ITEM 1. BUSINESS
CURRENT DEVELOPMENTS
During January 2002, the Nimbus Group, Inc. ("Nimbus" or the "Company") board of directors (the "Board") adopted a formal plan of disposition of its wholly owned subsidiary TaketoAuction.com (or "TTA"), in connection with our overall strategic program designed to focus our resources on Nimbus Jets and the development of a national air taxi service. All revenues generated during fiscal 2002 and prior years related solely to TTA.
On September 30, 2002, the Company received an offer from Go Antiques, Inc. ("GO") to purchase substantially all of the assets and certain liabilities of TTA for a total purchase price of approximately $1.5 million. The purchase price was to include $1.0 million in cash, $250,000 in a non-interest bearing note receivable due 12 months from the date of closing and approximately 227,250 shares of GO's common stock, valued at $250,000. We received a non-refundable deposit of $100,000 on September 30, 2002 and an additional $25,000 non-refundable deposit on December 19, 2002. Completion of the purchase was contingent upon the successful negotiation of a formal purchase agreement and approval from the majority of our shareholders. During December 2002, GO informed us that they were unable to complete the transaction and the deal was terminated.
Due to the continuous declining market conditions of the air transportation industry, during January 2003, our Board resolved not to continue to pursue the development of a private air taxi service and to refocus its efforts on a plan to bring Nimbus Group to profitable levels. On January 15, 2003, Mr. Jonathan Geller tendered his resignation as Chief Technology Officer, effective immediately. Mr. Geller will continue to consult for us and will remain on our Board. On February 3, 2003, Mr. Mitchell Morgan tendered his resignation as Chief Financial Officer and Director and was replaced by Mr. Carlos de Miguel, presently a Director of Nimbus Group, on an interim basis.
On February 19 2003, Watch Junction, Inc. ("Watch") purchased the technology and certain assets of TTA (the "Technology Sale"). Watch Junction is owned 100% by the former President of TTA, Mr. Albert Friedman. Mr. Friedman made a cash payment in the amount of $50,000 and returned 305,610 shares of our common stock back to us.
TTA operated the Perfumania.com retail storefront prior to January 2003, which offered over 2,000 fragrance and fragrance-related products, including bath and aromatherapy products. As of December 31, 2002, we owed Perfumania.com approximately $2.1 million relating primarily to inventory purchased from a license agreement (the "License Agreement"). On January 28, 2003, we received a letter from E Com Ventures, Inc. ("ECMV"), the parent of Perfumania.com, indicating we were in default of our Website Operations Services Agreement (the "Agreement") for non-payment of amounts due of approximately $1.9 million to Perfumania.com in connection with the Agreement. To settle the breach of contract claim, we agreed to terminate the Agreement in exchange for a release of the outstanding obligations owed to Perfumania.com. On February 28, 2003, we completed the process of returning the operations of
Perfumania.com back to ECMV (the "P.com Return"). As of December 31, 2002, we owed Perfumania.com approximately $2.1 million relating primarily to inventory purchased from the License Agreement. On January 28, 2003, we received a letter from ECMV, the parent of Perfumania.com, indicating we were in default of our Agreement for non-payment of amounts due of approximately $1.9 million to Perfumania.com in connection with the Agreement. To settle the breach of contract claim, we agreed to terminate the Agreement in exchange for a release of the outstanding obligations owed to Perfumania.com. We are currently in the process of returning the operations of Perfumania.com back to ECMV. As part of the transition of the P.com Return, ECMV will assume certain liabilities of TTA, relating to the operations of Perfumania.com.
On March 1 2003, Nimbus Group management began devising a plan that would take the Company to profitable levels over the next 18 months by capitalizing on the Company's experience in marketing, branding and licensing.
BUSINESS
During fiscal 2001, Take to Auction.com, Inc., a company which sells products online through multiple distribution channels, reorganized its corporate structure and changed its primary business focus. On September 26, 2001, TTA, Nimbus Group Inc., a Florida corporation and wholly-owned subsidiary of TTA, and TTA Solutions, Inc., a Florida corporation and wholly-owned subsidiary of Nimbus, entered into an Agreement and Plan of Merger. Additionally, another wholly-owned subsidiary of Nimbus, Nimbus Jets, Inc., was formed. As a result of the Merger, Nimbus became the parent company of two wholly-owned subsidiaries, TTA and Nimbus Jets under the Merger Agreement.
During January 2002, our Board adopted a formal plan of disposition of TTA. All revenues generated during fiscal 2002 and prior years related solely to TTA.
Prior to the Technology Sale, all of our revenues were generated by TTA. TTA commenced operations on the World Wide Web during July 1999. During its operating history, TTA evolved from being solely a membership community, where its members would list and profit from selling merchandise at online auction sites, to selling items directly in multiple distribution channels. These selling channels consisted primarily of online auction sites (TTA Auctions), a retail Web site (TTA Direct) and our users' virtual storefronts (TTA Superstores) (collectively the "TTA Network"). Prior to January 2003, we also operated a retail Web site (Perfumania.com) through a License Agreement that was terminated in January 2003. The TTA Network utilized a common infrastructure, including our inventory selection, order processing, payment processing, customer service and fulfillment of the products.
TTA Auctions listed and sold merchandise at online auction sites, including eBay and Yahoo! Auctions. Online auction sites like eBay pioneered person-to-person trading of a wide range of goods over the Internet using an efficient and entertaining auction format and has grown into the largest and most popular person-to-person trading community on the Internet. EBay and Yahoo! are registered service marks of eBay, Inc and Yahoo!, Inc., respectively.
TTA also operated TTA Direct, a retail storefront, which sold products to the general public, and operated the Perfumania.com retail storefront prior to January 2003, which offered over 2,000 fragrance and fragrance-related products, including bath and aromatherapy products.
TTA Superstores was a virtual storefront platform providing individuals or existing Web sites an expanded distribution channel by offering the tools that allow them to sell merchandise online. Our solution eliminated the traditional barriers faced by individuals and small Web sites. TTA handled order processing, payment processing, customer service and fulfillment on behalf of our TTA Superstore users. Our users earned a profit from the difference between the selling price and the price we charged them for the item that sold.
TTA's revenues were derived from set-up fees paid by users to open their own virtual storefront through TTA Superstores, sales of product through the TTA Network and shipping and handling fees.
TTA AUCTIONS
Through TTA Auctions, we capitalized on the success of online auction sites by supplying online auction markets with a large variety of collectibles, factory-new specialty merchandise and factory-refurbished merchandise. Through our fully automated system, we had the ability to list thousands of products at auction at any given time. Based on certain parameters, merchandise was listed at up to two leading online auction sites, including eBay and Yahoo! Auctions. Online auction sites enable sellers to reach a larger number of potential buyers more cost-effectively than traditional person-to-person trading forums.
Prior to June 2001, our members paid an annual membership fee and each week, at no additional cost, selected merchandise from more than 5,000 types of items from our Web site, which we then listed automatically on a popular online auction site. Items were listed for a period of up to one week at a time during the one-year membership period. As of December 31, 2001, we had approximately 400 memberships remaining, all of which expired by June 2002.
TTA DIRECT
TTA Direct, launched in December 2000, allowed us to sell items directly to the general public. Private users accessed our catalog of inventory directly from our users' home page and the general public can accessed it through www.ttadirect.com or through our Yahoo! store, eBay store or our Amazon Marketplace. All purchases from TTA Direct utilized the same inventory, customer service, payment processing and fulfillment as TTA Auctions and TTA Superstores. We offered our inventory to our TTA Superstores storeowners at more favorable terms than at TTA Direct.
PERFUMANIA.COM
Effective September 1, 2001, we entered into a License Agreement with Perfumania.com, a subsidiary of ECMV, to operate the Perfumania.com retail storefront. This site offered over 2,000 fragrance and fragrance-related products, including bath and aromatherapy products. Under the terms of the agreement, we payed royalties to Perfumania.com of 5% of defined product sales for sales up to $8 million per annum, decreasing to 3% on sales exceeding $11 million per annum. Average gross margins generated from sales of product through Perfumania.com were higher than the average gross margins we generate from product sales through TTA Auctions, TTA Direct and TTA Superstores. Inventory offered through the Perfumania.com website was also offered through TTA Direct and TTA Superstores. Ilia Lekach, our chairman and interim CEO, is also the chairman of ECMV.
TTA SUPERSTORES
TTA launched TTA Superstores during April 2001 to permit individuals to create a fully stocked, personally branded, online store. We utilized the same resources and inventory that operate TTA Auctions and TTA Direct. Our solution sought to eliminate the traditional barriers faced by individuals and small Web sites, including hosting, transaction processing, customer service, order fulfillment and merchandising. Our storeowners opened, marketed, and profited from their own online storefronts with a minimal cash investment and without having to hassle with many traditional business details.
Before TTA Superstores, starting an online business usually required a substantial investment in Web site design and computer hardware. Entrepreneurs also had to negotiate with vendors, pay for warehousing and shipping charges, and set up banking relationships to run their business properly. TTA Superstores took care of all these details.
We allowed prospective storeowners to create their storefront free of charge. Prospective storeowners selected a "look-and-feel" of their storefront and the prices they wished to charge for the products (owners could not select a price below our cost to them). The owners were able to select any category or any number of categories of merchandise that we offered in our TTA warehouse. We charged the prospective storeowner a $249 ($100 prior to May 2002) set-up fee and we handled the rest. All orders received by a
TTA Superstore were processed by TTA. We completed the payment processing and the fulfillment of the item on our storeowner's behalf. The storeowner profited from the difference between the amount of the sale in their store and the amount we ultimately charged them upon a completed sale. As of December 31, 2002, we had approximately 2,500 virtual storefronts.
