be software or hardware that
our third party service providers or we rely upon that may have undetected or
potential errors resulting from the inability to recognize the year 2000. To the
extent that any such errors or potential errors may appear, our business and
results of operations could be negatively affected.
We face risks from potential government regulation of the Internet.
We are subject to the same federal, provincial, state and local laws as other
companies conducting business on the Internet. Currently, there are relatively
few laws governing usage of the Internet or online services. However, due to the
increasing popularity and use of the Internet and online services, it is
possible that a number of laws and regulations will be adopted with respect to
the Internet or online services. These laws and regulations could cover issues
such as online contracts, user privacy, pricing, fraud, content and quality of
products and services, taxation, advertising, intellectual property rights and
information security. The applicability to the Internet of existing laws in
various jurisdictions governing issues such as property ownership, copyrights
and other intellectual property issues, taxation, and personal privacy is
uncertain and may take years to resolve. The vast majority of these laws were
adopted prior to the advent of the Internet and related technologies and, as a
result, do not contemplate or address the unique issues of the Internet and
related technologies. Those laws that do reference the Internet, such as the
recently passed Digital Millennium Copyright Act, have not yet been interpreted
by the courts and their applicability and reach are therefore uncertain. We are
not aware of any legal determination to date that has been made with respect to
the applicability of state regulations to our online business and few precedents
exist in this area. One or more states may attempt to impose regulations upon us
in the future, which could harm our business. In addition, as the nature of the
directory information requested by our users changes, we may become subject to
new regulatory restrictions.
We Lack Independent Directors.
Our board of directors does not have any independent directors. As such, upon
completion of the offering of the shares the sole director will continue to be
Joseph R. Bergmann, the company's President. See "Management."
6
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We indemnify our Directors and Officers
Our Articles of Incorporation and Bylaws require us to indemnify and hold
harmless its directors and officers from and against and in respect of certain
losses, damages, deficiencies, expenses or costs which may be incurred or
suffered by such directors and officers as a result of their serving in such
capacities with us. See "Certain Provisions of Florida Law and our Articles of
Incorporation and Bylaws."
Risks Related to this Offering.
This is our initial public offering.
Currently, some of our shares that we originally sold as restricted securities
in private placement offerings are now trading on the OTCBB under the symbol
SIBO. The price of the securities offered herein may bear no relationship to the
price of our shares traded on the OTCBB.
This is a best efforts offering.
This is a best-efforts offering. Unlike a firm commitment underwriting, no one
will have any commitment to buy any of the shares being offered even after the
registration statement becomes effective. There is no minimum amount of shares
that we must sell in this offering and the proceeds from any sales will be
immediately available to us. Therefore, the amount of funds available to us as a
result of this offering will depend upon the success of the sales efforts of our
officers, directors and employees, who will be selling the offering on our
behalf. While no broker or dealer has been retained or is under any obligation
to purchase any of these securities, we may use brokers or dealers in the event
we experience trouble selling our shares and may pay a commission of up to 7% on
such sales. In addition, we may pay a broker or dealer additional compensation
in the form of a non-accountable expense allowance equal to up to 3% on such
sales.
The market price for our shares could drop, making it more difficult to sell
shares in this offering.
The offering price may drop below that at which our shares are trading on the
open market, which could render us unable to sell shares in this offering. We
are offering to sell shares at the price on the cover page of this prospectus,
whereas the market price for our stock may vary significantly. If the market
price for the shares drops below the offering price, prospective investors will
likely choose to purchase shares on the open market rather than directly from
us. If this happens, the amount of financing we receive from this offering will
be significantly reduced and we may be unable to raise any funds from this
offering. The trading price of our shares on the OTC Bulletin Board may decline
below the price at which you are purchasing shares in this offering. We
arbitrarily determined the purchase price of our shares for this offering. The
price of the shares offered in this prospectus bears no relationship to our
assets, book value, or net worth.
An established public trading market for our securities does not exist; any
market for the securities which does develop may be illiquid.
We do not currently meet the requirements such as income, stockholders' equity
and number of public shares outstanding, to have our shares listed on a U.S.
stock exchange or the Nasdaq stock market. We will not meet these requirements
immediately after the offering, and we may never meet them. We cannot give any
assurance that we will achieve sufficient distribution or that we will be able
to obtain the number of market-makers necessary to obtain a listing on the
Nasdaq stock market.
We presently have our stock quoted on the OTC Bulletin Board. The OTC Bulletin
Board is an electronic quotation medium used by subscribing broker dealers to
reflect dealer quotations on a real-time basis. The over-the-counter market
provides significantly less liquidity than the Nasdaq stock market. Quotes for
stocks included on the OTC Bulletin Board are not listed in the financial
sections of newspapers, unlike
7
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those for the Nasdaq stock market. Further, quotation entries on the OTC
Bulletin Board may reflect an unpriced indicator of interest (such as "bid
wanted" or "offer wanted" indicators) or unsolicited non-dealer interest.
Therefore, prices for securities traded solely on the OTC Bulletin Board may be
difficult to obtain, and holders of common stock may be unable to resell their
securities at or near their original offering price or at any price. In
addition, price quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions. As a result,
an investment in our shares may be illiquid even if there is a market.
"Penny stock" regulations impose certain restrictions on marketability of
securities.
The SEC has adopted regulations which generally define "penny stock" to be any
equity security that is not traded on a national securities exchange or the
Nasdaq, and that has a market price of less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to certain exceptions. The
definition excludes the securities of an issuer meeting certain minimum
financial requirements. Generally, these minimum thresholds would be met by an
issuer with net tangible assets in excess of $2 million or $5 million,
respectively, depending upon whether the issuer has been continuously operating
for less or more than three years, or by an issuer with "average revenue" of at
least $6 million for the last three years.
As long as we do not meet the relevant financial requirements and our common
stock is trading at less than $5.00 per share on the OTC Bulletin Board, our
securities are subject to the penny stock rules. These rules impose additional
sales practice requirements on broker-dealers who sell our securities to persons
other than established customers and accredited investors (generally, investors
with a net worth in excess of $1,000,000 or an individual annual income
exceeding $200,000, or, together with the investor's spouse, a joint income of
$300,000). For transactions covered by the penny stock rules, the broker-dealer
must make a special suitability determination for the purchase of such
securities and have received the purchaser's written consent to the transaction
prior to the purchase. Additionally, for any non-exempt transaction involving a
penny stock, the rules require, among other things, that the broker-dealer
deliver an SEC mandated risk disclosure document relating to the penny stock
market and the risks associated therewith prior to the transaction. The
broker-dealer must also disclose the commission payable to both the
broker-dealer and the registered representative as well as current quotations
for the securities. If the broker-dealer is the sole market maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Finally, the broker-dealer must send monthly statements
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. Consequently, the penny stock
rules may restrict the ability of broker-dealers to sell our securities and may
affect the ability of our shareholders to sell their securities in the secondary
market.
We have arbitrarily determined the offering price.
We have arbitrarily determined the price for the common stock offered in this
offering. Since a principal underwriter has not been engaged to offer the
securities, our establishment of the offering price of the shares has not been
determined by negotiation with an underwriter as is customary in underwritten
public offerings. The offering price does not bear any relationship whatsoever
to our assets, earnings, book value or any other objective standard of value.
You will incur immediate and substantial dilution.
This offering involves immediate and significant dilution. The purchase price of
the common stock offered hereby will exceed the net tangible book value of the
common stock immediately following this offering. We could issue additional
stock, warrants, options, or convertible securities, which could have a further
dilutive effect on shareholders. See "Dilution."
8
<PAGE>
The volume of shares eligible for sale could impair our stock price.
Of the 6,250,000 shares of common stock outstanding as of the date of this
prospectus, 4,435,812 were issued and sold by us in private transactions and are
restricted securities within the meaning of Rule 144 under the Securities Act,
and 1,814,188 shares are currently free trading. All of the shares sold through
this registration statement will be eligible for resale in the open market. Even
without an effective registration statement, all of the restricted shares,
including shares held by affiliates, will be eligible for resale under U.S.
federal securities laws commencing in April, 2000, in the open market, if any,
subject to the volume restrictions and other conditions of Rule 144. In general,
under Rule 144, every three months a person may sell up to one percent of our
outstanding shares. These factors may make it more difficult for us to raise
funds through future offerings of common stock.
