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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report pursuant to Section 13 or 15(d) of the
[X] Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
OR
Transition Report Pursuant to Section 13 or 15(d) of
[ ] the Securities Exchange Act of 1934
COMMISSION FILE NO. 000-15034
NIMBUS GROUP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 65-0924433
(State of Incorporation) (I.R.S. Employer
Identification Number)
5555 ANGLERS AVENUE, SUITE 16
FORT LAUDERDALE, FL 33312
(Address of principal executive offices) (Zip Code)
954-987-0654
(Registrant's telephone number, including area code)
TAKE TO AUCTION.COM, INC.
(Former name, former address and former fiscal year, if changed since last
report)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Common Stock, par value American Stock Exchange
$.001 per share
SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. YES [ ] NO [X]
Aggregate market value of the voting stock held by non-affiliates of
the registrant as of the close of business on March 1, 2002: $11,009,556.
As of March 1, 2002, 7,438,889 of common stock, $.001 par value were
outstanding.
NIMBUS GROUP, INC.
TABLE OF CONTENTS
PAGE
----
PART I.
Item 1. Business......................................................................................... 2
Item 2. Properties.......................................................................................23
Item 3. Legal Proceedings................................................................................23
Item 4. Submission of Matters to a Vote of Security Holders..............................................24
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters............................25
Item 6. Selected Financial Data..........................................................................26
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................................................27
Item 7A. Quantitative and Qualitative Disclosures About Market Risks......................................34
Item 8. Financial Statements and Supplementary Data......................................................35
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure...........................................................................53
PART III.
Item 10. Directors and Executive Officers of the Registrant..............................................53
Item 11. Executive Compensation..........................................................................58
Item 12. Security Ownership of Certain Beneficial Owners and Management..................................61
Item 13. Certain Relationships and Related Transactions..................................................63
PART IV.
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K................................64
1
FORWARD-LOOKING STATEMENTS
This report contains "forward-looking statements" within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements include, among others, statements concerning the Company's outlook
for 2002 and beyond, the Company's expectations, beliefs, future plans and
strategies, anticipated events or trends, and similar expressions concerning
matters that are not historical facts. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements. The
forward-looking statements in this report are subject to risks and uncertainties
that could cause actual results to differ materially from those expressed in or
implied by the forward-looking statements. You should carefully consider the
information set forth under the heading "Risk Factors."
PART I.
ITEM 1. BUSINESS
CURRENT DEVELOPMENTS
On September 26, 2001, Take to Auction.com, Inc. ("TTA"), Nimbus Group Inc.
("Nimbus"), a Florida corporation and a wholly-owned subsidiary of TTA, and TTA
Solutions, Inc. ("TTA Solutions"), a Florida corporation and wholly-owned
subsidiary of Nimbus, entered into an Agreement and Plan of Merger (the "Merger
Agreement") resulting in a reorganization of their corporate structures.
Under the Merger Agreement, TTA and TTA Solutions have effected a statutory
merger (the "Merger") under Section 607.11045 of the Florida Business
Corporations Act. In accordance with the Merger, each outstanding share of TTA
Solutions stock was converted into one share of common stock, par value $.001
per share, of TTA as surviving corporation. By virtue of the Merger each
outstanding share of common stock of TTA has been converted into the right to
receive a share of common stock of Nimbus. Further, each share of Nimbus common
stock outstanding immediately prior to the Merger has been cancelled and
retired. As a result of the Merger, Nimbus has become the parent corporation and
sole shareholder of TTA. On October 10, 2001, we changed our stock ticker symbol
from TTA to NMC on the American Stock Exchange.
Additionally, another wholly-owned subsidiary of Nimbus, Nimbus Jets, Inc.
("Nimbus Jets"), was formed. Nimbus Jets will be engaged in the business of
providing a national private air taxi service.
During October 2001, our board of directors (the "Board") resolved to change our
primary business focus to the development of a private air taxi service. Board
members Hugo Calemczuk, Alan Blaustein and Dr. Horacio Groisman each determined
that he would be limited in his ability to contribute substantially to the
Company's new business efforts and resigned on amicable terms. New Board members
David Shpilberg, John-Gary Hewitt and Alan Greenberg, each of whom will lend
unique and valuable talents during the business transition, were thereafter
appointed to fill the Board vacancies.
Effective October 9, 2001, Albert Friedman, a founder of Take to Auction.com,
Inc., resigned as our President and Chief Executive Officer and was replaced by
Dr. David Shpilberg on an interim basis. While Mr. Friedman will remain
President of Take to Auction.com, Inc., our wholly-owned subsidiary, he
relinquished leadership of Nimbus to make way for management more experienced in
the aviation industry. Dr. Shpilberg resigned as our interim Chief Executive
Officer effective January 1, 2002, after accepting a senior position with Bain &
Company, a leading business consulting firm. Dr. Shpilberg will continue to
serve as a member of our Board. Effective January 1, 2002, Ilia Lekach, our
chairman of the Board, accepted the position of interim Chief Executive Officer
and will be responsible for the development of our air taxi service until a
permanent CEO is found.
On November 21, 2001, the Board and our shareholders approved a plan to raise
approximately $10 million through a private placement of up to 15 million shares
of our common stock for the development of our air
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taxi service. There is no assurance that we will be successful in finding
investors willing to provide the necessary capital on terms that the Board
believes are in our best interest.
During January 2002, our Board adopted a formal plan of disposal 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 2001 and prior years related solely to TTA. We
anticipate that TTA will be disposed of by December 31, 2002.