NMC BUSINESS STRATEGY
While no final decision has been reached with regard to Nimbus Jets, the Company's non-operating jet taxi business, Nimbus Group is currently in the planning stages of changing its primary focus to the wholesale distribution of fragrances, both proprietary and under license, as well as a diverse line skincare products. The Company plans to initially distribute its product lines via retail outlets across the United States. With the hiring of qualified marketing personnel, the Company will promote its proposed fragrance and skincare lines to gain preferred shelf space through regular retail promotions. While penetrating U.S. retail stores, the Company plans to simultaneously move to secure other distribution relationships with leading retailers abroad. The Company does not plan to directly manufacture any product, nor take large positions in inventory. Conversely, the Company plans to utilize direct delivery to its retail customer utilizing back-to-back bank letters of credit coupled with Just in Time (JIT) inventory management. Given that Nimbus has not reported earnings since inception, we believe this new business focus is based on more traditional business fundamentals and that the Company may be able to create value for its shareholders via a simpler, yet potentially profitable distribution model.
EMPLOYEES
As of March 1, 2003, we had approximately 4 employees, including our interim Chief Executive Officer and interim Chief Financial Officer. We have never had a work stoppage and no employees are represented under collective bargaining agreements. We consider our relations with our employees to be good.
PROPERTY
We currently lease 1,700 square feet of executive office space for approximately $3,629 per month. This facility is leased under a three year agreement, which commenced in March of 2003. We believe these offices are adequate for our current and future operations.
OUR CORPORATE HISTORY
Nimbus Group, Inc. was incorporated in Florida in June 1999. Our principal executive offices are located at 2999 Northeast 191st Street, Suite 805, Aventura, Florida 33180. Our telephone number is (305) 692-3732.
RISK FACTORS
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR BUSINESS
There are limited period-to-period comparisons of our operating results from which to evaluate our performance going forward. An investor in our common shares must consider the risks, uncertainties, expenses and difficulties frequently encountered by companies in their early stages of development, particularly companies in process of changing their business plan. These risks include depleting our cash reserves, lower than expected revenues and earnings and not being able to pay expenses as they come due, as well as the following:
o we may not be able to establish commercial relationships with suppliers of merchandise to launch our new business plan;
o we may not be able to implement a brand(s) and execute our business strategy;
o we may not be able to secure adequate financing to fund growth;
o we may not be able to respond effectively to competitive developments and a rapidly changing market; and
o we may not be able to attract qualified personnel, and if attracted, we may not be able to integrate, retain and motivate such personnel.
Our failure to accomplish any of these objectives would harm our business, financial condition and results of operations.
WE HAVE AN ACCUMULATED DEFICIT AND WE ANTICIPATE THAT OUR LOSSES WILL CONTINUE
We have an accumulated deficit of approximately $12.7 million as of December 31, 2002, resulting primarily from the operations of TTA. On February 19 2003, Watch purchased the technology and certain assets of TTA (the "Technology Sale"). Watch Junction is owned 100% by the former President of TTA, Mr. Albert Friedman. Mr. Friedman made a cash payment in the amount of $50,000 and returned 305,610 shares of our common stock back to us. TTA also operated the Perfumania.com retail storefront prior to January 2003, which offered over 2,000 fragrance and fragrance-related products, including bath and aromatherapy products. As of December 31, 2002, we owed Perfumania.com approximately $2.1 million relating primarily to inventory purchased from License Agreement. On January 28, 2003, we received a letter from ECMV, the parent of Perfumania.com, indicating we were in default of our Agreement for non-payment of amounts due of approximately $1.9 million to Perfumania.com in connection with the Agreement. To settle the breach of contract claim, we agreed to terminate the Agreement in exchange for a release of the outstanding obligations owed to Perfumania.com. On February 28, 2003, we completed the process of returning the operations of Perfumania.com back to ECMV (the "P.com Return"). Therefore, we have not achieved profitability and expect to incur operating losses for the foreseeable future until our future business plan can begin to generate revenues. We incurred net losses of approximately $1.8 million for the year ended December 31, 2002, resulting primarily from the operations of TTA. We expect to continue to incur significant operating and net operating losses arising from the implementation of our future business strategy. We are in the process of trying to raise additional funds through the private offering of our Common Shares. Although we believe that our future business strategy and this private offering of our Common Shares will provide us with sufficient operating cash flow through fiscal 2003, there can be no assurance that such business strategy will be successfully implemented, that it will be completed in a timely manner, that funding on the private offering will be successfully completed, or that our future cash flows will be sufficient to meet all of our obligations and commitments. The failure to generate such sufficient cash flow could significantly adversely affect the market value of our common stock and the operation of our business, results of operations and financial condition. Further, we may be
unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall in revenues relative to our planned expenditures would have an immediate harmful effect on our business, financial condition and results of operations.
Our future operating results will depend upon numerous factors. We may not achieve profitability. Even if we do so, we may never sustain or increase profitability on a quarterly or annual basis in the future. If revenues grow slower than we anticipate, or if operating expenses exceed our expectations or cannot be adjusted accordingly, our business, financial condition and results of operations will be harmed.
WE RECEIVED A GOING CONCERN OPINION FROM OUR INDEPENDENT AUDITORS
We received an opinion from our independent auditors on our December 31, 2002 consolidated financial statements expressing substantial doubt as to our ability to continue as a going concern as a result of our operating losses since inception and our need for substantial amounts of additional funding to continue our operations.
OUR SUCCESS IS DEPENDENT UPON OUR MANAGEMENT IN THIS RELATIVELY NEW INDUSTRY
Our success is dependent upon our management to execute on the Company's new business plan. Although our executive management team has some experience in operating businesses engaged marketing, branding and licensing, due to the new focus on this business, it is difficult to assess and evaluate management given the Company has no past operating history with regard to the new business model.
WE MAY NOT BE ABLE TO MAINTAIN A LISTING ON THE AMERICAN STOCK EXCHANGE, SO YOU MAY NOT BE ABLE TO SELL YOUR SHARES EASILY
We obtained a waiver from the American Stock Exchange ("AMEX") listing requirements in order to list our shares. If we are unable to maintain this listing in the future, we believe that our common shares may then trade on the over-the-counter market in the so-called "pink sheets" or the OTC Bulletin Board, which was established for securities that do not meet the AMEX's and other exchanges' listing requirements. In such event, our shares may be difficult or impossible to sell. Specifically, selling our common shares would be more difficult because smaller quantities of common shares could be bought and sold, transactions could be delayed, and coverage of us by securities analysts and news media may be reduced. As a result, shareholders may not be able to sell their shares, which illiquidity may cause a decreased trading price, cause larger spreads in the bid and ask price for our common shares and restrict our ability to issue additional securities or to secure additional financing. In order to maintain a listing, AMEX examines, typically on a quarterly basis, the financial condition and/or operating results for a listed company, the public distribution or aggregate market value of a listed company's shares, as well as various other aspects of a listed company's compliance with AMEX's requirements. Although AMEX has wide discretion regarding the enforcement of the requirements for maintaining a listing, there can be no assurance that we will be able to satisfy these requirements and maintain our listing.
WE HAVE BEEN NOTIFIED BY AMEX THAT OUR COMPANY IS IN VIOLATION OF AMEX'S CONINUING LISTING REQUIREMENTS
On February 28, 2003, we received a letter from the AMEX stating that as of the filing of the Company's last 8K on February 19, 2002 the Company was not in compliance with the Exchange's continued listing standards as set forth in Part 10 of the AMEX Company Guide. On April 7, 2003, the Company submitted a plan to the AMEX detailing its business plan for the next 18 months and its projections for returning to compliance. The AMEX is reviewing the plan and will notify the Company whether it will be permitted to trade under an 18 month extension subject to meeting certain milestones during said period.
INVESTORS MAY BE UNABLE TO SELL OUR COMMON SHARES BECAUSE OF THE LOW PRICE
Although we are listed on the AMEX, we cannot assure you that we will be able to maintain this listing. In such event, our shares may trade only on the over-the-counter market in the so-called "pink sheets" or on the OTC Bulletin Board. The effects of not being eligible for trading on the AMEX include the limited release of the market prices of our stock and limited news coverage of us. Ineligibility may also restrict investors' interest in our stock and materially adversely affect the trading market and prices for our stock and our ability to issue additional securities or to secure additional financing.
IF THE TRADING PRICE OF OUR COMMON STOCK DROPS BELOW A CERTAIN LEVEL WE MAY BECOME SUBJECT TO THE PENNY STOCK RULE
If the trading price of our common stock is less than $5.00 per share, our common stock could become subject to Rule 15 (g) under the Securities and Exchange Act of 1934, as amended. That rule, otherwise known as the "Penny Stock Rule," requires that broker-dealers satisfy special sales practice requirements, including making individualized written suitability determinations and receiving purchasers' written consents, prior to any transaction. If our common stock is deemed to be a penny stock under the Securities Enforcement and Penny Stock Reform Act of 1990, this would require additional disclosure in connection with trades in our common stock, including the delivery of a disclosure schedule explaining the nature and risks of the penny stock market. Such requirements could severely limit the liquidity of our common stock, the ability of broker-dealers to sell our common shares and the ability of purchasers in this offering to sell their securities in the secondary market. As of the close of business on March 31, 2003, our share price was $0.18.
WE MAY BE UNABLE TO SELL SHARES IN SOME STATES IN FUTURE OFFERINGS DUE TO BLUE SKY REGULATIONS
If we become unable to list our shares on the AMEX, we will attempt to register and trade on another national exchange. If that proves unsuccessful, we will have to register the common shares in any state where we desire to sell our common shares. We must also register our officers and directors as broker dealers in any state in which we seek to sell our common shares or seek an exemption to such registration. If a registration of the common shares in various states is not approved, it will not be possible for us to sell the common shares in those states. In such an event, we intend to use our best efforts to register in every state where we believe there is a significant market for our common shares. Should any or all common share registrations not be approved, this would prohibit us from selling the common shares offered for sale in such jurisdictions, would make it more difficult for you to sell your common shares generally and could adversely affect the overall success of those future offerings.
POSSIBLE VOLATILITY OF OUR STOCK PRICE COULD HARM OUR SHAREHOLDERS
The stock markets in general, and the market for Internet-related and technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of such companies. The trading prices of many technology stocks are at or near historical highs and reflect valuations substantially above historical levels. These trading prices and valuations may not be sustained. These broad market and industry factors may harm the market price of our common shares, regardless of our operating performance. Market fluctuations, as well as general political and economic conditions such as recession or interest rate or currency rate fluctuations, may also harm the market price of our common shares. In the past, following periods of volatility in the market price of a company's securities, securities class-action litigation has often been instituted against the company. This litigation, if instituted, could result in substantial costs and a diversion of management's attention and resources, which would harm our business, financial condition and results of operations.
