FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: 5/31/00
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number -
Silk Botanicals.Com, Inc.
Exact name of Registrant as specified in its charter)
Florida 65-0886132
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
975 S. Congress Avenue, Suite 102 Delray Beach, FL 33445
(Address of principal executive offices) (Zip Code)
561-265-3600
(Registrant's telephone number, including area code)
Securities registered pursuant to
Section 12(b) of the Act: None
Securities registered pursuant to
Section 12(g) of the Act: Common Stock, $.001 par value
<PAGE>
Check whether Silk Botanicals.com (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12
months (or such shorter period that Silk Botanicals.com was required to file
such reports), and (2) has been subject to such filing requirements for at least
the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Company's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
[X]
Silk Botanicals.com's revenues for its most recent fiscal year were $690,621. As
of May 31, 2000, the market value of Silk Botanicals.com's voting $.00l par
value common stock held by non-affiliates of Silk Botanicals.com was $3,680,269.
The number of shares outstanding of Company's only class of common stock, as of
May 31, 2000 was 6,250,000 shares of its $.001 par value common stock.
Check whether the Issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes [ ] No [ ]
No documents are incorporated into the text by reference.
Transitional Small Business Disclosure Format (check one)
Yes [ ] No [X]
<PAGE>
PART I
ITEM 1. BUSINESS - General
The Company. Silk Botanicals.Com, Inc. was organized under the name of
Diversified Restaurant Holdings, Inc. ("Diversified") on November 20, 1998 in
the State of Florida. On April 9, 1999, Diversified acquired JRB Marketing of
South Florida, Inc., a Florida corporation incorporated in October 1996. With
this new business acquisition, Diversified amended its Articles of Incorporation
on August 2, 1999 to change its name to "Silk Botanicals.Com, Inc." JRB
Marketing of South Florida, Inc. and Silk Botanicals.Com, Inc. are referred to
herein as the "Company."
Business of the Company. The Company develops, markets and distributes three
lines of high-quality artificial flowers - artificial greenery and floral
arrangements in baskets and containers and artificial floral arrangements in
clear glass vases set in epoxy providing the illusion of fresh flowers in water.
These products are marketed under the Silk Botanicals, "Living Silk(R)" and
"Forever Fresh(R)" names. The Company markets and sells these products to gift
retailers, decorative accessory retailers., and the hospitality industry. The
artificial foliage and flowers are imported primarily from Taiwan, Hong Kong and
the Peoples Republic of China. The Company purchases artificial flowers from
U.S. based importers and U.S. subsidiaries of foreign companies located in the
U.S. Glassware is purchased from domestic manufacturers. The Company's silk
botanical products are produced by JRB Enterprises, Inc. under a Manufacturing
Agreement.
Independent research by Jacobs, Jenner & Kent of Baltimore, Maryland, in their
study on the Permanent Floral Products Industry, has revealed three important
opportunities which the Company has and will continue to address: (1) there is
little awareness of artificial floral 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. The Company plans 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 is developing gift boxes for select products.
Products. The Company has developed over 200 floral and greenery arrangements
and a special gift box for its line of bud vase arrangements. The Company
believes the gift box will be well accepted by national gift and retail store
chains and has plans to develop gift boxes for other vases in its 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
Mothers Day. Styles retailing for $20.00 to $50.00 have been strong sellers for
these markets. The Company further believes 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. The Company plans to develop new products that would
be less seasonal.
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Customer Service. The Company strives to serve its customers with accurate and
on-time delivery of its products. Retail and chain stores demand a high level of
service to assure full product availability for their customers. The Company
offers a variety of distribution services depending on its customers' needs. The
Company also provides its customers with high quality customer and ordering
services. Its sales force assists customers in identifying products from the
Company's lines and works closely with them to furnish the best products for
their store requirements.
Quality Assurance. As part of its quality assurance program, the Company intends
to carefully select its suppliers and perform periodic product inspections, both
prior to shipment and after receipt. The Company expects to experience
negligible returns of defective or damaged products.
Competition. The artificial floral industry is competitive but highly fragmented
with many small players in the manufacturing end. Therefore, Management believes
that an excellent opportunity exists for the Company and its product lines and
that there are a variety of ways to compete in this industry.
The Company's primary competitors are other assemblers, importers and
distributors. Some of these competitors focus on price and others specialize in
a particular product segment. The Company competes primarily on the basis of
merchandising, high quality product lines, suppl;y dependability, price and
brand name recognition. The Company's competitors are not focused on the gift
industry, have not developed products targeting the gift industry, nor have they
developed packaging to gift industry standards.
The barriers to entry to the Company's industry are relatively low. The Company
believes, however, that attaining success in the industry is difficult but that
it has competitive advantages, including its ability to fill orders quickly and
completely and provide a high level of customer service, high quality products,
competitive prices and brand names. The Company believes the industry does not
have a single dominant retailer or wholesaler of high quality artificial
greenery and flower arrangements. To date, the only importer, manufacturer or
distributor of artificial flowers whose shares are publicly traded is Celebrity,
Inc. (FLWR).