USE OF PROCEEDS
If the entire offering is sold, the net proceeds from the sale of the common
stock, after deducting expenses, are estimated to be approximately $9,935,000.
The net proceeds have been calculated using an initial public offering price of
$2.00. There is no guarantee that we will receive any proceeds. We expect to use
the net proceeds over a 12-month period in approximately the following amounts
and percentages:
To expand inventory ..................................................$2,000,000
To increase accounts receivable.......................................$2,000,000
To provide for general corporate purposes, including working
capital, potential acquisitions and strategic partnerships(1)........$5,935,000
Total ......................................................$9,935,000
(1) Although we have allocated a portion of the net proceeds for potential
acquisitions, we are not in negotiations regarding, nor do we have any
agreements or understandings with respect to, any acquisitions.
Although we have allocated the net proceeds of this offering among these various
uses, the amounts actually expended for any of the above purposes may vary if
our needs or strategies change after the offering. Pending such use, we intend
to invest the net proceeds in short-term investment grade, interest-bearing
securities.
MARKET PRICE AND DIVIDEND INFORMATION
Our common stock has traded on the over-the-counter Bulletin Board under
the symbol SIBO since April 2000. The high and low closing bid prices for our
common stock from April 13, 2000 to June 1, 2000 was a high of $5.00 and a low
of $1.50. These prices also reflect inter-dealer quotations, without retail
mark-up, mark-down or commissions and may not represent actual transactions.
As of June 1, 2000, we have a total of 87 holders of our common stock.
Dividends
We have never paid or declared any cash dividends on our common stock and do not
intend to pay dividends on our common stock in the foreseeable future. We
presently expect to retain our earnings to finance the development and expansion
of our business. The payment of dividends, if any, on our common stock in the
future is subject to the discretion of the Board of Directors and will depend on
our earnings, financial condition, capital requirements and other relevant
factors. See "Description of Securities."
9
<PAGE>
DILUTION
The following table presents certain information concerning the net
tangible book value of the Company's common stock as of February 29, 2000, as
adjusted to reflect the sale of 5,000,000 shares offered hereby:
<TABLE>
<CAPTION>
25% of offering 100% of offering
--------------- ----------------
<S> <C> <C> <C> <C>
Public offering price per share $ 2.00 $ 2.00
Net tangible book value per share before offering (1) $ (0.01) $ (0.01)
Increase in net tangible book value attributable
to cash payments made by purchasers of
the shares offered hereby (2) 0.32 0.89
------- -------
Net tangible book value per share after offering 0.31 0.88
------ ------
Dilution to new shareholders (3) $ 1.69 $ 1.12
------ ------
<FN>
(1) Net tangible book value per share is determined by dividing the number of
shares of common stock outstanding into the total tangible assets less total
liabilities of the Company.
(2) Net of expenses of this offering expected to be $65,000.
(3) Dilution means the difference between the public offering price and the net
tangible book value per share after giving effect to the offering.
</FN>
</TABLE>
The following table presents the relative share purchases, percentage of
equity ownership in the Company, percentage of total capital invested, and the
average cost per share to the owners after giving effect to the sale of the
common stock offered hereby:
<TABLE>
<CAPTION>
Percentage
Percentage of total Average
Shares of equity capital price
purchased ownership invested per share
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
New stockholders 5,000,000 44% 100% $2.00
Present stockholders 6,250,000 56% 0% $ -- (1)
<FN>
(1) Since cash was not paid for the shares outstanding and instead expensed as
compensation, no capital was invested by present stockholders.
</FN>
</TABLE>
10
<PAGE>
CAPITALIZATION
The following tables sets forth the capitalization of the Company at May
31, 2000, adjusted to give effect to the sale of the shares offered hereby,
assuming shares offered are sold:
Capitalization if 25% of the shares offered are:
<TABLE>
<CAPTION>
Outstanding As Adjusted
------------ ------------
<S> <C> <C>
Short - Term Debt:
Advances on corporate credit cards $ 19,505 $ 19,505
============ ============
Long - Term Debt: $ -- $ --
------------ ------------
Stockholders' Equity:
Series A preferred stock, $.001 par value, 1,900 shares
authorized, issued and outstanding 2 2
Preferred stock, $.001 par value, 4,988,100 authorized,
none issued and outstanding -- --
Common stock, $.001 par value, 25,000,000 shares
authorized, 6,250,000 shares issued and outstanding,
(7,500,000 shares as adjusted) 6,250 7,500
Additional paid-in capital (1) 671,460 3,106,460
Retained deficit (702,482) (702,482)
------------ ------------
(24,770) 2,411,480
------------ ------------
Total Capitalization $ (24,770) $ 2,411,480
============ ============
</TABLE>
Capitalization if 100% of the shares offered are:
<TABLE>
<CAPTION>
Outstanding As Adjusted
------------ ------------
<S> <C> <C>
Short - Term Debt:
Advances on corporate credit cards $ 19,505 $ 19,505
============ ============
Long - Term Debt: $ -- $ --
------------ ------------
Stockholders' Equity:
Series A preferred stock, $.001 par value, 1,900 shares
authorized, issued and outstanding 2 2
Preferred stock, $.001 par value, 4,988,100 authorized,
none issued and outstanding -- --
Common stock, $.001 par value, 25,000,000 shares
authorized, 6,250,000 shares issued and outstanding
(11,250,000 shares as adjusted) 6,250 11,250
Additional paid-in capital (1) 671,460 10,606,460
Retained deficit (702,482) (702,482)
------------ ------------
(24,770) 9,915,230
------------ ------------
Total Capitalization $ (24,770) $ 9,915,230
============ ============
<FN>
(1) Net of expenses of of the offering estimated to be $65,000.
</FN>
</TABLE>
11
<PAGE>
DESCRIPTION OF BUSINESS
Introduction
We develop, market and distribute artificial flowers and artificial florals
arrangements. We market these products under the "Silk Botanicals", "Living
Silk/registered mark/" and "Forever Fresh/registered mark/" names. We market and
sell these products to gift retailers, decorative accessory retailers, and the
hospitality industry.
We import the artificial foliage and flowers primarily from Taiwan, Hong Kong
and the Peoples Republic of China. We purchase artificial flowers from United
States ("US") based importers and US subsidiaries of foreign companies located
in the US. Glassware is purchased from domestic manufacturers.
Our silk botanical products are produced by JRB Enterprises, Inc. under a
Manufacturing Agreement. JRB Enterprises, Inc. is a manufacturer and assembler
that primarily sell its assembled products through its approximately 25 retail
stores and to Silk Botanicals.Com, Inc. Joseph R. Bergmann controls JRB
Enterprises, Inc. and us. We operate as a stand alone business. We have
instituted numerous firewalls to prevent commingling of the businesses through
such practices as separating office and warehouse space, maintaining separate
inventories, and separating accounting functions.
JRB Enterprises, Inc. had attempted previously to address the local wholesale
markets in Florida. Over the past four years, JRB Enterprises began cultivating
a business relationship with several nationally known retail corporations. The
test marketing efforts were primarily with locations in South Florida, which
generated aggregate sales at wholesale for these accounts in excess of two
million dollars. We plan to target these wholesale markets on a national scale.
We were formed to separate the wholesale supplier business from the retail
stores operated by JRB Enterprises, Inc. and to establish ourself as a wholesale
supplier to retail operations nationally.
We are primarily a design, marketing sales and distribution company which has
other companies manufacture products to our specifications. We were formed in
November, 1998, under the name of Diversified Restaurant Holdings, Inc.,
("DRHI"), a Florida corporation. In April, 1999, DRHI, acquired JRB Marketing of
South Florida, Inc., a Florida corporation incorporated in 1996, and in August,
1999, we changed our name to Silk Botanicals.Com, Inc.
Independent research by Jacobs, Jenner & Kent of Baltimore, Maryland in their
study on Permanent Florals Products Industry, has revealed three opportunities
which we have and will continue to address: (1) there is little awareness of
artificial florals brands among consumers, (2) merchandise with retail prices
less than $30 is the preferred choice for retailers and their customers, and (3)
gift boxes enhance merchandising. We plan to embark on a program to build brand
awareness, develop three product lines targeting three distinct markets - gift
retailers, decorative accessories retailers, and the hospitality industry - and
are developing gift boxes for select products.
Our Products.