CONTROL BY PRINCIPAL SHAREHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS COULD HARM OUR SHAREHOLDERS
Our executive officers, directors and greater-than-five-percent shareholders own, in the aggregate, approximately 47.4% of our outstanding Common Shares. Further, our by-laws provide for a classified board of directors, which is controlled by our founders. This means that the Board is divided into three classes of directors serving staggered three-year terms. As a result, approximately one-third of the Board will be elected each year. This makes it more difficult to gain control of the Board and may delay, defer or prevent a change in control of our company. As a result, the executive officers, directors and greater-than-five-percent shareholders, acting together, will have the ability to control most, if not all, matters submitted to shareholders and directors for approval (including the election and removal of directors and officers and any merger, consolidation or sale of all or substantially all of our assets) and to control our management and affairs. Accordingly, this concentration of ownership, as well as the classified Board, may have the effect of delaying, deferring, or preventing a change in our control, impede a merger, consolidation, takeover or other business combination involving us, or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain our control, which in turn could harm the market price of our Common Shares. The following individual owns greater than 5% of Nimbus Group: Horacio Groisman. In addition, Ilia Lekach (our chairman and director) owns all of Pacific Investments, which in turn owns greater than 5% of Nimbus Group. ECMV, a company related through a common chairman of the board, also beneficially owns greater than 5% of Nimbus Group. Please see "Management and Principal Shareholders."
WE WILL NEED TO RAISE ADDITIONAL CAPITAL WHICH MAY AFFECT OUR SHAREHOLDERS, AND OUR BUSINESS WILL BE HARMED IF WE ARE UNABLE TO OBTAIN ADDITIONAL CAPITAL
We will need to raise funds in the near future. If additional funds are raised through the issuance of equity or convertible debt securities, our shareholders' percentage ownership will be reduced, and these securities may have rights, preferences and privileges senior to those of the common shares. Additional financing may not be available on terms favorable to us or at all. If we are unable to maintain our listing of common stock on the AMEX, it may be more difficult to raise additional funds. If adequate funds are not available or are not available on acceptable terms, we may not be able to fund our current operations, take advantage of unanticipated acquisition opportunities, develop or enhance services or products or respond to competitive pressures. Our inability to raise additional capital on acceptable terms could harm our business, financial condition and results of operations. Please see "Management's Discussion and Analysis of Financial Conditions and Results of Operations--Liquidity and Capital Resources."
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Exchange Act and, therefore, file reports, proxy statements and other information with the Securities and Exchange Commission (the "SEC"). You can inspect and copy all of this information at the Public Reference Room maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a web site that contains reports, proxy statements and information statements and information regarding issuers, such as us, that file electronically with the SEC. The address of this web site is http:\\www.sec.gov.
ITEM 2.
ITEM 2. PROPERTIES
On March 1 2003, we moved from our principal administrative, marketing and product development facilities located in Fort Lauderdale, Florida. Currently, we are lessees under a three-year lease expiring in 2006. Monthly lease payments during the initial term of the lease are approximately $3,629. We believe that our current facilities will be adequate to meet our current and future needs given our new business focus.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
We are not currently a party to any formal legal proceedings. A breach of contract lawsuit has been threatened by USinternetworking, Inc. ('USi'), a developer of Web sites. We signed a contract, effective as of September 23, 1999, with USi for the development of our second generation user interface, as well as certain other services (the 'USi Agreement'). During December 1999, we notified USi that we were terminating the USi Agreement (as per the terms of the USi Agreement) for USi's material breach of its obligations thereunder. The parties discussed a resolution of the matter, although no discussions have occurred as of late. We believe that we have meritorious defenses, as well as counterclaims, to any claim which may be brought by USi, and if any such claim is brought, we will defend it vigorously. However, if USi successfully pursues its claim against us, it may have a material adverse effect on us and the operation of our business. During January 2002, USi filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 3, 2002, we held the 2002 annual meeting of our shareholders (the "Annual Meeting"). The following directors were elected at the Annual Meeting: Carlos de Miguel and Kenneth A. Glenn. Please see "Classified Board of Directors."
Additionally, our shareholders approved the following proposals at the Annual Meeting: The ratification of the appointment of Berkovits, Lago and Company LLP as our independent auditors for the 2002 fiscal year, and the approval of the sale of substantially all of the assets and certain liabilities of TTA to Go Antiques, Inc. For the election of the directors noted above, 5,400,822 votes cast for, no votes cast against and no abstentions. For the ratification of the appointment of Berkovits, Lago and Company LLP as our independent auditors for the 2002 fiscal year, 4,857,865 votes cast for, no votes cast against and 542,957 votes cast abstained. For the approval of the sale of substantially all of the assets and certain liabilities of TTA, Inc. to Go to Antiques, Inc, 4,857,865 votes cast for, no votes cast against and 542,957 votes cast abstained. The transaction between TTA and GO Antiques, Inc. was terminated during December 2002. Please see "Business--Current Developments."
PART II.
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Our common stock, $0.001 par value ("Common Stock") is traded on the AMEX under the symbol NMC. The following table sets forth the high and low closing sales prices for our Common Stock for the periods indicated, as reported by the American Stock Exchange.
HOLDERS
As of March 26, 2003, there were 48 holders of record, which excluded common stock held in street name, of the 7,438,889 outstanding shares of Common Stock. The closing sales price for the Common Stock on March 31, 2003 was $0.18 per share.
DIVIDEND POLICY
We have not declared or paid any dividends on our Common Stock and do not currently intend to declare or pay cash dividends in the foreseeable future. Payment of dividends, if any, will be at the discretion of the Board of Directors after taking into account various factors, including our financial condition, results of operations, current and anticipated cash needs and plans for expansion.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction with, and are qualified by reference to, the consolidated financial statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this annual report. The consolidated financial statement data as of December 31, 2002, 2001 and 2000 and for the fiscal years ended 2002, 2001 and 2000 are derived from, and are qualified by reference to, the audited consolidated financial statements of Nimbus Group, Inc. (which report includes an explanatory paragraph related to our ability to continue as a going concern) included elsewhere in this annual report.
SELECTED FINANCIAL DATA
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
During January 2002, our Board adopted a formal plan of disposition of TTA, in connection with our overall strategic program designed to focus our resources on Nimbus Jets and the development of a national air taxi service. All revenues generated during fiscal 2002 and prior years related solely to TTA.
Nimbus Jets, a start-up air taxi service, was to offer a convenient and cost-effective private jet solution for business travelers and individuals alike. We intended to make personal jet travel broadly affordable throughout North and South America. Unlike current alternative methods of flying, primarily commercial, charter or fractional ownership, Nimbus Jets was to fly an on-demand private air taxi service.
On December 9, 2001, we entered into an agreement with Eclipse to purchase 1,000 Aircraft to be delivered over a five-year period beginning in 2004. The price to be paid for each Aircraft was to be $837,500 in June 2000 dollars, subject to pricing adjustments of up to five percent (5%) per year. In December of 2002, Eclipse Aviation was unable to certify its E-500 aircraft because of inherent problems with the engine manufactured by Williams International. Without the E-500 aircraft, the cornerstone of Nimbus Jets' business model, Nimbus Jets cannot offer its jet taxi service. As of March 30, 2003, Nimbus Jets had not yet commenced any operational activities.
NMC BUSINESS STRATEGY SUMMARY
While no final decision has been reached with regard to Nimbus Jets, the Company's non-operating jet taxi business, Nimbus Group is currently in the planning stages of changing its primary focus to the wholesale distribution of fragrances, both proprietary and under license, as well as a diverse line skincare products. The Company plans to initially distribute its product lines via retail outlets across the United States. With the hiring of qualified marketing personnel, the Company will promote its proposed fragrance and skincare lines to gain preferred shelf space through regular retail promotions. While penetrating U.S. retail stores, the Company plans to simultaneously move to secure other distribution relationships with leading retailers abroad. The Company does not plan to directly manufacture any product, nor take large positions in inventory. Conversely, the Company plans to utilize direct delivery to its retail customer utilizing back-to-back bank letters of credit coupled with Just in Time (JIT) inventory management. Given that Nimbus has not reported earnings since inception, we believe this new business focus is based on more traditional business fundamentals and that the Company may be able to create value for its shareholders via a simpler, yet potentially profitable distribution model.
RESULTS OF OPERATIONS
COMPARISON OF FISCAL YEARS 2002 AND 2001
LOSS FROM DISCONTINUED OPERATION. The loss from discontinued operation decreased approximately $2.0 million to approximately $1.8 million for the year ended December 31, 2002, from approximately $4.0 million for the year ended December 31, 2001. The decrease was primarily due to a decrease in the cost of net revenues of approximately $1.2 million and an a decrease in general and administrative expenses of approximately $1.0 million. The decrease in the cost of net revenues was due to selling more products through our retail outlets, especially Perfumania.com as products sold through these outlets provided higher margins than products sold through TTA Auctions, TTA Direct, and TTA Superstores. General and administrative expense decreased due to largely due to the Board's adoption of a formal plan of disposition of TTA because as a result, we classified all of our depreciable assets as held for sale, and therefore did not recognize approximately $0.5 million of depreciation that would have otherwise been recognized. In addition, we reviewed our long-lived assets held for sale for impairment and recognized an impairment loss of approximately $0.3 million during fiscal 2002 to reduce the carrying amount of the impaired assets to
the estimated fair value. We also improved our operating efficiencies throughout fiscal 2002 by implementing certain cost contained estimated fair value.