Sales and Marketing. The Company intends to market its products using the
"Forever Fresh(R)" and "Living Silk(R)" trademarks which are licensed for
thirty-six (36) years. The Company believes it has 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 the Company's products is composed of almost 200,000 stores,
including general merchandise stores, catalog and mail orders, florists, gift
stores and furniture and home furnishing stores. The Company intends to build a
national base of gift stores and develop relationships that
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have been recently forged with several regional and national chains. In
addition, the Company's marketing efforts will be through its Web site, trade
shows, direct mail, telemarketing and manufacturer representatives.
Employees. Currently the Company employs six part-time and six full-time
employees. It anticipates increasing the staff with an additional ten new
employees by March 2001.
Key Employees: The Company's 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, Merchandise Manager.
Reports to Security Holders: The Registration Statement became effective, the
Company has become a reporting company as of October 29, 1999 with the
Securities and Exchange Commission ("SEC"), and will thereafter provide an
annual report to its security holders, which will include audited financial
statements. The public may read and copy any materials filed with the SEC at the
SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549.
The public may also obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site
that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The address of that
site is www.sec.gov. The Company currently maintains its own Internet address at
www.silkbotanicals.com.
ITEM 2. PROPERTIES.
The Company's administrative, warehousing and distribution facilities are
located at 955 and 975 South Congress Avenue in Delray Beach, Florida. The
Company currently subleases this property, which consists of approximately
20,000 square feet of prime, high-end commercial space. The existing sublease
expires in May 2003, and the terms include additional ten-year options. Various
leasehold improvements have been made to this facility to support the
anticipated growth that will come from the Company's new projects. The Company
carries sufficient insurance coverage on the property, equipment and inventory.
In addition, the Company leases a variety of points of sale computer equipment
and software at its headquarters, as well as office and warehouse equipment. The
Company believes that these facilities are adequate for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
There are no legal actions pending against the Company nor are any such legal
actions contemplated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of the fiscal year ended May 31, 2000, no matters were
submitted to a vote of Silk Botanicals.com's security holders, through the
solicitation of proxies.
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PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information. Beginning in April of 2000, Silk Botanicals.com's
common stock has been quoted on the OTC Bulletin Board.
Quarter Ended High Bid Low Bid
May 31, 2000 $5.00 $1.50
The prices reflect inter-dealer quotations, without retail mark-up, markdown or
commissions and may not represent actual transactions.
Holders. The approximate number of holders of record of the Company's $.001 par
value Common Stock, as of May 31, 2000, was 87.
Dividends. The Company has never paid or declared any cash dividends on our
common stock and does 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.
Date Sold Title of Security Amount of Securities Sold
See below Common Stock 6,250,000 shares
April 1999 Series A Preferred 1,900 shares
March 2000 Warrants 360,000 shares
$2.50 exercise price
From November 20, 1998 through April 9, 1999, the Company issued 460,438 shares
of its common stock to a total of 48 individuals in an offering exempt from
registration under Rule 504 of Regulation D promulgated pursuant to the
Securities Act of 1933. On April 9, 1999, the Company issued an aggregate of
4,146,989 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. Subsequent to the reverse
acquisition of JRB Marketing of South Florida, Inc. between April 9 and May 31,
1999, the Company issued
<PAGE>
1,353,750 shares of common stock in an offering exempt from registration under
Section 4(2) of the Securities Act of 1933, to a total of 23 individuals.
During April 1999, the Company issued Class A non-convertible preferred stock
valued at $190,000 in exchange for an exclusive license agreement to market and
distribute artificial greenery and floral arrangements with Living Silk and Silk
Botanicals trademarks owned by JRB Enterprises, Inc. This was a non-monetary
transaction between related parties. This transaction was exempt from
registration under Section 4(2) of the Securities Act of 1933.
In March of 2000, the Company issued warrants for 360,000 shares at an exercise
price of $2.50. In addition, the Company issued options for 360,000 shares at an
exercise price of $3.00. These warrants and options were issued to three
unrelated parties for the sum of $180,000. These transactions were exempt from
registration under Section 4(2) of the Securities Act of 1933. The Company also
issued options for 360,000 shares at an exercise price of $3.00. These options
are tied to the warrants and will only be issued depending on if the warrants
are exercised. The amount of options issued is also linked directly to the
amount of warrants exercised.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Revenues: Silk Botanicals.com began generating revenues on June 1, 1999. Prior
to that the Company was a development stage company and did not generate
revenue.
For the twelve months ended May 31, 2000, revenues were $690,621. The cost of
goods sold was $499,399 with a gross profit of $191,222 or 27.7%. Total expenses
were $153,739 or 22.3%, producing a pretax income of $37,483 or 5.4%. The
Company maintained $62,338 of inventory as of May 31, 2000. The turnover of such
inventory would be annualized at 8.0 times per year.
The net income of $34,721 for year-end May 31, 2000 increased $729,411 over the
($694,690) loss recorded in year ended May 31, 1999. Earning per share increased
.01 as of May 31, 2000 as compared to (.14) loss as of May 31, 1999.
Year 2000: The Company did not incur any costs associated with its computer
system as it relates to the conversion to the Year 2000. The financial
institutions and vendors used by the Company were also in compliance and no
problems occurred.