OVERVIEW- NIMBUS JETS
Nimbus Jets, a start-up air taxi service, will offer a convenient and
cost-effective private jet solution for business travelers and individuals
alike. We intend 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 is a fly on-demand
private air taxi service. Pre-screened Nimbus members will have the convenience
of traveling at the spur of the moment in comfort and safety. Through an
affiliated network of travel agents, limousine companies, air charter companies
and airlines, we will provide travelers with individualized air taxi transport
on-demand from doorstep to destination.
Our private air taxi service will be available on-demand much like calling on a
car service. Without the need for extensive ground facilities and expensive
commercial airport infrastructure, we will be able to operate at significantly
lower costs than most jet charter companies do today. In addition, the heart of
our strategy is the acquisition of an extremely cost-efficient fleet of jet
aircraft developed by Eclipse Aviation Corporation ("Eclipse"). Therefore, these
lower operating costs will enable us to be price-competitive with commercial
airliners with the added advantages of customer-dictated scheduling, privacy
and, most importantly, security.
On December 9, 2001, we entered into an agreement with Eclipse to purchase 1,000
Eclipse 500 aircraft (the "Aircraft") to be delivered over a five-year period
beginning in 2004. The price to be paid for each Aircraft will be $837,500 in
June 2000 dollars and is subject to pricing adjustments of up to five percent
(5%) per year. Prior to this time, Nimbus Jets intends to analyze potential air
charter acquisitions and strategic alliances. Initially, we plan to have our
operations regionalized during the initial rollout of the Aircraft and we will
expand our operations geographically as more Aircraft are delivered. As of March
30, 2002, Nimbus Jets has not yet commenced any operational activities.
NIMBUS JETS BUSINESS STRATEGY
Our strategy is to become a leader in the air taxi service industry. Currently,
commercial air transportation is in a "crisis stage." The U.S. airlines' hub and
spoke system is overloaded, customer complaints are at an all-time high, and
increased airport security is causing excessive delays. Fractional ownership or
jet charter services, traditional alternatives to flying commercial aircraft,
are comparatively expensive.
We believe that we will have certain competitive advantages, including, but not
limited to:
o LOW AIRCRAFT AND OPERATING COST STRUCTURE. We plan to maintain a low
cost structure through: (i) the utilization of the cost-efficient
Aircraft, (ii) the "in-sourcing" of activities such as training and
aircraft and engine repairs and maintenance, and (iii) the use of our
own ground and cargo handling personnel and equipment. We will also
seek to increase profitability and enhance aircraft utilization by
maintaining an efficient aircraft repositioning system.
o STANDARDIZED FLEET. Our uniform aircraft fleet will allow us to
standardize our spare part inventories and maintenance and training
operations, thereby increasing operating efficiencies and improving the
reliability of our services.
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o LIMITED SUPPLY OF THE AIRCRAFT AND ASSET OWNERSHIP. Based on our
agreement with Eclipse to purchase 1,000 Aircraft, we believe that we
have a first mover advantage. We need to capitalize on this advantage
and position ourselves as one of the leaders in the aviation industry.
We believe that the value of the Aircraft is substantially in excess of
its current market price. The Company also expects to make a
substantial commitment of capital and resources to obtain required
governmental authorizations, develop our sales and marketing network
and build the infrastructure necessary to support our services.
o DIVERSITY OF CUSTOMER BASE. Our services will be offered to a diverse
customer base that will include both business professionals as well as
private individuals. Because we will be able to provide our customers
with a cost-effective and flexible air taxi service to fit their
particular needs, management believes that we will be well positioned
to benefit from the expected growth in demand for private jet air
transportation services throughout the Americas.
Today's air charter market is highly fragmented and not very efficient, with
only a few major national operators. The aircraft used by these operators are
primarily comprised of mid-to-large sized corporate jet aircraft with seating
from eight to fourteen passengers, and are typically not marketed for
price-conscious passengers. While there are numerous other smaller and regional
operators of air charter services with a wide range of piston, turboprop, and
small jet aircraft that operate successfully, none has established a viable
national presence or a cost-efficient operating model. Our strategy is to offer
a solution to the current problems facing the commercial aviation industry by
offering an affordable private jet air taxi service to all travelers.
NIMBUS JETS AIR TAXI SERVICE
The small cabin jet aircraft market, along with frequent travelers of
medium-to-large corporations, will constitute Nimbus Jets principal target
market. The majority of these business travelers are likely to begin using
private aircraft just as soon as their businesses find it an affordable
alternative. Today, over 9,500 U.S. companies are using private aircraft on a
regular basis. These companies are paying, on average, five times the price of
the cost we will charge for traveling with Nimbus Jets on our Aircraft. It is
reasonable to assume that as soon as the significantly lower cost Nimbus Jets
becomes an available option, many businesses will allow employees to use our
services. The current U.S. fleet of business jet aircraft ranges in price from
$3 million to over $45 million. Used jet aircraft and turboprops can sometimes
be bought at less than a million dollars, but repairs and maintenance can easily
double the price of the aircraft in a few years. Additionally, the direct
operating cost of the smallest business aircraft is triple that of the Aircraft.
We believe that the introduction of the Aircraft to the market in significant
numbers will change the demand for private jet services significantly.
Nimbus Jets' value proposition is based on relieving the current constraints
facing commercial aviation by taking advantage of the expansive network of
general aviation airports. Currently within the U.S., there are over 5,000
general aviation airports surrounding approximately 600 commercial airports that
support scheduled commercial airlines. Our order of new, technologically
advanced jet aircraft, gives Nimbus Jets a unique position in the market,
enabling us to provide direct on-demand service from most general aviation
airports. Commercial airlines have always been excluded from such airports
because of their dependence on hub-and-spoke architectures, their large
airframes and their need for extensive ground facilities.
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 will be $837,500 in June 2000 dollars and is subject
to pricing adjustments of up to five percent (5%) per year. Prior to this time,
Nimbus Jets intends to analyze potential air charter acquisitions and strategic
alliances.