COMPARISON OF FISCAL YEARS 2001 AND 2000
LOSS FROM DISCONTINUED OPERATION. The loss from discontinued operation decreased approximately $2.3 million to approximately $4.0 million for the year ended December 31, 2001 from approximately $6.3 million for the year ended December 31, 2000. The decrease was primarily due to an increase in the gross margin of approximately 3.0 million offset by increases in auction and fulfillment expenses of $0.9 million and a decrease in interest expense of approximately $0.2 million. The increase in the gross margins was due to increased revenues of approximately $6.0 million resulting from us expanding our product and service offerings as well as implementing strategic marketing programs to increase sales. The increase in auction and fulfillment expenses was directly attributable to the increase in revenues in 2001. The decrease in interest was due to interest expense incurred on two outstanding $1.0 million notes payable that were converted to stock or paid off during 2000 for which no such interest was incurred during 2001.
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital requirements during fiscal 2003 will be to fund the operations of our future business plan. We have had negative cash flows since inception, resulting primarily from our wholly-owned subsidiary, TTA. Our working capital to date has been provided primarily by the proceeds from our initial capitalization of $1 million, other private placements, the issuance of the Notes (see below), and our initial public offering consummated in June 2000.
Cash and cash equivalents at December 31, 2002, 2001 and 2000 were approximately $0.5 million, $0.4 million and $1.1 million, respectively. Our working capital (deficit) totaled ($2.3) million at December 31, 2002, (0.7) million at December 31, 2001 and $3.0 million at December 31, 2000.
Approximately $0.2 million of cash was provided in operating activities for the year ended December 31, 2002. This was primarily the result of a loss of approximately $1.8 million, offset primarily by a decrease in our inventory of approximately $0.6 million and an increase in amounts due related party of approximately $1.1 million. The increase in amounts due related party resulted from amounts owed to ECMV relating to our License Agreement which was terminated during January 2003. Please see "Business - Current Developments." We used cash of approximately $0.5 million in operating activities for the year ended December 31, 2001. This was primarily the result of a loss of approximately $4.1 million, as well as decreases in inventory of approximately $2.2 million, in prepaid expenses and other current assets of $0.3 million and in deferred revenue of $0.5 million, offset primarily by increases in amounts due related party of $0.8 million. During the year ended December 31, 2001, inventory levels were decreased in an effort to liquidate some of our slower moving inventory items and provide the necessary cash flows to fund our current operations. The decrease in prepaid expenses and other current assets primarily related to amounts advanced to suppliers for specialty purchased inventory of which a majority of this inventory has been received subsequent to December 31, 2000. The increase in amounts due related party resulted from amounts owed to ECMV relating to our service agreement in which we outsourced our warehouse and distribution functions. We used cash of approximately $7.8 million in operating activities for the year ended December 31, 2000. This was primarily the result of a loss of approximately $6.3 million, the increase in our inventory of approximately $3.0 million and the increase in prepaid expenses and other current assets of $0.5 million. During the year ended December 31, 2000, inventory levels were increased to support the growth in our membership base from approximately 50,000 credits as of December 31, 1999 to approximately 1.1 million credits as of December 31, 2000. The increase in prepaid expenses and other current assets primarily related to amounts advanced to suppliers for specialty purchased inventory of which a majority of this inventory had been received subsequent to December 31, 2000. The additional changes in other operating assets and liabilities were principally related to increases in accounts payable, accrued expenses, amounts due related party and deferred revenue of approximately $1.4 million.
We used cash in investing activities of approximately $0.1 million for the year ended December 31, 2002,
primarily related to certain costs capitalized in connection with internal use software. We used cash in investing activities of approximately $0.2 million and $1.2 million for the years ended December 31, 2001 and 2000, respectively, primarily related to the purchase of computer hardware and software and expenditures for leasehold improvements at our new corporate facility.
We had no cash flows from financing activities for the years ended December 31, 2002 and 2001, respectively. Cash provided by financing activities for the year ended December 31, 2000 was approximately $9.2 million. This was the result of net proceeds received from our initial public offering of approximately $9.4 million, proceeds received from our stock subscriptions receivable (relating to our initial capitalization) in the amount of approximately $0.6 million, and proceeds received from a convertible promissory note (the "Note") in the amount of $1 million from ECMV, a company related through a common chairman of the board, offset by the repayment of another note (similar in all respects to the "Note") in the amount of $1 million, and payments made for offering costs of approximately $0.8 million.
We had two $1 million Notes. One of the Notes was converted into 138,889 shares of our Common Stock on June 16, 2000, and the other Note was repaid in full on June 20, 2000. As of December 31, 2002, there was no debt facility available to us.
On October 12, 2000, we advanced ECMV $500,000. This amount bore interest at the prime rate and was due on December 31, 2000. ECMV repaid the principal and accrued interest in full on December 28, 2000.
During March 2000, the Company loaned a shareholder approximately $66,000. During October 2001, the shareholder repaid the principal balance and accrued interest in full in the amount of $77,617.
During November 2000, the Company loaned its Chairman of the Board approximately $100,000. During 2002, principal payments of approximately $7,000 were made. The remaining amount, approximately $55,000, is due on demand and accrues interest at the prime rate plus two percent.
We have incurred net losses since inception, and our ability to ultimately obtain profitable operations is dependent upon future events, including without limitation, obtaining financing adequate to support our cost structure and future business plans. We are in the process of evaluating a suitable business plan and we are trying to raise additional funds through the private offering of our Common Shares. Although we believe that a private offering of our Common Shares will provide us with sufficient operating cash flow through fiscal 2003, there can be no assurance that a new business strategy will be evaluated and completed in a timely manner, that it will be successfully implemented, or that funding on a private offering will be successfully completed, or that our future cash flows will be sufficient to meet all of our obligations and commitments. The failure to generate such sufficient cash flows could significantly adversely affect the market value of our common stock and the operation of our business, results of operations and financial condition.
NEW ACCOUNTING PRONOUNCEMENTS
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions of Accounting Principles Board ("APB") Opinion No. 30, Reporting the Results of Operations for a Disposal of a Segment of a Business. SFAS 144 is effective for fiscal years beginning after December 15, 2001. Adoption of SFAS 144 caused us to reflect the operations of TTA for fiscal years 2001 and 2000 as discontinued operations. In addition, we reviewed the long lived assets to be disposed of for impairment and recognized an impairment loss of approximately $0.3 million.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. Management has not yet determined the impact SFAS No. 146 compliance will have on the condensed consolidated financial statements.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Our market risk exposure with respect to financial instruments is to changes in the "prime rate" in the United States. We have a loan receivable, due on demand, from our chairman and interim CEO in the amount of approximately $55,000 bearing interest at prime plus two percent. As of December 31, 2002, we had no short or long-term investments.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
NIMBUS GROUP, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Nimbus Group, Inc.
We have audited the consolidated balance sheet of Nimbus Group, Inc. (the "Company") as of December 31, 2002 and the related consolidated statements of operations, changes in shareholders' (deficiency) equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The consolidated financial statements of Nimbus Group, Inc. for the years ended December 31, 2001 and 2000 were audited by other auditors whose report thereon, dated March 20, 2002 expressed a qualified opinion with respect to a going concern uncertainty.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of Nimbus Group, Inc. as of December 31, 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company's dependence on outside financing, lack of sufficient working capital, recurring losses from operations, and the discontinued operations raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
BERKOVITS, LAGO AND COMPANY LLP
Plantation, Florida February 21, 2003
(DELOITTE & TOUCHE COMPANY LETTERHEAD)
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Nimbus Group, Inc.:
We have audited the accompanying consolidated balance sheet of Nimbus Group, Inc. (the "Company") and subsidiaries as of December 31, 2001, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the two years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2001, and the results of their operations and their cash flows for each of the two years then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has a deficiency in working capital, incurred losses since inception, and its ability to ultimately develop profitable operations is dependent on future events, including obtaining financing adequate to support the Company's cost structure and business plans. Such matters raise substantial doubt about the Company's ability to continue as a going concern. Management's plans concerning these matters are also describe in Note 2. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
/s/ DELOITTE & TOUCHE LLP
March 20, 2002
(DELOITTE TOUCHE TOHMATSU FOOTER)
NIMBUS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these consolidated financial statements.
NIMBUS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of these consolidated financial statements.
NIMBUS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' (DEFICIENCY) EQUITY FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
The accompanying notes are an integral part of these consolidated financial statements.
NIMBUS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental cash flow information:
- No amounts were paid for income taxes during 2002, 2001 and 2000.
- During the year ended December 31, 2000, interest paid was approximately $50,000. No interest was paid during the fiscal years ended December 31, 2002 and 2001, respectively.
- During the year ended December 31, 2000, the Company recorded $650,200 to additional paid-in capital in connection with the insurance of stock purchase warrants.
- During the year ended December 31, 2000, a $1 million note payable, net of amortization related to warrants of $242,839, was converted into 138,889 shares of common stock.
- During the year ended December 31, 2000, $635,466 of the $1 million initial capitalization, recorded as Stock Subscription Receivable as of December 31, 1999, was paid in full.
The accompanying notes are an integral part of these consolidated financial statements.
NIMBUS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF OPERATIONS AND DISCONTINUED OPERATIONS:
During fiscal 2001, Take to Auction.com, Inc. ("TTA"), a company which sells products online through multiple distribution channels, reorganized its corporate structure and changed its primary business focus. On September 26, 2001, TTA, Nimbus Group Inc., a Florida corporation and wholly-owned subsidiary of TTA ("Nimbus"), and TTA Solutions, Inc., a Florida corporation and wholly-owned subsidiary of Nimbus ("TTA Solutions"), entered into an Agreement and Plan of Merger (the "Merger Agreement"). Additionally, another wholly-owned subsidiary of Nimbus, Nimbus Jets, Inc., ("Nimbus Jets") was formed. As a result of the Merger, Nimbus (the "Company") became the parent company of two wholly-owned subsidiaries, TTA and Nimbus Jets under the Merger Agreement. All revenues generated in fiscal 2002 and prior related solely to TTA.
During January 2002, our board of directors adopted a formal plan of disposal of TTA in connection with an overall strategic program designed to focus the Company's resources on Nimbus Jets and the development of a national air taxi service. Revenues included in discontinued operations amounted to $12,312,033, $12,121,853 and $6,009,146 for the years ending December 31, 2002, 2001 and 2000 respectively. Included in Loss from Discontinued Operation on the accompanying 2002 Statement of Operation is an expense of $278,982 representing the amount of an impairment loss on certain assets of the discontinued operations, which were written down to estimated fair value as of December 31, 2002.