Other Events: During the fourth quarter, the Company's website which includes
all in-line Living Silk, Forever Fresh and Silk Botanicals products became
operational. The website includes a shopping cart which will enable customers to
order products on line. The Company plans to continue making enhancements to the
website on a regular basis and is also evaluating several marketing techniques
to promote the website.
During the month of March, the Company received a "no comment" status from both
the Securities & Exchange Commission and NASD. On March 30, 2000, the Company
obtained the symbol SIBO (OTC:BB). The Company's common stock began trading
April 13, 2000.
During the fourth quarter, the Company filed an SB2 with the Securities &
Exchange Commission to register common stock for the Company to sell to raise up
to $10,000,000 (ten million dollars).
<PAGE>
The Company is presently in the process of updating the financials and
responding to SEC Comments.
Product Development: Much of the efforts since its 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. The Company is focused not only on meeting production
requirements, but also in developing new product. The Company design staff have
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, the Company is not
aware of any that have focused its energies on developing a brand, marketing to
the gift market, and responding to the packaging requirements of this market.
The Company 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. The Company believes that this product sells especially well for
tabletop displays, for parties, and to the hospitality market.
Forever Fresh(R) 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:
o Special Occasion merchandise (Easter, Valentine's Day,
Birthdays, Get Well) and for special people (Wives, Mothers,
Teachers).
o Twin-pack boxed gifts will also be tested, i.e. small floral
vase with candle.
o Special seasonal arrangements, country arrangements, exotic
florals, and greenery.
o Desktop accessories such as bud vases and mini floral
arrangements.
Catalog Program Sales: Catalog program sales are basic line and custom products
that are suitable for "drop shipping." The Company's products have appeared in
Smithsonian Institute and Touch of Class catalogs. The Company continually seeks
new and diversified catalogs to carry their products.
Generic/Private Label Gift-Boxed Product: The Company will develop and package a
line of 10-12 permanent floral gifts in private label windowed gift boxes with
seasonal designs.
<PAGE>
Signature Series: The Company's design staff is developing the Company's
signature line of large floral arrangements. These will wholesale for $100.00 to
$300.00. Upon completion this line 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.
Market Development: The Company will continue to cater to the needs of gift
retailers and expand its marketing efforts to include the western half of the
United States. The Company plans to target five segments of the market:
Independent Gift Shops. Businesses that own/operate one or two retail locations;
Strand Gift Businesses: Companies that own/operate from three to twenty-five
retail locations;
Chain Stores: Companies that own a nationally or regionally recognized retail
gift business;
Catalogs: Companies that sell products directly to consumers via direct mail
catalogs;
Department Stores: The Company has begun 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, the military (exchanges, commissaries, and officers clubs).
Sales and Marketing. The Company will use the following marketing tactics to
achieve its financial objectives:
Trade Shows: The Company believes most sales are generated through trade shows
where the products can be properly displayed to their fullest effect. The
Company currently participates in wholesale trade shows and anticipates
increasing the number of shows they attend:
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 before buying for their businesses and
trade shows provide this opportunity. The Company believes that participating in
these shows will enhance sales due to the visual nature of the product.
High Point, NC Furniture Show. This trade show is the only resource dedicated by
the Company to general sales within the furniture industry. Furniture stores
represent a projected 13% of the Company's sales, making attendance at this show
cost effective. The Company anticipates participation in other furniture shows
as well.
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(R)
is an approved vender of the Department of the Air Force, enabling the Company
to provide artificial floral arrangements to all military installations.
<PAGE>
Restaurant Supply Trade Shows: The Company has initiated a search to retain a
sales organization that targets restaurants and hotels. Trade shows will be an
important component of the sales efforts.
Manufacturers' Reps: Independent sales organizations sell products through road
sales and trade shows. The Company has signed contracts with representative
companies that maintain permanent showrooms in Atlanta, Columbus and Chicago for
the east coast of the United States. The Company plans to increase
representation on the west coast with representatives who can provide quality
temporary or permanent show space.
Color Catalogs: Full color catalogs have been produced for both Forever Fresh(R)
and Living Silk(R) and Silk Botanicals(R). These are being used to sell the most
important and popular designs in all lines.
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.
Telemarketing: The Company plans to contact its complete 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.
Web Site: The Company completed its Web site www.silkbotanicals.com in April of
2000. The site is operational. The Company displays its product lines and accept
orders through its site, as well as provide information on the company for
potential investors.
Sell Sheets: Sell Sheets will be used to show the individual products at trade
shows and in direct mail presentations. The Company will use sell sheets to
expand the use of packages, to introduce and sell new products, and increase
Basic Line sales. The package themes include: Valentine and Mother's Day,
Summer, Christmas, and the Table Top Collection.
The sales and marketing plans take into account the Company's desire to expand
operations both financially and geographically. While the Company continues to
build on the solid base of 2,000+ customers, with additions to the sales force,
enhanced trade shows schedules, print advertising and direct mail programs, and
product development, it will be able to achieve its revenue and market share
objectives.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements
The response to this item is being submitted as a separate section of this
report beginning on page 19.
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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
(a) Previous independent accountants
(i) Effective August 4, 2000, Silk Botanicals.com, Inc. (the
"Registrant") dismissed Sweeney Gates & Co. as its independent
accountants.