Under the terms of the Eclipse agreement, we are to make non-escrowed deposits
(the "Deposits") to Eclipse in the amount of 20% of the estimated delivery price
for the first two year delivery commitment of 70 Aircraft, or $11.7 million
($167,500 per Aircraft) by June 30, 2002. Eclipse will not be required to
deliver the Aircraft until the Deposits are received. The subsequent years' 930
4
Aircraft delivery commitment will not become a firm Eclipse delivery commitment
until the full $11.7 million Deposit is received.
These Deposits are refundable upon demand if the Aircraft does not meet any of
the following guarantees:
(i) price in June 2000 economics will be no more than 5% greater than
$837,500;
(ii) maximum cruise speed (at 4,100 lbs, ISA conditions) will be 355
knots (+/- 2.5%);
(iii) stall speed will be 62 knots (+/- 4%);
(iv) range (with four occupants at high-speed cruise, NBAA IFR 100
nautical miles alternate route, pilot 200 lbs, passengers 170 lbs)
will be 1,300 nautical miles (+/- 5%);
(v) useful load will be 2,000 lbs (+/- 2.5%); standard equipment will
include full IFR capability, large EFIS displays for PFD and MFD,
flight management system, 3-axis auto pilot, color weather radar,
dual VHF com, dual VHF nav, dual localizer and glide slope, dual
mode S transponder, dual GPS, IFR enroute and approach certified,
dual AHRS with air data computer, dual pitot static system,
certified for known icing, air conditioning, five seats, standard
interior, and standard paint scheme; and
(vi) the date of receipt of the type certificate for the Aircraft will be
no later than June 30, 2004.
Six months prior to each Aircraft delivery, the Deposit will increase to 60% of
the projected final delivery price and the final 40% of the delivery price is
due upon the Aircraft delivery.
On February 8, 2002, we entered into a non-binding agreement with DAFIN Asset
Finance Limited to provide the financing for the Aircraft. Terms of the
agreement call for the financing of each Aircraft over a 10-year period, at a
maximum interest rate of LIBOR plus four percent (4%), secured by the Aircraft.
COMPETITIVE STRATEGY
DEVELOP NETWORK OF AFFILIATES THROUGHOUT THE AMERICAS
Nimbus Jets plans to establish itself as America's premier jet air taxi business
by continuously developing its network across the Americas. Nimbus Jets will
achieve this by delivering Aircraft to its subsidiaries and affiliates in
various countries in the Americas. Initially, we plan to have our operations
regionalized during the initial rollout of the Aircraft and we will expand our
operations geographically as more Aircraft are delivered.
SUPPLEMENTING OUR FLEET
In addition to our premier fleet of the Aircraft, we may supplement our fleet
with other types of business aircraft, including longer range and larger cabin
aircraft, to consistently deliver travel solutions to meet a wide range of
customer needs.
MINIMIZE REPOSITIONING COSTS
Given that one of our crucial operational objectives is to minimize the
repositioning of our Aircraft, we will design reservation and scheduling systems
to accommodate other cost effective traveling models designed to deliver
frequent "special fare" flights in select cities at significantly reduced
prices. These special repositioning fares will help cover the cost of the
repositioning of Aircraft, if and when it becomes necessary to reposition. We
believe that this will reduce non-revenue generating flight hours well below the
industry average, while at the same time increasing brand awareness with those
travelers who wish to enjoy Nimbus Jets' time-efficient, safe and hassle-free
alternative to commercial air travel at unrestricted coach level fares.
5
THE ECLIPSE 500 AIRCRAFT
The Eclipse 500 Aircraft is a six-seat, twin-turbofan jet aircraft, constructed
principally of aircraft aluminum. The Aircraft will be delivered with full IFR
capabilities, including auto flight systems. The Aircraft will be more
economical to operate than most of today's single, multi-piston and turboprops.
The direct operating cost of the Aircraft is estimated to be approximately $0.56
per mile. The Aircraft will have a cruising speed of 400 mph, a range of 1,300
nautical miles (NBAA IFR, 4 occupants), a useful load of 2,700 pounds and a
41,000 foot ceiling.
The Aircraft is powered by the super-compact and super-efficient EJ22 engine.
The engine weighs only 85 pounds and is capable of delivering over 770 pounds of
thrust, thus, providing a higher thrust-to-weight ratio than any commercial
turbofan engine ever produced.
MARKETING STRATEGY
Nimbus Jets intends to develop a `power brand' by aggressively increasing brand
awareness with the help of its strategic partners, while at the same time
delivering quality service, safety, comfort and privacy.
Nimbus Jets will concentrate on three key organizational elements in building
its brand name:
o BUILDING OUR BRAND. Nimbus Jets will build its brand by offering
quality and consistent service, convenience and value to our
members. All marketing, promotional activities and the selection of
its strategic partners / retailers will focus on the reinforcement
of this key element.
o IMPLEMENTING APPROPRIATE METRICS. Nimbus Jets will frequently
measure the size and growth of its air taxi business, its market
share and its progress in building its desired image.
o CONTINUOUSLY EMPHASIZE SUPPORTING CAPABILITIES. We will be committed
to developing our infrastructure to effectively manage the growth of
our business.
COMPETITION
Today's air charter market is highly fragmented and not very efficient, with
only a few major national operators. The aircraft used by these operators are
primarily comprised of mid-to-large sized corporate jet aircraft with seating
for eight to fourteen passengers, and are typically not marketed for
price-conscious passengers. While there are numerous other smaller regional
operators of air charter services with a wide range of piston, turboprop, and
small jet aircraft that operate successfully, none has established a viable
national presence or a cost-efficient operating model.