Assets and Liabilities 'to be disposed of' were comprised of the following at December 31, 2002:
On February 19, 2003, Watch Junction, Inc. ("Watch") purchased the technology and certain assets of Take to Auction (the "Technology Sale"). Watch Junction is owned 100% by the former President of TTA, Mr. Albert Friedman. Mr. Friedman made a cash payment in the amount of $50,000 and returned 305,610 shares of our common stock back to us.
TTA operated the Perfumania.com retail storefront prior to January 2003, which offered over 2,000 fragrance and fragrance-related products, including bath and aromatherapy products. As of December 31, 2002, we owed Perfumania.com approximately $2.1 million relating primarily to inventory purchased from a license agreement (the "License Agreement"). On January 28, 2003, we received a letter from E Com Ventures, Inc. ("ECMV"), the parent of Perfumania.com, indicating we were in default of our Website Operations Services Agreement (the "Agreement") for non-payment of amounts due of approximately $1.9 million to Perfumania.com in connection with the Agreement. To settle the breach of contract claim, we agreed to terminate the Agreement in exchange for a release of the outstanding obligations owed to Perfumania.com. On February 28, 2003, we completed the process of returning the operations of Perfumania.com back to ECMV (the "P.com Return").
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES:
Significant accounting policies and practices used by the Company in the preparation of the accompanying consolidated financial statements are as follows:
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED):
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, the Company has incurred net losses since inception in the amount of approximately $12.7 million and has a deficiency in working capital of approximately $2.3 million. These factors, among others, may indicate that the Company will be unable to continue as a going concern for a reasonable period of time. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company's continuation as a going concern is dependent upon future events, including obtaining financing adequate to support the Company's cost structure and business plans.
Effective August 26, 1999, the Company declared a share dividend of an aggregate of 6,993,000 common shares, $0.001 par value ("Common Shares"), immediately payable to its shareholders of record in order to effect the equivalent of a 1,000-for-1 stock split to increase the number of Common Shares outstanding from 7,000 shares to 7,000,000 shares. On November 3, 1999, the Company declared a share dividend of an aggregate of 10,263,158 Common Shares, $0.001 par value, immediately payable to its shareholders of record in order to effect the equivalent of a 2.326530644-for-1 stock split to increase the number of Common Shares outstanding from 7,736,842 shares to 18,000,000 shares. On May 4, 2000, the Company declared a 1-for-3 reverse stock split to decrease the number of Common Shares outstanding from 18,000,000 to 6,000,000 shares. Shareholders' equity gives retroactive recognition to the stock splits as of June 2, 1999.
MANAGEMENT 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.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
BASIC AND DILUTED NET LOSS PER SHARE
Basic and diluted net loss per share is computed by dividing the net loss available to common shareholders for the period by the weighted average number of Common Shares outstanding for the period. The calculation of basic and diluted net loss per share excludes 46,050 and 67,675 Common Shares issuable upon exercise of employee stock options during fiscal 2002 and 2001, respectively, as the effect of the exercise would be anti dilutive.
NIMBUS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED):
INVENTORY
Inventory, consisting of finished goods, is stated at the lower of cost or market, cost being determined based on a moving weighted average cost basis, which approximates the first-in, first-out method. The cost of inventory includes product cost and freight charges. The Company recorded a provision of approximately $291,000 for the year ended December 31, 2000 to reduce the carrying value of inventory to its net realizable value. No provisions were made for fiscal years ended December 31, 2002 and 2001, respectively. Provision for potentially slow moving or damaged inventory is recorded based on management's analysis of inventory levels, turnover ratios and through specific identification of slow moving merchandise.
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost, less accumulated depreciation and amortization. Depreciation and amortization is calculated using the straight-line method over the estimated useful lives of the related assets. Costs of major additions and improvements are capitalized and expenditures for maintenance and repairs which do not extend the useful life of the asset are expensed when incurred. Gains or losses arising from sales or retirements are included in income currently. The Company reviews its long-lived assets for impairment on a periodic basis and records an impairment loss to operations if the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset. An impairment loss would be recognized to reduce the carrying amount of the impaired asset to its fair value. Based on a review of the Company's property and equipment, primarily furniture and fixtures and leasehold improvements relating to assets no longer being utilized, the Company recorded a non-cash impairment charge of approximately $41,000. During fiscal 2002, based on the plan of disposal of TTA, the Company recorded an additional non-cash impairment charge of approximately $279,000 to write-down certain assets to their net realizable value. Fair value of these impaired assets was determined based on prices for similar assets. The impairment losses are included in general and administrative expenses in the accompanying consolidated statements of operations.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Take to Auction.com, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.
SOFTWARE DEVELOPMENT COSTS
In accordance with Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" and Emerging Issues Task Force 00-2, "Accounting For Web Site Development Costs", the Company capitalizes acquired and internally developed or modified software solely to meet the Company's internal needs integral to the Company's Web site. The Company capitalizes certain internal and external costs directly associated with developing or modifying the internal use software, which begins with the application development stage and ends when the project is substantially complete and ready for its intended use. The ongoing assessment of recoverability of capitalized software development costs require considerable judgment by management with respect to certain external factors, including, but not limited to, estimated economic life and changes in software and hardware technologies.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED):
REVENUE RECOGNITION
Revenues from membership fees are deferred at the time of billing and are recognized ratably over the term of annual membership. Revenues from superstore setup fees are deferred at the time of billing and are recognized ratably over the first six months of store ownership. Revenues related to sales of products are recorded at the sales price and recognized at the time that the product is shipped. Revenues related to shipping and handling fees are recognized at the time that the product is shipped. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, 'Revenue Recognition in Financial Statements,' providing guidance with respect to revenue recognition issues and disclosures. The Company believes that its existing accounting policies comply with the requirements of this published guidance.
SALES AND MARKETING EXPENSES
Marketing and sales expenses, which consist primarily of advertising and promotional costs, are charged to operations as incurred.
START UP COSTS
The Company expensed all start up costs as incurred.
INCOME TAXES
The Company utilizes the asset and liability method of accounting for deferred income taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is established when it is more likely than not that some or all of the deferred tax assets will not be realized.
SIMPLE IRA PLAN
The Company sponsored the Nimbus Group, Inc. SIMPLE IRA Plan (the "Plan"), a defined contribution plan provided pursuant to the requirements of the Internal Revenue Code of 1986, as amended. All employees were eligible to participate in the Plan as of the first day of any month. Participants made pre-tax contributions to the Plan subject to a statutorily prescribed annual limit. The Company was required to make matching contributions, not to exceed 3% of a participant's annual compensation, to the Plan. Each participant was fully vested in their account, including the participant's contributions, the Company's matching contribution and the investment earnings thereon. Contributions by the participants or by the Company to the Plan, and the income earned on such contributions, are generally not taxable to the participants until withdrawn. Contributions by the Company are generally deductible by the Company when made. The participant's and the Company's contributions are held in an IRA. The Company accrued a matching contribution to the Plan as of December 31, 2002, 2001 and 2000 of approximately $28,000, $37,000 and $30,000 respectively, which represents the total contributions made to the Plan by the Company for the years ended December 31, 2002, 2001 and 2000, respectively. In February, 2003, the Company cancelled its SIMPLE IRA Plan.
NIMBUS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED):
WARRANTS
As required by Statement of Financial Position No. 123, ("SFAS No. 123") the Company accounts for warrants issued to non-employees not issued in conjunction with debt by amortizing the fair value of such warrants over the vesting period. During fiscal 2000, expenses related to such warrants was $68,200 and are included in general and administrative expenses in the accompanying consolidated statement of operation. No warrants were issued during fiscal 2002 or 2001.
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"), establishes standards for recording and displaying comprehensive income and its components. SFAS No. 130 requires certain components of equity to be recorded as other comprehensive income. The Company has no other comprehensive income during the fiscal years ended December 31, 2002, 2001 and 2000.
SEGMENT REPORTING
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131"), establishes standards for public business enterprises to report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company operated in one segment during 2002, 2001 and 2000.
RECLASSIFICATIONS
Certain reclassifications to the Company's 2001 and 2000 consolidated financial statements were made to conform them to classifications used in 2002.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. Management has not yet determined the impact SFAS No. 146 compliance will have on the condensed consolidated financial statements.
NIMBUS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation -- Transition and Disclosure an amendment of FASB Statement No. 123. This Statement amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of that Statement to require prominent disclosure about the effects on reported net income of an entity's accounting policy decisions with respect to stock-based employee compensation. Finally, this Statement amends APB Opinion No. 28, Interim Financial Reporting, to require disclosure about those effects in interim financial information. We intend to continue to account for stock-based compensation based on the provisions of APB Opinion No. 25. SFAS 148's amendment of the transition and annual disclosure provisions of SFAS 123 are effective for fiscal years ending after December 15, 2002, and the disclosure requirements for interim financial statements are effective for interim periods beginning after December 15, 2002. We will adopt the disclosure provisions of SFAS 148 beginning in the quarter ending March 31, 2003.
NOTE 3. INITIAL PUBLIC OFFERING:
Effective June 12, 2000 (the actual closing date was June 16, 2000), the Company completed an equity offering of 1.3 million Common Shares at an offering price of $8.00 per share. Net proceeds to the Company, after deducting approximately $2.5 million in costs, fees, underwriter discounts and other expenses associated with the offering, were approximately $7.9 million and were used primarily for inventory expansion, other capital expenditures necessary to support the Company's growth, working capital, and other general corporate purposes.
NOTE 4. PROPERTY AND EQUIPMENT:
Property and equipment include the following:
As of December 31, 2002, all property and equipment were classified as assets held for sale in accordance to the Company's plan of disposal of TTA (See Note 1).
NIMBUS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. INCOME TAXES:
The primary components of temporary differences, which give rise to the Company's net deferred tax assets at December 31, 2002 and 2001, respectively, are as follows:
The income tax provision differs from the amount obtained by applying the statutory Federal income tax rate to pretax income as follows:
The Company provides a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
The Company has federal and state net operating loss carryforwards of approximately $12.7 million at December 31, 2002, both of which will begin to expire in the year 2019.