We have developed over 200 flowers, florals and greenery arrangements and a
special gift box for our line of bud vase arrangements. We believe the gift box
will be well accepted by national gift and retail store chains and plan to
develop gift boxes for other vases in our product lines.
Arrangements are sold as get well gifts by hospital gift shops and as gifts for
birthdays, anniversaries, Christmas, Chanukah, Valentines Day, Easter and
Mother's Day. Styles retailing for $20.00 to $50.00 have been strong sellers for
these markets. We further believe that the quality of the product will enable
customers to overcome any reluctance to buying artificial flowers. In addition,
styles priced from $58.00 to $198.00 are sold as decorative accessories and
house warming gifts for the consumer and decorative accents for the hospitality
industry. We plan to develop new products that would be less seasonal.
12
<PAGE>
We will continue to diversify to meet retailers' demands for quality and value.
The products will create revenue streams as follows:
BASIC LINE. The basic line is drawn from the existing unboxed designs, sold and
shipped in bulk. These are inexpensive and serve as the opening price point for
gift stores. We believe that this product sells especially well for tabletop
displays, for parties, and to the hospitality market.
FOREVER FRESH/registered mark/ GIFT BOXED LINE: This line is the Forever Fresh
arrangements packaged in a branded window gift box. Benefits to the retailer
include Uniform Product Code ("UPC") labels for inventory and Point of Sale
("P.O.S."), reduction of breakage, and enhanced on shelf merchandising.
Wholesale prices range from $8.00 to $14.00 and retail from $16.00 to $30.00 per
unit. This product line includes some of the following.
/bullet/ Special Occasion merchandise (Easter, Valentine's Day,
Birthday, Get Well, and for special people, Wives, Mothers,
Teachers.
/bullet/ Twin-pack boxed gifts will also be tested, i.e., small florals
vase with candle.
/bullet/ Special seasonal arrangements, country arrangements, exotic
florals and greenery.
CATALOG PROGRAM SALES. Catalog program sales are basic line and custom products
that are suitable for "drop shipping". Our products have appeared in upcoming
Smithsonian Institute and Touch of Class catalogs. We continually seek new and
diversified catalogs to carry our products.
GENERIC/PRIVATE LABEL GIFT BOXED PRODUCT. We will develop our own package line
of 10-12 permanent florals gifts in private label windowed gift boxes with
seasonal designs.
SIGNATURE SERIES. Our design staff is developing our signature line of large
florals arrangements. These arrangements will wholesale for $100.00 to $300.00.
Upon completion of this line it will be released and marketed to home
accessories retailers and hospitality providers through manufacturers
representatives. Other designer containers will be introduced that will enhance
the silk flowers and fit into custom interiors.
Our Competition.
The artificial florals industry is competitive but highly fragmented with many
small players in the manufacturing end. Therefore, we believe that an
opportunity exists for our product lines to compete in this industry. We are not
aware of any competitor that has a 10% or greater market share in the industry.
Our primary competitors are other assemblers, importers and distributors. Some
of these competitors focus on price and others specialize in a particular
product segment. We compete primarily on the basis of merchandising, high
quality product lines, supply dependability, price and brand name recognition.
Our competitors are not focused on the gift industry and have not developed
products targeting the gift industry, nor have they developed packaging to gift
industry standards.
The barriers to entry to our industry are relatively low. We believe, however,
that attaining success in the industry is difficult but that we have competitive
advantages, including our ability to fill orders quickly and completely and
provide a high level of customer service, high quality products, competitive
prices and brand names. We believe the industry does not have a single dominant
retailer or wholesaler of high quality artificial greenery and flower
arrangements. To date, the only other importer, manufacturer or distributor of
artificial flowers whose shares are publicly traded is Celebrity, Inc. (FLWR).
Sales and Marketing.
We market our products using the "Forever Fresh/registered mark/ and "Living
Silk/registered mark/ trademarks, which are licensed for thirty-six (36) years.
We believe we have found a niche in the gift industry. According to Retail
Industry Indicators in 1997, gift and general merchandise is a $49 billion
market annually in the United States. The overall target market for products is
composed of almost 200,000 stores, including general merchandise
13
<PAGE>
stores, catalog and mail orders, florists, gift stores and furniture and home
furnishing stores. We intend to build a national base of gift stores and develop
relationships that have been recently forged with several regional and national
chains. Our marketing efforts will be through trade shows, direct mail,
telemarketing, targeted e-mail, and the use of sales representatives. We
believe, however, that a high percentage of sales will be obtained through our
web site, www.silkbotanicals.com, which is presently in operation For this
reason, we included the .Com" in our corporate name to indicate our entrance
into e-commerce marketing and sales.
Customer Base.
The sales and marketing plans take into account our desire to expand operations
both financially and geographically. We will continue to build on the solid base
of 2,000+ customers who were the wholesale customer base of Forever Fresh
/registered mark/. These customers were acquired through JRB Marketing of South
Florida, Inc.'s License Agreement with Forever Fresh, Inc. and by virtue of
cobranding Forever Fresh /registered mark/ silk florals products. Any sales of
products to this customer base were "wholesale" and were not part of any retail
store customers of JRB Enterprises, Inc. The retail store customer list has no
value to us. We are targeting "wholesale customers" and the vast majority of the
customer base is in states or regions not served by the JRB enterprises retail
stores. We continue to receive repeat purchases on a daily basis from the
Forever Fresh /registered mark/ and Living Silk /registered mark/ customer base
through phone and fax orders. We have also sent our mailings to this customer
base for seasonal specials such as Valentine's Day and have received reorders as
a result of these efforts. Repeat business from the existing customer base is
generated at trade shows, as customers are familiar with the name Forever Fresh
/registered mark/ because of past purchases. The sales revenue of $112,462 for
the nine months ended February, 2000 were wholesale customers only. These
customers were solicited through sales representative, regional showrooms and
mailings of brochures and catalogs. The product sales mix consisted of
approximately 1/3 florals arrangements, 1/3 greenery arrangements, and 1/3
natural trunk trees. These sales do not represent any sales by JRB Enterprises
retail stores, and are sales that would not have otherwise been captured by
these retail stores. With additions to the sales force, enhanced trade show
schedules, print advertising, direct mail programs, product development and the
web site, we believe that we will increase revenue and market share over the
next twelve months.
Our Employees.
We currently employ six part-time and six full-time employees. We anticipate
increasing our staff with six new employees at the end of June 2000 and with an
additional ten new employees by March 2001. Our key employees are Joseph R.
Bergmann, President, Chief Executive Officer and Director; Regina M. Bergmann,
Director of Personnel; Jerry Frenz, Controller; Gail Scheel, Director of
Advertising and Marketing; and Joyce Bernard, Merchandising Manager.
Our business facilities.
Our administrative, warehousing and distribution facilities are located at 955
and 975 South Congress Avenue in Delray Beach, Florida.
We subleased approximately 2,000 square feet of furnished office space and
warehouse facilities from JRB Enterprises, Inc. This space has been specifically
identified and designated for us.
We plan to continue to sublease this space until May 2001 at a fixed cost of
$1,667 per month. The Sublease allows for two five-year renewal options.
Our tangible property consists of computer equipment and software which is
located in its office space.
We believe that these facilities are adequate for the foreseeable future.
14
<PAGE>
PLAN OF OPERATION
We expect that the proceeds of this offering will be sufficient to satisfy our
cash needs for the next twelve months. In addition, we have obtained special
180-day financing terms with suppliers for immediate product and supply
purchases.
For the fiscal year ended May 31, 1999, we had no revenues. Expenses of $694,688
consisted of $671,460 for the issuance costs of securities and $23,228 for
general administrative expenses.
There are no future capital transactions planned or agreements in place between
JRB Enterprises, Inc. and us.
The funds from this offering will be used to expand marketing efforts to include
gift retailers in the western United States and in the hospitality industry,
develop and expand our web site, develop additional product and marketing
materials to enable the company to separately target the gift and decorative
accessories market, increase inventories and accounts receivables, develop new
products, and increase its marketing staff to expand into new markets.
Our Initial Marketing Activities.