(ii) The report of Sweeney Gates & Co. for the Registrant's fiscal
year ended May 31, 1999 contained no adverse opinion or
disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principle.
(iii) The Registrant's Board of Directors participated in and
approved the decision to change independent accountants.
(iv) In connection with its audits for the past two fiscal years,
there have been no disagreements with Sweeney Gates & Co. on
any matter of accounting principles or practices, financial
statement disclosure, or auditing scope and procedure, which
disagreements if not resolved to the satisfaction of Sweeney
Gates & Co. would have caused them to make reference thereto
in their report on the financial statements for such periods.
(v) The Registrant has requested that Sweeney Gates & Co. furnish
it with a letter addressed to the Securities and Exchange
Commission stating whether or not it agrees with the above
statements. A copy of that letter, dated August 7, 2000, is
filed as Exhibit 16 to this Form 8-K/A.
(b) New independent accountants
(i) The Registrant appointed the accounting firm of Michaelson &
Co., P.A. as its new independent accountants for fiscal 2000
to replace Sweeney Gates and Co. effective with such
appointment. The Registrant has not consulted with Michaelson
& Co., P.A. on (1) the application of accounting principles to
a specific opinion that might have been rendered on the
Registrant's financial statements or (2) the subject matter of
a disagreement or reportable event with the former auditor (as
described in Regulation S-B Item 304 (a) (1) (iv).
PART III
ITEM 9. DIRECTORS, SIGNIFICANT EMPLOYEES AND EXECUTIVE OFFICERS OF SILK
BOTANICALS.COM
Directors, significant employees and principal executive officers of the
Company. Said persons are listed on the following table:
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Name Position Age
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Joseph R. Bergmann President, Secretary & Director 52
Regina M. Bergmann Director of Personnel 51
Joyce Bernard Merchandise Manager 57
Jerry Frenz Controller 52
Gail Scheel Director of Advertising & Marketing 57
Biographical Information on Directors and Executive Officers:
Joseph R. Bergmann, President, Chief Executive Officer and Director. Mr.
Bergmann 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. Prior to his tenure with the Company, he was
President of Jewelmasters, Inc., a public multimillion dollar fine jewelry
company. He also served as Senior Vice President of Federated Department Stores.
Mr. Bergmann currently serves as President of JRB Enterprises, Inc. He is a
graduate of Queens College in New York.
Biographical Information on Significant Employees:
Regina M. Bergmann, Director of Personnel. Ms. Bergmann serves as the Company's
Director of Personnel and participates in the daily operations of the business.
Joyce Bernard, Merchandise Manager. Ms. Bernard has direct responsibility for
purchasing, manufacturing, inventory control and shipping and receiving. She has
over 15 years experience in the floral industry. Prior to joining the Company,
Ms. Bernard held various merchandising 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. 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 CPA 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.
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 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.
ITEM 10. 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:
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NAME TITLE SALARY BONUS AWARDS
/FISCAL YR.
Joseph R. Bergmann President $35,000.000 N/A N/A
(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 1996-2000 0
Joseph R. Bergmann President 1996-2000 $150,000
Regina M. Bergmann Director 1996-2000 0
Regina M. Bergmann Secretary 1996-2000 $ 25,000
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth certain information regarding the beneficial
ownership of the Company's common stock as of August 2, 1999, by (i) each person
or entity known by the Company to be beneficial owner of more than 5% of the
outstanding shares of common stock, (ii) each of the Company's directors and
named executive officers, and (iii) all directors and executive offices of the
Company as a group.
Amount and Nature of Percent of
Title of Class Name & Address Beneficial Owner Class
Common Joseph R. Bergmann 4,146,989 Shares* 66.4%
Par Value $.001 975 S. Congress Ave President & Director
Delray Beach, FL
Common Directors & Officers 4,146,989 Shares* 66.4%
Par Value $.001 As a Group
*Of this number, 1,042,688 shares are issued to Joseph R. Bergmann IRA.
<PAGE>
Changes in Control. Management of the Company is not aware of any arrangements
which may result in "changes in control" as that term is defined by the
provisions of Item 403(c) of Regulation S-B.
Preferred Class A JRB Enterprises, Inc. 1,900 shares
Par Value $.001 975 S. Congress Ave.
Delray Beach, FL
Preferred Directors & Officers -0- shares 0.0%
Par Value $.001 As a group
ITEM 12. 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.
The Company will purchase its silk botanical products from JRB Enterprises,
Inc., which is owned by the Company's President and majority stockholder. On
April 1, 1999, the Company 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. JRB Enterprises, Inc. will invoice the
Company for products and distribution of the products at rates to be negotiated
periodically between the Company and JRB Enterprises, Inc.
Additionally, the Company shares office facilities, certain office equipment and
certain employees with JRB Enterprises, Inc. At May 31, 1999, the Company had
issued 1,900 shares of preferred stock to JRB Enterprises, Inc. for the license
rights to the trademarks Living Silk and certain manufacturing processes. The
Company owed JRB Enterprises, Inc. $138,338 at May 31, 1999, for the purchase of
inventory, a computer and software, and monies JRB Enterprises, Inc. had
advanced the Company in acquiring the trademark and manufacturing process rights
to the Forever Fresh(R) line of floral arrangements.