NOTE 6. RELATED PARTY TRANSACTIONS:
The Company received an advance of $1 million on December 21, 1999 from E Com Ventures, Inc. ("ECMV") and an additional advance of $1 million on March 9, 2000. The chairman of the board of ECMV is also the chairman of the board of the Company. These advances were structured into two separate two-year convertible note agreements, each bearing interest at six percent (6%) per annum. ECMV had the right to convert all, but not less than all for each note, of the principal amount into shares of the Company's common stock at the conversion price equal to $7.20. One of the notes was converted into 138,889 shares of common stock on June 16, 2000 and the other note was repaid in full on June 20, 2000. In addition, the Company granted a total of 200,000 warrants to ECMV at $7.20. These warrants, which expired on June 12, 2001, were recorded at an estimated fair value of $562,000, using an option pricing model, and were amortized over the life of the notes.
On October 12, 2000, the Company advanced ECMV $500,000. This amount bore interest at the prime rate and was due on December 31, 2000. ECMV repaid the principal and accrued interest in full on December 28, 2000.
NIMBUS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. RELATED PARTY TRANSACTIONS (CONTINUED):
During March 2000, the Company loaned a shareholder approximately $66,000. This amount was due on demand and accrued interest at the prime rate plus two percent. During October 2001, the shareholder repaid the principal balance and accrued interest in full in the amount of $77,617.
During November 2000, the Company loaned its Chairman of the Board approximately $100,000. During 2002, principal payments of approximately $7,000 were made. The remaining amount, approximately $55,000, is due on demand and accrues interest at the prime rate plus two percent. This loan is classified as shareholder receivables in the accompanying consolidated balance sheet.
Effective September 1, 2001, the Company entered into a licensing agreement (the "License Agreement") with Perfumania.com to license its retail fragrance Web site. Under the terms of the agreement, the Company pays royalties to Perfumania.com of 5% of defined product sales for sales up to $8 million per annum, decreasing to 3% on sales exceeding $11 million per annum. Royalty expense under this agreement for the years ended December 31, 2002 and 2001 were approximately $277,000 and $75,000, respectively.
As of December 31, 2002, we owed Perfumania.com approximately $2.1 million relating primarily to inventory purchased from the License Agreement. On January 28, 2003, we received a letter from ECMV stating that we were in default of the License Agreement for non-payment of amounts due and based on recent public filings that showed that we continue to report losses, have negative working capital and equity, ECMV was terminating the License Agreement. The Company is in the process of returning the operations of Perfumania.com back to ECMV. As part of the transition of the P.com return, ECMV will assume certain liabilities of TTA, relating to the operations of Perfumania.com.
Effective September 23, 1999, the Company entered into a 60 month service agreement (the "USi Agreement") with USinternetworking, Inc. ('USi'), a software and network provider, to develop and host the Company's Web site. The Company paid an initial fee of $40,000 and the USi Agreement was for 60 equal monthly service fee payments of $41,000 commencing on December 15, 1999 through December 14, 2004 (the "Initial Period"). During December 1999, the Company notified USi that it was terminating the USi Agreement (as per the terms of the USi Agreement) for USi's material breach of its obligations hereunder. A breach of contract lawsuit has been threatened by USi. The Company and USi discussed a resolution of the matter, although no discussions have occurred as of late. The Company believes that it has meritorious defenses, as well as counterclaims, to any claim which may be brought by USi, and if any such claim is brought, the Company will defend it vigorously. However, if USi successfully pursues its claim against the Company, it may have a material adverse effect on the Company and the operation of its business. During January 2002, USi filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court.
On December 28, 1999, the Company entered into a five year operating lease agreement for its corporate headquarters. Monthly rent payments are approximately $14,500 during the period of this agreement.
NIMBUS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. STOCK OPTION PLAN:
The Company amended its 1999 Stock Option Plan and adopted the 2001 Amended and Restated Stock Option Plan (the "Amended Option Plan"). Officers, key employees, and non-employee consultants may be granted stock options, stock appreciation rights, stock awards, performance shares and performance units under the Amended Option Plan. The Company has reserved 4,442,857 Common Shares for issuance under the Amended Option Plan, subject to further anti dilution adjustments.
The Company will grant 5,000 non-qualified stock options to each non-employee director nominee of the Company. The options will allow such directors to purchase the Common Shares at the market value at the time the options are granted. These options will have a term of seven years and vest on the date of grant.
The Amended Option Plan is administered by the Compensation Committee (the "Committee") of the Board of Directors of the Company (the "Board"). The Committee is authorized to determine, among other things, the key employees to whom, and the time at which, options and other benefits are to be granted, the number of shares subject to each option, the applicable vesting schedule and the exercise price. The Committee also determines the treatment to be afforded to a participant in the Amended Option Plan in the event of termination of employment for any reason, including death, disability or retirement. Under the Amended Option Plan, the maximum term of both incentive stock options and non-qualified stock options is seven years.
The Board has the power to amend the Amended Option Plan from time to time. Shareholder approval of an amendment is only required to the extent that it is necessary to maintain the Amended Option Plan's status as a protected plan under applicable securities laws or the Amended Option Plan's status as a qualified plan under applicable tax laws. The Amended Option Plan was approved by the shareholders at the 2001 Annual Meeting of Shareholders during November 2001.
NIMBUS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. STOCK OPTION PLAN (CONTINUED):
A summary of the status of the Company's Amended Option Plan as of December 31, 2002, 2001 and 2000 is presented below:
The weighted-average fair value of stock options granted during 2001 and 2000 was $1.39 and $3.40, respectively. No stock options were granted during 2002. The number of options exercisable at December 31, 2002, 2001 and 2000 were 1,760,816, 2,412,616 and 52,585, respectively.
The following table summarizes information about stock options outstanding at December 31, 2002:
NIMBUS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. STOCK OPTION PLAN - (CONTINUED):
Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation ("SFAS No. 123"), encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company will measure compensation expense for the stock plan using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"). Accordingly, compensation expense for qualified and non-qualified employee stock options granted under the Amended Option Plan is equal to the difference between the fair market value of the stock at the date of grant and the amount an employee must pay to acquire the stock.
The fair value of each option granted under the Company's Amended Option Plan is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 2002, 2001 and 2000:
Had compensation cost for the Company's Stock Plans been determined based on the fair value at the grant dates for awards under the Stock Plans consistent with the method prescribed by SFAS 123, the Company's net loss and net loss per share (diluted) would have changed to the proforma amounts indicated below:
The effects of applying SFAS 123 in this proforma disclosure are not indicative of future amounts. The Company anticipates that additional awards will be granted in future years.
NOTE 8. CAPITAL STOCK:
The Company completed an equity offer of 1.3 million Common Shares during June 2000 (see Note 3).
NOTE 9. SUBSEQUENT EVENT:
On February 19, 2003, Watch Junction, Inc. ("Watch") purchased the technology and certain assets of Take to Auction (the "Technology Sale"). Watch Junction is owned 100% by the former President of TTA, Mr. Albert Friedman. Mr. Friedman made a cash payment in the amount of $50,000 and returned 305,610 shares of our common stock back to us.
PART III.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
During November 2002, the Board dismissed Deloitte & Touche LLP ("D&T") as the independent certified public accountants of the Company. D&T has previously audited our consolidated financial statements for the fiscal years ended December 31, 2001, 2000 and 1999 ("Prior Fiscal Years"). Their reports on such consolidated financial statements did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to audit scope or accounting principles, but included uncertainty paragraphs for the Prior Fiscal Years relating to our ability to continue as a "going concern".
In connection with its audits of our financial statements for the Prior Fiscal Years and through November 21, 2002, we had no disagreements with D&T on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of D&T, would have caused D&T to make a reference to the subject matter of the disagreements in connection with its reports on the consolidated financial statements of the Prior Fiscal Years and through November 21, 2002. Further, in connection with the audits of our financial statements of the Prior Fiscal Years and through November 21, 2002, there were no "reportable events" within the meaning of Item 304(a)(1)(v) of the Securities and Exchange Commission's Regulation S-K.
Our Board met and reviewed the qualifications of several potential applicants and chose Berkovits, Lago & Company, LLP as the successor independent certified public accounting firm to be engaged effective November 21, 2002, and was approved by our shareholders on December 3, 2002.
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information (as of March 1, 2003) regarding our executive officers and directors:
ILIA LEKACH has been our Chairman of the Board and a Class II director since October 1999 and our Chief Executive Officer since January 2002. Mr. Lekach is also the chairman and CEO of E Com Ventures, Inc., an Internet incubator. He was co-founder of Perfumania, Inc. and was Perfumania, Inc.'s Chairman of the Board and Chief Executive Officer from its incorporation in 1988 until April 1994, and again since October 1998. Mr. Lekach served as Chairman of the Board of L. Luria & Son, Inc., a South Florida-based catalog retailer from January 1997 through August 1997. Mr. Lekach also serves as Chairman of the Board and Chief Executive Officer of Parlux Fragrances, Inc., a publicly traded manufacturer and distributor of fragrance and related products since 1990.
In August 1996, ORM Inc., and its affiliates, of which Mr. Lekach was a principal, purchased a controlling interest in L. Luria & Son, Inc., a catalog retailer with financial problems. On August 13, 1997, L. Luria & Son, Inc. filed for relief under Chapter 11 of the Bankruptcy Code and has since been liquidated.
CARLOS DE MIGUEL has been our interim Chief Financial Officer since February 2003 and a Class III director since October 2002. Mr. de Miguel possesses significant transactional experience across multiple industries throughout the United States and Latin America. He is presently Managing Director of Capital Intelligence Partners where he is focused primarily on Investment Banking, Mergers & Acquisitions and Strategic Advisory. Mr. de Miguel has advised both private and public companies alike in building their businesses through strategic initiatives that have created significant shareholder value. On behalf on his clients he has successfully executed upon his extensive network of corporate and investment contacts across multiple industries including media, aviation, financial services, healthcare and telecommunications. Within these industries Mr. de Miguel focused on identifying key opportunities in emerging growth sectors and working with both private and public companies in accelerating their growth, and more importantly their value.