We could face competition from existing air charter services that may provide
the Nimbus Jets concept in the future. While barriers to entry are relatively
high due to the limited number of certified low-cost aircraft currently
available and the high initial capital costs involved, it would not be too
costly for an existing airline to modify its format to provide a Nimbus
Jets-style service, assuming it could secure a cost-efficient aircraft. There
are several aircrafts competing directly with the Aircraft, including both
turboprop-powered aircraft and turbofan-powered aircraft, some of which exist
today and others of which are in various stages of development. If any of these
competing aircrafts are able to come to market at operating costs comparable
with the Aircraft, other companies would be able to directly compete against us
and our business could be materially and adversely affected.
In addition, many of the major airline companies, if they were to compete with
us in the future, have longer operating histories, larger user bases, longer
relationships with consumers, greater brand or name recognition and
significantly greater financial, technical and marketing resources than we do.
Competitive pressures created by any one of these companies, or by new entries
using the Nimbus Jets concept, could harm our business, financial condition and
results of operations.
6
PRIVACY POLICY
We believe that issues relating to privacy and use of personal information are
becoming increasingly important. We have adopted a detailed privacy policy that
outlines how we plan to use customer information and the extent to which other
registered customers may have access to this information. Customers must
acknowledge and agree to this policy when registering for our service. We shall
not sell or rent any personally identifiable information about our users to any
third party. We plan to use information about our customers for internal
purposes only in order to improve our marketing and promotional efforts and to
statistically analyze travel related data.
GOVERNMENT REGULATIONS
GENERAL. We will be subject to regulation under U.S. laws and the laws of the
various countries to which we will fly our aircraft.
DOMESTIC REGULATION. We will be subject to the jurisdiction of the Federal
Aviation Administration (FAA) with respect to aircraft maintenance and
operations, including flight operations, equipment, aircraft noise, ground
facilities, dispatch, communications, training, weather observation, flight
time, crew qualifications, aircraft registration, and other matters affecting
air safety. We will need to secure either an air carrier or operating
certificate from the FAA. The FAA has the authority to suspend temporarily or
revoke permanently our authority or our licensed personnel for failure to comply
with regulations promulgated by the FAA and to assess substantial civil
penalties for such failure. Our aircraft, flight personnel and flight and
emergency procedures will be subject to periodic inspections and tests by the
FAA. The FAA also conducts safety audits and has the power to impose fines and
other sanctions for violations of airline safety regulations. Substantial
monetary penalties, as well as possible criminal penalties, can be imposed on
air carriers for infractions of these regulations.
The Department of Transportation (DOT) maintains economic authority over
domestic and international aviation and has jurisdiction over international
routes. In order to engage in an air transportation business, we will be
required to maintain a Certificate of Public Convenience and Necessity ("CPCN").
Prior to issuing a CPCN, the DOT will examine our managerial competence,
financial resources and plans and compliance disposition in order to determine
whether we are fit, willing and able to engage in the proposed transportation
services. Among other things, a company holding a CPCN must qualify as a United
States citizen, which requires that it be organized under the laws of the United
States or a State, territory or possession thereof; have its chief executive
officer and at least two-thirds of its Board of Directors and other managing
officers be United States citizens; have no more than 25% of its voting stock be
owned or controlled, directly or indirectly, by foreign nationals; and not
otherwise be subject to foreign control. A CPCN confers no proprietary rights on
the holder and DOT may impose conditions or restrictions on any such CPCN. We
currently do not have a CPCN, however, we plan to file for a CPCN in the near
future.
Several aspects of airline operations are subject to regulation or oversight by
federal agencies other than the FAA or the DOT. For instance, labor relations in
the air transportation industry are generally regulated under the Railway Labor
Act, which vests in the National Mediation Board certain regulatory powers with
respect to disputes between airlines and labor unions arising under collective
bargaining agreements. In addition, we are subject to the jurisdiction of the
Federal Communications Commission (FCC) regarding our use of radio facilities
pursuant to the Federal Communications Act of 1934, as amended; the Immigration
and Naturalization Service regarding the citizenship of our employees; the
Environmental Protection Agency regarding compliance with standards for aircraft
exhaust and noise emissions; and the Department of Labor regarding our
employees.
FOREIGN REGULATION. To the extent required to do so, we will obtain authority to
conduct foreign operations from applicable aeronautical and other governmental
authorities. As with the certificates and licenses obtained from U.S.
authorities, we must comply with all applicable rules and regulations imposed by
foreign governmental authorities or will be subject to the suspension, amendment
or modification of our operating authorities.
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OVERVIEW- TAKE TO AUCTION
During January 2002, our Board adopted a formal plan of disposal 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 2001 and prior years related solely to TTA. We
anticipate that TTA will be disposed of by December 31, 2002.
Today, all of our revenues are generated by our wholly-owned subsidiary, Take to
Auction.com, Inc. TTA commenced operations on the World Wide Web during July
1999. During its operating history, TTA has evolved from being solely a
membership community, whereby its members would list and profit from selling
merchandise at online auction sites, to selling items directly in multiple
distribution channels. These selling channels consist primarily of online
auction sites (TTA Auctions), our retail Web site (TTA Direct), a retail Web
site we operate (Perfumania.com) and our users' virtual storefronts (TTA
Superstores) (collectively the "TTA Network"). The TTA Network utilizes a common
infrastructure, including our inventory selection, order processing, payment
processing, customer service and fulfillment of the products.
TTA Auctions lists and sells merchandise at online auction sites. Currently, we
sell at eBay, Yahoo! Auctions and uBid. 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, Yahoo!
and uBid are registered service marks of eBay, Inc, Yahoo!, Inc. and uBid, Inc.,
respectively.
TTA also operates TTA Direct, our retail storefront, which sells products to the
general public, and the Perfumania.com retail storefront, which offers over
2,000 fragrance and fragrance related products, including bath and aromatherapy
products.