Since our inception under the name of JRB Marketing of South Florida, Inc., we
have:
1. Conducted market research;
2. Developed products;
3. Identified suppliers;
4. Purchased an existing customer base from Forever Fresh/registered mark/;
5. Purchased marketing rights and registered trademarks;
6. Began the development of a major web site; and
7. Planned to position ourself to market our products worldwide
Because we were a development company, these earlier marketing activities to
enter the wholesale market were conducted with JRB Enterprises, Inc. on a test
basis in the local Florida markets. Based on early results, JRB Enterprises,
Inc. increased its manufacturing capabilities in an effort to become a major
supplier of an expanded line of finished products. These products can be
designed, assembled and packaged to the specifications of major wholesale
accounts. All sales and costs to expand the product line were accounted for and
recorded by JRB Enterprises, Inc.
Product Development Activities.
Much of the efforts since inception have been on product design and
development. The design staff studies competitive fresh cut and artificial
arrangements, researches new sources of stems and vases, surveys retailers and
end users for preferences, and tests prototypes in focus groups and by sampling.
Our design staff has developed and refined over 200 arrangements by
communicating with customers and by attending silk and fresh flower trade shows.
As the product line has been refined, the focus has shifted to packaging and
merchandising. Although competitors offer similar products we are not aware of
any that have focused their energies on developing a brand, marketing to the
gift market and responding to the packaging requirements of this market.
Market Development Activities.
We will continue to cater to the needs of gift retailers and expand our
marketing efforts to include the western half of the United States. By May 31,
2000, our products will be sold and shipped to three major
15
<PAGE>
national as well as three major regional accounts. These customers recorded
total annual retail sales in excess of a billion dollars each. By May 31, 2001,
national accounts are expected to reach a total of six. Our plan is to target
the following five segments of the market:
/bullet/ Independent Gift Shops. Businesses that own/operate one or two
retail locations;
/bullet/ Strand Gift Businesses. Companies that own/operate from three to
twenty-five retail locations;
/bullet/ Chain Stores. Companies that own a nationally or regionally
recognized retail gift business;
/bullet/ Catalogs. Companies that sell products directly to consumers via
direct mail catalogs; and
/bullet/ Department Stores. We have to work closely with department
stores, rather than discounters, to develop
products to meet their specifications.
By identifying and categorizing the prospect list, current sales presentations
will be modified and new presentations developed to meet specific needs of
current and future customers. Secondary target markets will continue to include
home furnishings retailers, hotels and restaurants, corporate gifts and
furnishings, and the military (exchanges, commissaries and officer clubs).
Our Sales and Marketing Focus.
We will focus our attention on the following marketing tactics:
/bullet/ Gift Industry Trade Shows. The gift and general merchandise industries
purchase approximately $1 billion of products at gift trade shows each
year. Buyers prefer to view the merchandise in person.
/bullet/ High Point, NC, Furniture Show. Furniture stores represent a projected
14% of our sales, making attendance at this show cost effective. We
anticipate participation in other furniture shows as well.
/bullet/ ALA Military Trade Show. The ALA Military Trade Show is the annual,
exclusive buying show for military bases and exchanges. It represents
the only opportunity to show and sell products to this lucrative
business category. Forever Fresh/registered mark/ and the Department of
the Air Force finalized a non-appropriated funds contract in the Fall
of 1999 enabling us to provide artificial florals arrangements to all
military installations.
/bullet/ Restaurant Supply Trade Shows. We have initiated a search to retain a
sales organization that targets restaurants and hotels. Trade shows
will be an important component of the sales efforts.
/bullet/ Sales Representatives. Independent sales organizations sell products
though road sales and trade shows. We have signed contracts with
representative companies that maintain permanent showrooms in Atlanta,
Columbus, and Chicago for the east coast of the United States. We plan
to increase representation on the west coast with representatives who
can provide quality temporary or permanent show space.
/bullet/ Color Catalogs. Full color catalogs have been produced for both Forever
Fresh/registered mark/ and Living Silk/registered mark/. These are
being used to sell the most important and popular designs in both
lines.
/bullet/ Direct Mail. Holiday and seasonal product designs will be presented to
existing customers and prospects through direct mail. Trade show
schedules and special events are also announced through direct mail.
/bullet/ Telemarketing. We plan to contact our customer base at least four times
a year. Two of the calls will be used for pre-show marketing and the
other two calls will sell specific holiday packages (the Valentine's
Day and Mother's Day collections). Additionally, all direct mail
recipients will receive a follow-up call.
16
<PAGE>
/bullet/ Our Web Site. We plan to develop fully our Web site,
www.silkbotanicals.com. The site has been operational since February,
2000. We will display our product lines and accept order through our
site, as well as provide information on the company for potential
investors.
PRINCIPAL STOCKHOLDERS
The following tables set forth certain information regarding the beneficial
ownership of our common stock as of June 1, 2000 by (i) each person or entity
known by us to be beneficial owner of more than 5% of the outstanding shares of
common stock, (ii) each director and named executive officer, and (iii) all
directors and executive offices as a group.
Common Joseph R. Bergmann(1) 4,042,687 shares(2) 64.7%
Par Value $.001 975 S. Congress Ave. President & Director
Delray Beach, FL
Common Directors & Officers 4,042,687 shares(2) 64.7%
Par Value $.001 As a group
(1) Mr. Bergmann is the President, CEO and sole director of the company.
(2) Of this number, 1,042,688 shares are issued to Joseph R. Bergmann IRA
MANAGEMENT
JOSEPH R. BERGMANNN, PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR: Mr.
Bergmann currently oversees the entire operation of the company. He is
responsible for merchandising of products, as well as the formation and
implementation of the company's marketing plans. From 1990 to the present, Mr.
Bergmann has also been the President and CEO of JRB Enterprises, Inc. From 1986
to 1989, he was President of Jewelmasters, Inc., a publicly held fine jewelry
company. He also served as Senior Vice President of Federated Department Stores.
He is a graduate of Queens College in New York.
REGINA M. BERGMANNN, DIRECTOR OF PERSONNEL. Ms. Bergmann currently serves as the
Company's Director of Personnel and participates in the daily operations of the
business. She has also been Director of Personal for JRB Enterprises, Inc. since
September 1995. From October 1990 to the present, Ms. Bergmann has served as the
Corporate Secretary and a Director of JRB Enterprises, Inc.
JOYCE BERNARD, MERCHANDISING MANAGER. Ms. Bernard currently has direct
responsibility for the Company's purchasing, inventory control and shipping
functions. She also serves as Merchandise Manager for JRB Enterprises, Inc.
since 1996 where she oversees the manufacturing functions as well. Ms. Bernard
was a District Manager for JRB Enterprises, Inc. from 1994 and a store manager
for Silk, Silk, Silk from 1993 to 1994. With over 15 years' experience in the
florals industry, Ms. Bernard also held various positions with Ben Franklin
Stores, Inc.
JERRY FRENZ, CONTROLLER. Mr. Frenz is responsible for the financial reporting as
well as budgeting cash management and special product analysis. He also serves
as the Controller for JRB Enterprises, Inc. since April 1994. Mr. Frenz has over
25 years of experience in key financial management positions including
Controller and Director of Accounting. Mr. Frenz began his career in public
accounting as a Certified Public Accountant with Arthur Andersen & Co. He held
various financial management positions at two multi-billion dollar companies,
Case and FPL Group, Inc. and received his accounting degree at the University of
Wisconsin, Whitewater.
17
<PAGE>
GAIL SCHEEL, DIRECTOR OF ADVERTISING AND MARKETING. Ms. Scheel is responsible
for the Company's advertising programs including media analysis and selection,
advertising scheduling and advertising promotion. Ms. Scheel also serves as the
Director of Advertising and Marketing as well as for Store Operations for JRB
Enterprises, Inc. since October 1990. Ms Scheel majored in Marketing at DePaul
University.
FAMILY RELATIONSHIPS. Joseph R. Bergmann, President, Chief Executive Officer and
Director and Regina M. Bergmann, Director of Personnel are husband and wife.
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 for the last fiscal year:
NAME TITLE SALARY/FISCAL YEAR BONUS AWARDS
Joseph R. Bergmann President $35,000.00 NA NA
(ii) Not applicable
Joseph R. Bergmann is also an officer and director of JRB Enterprises, Inc.
Together we and JRB Enterprises, Inc. have engaged in numerous transactions
including, but not limited to, the Manufacturing Agreement, the 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 1996-98 0
Joseph R. Bergmann President 1996-98 $150,000
Regina M. Bergmann Director 1996-98 0
Regina M. Bergmann Secretary 1996-98 $ 25,000
18
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On April 9, 1999, Diversified Restaurant Holdings, Inc. acquired JRB Marketing
of South Florida, Inc. from Joseph R. Bergmann in a stock for stock exchange,
which gave control of Diversified Restaurant Holdings, Inc. to Mr. Bergmann. In
August, 1999, we changed our name to Silk Botanicals.Com, Inc.