JRB Enterprises, Inc., one of the Company's primary suppliers of artificial
plants and foliage, is owned by Joseph R. Bergmann, President and Majority
Shareholder of the Company.
On April 10, 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 JRB Enterprises, Inc.
Additionally, the license agreement granted the Company the exclusive right to
use the manufacturing process of the Living Silk(TM) and Silk Botanicals(TM)
products. As consideration for the license agreement the Company issued
preferred stock to JRB Enterprises, Inc. valued at $190,000. The Company further
agreed to pay JRB Enterprises, Inc. royalty payments of 5% of the net amount
invoiced by the Company, or any affiliate, for Living Silk(TM) or Silk
Botanicals(TM) products invoiced to any third party during the
<PAGE>
initial six year term. For additional periods of up to six, six year terms, the
Company agreed to pay one quarter of one percent (.25%) of its net sales per
annum for all Living Silk(TM) and Silk Botanicals(TM) products sold to any third
party.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS AND SCHEDULES
The following financial statements and schedules are filed as part of this
report:
<PAGE>
TABLE OF CONTENTS
Page
Independent Auditor's Report 1
Financial Statements:
Balance Sheets 2
Statements of Operations 3
Statements of Changes in Stockholders' Equity (Deficit) 4
Statements of Cash Flows 5
Notes to Financial Statements 6-12
<PAGE>
Independent Auditor's Report
To the Board of Directors and Stockholders
of Silk Botanicals.Com, Inc.
Delray Beach, Florida
We have audited the balance sheet of Silk Botanicals.Com, Inc. (a Florida
corporation) as of May 31, 2000 and the related statements of operations,
changes in stockholders' equity (deficit), and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of Silk Botanicals.Com,
Inc. as of May 31, 1999 were audited by other auditors whose report dated August
11, 1999 on those statements included an explanatory paragraph describing
conditions that raised substantial doubt about the Company's ability to continue
as a going concern.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 2000 financial statements referred to above present fairly,
in all material respects, the financial position of Silk Botanicals.Com, Inc. as
of May 31, 2000 and the results of its operations and its cash flows for the
fiscal year then ended, in conformity with generally accepted accounting
principles.
August 25, 2000
1
<PAGE>
SILK BOTANICALS.COM, INC.
BALANCE SHEETS
MAY 31, 2000 AND 1999
<TABLE>
<CAPTION>
ASSETS
2000 1999
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 13,445 $ --
Accounts receivable (net of allowance for
doubtful accounts of $4,000) 121,582 --
Inventory 62,338 57,353
Prepaid expenses 3,275 --
--------- ---------
Total Current Assets 200,640 57,353
--------- ---------
PROPERTY & EQUIPMENT, net of
accumulated depreciation 2,867 1,500
OTHER ASSETS:
License rights (net of valuation allowance &
accumulated amortization) 35,420 42,500
Deferred tax asset 1,165 --
--------- ---------
Total Other Assets 36,585 42,500
--------- ---------
TOTAL ASSETS $ 240,092 $ 101,353
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 7,194 $ 21,414
Income taxes payable 3,927 --
Accounts payable due to related party 30,972 101,353
Other current liabilities 13,242 --
--------- ---------
Total Current Liabilities 55,335 122,767
--------- ---------
TOTAL LIABILITIES 55,335 122,767
STOCKHOLDERS' EQUITY (DEFICIT):
Series A preferred stock, $.001 par value, 1,900 shares authorized,
issued and outstanding 2 2
Preferred stock, $.001 par value, 4,998,100 shares authorized, none
issued and outstanding -- --
Common stock, $.001 par value, 25,000,000 shares authorized,
6,250,000 shares issued and outstanding 6,250 6,250
Additional paid-in capital 851,460 671,460
Deficit accumulated during the development stage (699,126) (699,126)
Retained earnings 26,171 --
--------- ---------
Total Stockholders' Equity (Deficit) 184,757 (21,414)
--------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) $ 240,092 $ 101,353
========= =========
</TABLE>
See Independent Auditor's Report and Accompanying Notes
2
<PAGE>
SILK BOTANICALS.COM, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MAY 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
SALES $ 690,621 $ --
COST OF SALES 499,399 --
----------- -----------
GROSS PROFIT 191,222 --
----------- -----------
MARKETING EXPENSES 63,331 --
OPERATING EXPENSES:
Securities issuance costs -- 671,460
General and administrative 88,129 23,230
----------- -----------
88,129 694,690
----------- -----------
OTHER EXPENSES, net 2,279 --
----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 37,483 (694,690)
Provision for Income Taxes 2,762 --
----------- -----------
NET INCOME (LOSS) 34,721 (694,690)
ACCUMULATED DEFICIT, BEGINNING OF PERIOD (699,126) (4,436)
Preferred Stock Dividend (8,550) --
----------- -----------
ACCUMULATED DEFICT, END OF PERIOD $ (672,955) $ (699,126)
=========== ===========
Earnings (loss) per share (after preferred dividends):
Basic and diluted $ 0.01 $ (0.14)
=========== ===========
Weighted average shares outstanding - basic & diluted 6,250,000 4,865,095
=========== ===========
</TABLE>
See Independent Auditor's Report and Accompanying Notes
3
<PAGE>
SILK BOTANICALS.COM, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED MAY 31, 2000 AND 1999
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL DURING THE
------------------- -------------------- PAID-IN DEVELOPMENT RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE EARNINGS TOTAL