TTA Superstores is 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 eliminates the traditional
barriers faced by individuals and small Web sites. TTA handles order processing,
payment processing, customer service and fulfillment on behalf of our TTA
Superstore users. Our users profit from the difference between the selling price
and the price we charge them for the item that sold.
TTA's revenues are derived from membership fees paid by our users for TTA
Auctions, set-up fees paid by users to open their own virtual storefront through
TTA Superstores, sales of product at auction and through user's storefronts,
sales of product through Perfumania.com and TTA Direct and shipping and handling
fees.
TTA AUCTIONS
Through TTA Auctions, we capitalize 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 have the ability to list thousands of products at
auction at any given time. Based on certain parameters, merchandise is currently
listed at up to three leading online auction sites, including eBay, Yahoo!
Auctions and uBid. Online auction sites enable sellers to reach a larger number
of potential buyers more cost-effectively than traditional person-to-person
trading forums.
Although we do not have any formal agreement with eBay, we are one of their
largest sellers, as indicated by our "Turquoise Shooting Star" rating, eBay's
feedback rating system for positive feedback in excess of 30,000. On August 1,
2001, we signed a nine-month letter of intent with Yahoo! Auctions, in which
Yahoo! Auctions will provide custom online auction functionality for us. Yahoo!
Auctions will also promote our auction listings throughout its Web site. On
November 20, 2001, we entered into a "Preferred Merchant Agreement" with uBid to
list products to be offered at uBid. During the term of this agreement, uBid
will promote TTA Auctions online. Both Yahoo! Auction and uBid offer fee
structures that are more advantageous than those charged by other online
auctions sites.
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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. Presently, we are no longer accepting new
members. Prospective auction members are being placed on a wait list, however,
in the future, we may allow new members to join TTA Auctions. As part of TTA's
new business strategy, we are moving away from a concerted effort to sell items
at online auction sites through our membership base and moving towards selling
more items through the TTA Superstores and our retail outlets (eBay Stores,
Yahoo! Shopping, TTA Direct and Perfumania.com), although we continue to sell
items directly at online auction sites. As of December 31, 2001, we had
approximately 400 memberships remaining, all of which will expire by June 2002.
TTA DIRECT
TTA Direct, launched in December 2000, allows us to sell items directly to the
general public. Private users can access our catalog of inventory directly from
our users' home page and the general public can access it through
www.ttadirect.com or through our Yahoo! store, eBay store or our Amazon
Marketplace. All purchases from TTA Direct utilize the same inventory, customer
service, payment processing and fulfillment as TTA Auctions and TTA Superstores.
We offer our inventory to our auction members and TTA Superstores storeowners at
more favorable terms than at TTA Direct.
PERFUMANIA.COM
Effective September 1, 2001, we entered into a licensing agreement with
Perfumania.com, a subsidiary of E Com Ventures, Inc. ("ECMV"), to operate the
Perfumania.com retail storefront. This site offers over 2,000 fragrance and
fragrance-related products, including bath and aromatherapy products. Under the
terms of the agreement, we pay 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 are 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 may also be
offered through TTA Direct and TTA Superstores. In addition, we rent
approximately 20,000 square feet of warehouse facilities from Perfumania.com for
approximately $15,000 per month. Ilia Lekach, our chairman and interim CEO, is
also the chairman of ECMV.
On October 1, 2000, the Company entered into a six-month service agreement with
Perfumania.com, Inc. to outsource our warehouse and distribution functions. 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. This service agreement was terminated on September 1,
2001.
TTA SUPERSTORES
TTA launched TTA Superstores during April 2001 to permit individuals to create a
fully stocked, personally branded, online store. We utilize the same resources
and inventory that operate TTA Auctions and TTA Direct. Our solution seeks to
eliminate the traditional barriers faced by individuals and small Web sites,
including hosting, transaction processing, customer service, order fulfillment
and merchandising. Our storeowners can open, market, and profit 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 technology 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
takes care of all these details.
We allow prospective storeowners to create their storefront free of charge.
Prospective storeowners can select a "look-and-feel" of their storefront and the
prices they wish to charge for the products (owners cannot select a price below
9
our cost to them). The owners can select any category or any number of
categories of merchandise that we offer in our TTA warehouse. We charge the
prospective storeowner a $100 set-up fee and we handle the rest. All orders
received by a TTA Superstore are processed by TTA. We complete the payment
processing and the fulfillment of the item on our storeowner's behalf. The
storeowner profits from the difference between the amount of the sale in their
store and the amount we ultimately charge them upon a completed sale. As of
December 31, 2001, we had approximately 1,700 virtual storefronts.
TTA BUSINESS STRATEGY
TTA's business strategy is to offer value pricing to our customers through our
vendor relationships and the efficient management of our dynamic inventory. We
also strive to create an enjoyable shopping experience through our professional
customer service, brand recognition, Web site convenience and accessibility,
quality of our search tools and reliable and expedited product delivery. Each
unit of inventory in our system is prominently displayed throughout the TTA
Network in approximately 2,000 marketable areas, including TTA Auctions, TTA
Direct and TTA Superstores. As we sell out of an individual item, it is removed
from the TTA Network at that time.
Customer service is fundamental to our business strategy. We want to create a
positive buying experience every time a customer purchases an item through one
of our distribution channels. We believe that our discounted pricing, along with
our customer service, will build customer loyalty and position TTA as a leader
in the online wholesale and retails markets.