We purchase our silk botanical products from JRB Enterprises Inc., which is
owned by our president and majority stockholder. On April 1, 1999, JRB Marketing
of South Florida, Inc. entered into a manufacturing and distribution agreement
with JRB Enterprises, Inc., for a term of six years with the right to extend the
term for six additional terms. According to the agreement, JRB Enterprises, Inc.
invoices us for products and distribution of the products at rates to be
negotiated periodically between JRB Enterprises and us.
Additionally, we share office facilities, certain office equipment and certain
employees with JRB Enterprises, Inc. At May 31, 1999, we had issued 1,900 shares
of preferred stock to JRB Enterprises, Inc. for the license rights to the
trademark "Living Silk/registered mark/" and certain manufacturing processes. We
owed JRB Enterprises, Inc., $101,353 at May 31, 1999, and $183,089 at February
29, 2000 for the purchase of inventory, a computer and software, and monies JRB
Enterprises, Inc. had advanced in acquiring the trademark and manufacturing
process rights to the Forever Fresh/registered trademark/line of florals
arrangements.
Currently, JRB Enterprises, Inc., also controlled by Joseph R. Bergmann,
President and majority stockholder of our company, is one of our primary
suppliers.
We also order our supplies from the following companies, which are not related
to us, JRB Enterprises, Inc. or Mr. Bergmann:
Private label florals cleaning products - S.S.G. Inc.
Company designed faux stone planters - Millennium Designs
Company designed table top vases, urns & containers - Pompadour Products
Additional manufacturers and potential supplier will be identified through the
company's participation in industry trade shows and exhibits.
On April 10, 1999 we entered into an exclusive license agreement to market and
distribute artificial greenery and florals arrangements with Living
Silk/registered mark/ and Silk Botanicals trademarks owned by JRB Enterprises,
Inc. Additionally, the license agreement granted us the exclusive right to use
the manufacturing process of the Living Silk /registered mark/ and Silk
Botanicals products. As consideration for the license agreement we issued
preferred stock to JRB Enterprises, Inc. We further agreed to pay JRB
Enterprises, Inc. royalty payments of 5% of the net amount invoiced by us or any
affiliate, for Living Silk /registered mark/ or Silk Botanicals products
invoiced to any third party during the initial six year term. For additional
periods of up to six, six year terms, we agreed to pay one quarter of one
percent (.25%) of its net sales per annum for all Living Silk /registered mark/
and Silk Botanicals products sold to any third party.
19
<PAGE>
DESCRIPTION OF SECURITIES
We are authorized to issue 25,000,000 shares of common stock $.001 par value,
each share of common stock having equal rights and preferences, including voting
privileges. As of June 1, 2000, 6,250,000 shares of common stock were issued and
outstanding.
We are authorized to issue 5,000,00 shares of preferred stock at $.001 par
value. As of June 1, 2000, 1,900 shares of preferred stock were issued and
outstanding. The preferred shares were designated and issued upon such terms and
conditions as the Board of Directors determined appropriate and as more
particularly defined in the Board of Directors Resolution dated April 10, 1999.
The terms and conditions stated the following: a) payment of a quarterly
dividends at the annual rate of 6.0%; b) said dividends to be cumulative and
have priority over the common stock; and the preferred stock will have a value
of $100.00 per share. No additional shares of preferred stock have been issued.
If additional shares are issued, the conditions that may be set by the Board of
Directors include but are not limited to the entitlement of the holders of the
preferred shares to (a) cumulative, non-cumulative or partially cumulative
dividends, (b) the preference over any other class or classes of shares as to
the payment of dividends, (c) the preference in the assets of the corporation
over any other class or classes of shares upon the voluntary or involuntary
liquidation of the corporation, (d) the convertibility, if any, into shares of
any class or into shares of any series of the same or other class, and (a)
voting rights, if any.
Indemnification of directors and officers
Our Articles of Incorporation and Bylaws require us to indemnify our directors
and officers to the fullest extent permitted by Florida law. Florida law
presently provides that in the case of a nonderivative action (that is, an
action other than by or in the right of a corporation to procure a judgment in
its own favor), a corporation has the power to indemnify any person who was or
is a party or is threatened to be made a party to any proceeding by reason of
the fact that the person is or was an agent of the corporation, against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with the proceeding if that person acted in
good faith and in a manner the person reasonably believed to be in the best
interests of the corporation and, in the case of a criminal proceeding, had no
reasonable cause to believe that the conduct of the person was unlawful. The
termination of any proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent does not, of itself, create a
presumption that the person did not act in good faith and in a manner that the
person reasonably believed to be in the best interests of the corporation or
that the person had reasonable cause to believe that the person's conduct was
unlawful.
With respect to derivative actions, Florida law provides that a corporation has
the power to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action by or in the right
of the corporation to procure a judgment in its favor by reason of the fact that
the person is or was an agent of the corporation, against expenses actually and
reasonably incurred by that person in connection with the defense or settlement
of the action if the person acted in good faith, in a manner the person believed
to be in the best interests of the corporation and its shareholders.
Indemnification is not permitted to be made in respect of any claim, issue, or
matter as to which the person shall have been adjudged to be liable to the
corporation in the performance of that person's duty to the corporation and its
shareholders, unless and only to the extent that the court in which the
proceeding is or was pending determines that, in view of all the circumstances
of the case, the person is fairly and reasonably entitled to indemnity for
expenses, and then only to the extent that the court shall determine.
Insofar as indemnification for liabilities arising under the Securities Act, we
have been informed that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
PLAN OF DISTRIBUTION
We are registering 5,000,000 shares of our common stock for distribution to the
public.
20
<PAGE>
This offering is being made directly by the Company through this prospectus,
under the direction of Joseph R. Bergmann, the Company's President and CEO. The
Company will publish announcements of the offering in its catalogs, newsletters
and Internet web site, and will mail and e-mail copies of the announcement to
its shareowners, customers and inquirers. The announcements will provide the
very limited information permitted under applicable securities laws and will
give the Company's telephone number, mailing address and e-mail address for
requesting this Prospectus. Similar announcements will be published in other
selected media and mailed to other selected individuals. The Prospectus will be
accompanied by a Share Purchase Agreement, attached hereto as Appendix A, and a
return envelope. The electronic prospectus will be available on line at the
Company's web site with a printable version of the Share Purchase Agreement.
Assistance in connection with the offering will be available from the selling
agents, if any; and from Joseph Bergmann, President of the Company.
Compensation will be paid only to any registered securities broker-dealer
selected by the Company as a selling agent, and then only as a percent of the
offering price. No compensation related to sales of shares will be paid to any
of our employees. We will indemnify the selling agents against liabilities for
claimed misstatements or omissions in this Prospectus.
Only residents of those states in which the Common Stock offered hereby has been
qualified for sale under applicable securities or Blue Sky laws may purchase
shares in this offering. Each potential investor will be required to execute a
Share Purchase Agreement, attached hereto as Appendix A, which, among other
things, requires the potential investor to certify his or her state of
residence. A potential investor who is a resident of a state other than a state
in which the Common Stock offered hereby has been qualified for sale may request
that we register the shares in the state in which such investor resides;
however, the Company is under no obligation to do so and may refuse any such
request.
Shares may be purchased by completing and delivering our Share Purchase
Agreement, attached hereto as Appendix A, along with the purchase price by check
to our offices. Within 10 days after its receipt of a Share Purchase Agreement
accompanied by a check for the purchase price, we will send by first class mail
a written confirmation to notify the subscriber of the extent, if any, to which
such subscription has been accepted by us.
The offering will begin on the date of this Prospectus and continue until either
all of the Shares have been sold or the Company terminates the offering.
LEGAL MATTERS
The validity of the securities being offered hereby will be passed upon for the
Company by Hackney & Miller, P.A., N. Palm Beach, Florida.
EXPERTS
The financial statements as of May 31, 1999, included in this prospectus have
been so included in reliance on the report of Sweeney, Gates & Co., independent
certified accountants, given on the authority of that firm as experts in
auditing and accounting.