-------- --------- --------- --------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
Net (loss) -- -- -- -- -- (694,690) -- (694,690)
-------- --------- --------- --------- --------- --------- -------- ---------
BALANCE, MAY 31, 1999 1,900 $ 2 6,250,000 $ 6,250 $ 671,460 $(699,126) $ -- $ (21,414)
-------- --------- --------- --------- --------- --------- -------- ---------
Issuance of warrants 180,000 180,000
Preferred stock dividend -- -- -- -- -- -- (8,550) (8,550)
Net income -- -- -- -- -- -- 34,721 34,721
-------- --------- --------- --------- --------- --------- -------- ---------
BALANCE, MAY 31, 2000 1,900 $ 2 6,250,000 $ 6,250 $ 851,460 $(699,126) $ 26,171 $ 184,757
======== ========= ========= ========= ========= ========= ======== =========
</TABLE>
See Independent Auditor's Report and Accompanying Notes
4
<PAGE>
SILK BOTANICALS.COM, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 34,721 $(694,690)
Adjustments to Reconcile Net Loss to
Net Cash Used in Operating Activities:
Depreciation and amortization 7,694 --
Common stock issued in noncash transactions -- 673,276
Changes in assets and liabilities:
(Increase) in accounts receivable (121,582) --
(Increase) in inventory (4,985) (57,353)
(Increase) in prepaid expenses (3,275) --
(Increase) in license rights -- (42,500)
(Increase) in deferred tax asset (1,165) --
Increase (decrease) in accounts payable (14,220) 21,414
Increase in income taxes payable 3,927 --
Increase (decrease) in due to related parties (70,381) 101,353
Increase in other current liabilities 13,242 --
--------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (156,024) 1,500
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,981) (1,500)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (1,981) (1,500)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of warrants 180,000 --
Preferred stock dividend (8,550) --
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 171,450 --
--------- ---------
NET INCREASE IN CASH 13,445 --
CASH AT BEGINNING OF PERIOD -- --
--------- ---------
CASH AT END OF PERIOD $ 13,445 $ --
========= =========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 2,038 $ --
Cash paid for income taxes -- --
</TABLE>
See Independent Auditor's Report and Accompanying Notes
5
<PAGE>
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2000 and 1999
(See Independent Auditor's Report)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization:
Silk Botanicals.Com, Inc. (the "Company"), formally known as
Diversified Restaurant Holdings, Inc., was organized November 20, 1998
in the State of Florida. The Company was a development stage company
until June 1999, when it commenced operations. The Company develops,
markets and distributes high-quality artificial flowers, artificial
greenery and floral arrangements under the trademark names Forever
Fresh(R), Living Silk(TM) and Silk Botanicals(TM) in the wholesale
market. All of the Company's product is purchased from a company
related by common ownership. Major customers include wholesale store
chains and supermarkets. Costco and BJ's Wholesale accounted for 21%
and 15%, respectively, of revenues for the year ended May 31, 2000.
On April 9, 1999, the Company acquired all the outstanding common stock
of JRB Marketing of South Florida, Inc. ("JRB"), a Florida corporation
formed October 2, 1996. For accounting purposes, the transaction was
treated as a reverse acquisition of the Company by JRB and as a
recapitalization of JRB. The recapitalization resulted in the issuance
of 4,435,813 shares of the Company and the recording of $4,436 in
expenses. The historical financial statements prior to November 20,
1998 are those of JRB. No pro forma information is presented, as the
acquisition was not a business combination. At the time of this
transaction, JRB had no assets, liabilities or operations. As such, the
financial statements of the Company reflect the accounting for JRB as
if JRB had been the reporting entity from inception.
Prior to acquiring JRB, the Company owned 99% of the stock of Southern
Dragon, Inc. ("Southern"), a development stage company in the
restaurant industry. On March 31, 1999, the Company sold the stock of
Southern back to Southern and began concentrating on the development,
marketing and distribution of artificial flowers, greenery and floral
arrangements.
On August 2, 1999, the Company officially changed its name to Silk
Botanicals.Com, Inc. from Diversified Restaurant Holdings, Inc.
On August 20, 1999, the Company's Board of Directors approved a 1 for 4
reverse split of its common stock, retroactively effective as of May
31, 1999. All common shares and the per share amounts in the
accompanying audited financial statements have been restated for the
effects of the reverse split.
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 (first-in, first-out
method) or market.
6
<PAGE>
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2000 and 1999
(See Independent Auditor's Report)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Furniture and Equipment:
Furniture and equipment are recorded at cost. Depreciation is
calculated on a straight-line basis over the estimated useful lives of
the assets.
License Rights:
The license rights acquired by the Company have been recorded at cost
less a valuation allowance. The rights and valuation allowance are
amortized on the straight-line basis over the term of the license right
agreements, which is six years.