TTA MARKETING AND ADVERTISING
To promote the TTA brand and to encourage brand loyalty and repeat business, we
currently employ "word-of-mouth" marketing, direct e-mail campaigns to our
registered users and customers, pay-for-performance banners through affiliated
programs, and keyword placement on popular search engines. This traffic is
"pay-for-performance," meaning that the search engines are only paid upon a
successful referral to our Web site. We feel that this traffic is very targeted
and converts into buyers of our merchandise. In addition, we also have banners
and links on our listings at the online auction sites. We believe that these
links will provide additional traffic to our Web site. Through TTA Superstores,
we believe that word-of-mouth referrals are effective in lending credibility to
our service and brand name by demonstrating to potential users that other
individuals have successfully used our service. In addition to word-of-mouth
marketing, our e-mail campaigns reinforce the success and appeal of our Web
sites and our concept to our current users.
TTA CUSTOMER SUPPORT
Customer support is offered by telephone and an e-mail address which are
monitored by our staff from 9:00 a.m. to 6:00 p.m., Monday through Friday,
Eastern Standard Time. Most customer support inquiries are handled via e-mail,
with customer inquiries typically being answered within one business day after
submission.
TTA OPERATIONS AND TECHNOLOGY
Many of our systems such as our advanced Warehouse Management System, Returns
Processing System, TTA Superstores System, TTA Direct Web site, Take To Auction
System and our Intranet are based on internally developed software. Our
enterprise systems use an N-tier architecture structure. Our proprietary
software is developed with the latest technology and we are scheduled to launch
our next generation e-commerce platform during April 2002, which uses
Microsoft's(TM) new .NET framework. We also have licensed third party products
for our Database requirementS, Operating Systems, Accounting Systems, Customer
Relationship Management Systems, Web Servers, and all other systems. All data is
regularly archived to a data warehouse, according to a strict Backup Policy.
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Our system has been designed around industry standard architectures and has been
designed to reduce downtime in the event of outages or catastrophic occurrences.
Our service is designed to be available 24 hours a day, seven days a week. Our
primary servers are now hosted in our Ft. Lauderdale office, which has been
prepped adequately for the task with multiple connections to the Internet, UPS
systems, an independent air-conditioner unit and an independent generator.
Although we do run some Linux(TM) servers, most of our technology is Microsoft
based. Our wEB sites are hosted on several clusters of dual and quad Pentium III
Xeon-based Microsoft Internet servers running Windows 2000 operating system. Our
Internet servers also utilize VeriSign, Inc. SSL digital certificates for
authentication. We have a load balancing Web system with redundant servers to
provide for fault tolerance. Dell(TM) currently provides most of our hardware
and we mainly use series 2400, 6300 and 6400 servers.
TTA MERCHANDISING
The items of merchandise posted throughout the TTA Network are purchased by us
from manufacturers and wholesalers on the open market, therefore, we do not
commit to purchase from a small group of manufacturers or wholesalers, but
rather make our purchasing decisions solely based on the best prices offered for
quality merchandise. Because the types of products listed throughout the TTA
Network are generally available from a large number of wholesalers and
manufacturers, we attempt to leverage our management's purchasing expertise to
obtain better prices for these products by purchasing them in the open market.
TTA COMPETITION
We believe that the principal competitive factors in the online market are brand
recognition, volume and selection of goods, customer service, reliability of
delivery of products, Web site convenience and accessibility, price, quality of
search tools and system reliability. Many of our potential competitors have
longer operating histories, larger customer bases, greater brand recognition and
significantly greater financial, marketing, technical and other resources. In
addition, other online merchants may be acquired by, receive investments from or
enter into other commercial relationships with larger, well-established and
well-financed companies as the use of Internet and other online services.
Therefore, certain of our potential competitors may be able to devote greater
resources to marketing and promotional campaigns, adopt more aggressive pricing
policies or may try to attract traffic by offering services for free and devote
substantially more resources to Web site and systems development than us.
Increased competition may result in reduced operating margins, loss of market
share and diminished value in our brand. We may be unable to compete
successfully against future competitors. Further, as a strategic response to
changes in the competitive environment, we may, from time to time, make certain
pricing, service or marketing decisions or acquisitions that could harm our
business, financial condition and results of operations.
TTA INTELLECTUAL PROPERTY
We regard the protection of our copyrights, service marks, trademarks, trade
dress and trade secrets as critical to our future success and rely on a
combination of copyright, trademark, service mark and trade secret laws and
contractual restrictions to establish and protect our proprietary rights in
products and services. We have also entered into confidentiality and invention
assignment agreements with our employees and contractors, and nondisclosure
agreements with strategic partners to limit access to and disclosure of our
proprietary information. These contractual arrangements or the other steps taken
by us to protect our intellectual property may be insufficient to prevent
misappropriation of our technology or to deter independent third-party
development of similar technologies. We are actively pursuing the registration
of our trademarks and service marks in the United States. We have applied for a
U.S. patent registration of our proprietary system for taking merchandise to
online auction sites. This patent may not be issued to us or, if issued, may not
provide us with all of the protections that we have sought. We have also applied
for the registration of the service marks "Take2Auction" and "TakeToAuction.com"
(Design). Effective trademark, service mark, copyright and trade secret
protection may not be available in every country in which our services are made
available online. We may license in the future certain of our proprietary
rights, such as trademarks or copyrighted material, to third parties. We also
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rely on certain technologies that we license from third parties, such as
Microsoft, the suppliers of key database technology, the operating system and
specific hardware components for the Take to Auction service.