AVAILABLE INFORMATION
Silk Botanicals, a Florida corporation has filed with the Commission a
Registration Statement on Form SB-2 under the Securities Act for the
registration of the shares of Common Stock offered hereby. This Prospectus omits
certain of the information contained in the Registration Statement, and
reference is hereby made to the Registration Statement and exhibits and
schedules thereto for further information with respect to the Company and the
securities to which this Prospectus relates. Statements made herein concerning
the provisions of any document are not necessarily complete and, in each
instance, reference is made to the copy of such document filed as an exhibit to
the Registration Statement. Each such statement is qualified in its entirety by
such reference. Items of information omitted from this Prospectus but contained
in the
21
<PAGE>
Registration Statement may be inspected without charge at the Public Reference
Room of the Commission, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549, at prescribed rates.
Upon consummation of the offering of the Common Stock, the Company will become
subject to the informational requirements of the Securities Exchange Act of
1934, as amended, and in accordance therewith will file reports and other
information can be inspected at the public reference facilities maintained by
the Commission at 450 Fifth Street, N.W., Room 1024, Washington D.C. 20549, and
at the Commission's New York Regional Office, 26 Federal Plaza, New York, NY
10007, and it Chicago Regional Office, Everett McKinley Dirksen Building, 219
South Dearborn Street, Room 1204, Chicago, ILL 60604. Copies of such material
can be obtained from the Public Reference Section of the Commission, Washington,
D.C. 20549, at prescribed rates. The Commission also makes electronic filings
publicly available on the Internet within 24 hours of acceptance. The
Commissions Internet address is http://www.sec.gov. The Commission website also
contains reports, proxy and information statements, and other information
regarding registrants that file electronically with the Commission.
The Company intends to deliver annual reports to the holders of its securities,
which will contain, among other information, audited financial statements
examined and reported upon by its independent certified public accountants.
22
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Silk Botanicals.Com, Inc.
We have audited the accompanying balance sheet of Silk Botanicals.Com, Inc., (a
development stage company), as of May 31, 1999, and the related statements of
operations, stockholders' deficit and cash flows for the years ended May 31,
1999 and 1998 and for the period from October 2, 1996 (inception) to May 31,
1999. 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 audit.
We conducted our audits in accordance with generally accepted auditing
standards. 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., Inc.
(a development stage company), as of May 31, 1999, and the results of its
operations and its cash flows for the years ended May 31, 1999 and 1998 and for
the period from October 2, 1996 (inception) to May 31, 1999 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has suffered losses from operations and has a
net capital deficiency that raise substantial doubt about its ability to
continue as a going concern. In addition, the Company is significantly dependent
on its Manufacturer. Management's plans in regard to these matters are also
described in Note 3. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Sweeney, Gates & Co.
Ft. Lauderdale, FL
August 11, 1999
F-1
<PAGE>
SILK BOTANICALS.COM, INC.
(a development stage company)
BALANCE SHEET
May 31, 1999
ASSETS
Current assets:
Inventory $ 57,353
---------
Total current assets 57,353
Property and equipment, net 1,500
License rights, net of valuation allowance 42,500
---------
$ 101,353
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 21,414
Accounts payable due to related party 101,353
---------
Total current liabilities 122,767
---------
Stockholders' deficit:
Series A preferred stock, $.001 par value, 1,900 shares
authorized, issued and outstanding 2
Preferred stock, $.001 par value, 4,998,100 authorized,
none issued and outstanding --
Common stock, $.001 par value, 25,000,000 shares authorized,
6,250,000 shares issued and outstanding (Note 7) 6,250
Additional paid-in capital 671,460
Deficit accumulated during the development stage (699,126)
Retained deficit --
---------
Total stockholders' deficit (21,414)
---------
$ 101,353
=========
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
SILK BOTANICALS.COM, INC.
(a development stage company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
October 2,
1996
(inception)
through
Years ended May 31, May 31,
1999 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $ -- $ -- $ --
Cost of goods sold -- -- --
----------- ----------- -----------
Gross profit -- -- --
----------- ----------- -----------
Operating expenses:
Securities issuance costs (Note 7) 671,460 -- 671,460
General and administratve 23,230 -- 27,666
----------- ----------- -----------
694,690 -- 699,126
----------- ----------- -----------
Net loss (694,690) -- (699,126)
Preferred dividend requirement -- -- --
----------- ----------- -----------
Net loss available to common
shareholders $ (694,690) $ -- $ (699,126)
=========== =========== ===========
Net loss per share of common stock:
Basic and diluted $ (0.14) $ --
=========== ===========
Weighted average number of common
shares outstanding 4,865,095 4,435,813
=========== ===========
</TABLE>
F-3
<PAGE>
SILK BOTANICALS.COM, INC.
(a development stage company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Deficit
accumulated
Preferred Stock Common Stock Additional during the
------------------- ----------------------- paid-in development
Shares Amount Shares Amount capital stage Totals
------ --------- --------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at October 2, 1996 (inception) -- $ -- -- $ -- $ -- $ -- $ --
Issue founders shares ($.001 per share) -- -- 4,435,813 4,436 -- -- 4,436
Net loss -- -- -- -- -- (4,436) (4,436)
----- --------- --------- --------- --------- --------- ---------
Balance, May 31, 1997 -- -- 4,435,813 4,436 -- (4,436) --
Net loss -- -- -- -- -- -- --
----- --------- --------- --------- --------- --------- ---------
Balance, May 31, 1998 -- -- 4,435,813 4,436 -- (4,436) --
Issuance of preferred stock 1,900 2 -- -- -- -- 2
Issuance of stock to additional
founding stockholders -- -- 335,187 335 -- -- 335
Issuance of stock in a 504 offering -- -- 1,452,750 1,453 671,460 -- 672,913
Issuance of stock for services rendered -- -- 26,250 26 -- -- 26
License rights allowance -- -- -- -- -- --
Net loss -- -- -- -- -- (694,690) (694,690)
----- --------- --------- --------- --------- --------- ---------
Balance, May 31, 1999 1,900 $ 2 6,250,000 $ 6,250 $ 671,460 $(699,126) $ (21,414)
===== ========= ========= ========= ========= ========= =========
</TABLE>
F-4
<PAGE>
SILK BOTANICALS.COM, INC.
(a development stage company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
October 2,
1996
(inception)
through
Years ended May 31, May 31,
1999 1998 1999
---- ----- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (694,690) $ - $(699,126)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization - - -
Common stock issued in noncash
transactions 673,276 - 677,712
Changes in assets and liabilities:
(Increase) decrease in inventory (57,353) - (57,353)
Increase in license rights (42,500) - (42,500)
Increase in accounts payable 21,414 - 21,414
Increase in due to related parties 101,353 - 101,353
Increase in dividends payable - - -
----------- ------- ----------
Net cash used in operating activities 1,500 - 1,500
Cash flows from investing activities:
Purchase of property and equipment (1,500) - (1,500)
----------- ------- ----------
Net increase (decrease) in cash - - -
Cash at beginning of period - - -
----------- ------- ----------
Cash at end of period $ - $ - $ -
=========== ======= ==========
Supplemental disclosures:
Cash payments during the development stage for interest and income taxes: - none.
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
SILK BOTANICALS.COM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 2, 1996 (INCEPTION) TO MAY 31, 1999
1. ORGANIZATION
Nature of organization - Silk Botanicals.Com, Inc. (the "Company"), 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 /registered mark/, Living Silk /registered mark/ and Silk Botanicals
/registered mark/.
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 has been 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 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
is 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"), also 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue recognition - Revenue is recognized, net of discounts and estimated
returns, upon shipment of product.
Inventory - Inventory consists primarily of finished floral and greenery
arrangements and is valued at the lower of cost or market.
Furniture and equipment - Furniture and equipment are recorded at cost.
Depreciation will be provided 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 rights
agreements, which is six years.
Fair value of financial instruments - The carrying amount of trade payables
approximate fair value. Because of the relationship of the Company and its
related party, there is no practical method that can be used to determine the
fair value of accounts payable due the related party.
F-6
<PAGE>
SILK BOTANICALS.COM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS (CONTINED)
OCTOBER 2, 1996 (INCEPTION) TO MAY 31, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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. A
valuation allowance is recognized if, based on the weight of available evidence,
it is more likely than not that some portion or all of the deferred tax asset
will not 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.
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.
Earning per Share - The Company has utilized Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128 requires
presentation of earnings or loss per share on basic and diluted earnings per
share. The Company does not have any potentially dilutive shares outstanding.