Fair Value of Financial Instruments:
The carrying amount of trade receivables and payables approximate fair
value
Income Taxes:
The Company accounts for income taxes on an asset and liability
approach to financial accounting. Deferred income tax assets and
liabilities are computed annually for the difference between the
financial statement and tax basis of assets and liabilities that will
result in taxable or deductible amounts in the future, based on enacted
tax laws and rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount
expected to be realized. Income tax expense is the tax payable or
refundable for the period, plus or minus the change during the period
in deferred tax assets and liabilities.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Start-Up Costs:
In April 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP
98-5"). SOP 98-5 requires that start-up costs, including organizational
costs, be expensed as incurred. The Company has accepted early adoption
of SOP 98-5 and expensed all start-up costs.
7
<PAGE>
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2000 and 1999
(See Independent Auditor's Report)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Earnings per Share:
The Company has utilized Financial Accounting Standards No. 128
"Earnings per Share" ("FAS 128"). FAS 128 requires presentation of
earnings or loss per share on basic and diluted earnings per share.
Basic earnings or loss per share is computed by dividing net income
available to common shareholders by the weighted average number of
common shares outstanding for the period. Diluted earnings per share is
computed using the weighted average number of common shares outstanding
and potentially diluted common shares during the period. The warrants
were anti-dilutive at May 31, 2000 as the exercise price was in excess
of the market price. The computation of fully diluted earnings per
share is not presented as it would be anti-dilutive.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of its property and equipment,
and other assets in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets
to be Disposed of" ("SFAS 121"). SFAS 121 requires recognition of
impairment of long-lived assets in the event the net book value of such
assets exceeds the estimated future undiscounted cash flows
attributable to such assets or the business to which such intangible
assets relate. No impairments were required to be recognized during the
years ended May 31, 2000 and 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, 2000 and 1999.
Advertising:
Advertising costs ($9,947 for the year ended May 31, 2000) are charged
to expense as incurred.
Cash and Cash Equivalents:
The Company considers all short-term highly liquid investments with
maturities of three months or less at the date of their acquisition and
all cash on hand and in checking and savings accounts to be cash and
cash equivalents.
8
<PAGE>
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2000 and 1999
(See Independent Auditor's Report)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Contingencies:
Certain conditions may exist as of the date the financial statements
are issued, which may result in a loss to the Company but which will
only be resolved when one or more future events occur or fail to occur.
The Company's management and its legal counsel assess such contingent
liabilities, and such assessment inherently involves an exercise of
judgement. In assessing loss contingencies related to legal proceedings
that are pending against the Company or unasserted claims that may
result in such proceedings, the Company's legal counsel evaluates the
perceived merits of any legal proceedings or unasserted claims as well
as the perceived merits of the amount of relief sought or expected to
be sought therein. If the assessment of a contingency indicates that it
is probable that a material loss has been incurred and the amount of
the liability can be estimated, then the estimated liability would be
accrued in the Company's financial statements. If the assessment
indicates that a potentially material loss contingency is not probable
but is reasonably possible, or is probable but cannot be estimated,
then the nature of the contingent liability, together with an estimate
of the range of possible loss if determinable and material, would be
disclosed. Loss contingencies considered remote are generally not
disclosed unless they involve guarantees, in which case the nature of
the guarantee would be disclosed.
2. PROPERTY AND EQUIPMENT
Property and Equipment consists of the following as of May 31, 2000 and
1999:
2000 1999
------- -------
Computer equipment $ 3,481 $ 1,500
Less: Accumulated depreciation (614) --
------- -------
$ 2,867 $ 1,500
======= =======
Depreciation expense was $614 and $0 for the years ended May 31, 2000
and 1999, respectively.
3. RELATED PARTY TRANSACTIONS
The Company purchases its silk botanical products from an established
manufacturer owned by the Company's president and majority stockholder
(herein after, the "Manufacturer"); however, the Company may purchase
its products from other suppliers. On April 1, 1999, the Company
entered into a non-exclusive manufacturing and distribution agreement
with the Manufacturer for a term of six years with the right to extend
the agreement for six additional six-year terms. The Manufacturer will
invoice the Company for products and distribution of products at rates
to be negotiated periodically between the Company and the Manufacturer.
9
<PAGE>
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2000 and 1999
(See Independent Auditor's Report)
3. RELATED PARTY TRANSACTIONS (continued)
Additionally, the Company subleases office facilities and certain
office equipment from the Manufacturer. The Company issued 1,900 shares
of preferred stock to the Manufacturer for the license rights to the
trademarks Living Silk(R) and Silk Botanicals(TM), and for certain
manufacturing processes. The Company owed the Manufacturer $30,972 and
$101,353 at May 31, 2000 and 1999, respectively, which is recorded as
an accounts payable, for the purchase of inventory, a computer and
software, operational expenses, license fees and advances to acquire
the trademark and manufacturing process rights to the Forever Fresh(R)
line of floral arrangements. During the years ended May 31, 2000 and
1999, the Company paid $483,435 and $57,353, respectively to the
Manufacturer.
No formal arrangement on terms and conditions relating to advances,
should they be required, had been entered into by the Company with the
Manufacturer.