TTA GOVERNMENT REGULATION
Government regulation of communications and commerce on the Internet varies
greatly from country to country. Some countries, such as the United States, have
not adopted many laws and regulations to specifically regulate online
communications and commerce. Due to the increasing popularity and use of the
Internet and other online services, however, it is possible that a number of
laws and regulations may be adopted with respect to the Internet or other online
services covering issues such as user privacy, freedom of expression, pricing,
content and quality of products and services, taxation, advertising,
intellectual property rights, enforceability of contracts, and information
security. In fact, the regulation of online data pricing has become a
significant focus of the U.S. Congress recently and numerous bills affecting the
use of data gathered online are pending including the Consumer Internet Privacy
Enhancement Act (H.R 237), the Online Privacy Protection Act of 2001 (H.R. 89),
the Social Security Online Privacy Protection Act (H.R. 91) and the Electronic
Privacy Protection Act (H.R. 112). Because our services are accessible
worldwide, and we facilitate sales of goods to users worldwide, any jurisdiction
in which our services can be accessed or are used may seek to impose its laws on
us and to enforce those laws in proceedings in those countries, where we could
be forced to defend ourselves. For example, a country may seek to extend the
extra-territorial application of its data protection laws and regulations to our
business. Such extra-territorial impact was recently demonstrated by proceedings
in France against Yahoo! arising from Yahoo!'s offering for sale of various
types of Nazi-memorabilia which is unlawful in France. As a result, in order to
avoid possible liability for non-compliance, we may be forced to restrict our
membership to exclude residents of such country from becoming a member. In other
instances, we may be required to construct costly additions to our Web site in
order to comply with local laws on data privacy, advertising and on-line
contracting. This might require us to have separate Web pages in the local
languages where laws require that we make disclosures or post on-line agreements
or privacy policies (and similar consumer notification requirements) in the
local language of the member. We may also determine that in order to comply with
local data protection laws, which prohibit the transfer of personally
identifying information of our members outside of a particular country, we may
have to set up and maintain separate databases in such country. We may also have
to customize our software programs to address country-specific requirements for
tracking and documenting transactions, as well as take into account currency
exchange issues.
There have been several attempts to regulate the distribution of 'indecent'
materials to minors over the Internet, including the Communications Decency Act
of 1996, or CDA and the Children's Online Privacy Protection Act, or COPPA.
While large portions of the CDA have been struck down as unconstitutional, COPPA
went into effect on April 21, 2000. Moreover, other laws on this subject have
been and are likely to continue to be proposed and enacted by the legislatures
of the various states. The nature of legislation on this subject and the manner
in which it may be interpreted and enforced cannot be fully determined and,
therefore, such legislation could subject us and/or our customers to potential
liability, which in turn could harm our business, financial condition and
results of operations. The adoption of any such laws or regulations might also
decrease the rate of growth of Internet use, which in turn could decrease the
demand for our service or increase the cost of doing business or in some other
manner harm our business, financial condition and results of operations. In
addition, applicability to the Internet of existing laws governing issues such
as property ownership, copyrights and other intellectual property issues,
taxation, libel, obscenity and personal privacy is uncertain. The vast majority
of such laws were adopted prior to the advent of the Internet and related
technologies and, as a result, do not contemplate or address the unique issues
of the Internet and related technologies.
Some countries have enacted laws or regulations that limit the use of personal
user information gathered online or require online services to establish privacy
policies. The European Union recently enacted its own privacy regulations and in
response, the U.S. negotiated and has since implemented the safe-harbor
agreement with the European Union, which provides participating U.S. businesses
with a relatively simple and inexpensive way to adopt and comply with the
European Union data privacy requirements. Several U.S. states have also proposed
legislation that would impose such limits. The Federal Trade Commission has also
initiated action against several online service providers regarding the manner
in which personal
12
information is collected from users and provided to third parties, including
more recently, how such information may be disposed of in bankruptcy. Changes to
existing laws or the passage of new laws intended to address these issues,
including some recently proposed changes, could create uncertainty in the
marketplace that could reduce demand for our services or increase the cost of
doing business as a result of litigation costs or increased service delivery
costs, or could in some other manner harm our business, financial condition and
results of operations.
In addition, because our services are accessible worldwide and we facilitate
sales of goods to users worldwide, other jurisdictions may claim that we are
required to qualify to do business as a foreign corporation in a particular
state or foreign country. We are qualified to do business in one state in the
United States. Our failure to qualify as a foreign corporation in a jurisdiction
where we are required to do so could subject us to taxes and penalties for the
failure to qualify and could result in our inability to enforce contracts in
such jurisdictions. Any such new legislation or regulation, or the application
of laws or regulations from jurisdictions whose laws do not currently apply to
our business could harm our business, financial condition and results of
operations.
Several telecommunications companies have asked the U.S. Federal Communications
Commission to regulate Internet service providers and online service providers
in a manner similar to long distance telephone carriers and to impose access
fees and universal service obligations on these companies. Imposition of such
fees or obligations could increase the cost of transmitting data over the
Internet, which would reduce Internet usage and harm our business, financial
condition and results of operations.
In addition, numerous states, including California, have regulations regarding
the manner in which auctions may be conducted and the liability of "auctioneers"
in conducting such auctions. We do not believe that such regulations, which were
adopted prior to the advent of the Internet, govern the operations of our
business nor have any claims been filed by any state implying that we are
subject to such legislation. However, a state may attempt to impose these
regulations upon us in the future and this imposition may harm our business,
financial condition and results of operations.
TTA PRIVACY POLICY
We believe that issues relating to privacy and use of personal information
relating to Internet users are becoming increasingly important as the Internet
and its commercial use grow. We have adopted a detailed privacy policy that
outlines how we use information concerning our users and the extent to which
other registered users may have access to this information. Users must
acknowledge and agree to this policy when registering for the TTA Superstore
service. We do not sell or rent any personally identifiable information about
our users to any third party. We use information about our users for internal
purposes only in order to improve our marketing and promotional efforts, to
statistically analyze site usage, and to improve content, product offerings and
site layout.
EMPLOYEES
As of March 1, 2002, we had approximately 45 employees, including our interim
Chief Executive Officer, President, Chief Financial Officer and Chief Technology
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. Please see "Item 10--Employment Arrangements."