Earnings or loss per share is computed by dividing net income by the weighted
average number of shares outstanding during the period.
Impairment of long-lived assets - The Company evaluates the recoverability of
its property and equipment, and other assets in accordance with Statement of
Financial Accounting Standards No.121, "Accounting for the Impairment of
Long-Lived Assets to be Disposed of" ("SFAS 121"). SFAS 121 requires recognition
of impairment of long-lived assets in the event the net book value of such
assets exceeds the estimated future undiscounted cash flows attributable to such
assets or the business to which such intangible assets relate. No impairments
recognized during the period from October 2, 1996 to May 31, 1999.
Segment reporting - In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information"("SFAS 131"). This statement
requires companies to report information about operating segments in interim and
annual financial statements. It also requires segment disclosures about products
and services, geographic areas and major customers. The Company has determined
that it did not have any separately reportable operating segments as of May 31,
1999 and August 31, 1999.
Recent accounting pronouncement - 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 accepted early
adoption of SOP 98-5 and expensed all start-up costs.
F-7
<PAGE>
SILK BOTANICALS.COM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS (CONTINED)
OCTOBER 2, 1996 (INCEPTION) TO MAY 31, 1999
3. LIQUIDITY AND GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities and commitments in the normal course of business.
The Company has minimal capital available to meet future obligations and to
carry out its planned operations. The Company reported a net loss, has negative
working capital, stockholders' deficit, and as of May 31, 1999, had not
commenced the marketing and distribution of artificial floral and greenery
arrangements.
To address this issue, the Company signed a non-exclusive manufacturing
agreement with an established manufacturer of silk botanical products (the
"Manufacturer") (see Note 5). The Company will concentrate on marketing quality
products to new wholesale markets. Management anticipates funding the Company's
initial operations through advances from the Manufacturer, if required. If
circumstances permit, the Company intends to pursue other sources of capital in
the equity market; however, the Company is dependent on the manufacturer for
financial support until such time as positive cash flow is generated or outside
capital raised. The Company cannot predict whether the operating and financing
plans described above will be successful. If the Company is unable to
successfully commence operations or obtain additional financing, it may not be
able to continue as a going concern and may be unable to meet its obligations.
The financial statements do not include any adjustments that might result from
the outcome of the uncertainty.
4. PROPERTY AND EQUIPMENT
At May 31, 1999, property and equipment included the following:
Estimated
Useful life
(in years)
----------
Computer equipment $ 1,500 3
Less accumulated depreciation -
$ 1,500
==========
Depreciation expense was $0 for the year ended May 31, 1999.
F-8
<PAGE>
SILK BOTANICALS.COM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS (CONTINED)
OCTOBER 2, 1996 (INCEPTION) TO MAY 31, 1999
5. RELATED PARTY TRANSACTIONS
The Company intends to purchase its silk botanical products from the
Manufacturer owned by the Company's President and majority stockholder; 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 the products at rates to be
negotiated periodically between the Company and the Manufacturer. As of May 31,
1999, the Company had purchased $57,353 of inventory from the Manufacturer.
Additionally, the Company subleases office facilities and certain office
equipment from the Manufacturer (see Note 9). The Company issued 1,900 shares of
preferred stock to the Manufacturer for the license rights to the trademarks
Living Silk /registered mark/ and Silk Botanicals /registered mark/, and for
certain manufacturing processes. The Company owed the Manufacturer $101,353 at
May 31, 1999, which is recorded as an accounts payable, for the purchase of
inventory, a computer and software, operational expenses and advances to acquire
the trademark and manufacturing process rights to the Forever Fresh /registered
mark/ line of floral arrangements. Through August 31, 1999, the Manufacturer
continued to pay the expenses of the Company.
No formal arrangement on terms and conditions relating to advances, should they
be required, had been entered into by the Company with the Manufacturer.
6. 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 /registered mark/ 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 /registered mark/ 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 /registered mark/
products sold to any third party.
F-9
<PAGE>
SILK BOTANICALS.COM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS (CONTINED)
OCTOBER 2, 1996 (INCEPTION) TO MAY 31, 1999
6. LICENSE RIGHTS (continued)
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 /registered mark/ and Silk
Botanicals /registered mark/ 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 stockholders' equity and as a noncash item on the
Company's statement of cash flows. The Company further agreed to pay the
Manufacturer royalty payments of 5% of the net amount invoiced by the Company,
or any affiliate, for Living Silk /registered mark/ or Silk Botanicals
/registered mark/ 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 /registered mark/ and Silk Botanicals /registered mark/ products
sold to any third party.
7. EQUITY
Preferred stock - The Company is authorized to issue 5,000,000 shares of
preferred stock of which a total of 1,900 shares were designated as Series A
preferred stock. This series is entitled to receive dividends at the rate of
$6.00 per share per annum payable quarterly. Such dividends are cumulative and
hold a preference over any other distribution. This series shall have no voting
rights or conversion features. The rights, preferences and limitations of any
additional series of preferred stock will be determined by the Board of
Directors.
Common stock - On November 20, 1998, the Company issued 335,187 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
26,250 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
99,000 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, 1,353,750 shares of common stock and recorded an expense
of $671,460, which approximates market value. All of the stock issued has been
restated to reflect the reverse stock split of 1 for 4 (see Note 9).
8. INCOME TAXES
The Company had no taxable income since its inception, and as a result recorded
no tax expense. Timing differences primarily relate to noncash stock
transactions and a valuation allowance. The Company had available at May 31,
1999, approximately $28,000 of unused operating loss carryforwards that may be
applied against future taxable income that expires through 2019. The Company has
recorded a deferred tax asset of approximately $7,000, and has offset the
deferred tax asset with a valuation allowance of $7,000, since realization of
the deferred tax asset is uncertain. Utilization of the operating loss
carryforwards may be severely limited by the change of business and control.
F-10
<PAGE>
SILK BOTANICALS.COM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS (CONTINED)
OCTOBER 2, 1996 (INCEPTION) TO MAY 31, 1999
9. COMMITMENTS - RELATED PARTY
The Company has a lease, which expires April 30, 2001, with the Manufacturer for
500 square feet of furnished office space, including office equipment, and
approximately 1,500 square feet of warehouse and shipping space at a cost of $10
per square foot. For the fiscal years ended May 31, 1999 and 1998, and
cumulatively for the period from October 2, 1996 (inception) to May 31, 1999, no
rental expense had been incurred. Minimum future rental payments under the
non-cancelable operating lease as of May 31, 1999 are as follow:
Years ended May 31,
-------------------
2000 $ 20,000
2001 18,333
10. SUBSEQUENT EVENTS
On August 2, 1999, the Company officially changed its name to Silk
Botanicals.Com, 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. All
common shares and the per share amounts in the accompanying audited financial
statements have been restated for the effects of the reverse split.
F-11
<PAGE>
SILK BOTANICALS.COM, INC.
BALANCE SHEET
FEBRURY 29, 2000
(Unaudited)
ASSETS
Current assets:
Cash $ 19,252
Accounts receivable 114,719
Inventory 49,910
---------
Total current assets 183,881
Property and equipment, net 1,122
License rights, net of valuation allowance 37,190
---------
$222,193
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Advances on corporate credit cards $ 19,505
Accounts payable 44,369
Accounts payable due to related party 183,089
---------
Total current liabilities 246,963
---------
Stockholders' deficit:
Series A preferred stock, $.001 par value, 1,900 shares
authorized, issued and outstanding 2
Preferred stock, $.001 par value, 4,998,100 authorized,
none issued and outstanding -
Common stock, $.001 par value, 25,000,000 shares authorized,
6,250,000 shares issued and outstanding 6,250
Additional paid-in capital 671,460
Retained deficit (702,482)
---------
Total stockholders' deficit (24,770)
---------
$222,193
=========
F-12
<PAGE>
SILK BOTANICALS.COM, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
NINE MONTHS PERIOD ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
(Unaudited)
2000 1999
------------ ------------
Revenues $ 507,434 $ -
Cost of goods sold 355,204 -
------------ ------------
Gross profit 152,230 -
------------ ------------
Operating expenses:
General and administratve 147,036 -
147,036 -
------------ ------------
Net income 5,194
Preferred dividend requirement 8,550 -
------------ ------------
Net loss available to common
shareholders (3,356) -
Retained earnings - beginning of period (699,126)
------------ ------------
Retained earnings - end of period $ (702,482) $ -
============ ============
Net loss per share of common stock:
Basic and diluted $ (0.00) $ -
============ ============
Weighted average number of common
shares outstanding 6,250,000 4,435,813
============ ============
F-13
<PAGE>
SILK BOTANICALS.COM, INC.