4. LICENSE RIGHTS
On December 21, 1998, the Company purchased an exclusive license for
the right to assemble and distribute the "water-look" floral
arrangements and the trademark and copyright materials of Forever
Fresh(R) from a third party manufacturer and distributor in South
Florida. The term of the license agreement is for six years with the
right to extend for additional terms of six years each, unless
terminated by either party at the end of any six-year term. As part of
the agreement, the Company paid $42,500 for the license rights. The
Manufacturer advanced the funds for the payment. Additionally, the
Company agreed to make royalty payments to the licensor of 5% of the
net amount invoiced by the Company or any affiliate, for Forever
Fresh(R) products during the initial six year term. For additional
periods of up to six, six-year terms, the Company agreed to pay to the
licensor one quarter of one percent (.25%) of its net sales per annum
of all Forever Fresh(R) products sold to any third party. At May 31,
2000 license rights of $42,500 are presented net of $7,080 of
accumulated amortization.
During April 1999, the Company entered into an exclusive license
agreement to market and distribute artificial greenery and floral
arrangements with the Living Silk and Silk Botanicals trademarks owned
by the Manufacturer. Additionally, the license agreement granted the
Company the exclusive right to use the manufacturing process of the
Living Silk(TM) and Silk Botanicals(TM) products. As consideration for
the license agreement, the Company issued preferred stock to the
Manufacturer valued at $190,000. Since the transaction was a
nonmonetary transaction between related parties, a valuation allowance
of $190,000 has been provided against the license rights and as an
offset to stockholder equity. The Company further agreed to pay the
Manufacturer, royalty payments of 5% of the net amount invoiced by the
Company or any affiliates for Living Silk(TM) or Silk Botanicals(TM)
products invoiced to any third party during the initial six-year term.
For additional periods of up to six, six-year terms, the Company agreed
to pay one quarter of one percent (.25%) of its net sales per annum for
all Living Silk(TM) and Silk Botanicals(TM) products sold to any third
party.
10
<PAGE>
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2000 and 1999
(See Independent Auditor's Report)
5. 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 has 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. Dividends
in arrears at May 31, 2000 are $2,850.
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.
Warrants - In March of 2000 the Company issued warrants for 360,000
shares of common stock. The warrants were issued for $0.50 each for a
total of $180,000. The warrants have an exercise price of $2.50 per
share and are exercisable as follows; 240,000 from April 30, 2000 to
April 30, 2002 and 120,000 from May 7, 2000 to May 7, 2002. The
warrants carry a provision to issue options for up to 360,000 shares
exercisable over the same time frame as the corresponding warrant at a
price of $3.00 per share, if and when the warrants are exercised.
6. INCOME TAXES
For the year ending May 31,1999 the Company had no provision for income
taxes. Timing differences primarily relate to noncash stock
transactions and a valuation allowance. At May 31, 1999 the Company had
approximately $28,000 of unused net operating loss carryforwards that
may be applied against future taxable income that expires through 2019.
The Company recorded a deferred tax asset of approximately $7,000, and
offset the deferred tax asset with a valuation allowance of $7,000,
since realization of the deferred tax asset was uncertain at that time.
Utilization of operating loss carryforwards may be severely limited by
the change of business and control.
The provision for income taxes for the year ended May 31, 2000 of
$3,927 is made up of federal income tax expense of $9,800 and state
income tax expense of $2,282 less the utilization of $8,155 in net
operating loss carryforwards (federal $6,615 and state $1,540). The
deferred tax asset consists of timing differences related to the
allowance for doubtful accounts.
11
<PAGE>
SILK BOTANICALS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2000 and 1999
(See Independent Auditor's Report)
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of $2,656 in trade
accounts payable and $4,538 in accrued expenses at May 31, 2000 and
$21,414 in trade accounts payable at May 31, 1999.
8. OTHER CURRENT LIABILITIES
Other current liabilities consists of credit card debt at 15.4% as of
May 31, 2000.
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, 2000 and 1999, rental expenses incurred were $20,400 and
$0, respectively. Minimum future rental payments under the
non-cancelable operating lease as of May 31, 2000 are as follows:
2001 $18,333
10. CONTINGENCIES
The Company is involved in various claims which have arisen as a result
of the funding of the warrants. The Company, after conferring with its
legal counsel, is unable to predict the outcome of these matters but
does not believe, based upon currently available facts, that the
ultimate resolution of such matters will have a material adverse effect
on the financial statements of the Company.
12
<PAGE>
(B) REPORTS ON FORM 8-K
No Form 8-K in the year May 31, 1999 to May 31, 2000. However, in August of 2000
a From 8-K was filed to change the company's accountants. See Section 1 Item 8;
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, Silk Botanicals.com, Inc. has duly caused this Report
to be signed on its behalf by the undersigned duly authorized person.
Date: August 29, 2000 Silk Botanicals.com
/s/ Joseph R. Bergmann
-----------------------------------
by: Joseph R. Bergmann, President
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
Silk Botanicals.com, Inc. this report has been signed below by the following
persons on behalf of Silk Botanicals.com and in the capacities and on the dates
indicated.
Signature Capacity Date
/s/ Joseph R. Bergmann Principal Executive Officer August 29, 2000
-----------------------
Joseph R. Bergmann
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
27 Financial Data Schedule