Prior to joining Capital Intelligence, Mr. de Miguel was Managing Director of Rainmaker Capital, an investment banking boutique specializing in private equity, corporate finance and middle market mergers & acquisitions. Mr. de Miguel's expertise stems from his experience in syndicated finance, project finance and cross-border mergers & acquisitions during his appointment as Associate Director of London-based Barclays Bank PLC. Prior to his appointment at Barclays, Mr. de Miguel was Vice President of the Corporate Finance Group at Hamilton Bancorp. Prior to joining Hamilton Bancorp, Mr. de Miguel was an associate within the Equities Division at Goldman Sachs where he formed the foundation for his keen skills in structuring and executing complex financial transactions. At the early stages of his career, Mr. de Miguel founded, operated and successfully sold two separate entrepreneurial ventures.
Mr. de Miguel holds a Degree in Finance & Multinational Management from the Wharton School of the University of Pennsylvania and a Certificate in International Studies from Harvard.
JONATHAN GELLER has been a Class I director since October 1999. From October 1999 through January 2003, Mr. Geller was our Vice-President and Chief Technology Officer. Mr. Geller remains active on the Board and is presently pursuing a new venture within the agriculture sector in Peru. Mr. Geller was co-founder of Jackpot S.A, Lima Peru, a privately owned company specializing in the development of Web pages, providing high bandwidth Internet connections and custom Web applications. From January 1998 until September 1999, Mr. Geller served as Jackpot's Chief Executive Officer. From January 1994 until December 1997, Mr. Geller attended college at North Carolina State University where he graduated with a degree in Industrial Engineering.
JOHN-GARY HEWITT has been a Class I director since October 2001 and effectively resigned from the Board on March 21, 2003 citing personal reasons. He has been replaced on the audit committee by Jonathan Geller, a Class I Director. Prior to joining our Board, Mr. Hewitt was President of Knight Securities, Inc., an electronic market-making firm in the securities industry. While serving as President of Knight, Mr. Hewitt was responsible for Knight's extension into options market-making, international expansion (Europe and Japan), development of Knight's technology, and organizational restructuring. Prior to that, he worked at Goldman Sachs in strategic and business building roles related to Goldman's international equities business. Mr. Hewitt also held various positions at the New York Stock Exchange. Mr. Hewitt holds a B.A. in political science from the University of Rochester, a Juris Doctor from the Boston University School of Law, and a Master's degree in corporate law from New York University.
KENNETH A. GLENN has been a Class III director since November 2002. Mr. Glenn has been the Treasurer, President and CEO of Ryder Systems Federal Credit Union in Miami Dade County since February 1983. Mr. Glenn is a former officer of Barnett Bank of Florida and Executive Vice President of Homestead Air Force Base Federal Credit Union.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act, requires the Company's executive officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the SEC and the National Association of Securities Dealers, Inc. Executive officers, directors and greater than ten percent shareholders are required by the Exchange Act to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the Company and written representations that no Forms 5 were required, the Company believes that, during 2002, its directors, executive officers and greater than ten percent beneficial owners complied with all applicable Section 16(a) filing requirements.
CLASSIFIED BOARD OF DIRECTORS
Our Board is divided into three classes of directors serving staggered three-year terms. As a result, approximately one-third of the Board will be elected each year. These provisions, together with provisions of our articles of incorporation and by-laws, allow the Board to fill vacancies or increase its size, and may deter or hinder a shareholder from removing incumbent directors and filling such vacancies with its own nominees in order to gain control of the Board.
During fiscal 2002, the following directors resigned for personal reasons: General Charles A. Horner (Class I director), David Shpilberg (Class III director), Alan Greenberg (Class III director) and Miguel Cauvi (Class II director).
The remaining Class I director is Jonathan Geller whose term expires at the 2003 annual meeting of our shareholders. Mr. Lekach currently serves as a Class II director whose term expires at the 2004 annual meeting of shareholders. Mr. de Miguel and Mr. Glenn serve as Class III directors whose terms expire at the 2005 annual meeting of shareholders.
BOARD COMMITTEES
The audit committee of our Board consists of Messrs. Glenn and Geller. The audit committee reviews our financial statements and accounting practices, makes recommendations to the Board regarding the selection of independent auditors and reviews the results and scope of the audit and other services provided by our independent auditors. The Company believes Mr. Glenn's experience qualifies him as a financial expert.
We do not have a compensation committee. Our Board currently performs all functions of the compensation committee.
DIRECTOR COMPENSATION
Our independent directors receive options to purchase 5,000 Common Shares per year for their services as directors, and are reimbursed for their reasonable expenses for attending our Board and Board committee meetings. Directors' compensation is paid at the end of each year. The exercise price of the options which form part of the compensation paid to directors will be based on the market value at the time the options are granted.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information with respect to all compensation paid or earned for services rendered to the Company in 2002, 2001 and 2000 by our interim Chief Executive Officer and our three other most highly compensated executive officers whose aggregate annual compensation exceeded $100,000 and who were executive officers of the Company at December 31, 2002 (all of the individuals named in the following table are collectively defined as the "Named Executive Officers"). We do not have a pension plan or a long-term incentive plan, have not issued any restricted stock awards and have not granted any stock appreciation rights as of this date. We have granted stock options. See "Option Grants and Holdings" and "Employee Benefit Plan." The value of all other annual compensation (perquisites and other personal benefits) received by each Named Executive Officer in each respective year did not exceed the lesser of $50,000 or 10% of the Named Executive Officer's total annual salary and bonus reported for such Named Executive Officer.
SUMMARY COMPENSATION TABLE
(1) See "Option Grants and Holdings" below for a description of such executive officers' options. (2) Mr. Morgan resigned as Chief Financial Officer and director on February 3,2003. (3) Mr. Geller resigned as Chief Technology Officer on January 15, 2003.
OPTION GRANTS AND HOLDINGS
No stock options were granted during fiscal 2002.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE.
The following table provides certain summary information concerning stock options held as of December 31, 2002 by our three most highly compensated executive officers. No options have been exercised as of December 31, 2002 by any of the officers. The value of unexercised in-the-money options at December 31, 2002 is based on the value of the Common Shares on December 31, 2002
(1) Mr. Morgan resigned as Chief Financial Officer and director on February 3,2003. (2) Mr. Geller resigned as Chief Technology Officer on January 15,2003.
EMPLOYEE BENEFIT PLANS
Stock Option Plan
In November 2001, the shareholders approved an amendment to the Option Plan, to (1) increase the number of shares reserved for issuance under the Option Plan from 2,442,857 shares of Common Stock to 4,442,857 shares of Common Stock and (2) effect various additional modifications to the Option Plan, including (a) the removal in its entirety of Section 13 of the Option Plan, entitled "Redemption of Shares by the Company," (b) the removal in its entirety of Section 18 of the Option Plan, entitled "Information for Optionees," (c) the addition to Section 17 of the Option Plan, entitled "Amendment and Termination of the Plan" of a fixed date of termination for the Option Plan, (d) the replacement of language in Section 3 of the Option Plan, entitled "Number of Shares Available For Options," to change the current pool of stock available for issuance as options under the Option Plan from fifteen percent (15%) of the issued and outstanding shares to 4,442,857 shares, and (e) approval and adoption of the Nimbus Group, Inc. 2001 Amended and Restated Stock Option Plan (the "Amended Option Plan"). Shares covered by any option granted under the Option Plan, which expires unexercised, become available again for grant under the Amended Option Plan. As of December 31, 2002, options to purchase 2,004,550 Common Shares were outstanding with a weighted average exercise price of $2.67 per share, and 2,438,307 shares were available for future grants.
Simple IRA Plan
In February 2003, the Company cancelled its SIMPLE IRA Plan. We sponsored the Nimbus Group, Inc. SIMPLE IRA Plan, a defined contribution plan provided pursuant to the requirements of the Internal Revenue Code of 1986, as amended. All employees were eligible to participate in the SIMPLE IRA Plan as of the first day of any month. Participants made pre-tax contributions to the SIMPLE IRA Plan subject to a statutorily prescribed annual limit. We made matching contributions, not exceeding 3% of a participant's annual compensation, to the SIMPLE IRA Plan. Each participant was fully vested in their account, including the participants' contributions, our matching contribution and the investment earnings thereon. Contributions by the participants or by us to the SIMPLE IRA Plan, and the income earned on such contributions, are generally not taxable to the participants until withdrawn. Contributions by us are generally deductible by us when made. The participant's and our contributions are held in an IRA. We will make a matching contribution to the SIMPLE IRA Plan for Fiscal 2002 of approximately $28,000.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 607.0850 of the Florida Business Corporation Act ("FBCA") permits, in general, a Florida corporation to indemnify any person who was or is a party to any action or proceeding by reason of the fact that he or she was a director or officer of the corporation, or served another entity in any capacity at the request of the corporation, against liability incurred in connection with such proceeding including the estimated expenses of litigating the proceeding to conclusion and the expenses actually and reasonably incurred in connection with the defense or settlement of such proceeding, including any appeal thereof, if such person acted in good faith for a purpose he or she reasonably believed to be in, or not opposed to, the best interest of the corporation and, in criminal actions or proceedings, additionally had no reasonable cause to believe that his or her conduct was unlawful. Section 607.0850(6) of the FBCA permits the corporation to pay such costs or expenses in advance of a final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay such amount as and to the extent required by statute. Section 607.0850 of the FBCA provides that the indemnification and advancement of expense provisions contained in the FBCA shall not be deemed exclusive of any rights to which a director or officer seeking indemnification or advancement of expenses may be entitled.
Our articles of incorporation provide, in general, that we shall indemnify, to the fullest extent permitted by Section 607.0850 of the FBCA, any and all persons whom it shall have the power to indemnify under that section from and against any and all of the expenses, liabilities or other matters referred to in or covered by said section. Our articles of incorporation also provide that the indemnification provided for therein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any by-law, agreement, vote of shareholders or disinterested directors or otherwise, both as to actions taken in his or her official capacity and as to acts in another capacity while holding such office.