STATEMENTS OF CASH FLOWS
NINE MONTHS PERIOD ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
(Unaudited)
2000 1999
----------- -----------
Cash flows from operating activities:
Net loss $ (3,356) $ -
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 5,688 -
Changes in assets and liabilities:
Increase in accounts receivable (114,719) -
(Increase) decrease in inventory 7,443 -
Increase in accounts payable 22,955 -
Increase in due to related parties 81,736 -
----------- -----------
Net cash used in operating activities (253) -
Cash flows from financing activities:
Advances on corporate credit cards 19,505 -
----------- -----------
Net increase (decrease) in cash 19,252 -
Cash at beginning of period - -
----------- -----------
Cash at end of period $ 19,252 $ -
=========== ===========
Supplemental disclosures:
Cash payments during the period for interest and income taxes: - none.
F-14
<PAGE>
SILK BOTANICALS.COM, INC.
SELECTED NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of Silk Botanicals.com, Inc.
(the Company) have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form SB-2. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine-month period
ended February 29, 2000 are not necessarily indicative of the results that may
be expected for the years ended May 31, 2000.
2. ADVANCES ON CORPORATE CREDIT CARDS
The maximum amount of available credit on advances of corporate credit cards is
$30,000. The current advances are payable in a minimum amount of $551 per month,
principal and interest at 18%.
F-15
<PAGE>
APPENDIX A
Silk Botanicals.Com, Inc.
975 South Congress Avenue, Suite 102
Delray Beach, FL 33450
561-265-3600
SHARE PURCHASE AGREEMENT AND SIGNATURE PAGE
(ALL INVESTORS MUST SIGN THIS SHARE PURCHASE AGREEMENT)
--------------------------------------------------------------------------------
SUBSCRIBER DATA (Must be Completed in Full)
FULL NAME (Please Print): First Middle Last
--------------------------------------------------------------------------------
RESIDENCE ADDRESS, INCLUDING ZIP CODE
--------------------------------------------------------------------------------
TELEPHONE NUMBER:
---------------------------------------------------------------
SOCIAL SECURITY: OR TAX ID NUMBER:
------------------------- ---------------------
SUBSCRIPTION (Must be Completed in Full)
Enclosed is payment for _______ shares X $2.00 per share= ___________(Total
Purchase Price)
The undersigned subscriber hereby authorizes and directs the immediate deposit
of his/her subscription amount into an account on behalf of Silk Botanicals.Com,
Inc.
THIS SUBCRIPTION IS MADE PURSUANT TO, AND IS SUBJECT TO, THE TERMS AND
CONDITIONS OF THE QUALIFICATION APPROVED BY THE SECURITIES COMMISSIONS OF THE
STATES IN WHICH THE COMMON STOCK IS BEING OFFERED.
SIGNATURE MUST BE IDENTICAL TO THE NAME OR REGISTERED OWNER
-------------------------------- ---------------------------------------------
Printed name of subscriber Printed name of subscriber (if more than one)
-------------------------------- ---------------------------------------------
Signature of subscriber (date) Signature of subscriber (date)
ADDITIONAL INFORMATION
In order to facilitate processing of your subscription, please be sure you have
completed each of the following:
__ A check made payable to "Silk Botanicals.Com, Inc."
__ Enter the number of shares of Common Stock being purchased and total cash
contribution on this Share Purchase Agreement.
__ Enter the state in which you are legal resident in the "Residence Address"
column above.
__ Please mail check and Share Purchase Agreement to the above address to Silk
Botanicals.Com, Inc.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our Bylaws provide that we may indemnify any director, officer, agent or
employee against all expenses and liabilities, including counsel fees,
reasonably incurred by or imposed upon them in connection with any proceeding to
which they may become involved by reason of their being or having been a
director, officer, employee or agent of our Company. Moreover, our Bylaws
provide that we shall have the right to purchase and maintain insurance on
behalf of any such persons whether or not we would have the power to indemnify
such person against the liability insured against. Insofar as indemnification
for liabilities arising under the Securities Act, we have been informed that, in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
Item 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses of the Registrant in connection with the issuance and distribution of
the securities being registered are estimated as follows, assuming the Maximum
offering amount is sold:
Securities and Exchange Commission filing fee $ 2640
Accountant's fees and expenses 10,000
Blue Sky Fees 5,000
Legal fees and expenses 25,000
Printing 5,000
Marketing expenses 10,000
Postage 5,000
Miscellaneous 1,360
-------
------
Total $65,000
The Registrant will bear all expenses shown above.
Item 26. Recent Sales of Unregistered Securities
The following is a list of our sales of our common stock during the
past three years which were not registered under the Securities Act. None of
these sales involved the use of or payments to an underwriter.
From November 20, 1998 through April 6, 1999, we issued 1,814,187 shares of its
common stock to a total of 69 individuals in an offering exempt from
registration under Rule 504 of Regulation D promulgated pursuant to the
Securities Act of 1933.
Regarding the shares issued under Rule 504, the aggregated transactions
consisted of the following: On November 20, 1998 we issued 335,187 shares of
common stock to 46 individuals and recorded an expense of $335 for the issuance.
These shares were issued at par value since we had no operations. Between
November 30, 1998 and March 31, 1999 we issued 26,250 shares of common stock as
compensation for services rendered to three individuals and recorded an expense
of $26. From January 2, 1999 until March 31, 1999 we issued 99,000 shares of
common stock for cash of $49,500 to 14 individuals, which was utilized prior to
the recapitalization. We issued, from April 1, 1999 through April 6, 1999
1,353,750 shares of common stock to six individuals and recorded an expense in
accordance with generally accepted accounting principles of $671,460 which
approximates market value. All of the stock issued has been restated to reflect
the reverse stock split of 1 for 4.
II-1
<PAGE>
On April 9, 1999 we issued an aggregate of 4,435,813 shares in an offering
exempt from registration under Section 4(2) of the Securities Act of 1933, in
exchange for all of the issued and outstanding common stock of JRB Marketing of
South Florida, Inc.
Item 27. EXHIBITS
The Exhibits listed below are filed as part of this Registration Statement
EXHIBIT NUMBER DOCUMENT
3.1* Articles of Incorporation
3.2* Articles of Amendment to Articles of Incorporation of
Diversified Restaurant Holdings, Inc
3.3* Articles of Amendment to Articles of Incorporation of Silk
Botanicals.Com, Inc.
3.4* Bylaws
4.1 Form of Certificate Evidencing shares of Common Stock of
Silk Botanicals.Com, Inc.
5.1 Consent and Legal Opinion of Hackney & Miller, P.A.
10.1* License Agreement Between Forever Fresh, Inc. and JRB
Marketing of South Florida, Inc.
10.2* Manufacturing and Distribution Agreement
10.3* Agreement Between Diversified Restaurant Holdings, Inc. and
Joseph R. Bergmann
10.4* License Agreement Between JRB Enterprises Inc. and JRB
Marketing of South Florida, Inc., Diversified Restaurant
Holdings, Inc.
10.5* Sublease Agreement
21.1 Subsidiaries
23.1 Consent of Sweeney, Gates & Co., Auditors to the Company
27.1 Financial Data Schedule
99.1 Form of Share Purchase Agreement
*Incorporated by Reference and Included in Earlier Filings
Item 28. UNDERTAKINGS
a) The Registrant hereby undertakes that it will:
II-2
<PAGE>
1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3)of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the bona fide
offering.
3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the Offering.
e) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: June 15, 2000 SILK BOTANICALS.COM, INC.
By: /s/ Joseph R. Bergmann
It's: President
II-3
<PAGE>
EXHIBIT INDEX
EX # Exhibit Description
4.1 Form of Certificate Evidencing shares of Common Stock of
Silk Botanicals.Com, Inc.
5.1 Consent and Legal Opinion of Hackney & Miller, P.A.
21.1 Subsidiaries
23.1 Consent of Sweeney, Gates & Co., Auditors to the Company
27.1 Financial Data Schedule
99.1 Form of Share Purchase Agreement