In accordance with that provision of our articles of incorporation, we shall indemnify any officer or director (including officers and directors serving another corporation, partnership, joint venture, trust, or other enterprise in any capacity at our request) made, or threatened to be made, a party to an action or proceeding (whether civil, criminal, administrative or investigative) by reason of the fact that he or she was serving in any of those capacities against judgments, fines, amounts paid in settlement and reasonable expenses (including attorney's fees) incurred as a result of such action or proceeding. Indemnification would not be available if a judgment or other final adjudication adverse to such director or officer establishes that (i) his or her acts were committed in bad faith or were the result of active and deliberate dishonesty or (ii) he or she personally gained in fact a financial profit or other advantage to which he or she was not legally entitled.
We entered into indemnification agreements with each of our current directors and officers to give these directors and officers additional contractual assurances regarding the scope of the indemnification set forth in our articles of incorporation and bylaws and to provide additional procedural protections. At present, there is no pending litigation or proceeding involving a director, officer or employee of Nimbus Group regarding which indemnification is sought, nor are we aware of any threatened litigation that may result in claims for indemnification.
We do not maintain directors' and officers' liability insurance.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information known to us with respect to the beneficial ownership of our Common Shares as of December 31, 2002 by (i) each shareholder known by us to be the beneficial owner of more than 5% of our Common Shares, (ii) each director of Nimbus Group and (iii) all executive officers and directors as a group. The information in the following table assumes (i) a 1,000-for-one stock split of our outstanding Common Shares effected on August 26, 1999 (ii) a subsequent 2.326530644-for-one stock split of our outstanding Common Shares effected on November 3, 1999 and (iii) a subsequent 1-for-3 reverse stock split of our outstanding Common Shares effective on May 4, 2000.
(*) Represents beneficial ownership of less than 1%.
(1) Unless otherwise noted, the address of each shareholder is our address, which is 5555 Anglers Avenue, Suite 16, Fort Lauderdale, Florida 33312.
(2) Percentage of ownership is based on 7,438,889 shares outstanding as of December 31, 2002. Common Shares subject to options currently exercisable or exercisable within 60 days of December 31, 2002 are deemed outstanding for the purpose of computing the percentage ownership of the person holding such options, but are not deemed outstanding for computing the percentage ownership of any other person. Unless otherwise indicated below, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable.
(3) Options to purchase a total of 45,000 shares granted to Dr. Groisman on August 25, 1999 and May 4, 2000, one third of which vest on the first, second and third anniversary of the date of grant. Does not include nonexercisable options of 10,000 shares.
(4) Total options to purchase 375,000 and 375,000 Common Shares, granted to Messrs. Morgan and Geller as of December 31, 2002. All of the options issued to Messrs. Morgan and Geller are currently exercisable. Mr. Morgan resigned as Chief Financial Officer and director on February 3,2003. Mr. Geller resigned as Chief Technology Officer on January 15,2003.
(5) Options to purchase 270,000 Common Shares, granted to Mr. Lekach on January 31, 2000 (90,000 shares) and May 4, 2000 (180,000 shares), one third of which vests on the first, second and third
anniversary of the date of grant. Also includes options to purchase 700,000 Common Shares, granted to Mr. Lekach during 2001 (200,000 shares on September 1, 2001 and 500,000 shares on November 21, 2001), vesting immediately. Does not include nonexercisable options to purchase 90,000 shares.
(6) E Com Ventures, Inc.'s address is 11701 N.W. 101st Road, Miami, Florida 33178.
(7) Ilia Lekach, our Chairman of the Board, owns 100 percent of the issued and outstanding shares of common stock of Pacific Investments. On April 17, 2001, Pacific Investments sold 250,000 shares to ECMV at a sales price of $1.01 per share. During February 2002, Pacific Investments sold 300,000 shares to ECMV at a sales price of $1.19 per share.
(8) Options to purchase a total of 100,000 shares granted to Mr. Hewitt, on November 21, 2001, vesting in equal amounts over a three-year period, beginning on the date of grant. Does not include nonexercisable options to purchase 66,667 shares.
The following table summarizes information about stock options outstanding at December 31, 2002:
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since our inception in June 1999, there has not been nor is there currently proposed any transaction or series of similar transactions to which we were or are to be a party in which the amount involved exceeds $60,000 and in which any director, executive officer or holder of more than 5% of our Common Shares had or will have a direct or indirect interest other than (i) compensation arrangements, which are described where required under "Management" and (ii) the transactions described below.
E COM VENTURES, INC. ADVANCES
We received an advance of $1 million on December 21, 1999 from ECMV and an additional advance of $1 million on March 9, 2000. The chairman of the board of ECMV is also the chairman of our Board. These advances were structured into two separate two-year convertible note agreements during May 2000, bearing interest at six percent (6%) per annum. ECMV had the right to convert all, but not less than all, of the principal amount into shares of our common stock at the conversion price equal to $7.20 per share. In addition, we granted a total of 200,000 warrants to ECMV at $7.20 per share. These warrants expired on June 12, 2001.
PERFUMANIA.COM AGREEMENTS
On October 1, 2000, we entered into a six-month service agreement with Perfumania.com, Inc., a subsidiary of ECMV, to outsource our warehouse and distribution functions. This agreement automatically renews for successive one-year terms. This service agreement includes order processing, inventory management, warehousing, fulfillment and shipping of product. This agreement is variable, based on volume of sales; however, the agreement includes monthly minimum fees if such volume levels are not obtained. Total fees incurred during the years ended 2001 and 2000, including outbound shipping charges, were approximately $647,000 and $173,000, respectively, and approximately $647,000 and $131,000 was accrued in the accompanying condensed balance sheets as of December 31, 2001 and December 31, 2000, respectively. Effective September 1, 2001, this service agreement was terminated.
Effective September 1, 2001, the Company entered into a licensing agreement with Perfumania.com to license its retail fragrance Web site. Under the terms of the agreement, the Company pays royalties to Perfumania.com of 5% of defined product sales for sales up to $8 million per annum, decreasing to 3% on sales exceeding $11 million per annum. Royalty expense under this agreement for the years ended December 31, 2002 and 2001 were approximately $277,000 and $75,000, respectively.
As of December 31, 2002, we owed Perfumania.com approximately $2.1 million relating primarily to inventory purchased from the License Agreement. On January 28, 2003, we received a letter from E Com Ventures, Inc. ("ECMV"), the parent of Perfumania.com, indicating we were in default of our Website Operations Services Agreement (the "Agreement") for non-payment of amounts due of approximately $1.9 million to Perfumania.com in connection with the Agreement. To settle the breach of contract claim, we agreed to terminate the Agreement in exchange for a release of the outstanding obligations owed to Perfumania.com. On February 28, 2003, we completed the process of returning the operations of Perfumania.com back to ECMV.
ITEM 14.
ITEM 14. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Within the 90 days prior to the filing date of this report, the Company carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. This evaluation was done under the supervision and with the participation of the Company's Principal Executive Officer and Principal Financial Officer. Based upon that evaluation, they concluded that the Company's disclosure controls and procedures are
effective in gathering, analyzing and disclosing information needed to satisfy the Company's disclosure obligations under the Exchange Act.
CHANGES IN INTERNAL CONTROLS
There were no significant changes in the Company's internal controls or in other factors that could significantly affect those controls since the most recent evaluation of such controls.
PART IV.
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
"Exhibit Schedule"
(a) The following exhibits are filed herewith or incorporated herein by reference:
* Previously filed and incorporated by reference to exhibit in the Company's Registration Statement on Form S-1, as amended (File No. 333-91177), initially filed on November 17, 1999 ("Form S-1"), as set forth after such agreement or document.
** Previously filed and incorporated by reference to exhibit in the Company's Current Report on Form 8-K filed on October 16, 2001.
*** Previously filed and incorporated by reference to exhibit in the Company's Quarterly Report for the Quarterly Period Ended September 30, 2001.
(b) Financial statement schedules:
No financial statement schedules are provided because the information called for is not required or is shown either in the financial statements or the notes thereto.
(c) Reports on Form 8-K:
On November 27, 2002 (amended on December 9, 2002), the Company filed a Current Report on Form 8-K reporting that the company had changed its independent auditors for the fiscal year ending December 31, 2002 from Deloitte & Touche LLP to Berkovits, Lago and Company LLP.
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Nimbus Group
By: /s/ Ilia Lekach -------------------------- Ilia Lekach Chairman of the Board and Interim Chief Executive Officer
April 15, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Annual Report of NIMBUS GROUP, INC. (the "Registrant") on Form 10-K for the year ending December 31, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Annual Report"), I, ILIA LEKACH, Principal Executive Officer of the Registrant, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
1. I have reviewed this Annual Report; 2. Based on my knowledge, this Annual Report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as, and for the periods presented in this Annual Report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, to the extent applicable, is made known to me by others within those entities, particularly during the period in which this Annual Report is being prepared; b) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this Annual Report (the "Evaluation Date"); and c) presented in this Annual Report my conclusions about the effectiveness of the disclosure controls and procedures based on my evaluation as of the Evaluation Date; 5. I have disclosed, based on my most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and 6. I have indicated in this Annual Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of my most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
By: /s/ILIA LEKACH -------------- ILIA LEKACH Principal Executive Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Annual Report of NIMBUS GROUP, INC. (the "Registrant") on Form 10-K for the year ending December 31, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Annual Report"), I, CARLOS DE MIGUEL, Principal Financial Officer of the Registrant, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
3. I have reviewed this Annual Report; 4. Based on my knowledge, this Annual Report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as, and for the periods presented in this Annual Report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, to the extent applicable, is made known to me by others within those entities, particularly during the period in which this Annual Report is being prepared; b) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this Annual Report (the "Evaluation Date"); and c) presented in this Annual Report my conclusions about the effectiveness of the disclosure controls and procedures based on my evaluation as of the Evaluation Date; 5. I have disclosed, based on my most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and 6. I have indicated in this Annual Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of my most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
By: /s/ MITCHELL MORGAN ------------------- MITCHELL MORGAN Principal Financial Officer April 15, 2003