OUR CORPORATE HISTORY
Nimbus Group, Inc. (formerly known as Take to Auction.com, Inc.) was
incorporated in Florida in June 1999. Our principal executive offices are
located at 5555 Anglers Avenue, Suite 16, Fort Lauderdale, Florida 33312. Our
telephone number is (954) 987-0654, and our Web site is located at
www.nimbusjets.com. Our wholly owned subsidiary, Take to Auction.com, Inc.,
operates out of the same corporate headquarters as Nimbus. Take to Auction
operates several Web sites, including www.taketoauction.com, www.ttadirect.com,
www.ttasuperstores.com and www.perfumania.com. The information contained on our
Web sites is not incorporated by reference into this filing.
13
RISK FACTORS
During January 2002, our Board adopted a formal plan of disposal of our
wholly-owned subsidiary, Take to Auction.com, Inc., in connection with an
overall strategic program designed to focus our resources on Nimbus Jets and the
development of a national air taxi service. The risk factors below relate
primarily to the business of Nimbus Jets.
LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR BUSINESS MODEL
Nimbus Jets, a wholly-owned subsidiary of Nimbus Group, incorporated in
September 2001. Currently, we are a development stage enterprise with limited
operating activities since the Aircraft that will be used in our air taxi
service will not be manufactured and delivered to us until the beginning of
2004. We are currently without adequate capitalization and without all of the
necessary resources, equipment, financing, work force, certifications, license,
approvals and sales force to operate an air taxi service. An investor in our
common shares, $0.001 par value ("Common Shares") must consider the risks,
uncertainties, expenses and difficulties frequently encountered by companies in
their early stages of development, particularly companies in new and rapidly
evolving markets such as the air taxi service business. 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 and grow our customer base;
o we may not be able to establish and maintain commercial
relationships with our affiliated network of partners including
travel agents, limousine companies, air charter companies and
airlines to grow our service;
o we may not be able to maintain and enhance our brand and implement
and execute our business and marketing strategies;
o Eclipse may not be able to receive FAA certification on the Aircraft
or the Aircraft may not become commercially operational, thus,
delaying our delivery rollout period indefinitely;
o Eclipse may not be able to manufacture the Aircraft in a timely
manner, thus, delaying the delivery rollout period;
o we may not be able to secure adequate financing to fund our growth;
o we may not be able to respond effectively to competitive
developments and a rapidly changing market;
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;
o we may not be able to obtain adequate insurance for public
liability, passenger liability, property damage, war risk and
all-risk coverage for damage to our Aircraft, in amounts which, in
the opinion of management, would be adequate;
o we may not be able to continue to develop and upgrade our technology
and information processing systems; and
o we may not be able to provide a high enough level of superior
customer service to attract and retain business.
Our failure to accomplish any of these objectives would harm our business,
financial condition and results of operations.
14
WE HAVE AN ACCUMULATED DEFICIT AND WE ANTICIPATE THAT OUR LOSSES WILL CONTINUE
We have an accumulated deficit of approximately $10.9 million as of December 31,
2001, resulting primarily from the operations from Take to Auction.com, a
wholly-owned subsidiary of Nimbus Group. During January 2002, our Board adopted
a formal plan of disposal of TTA, in connection with an overall strategic
program designed to focus our resources on Nimbus Jets and the development of a
national air taxi service. Nimbus Jets does not expect to generate revenues
until the first Aircraft is delivered in the beginning of 2004. Therefore, we
have not achieved profitability and expect to incur operating losses for the
foreseeable future. We incurred net losses of approximately $4.1 million for the
year ended December 31, 2001, resulting primarily from the operations of Take to
Auction. We expect to continue to incur significant operating and capital
expenditures and net operating losses arising from initial development costs,
technology developments and implementation of our business strategy. We are in
the process of raising additional funds through the private offering of our
Common Shares. Although we believe that our current business strategy, this
private offering of our Common Shares, and/or the proceeds received from the
sale of TTA will provide us with sufficient operating cash flow through fiscal
2002, 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, that the sale of TTA will be
successfully completed or raise enough proceeds, 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, including:
- price per flight hour
- number of Aircraft in operation
- utilization of such Aircraft
- competition
- seasonal 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, 2001
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.
WE ARE DEPENDENT ON A THIRD PARTY FOR SUPPLY OF THE AIRCRAFT AND ANY SHORTAGES
OR DELAYS COULD HINDER OUR BUSINESS
We currently plan on using the Eclipse 500 Aircraft in our air taxi service
fleet. We are primarily dependent on Eclipse to manufacture the Aircraft in
accordance with our rollout schedule over a five-year period beginning in 2004.
As of March 1, 2002, the Aircraft has not received any regulatory
certifications, however, the Aircraft is scheduled for its first test flight in
June 2002. There can be no assurance that Eclipse will be able to obtain the
necessary regulatory certifications on the Aircraft, become commercially
operational, or manufacture the Aircraft in a timely manner in accordance with
their production schedule.
15
Any shortages in the Aircraft availability could limit our ability to increase
our volume of flights and ultimately could harm our business, financial
condition and results of operations.
Eclipse does not independently have, except by contracting with other parties,
the ability to design, develop or produce key components of the Eclipse 500
(including, without limitation, the EJ22 engine), or the ability to construct
Eclipse 500's for the purpose of seeking regulatory certification. Williams
Aviation is the prime systems integrator for the development and certification
of the Eclipse 500 and the EJ22 engine, in addition to being the manufacturer of
the EJ22 engines. Williams is assisting Eclipse to develop the processes for the
manufacturing of the Eclipse 500. Williams is also assisting Eclipse to
establish a production facility, including the design, manufacturing and
management information systems. Williams, in turn, will be relying, to a
significant extent, on subcontractors and other suppliers to perform a number of
the critical tasks in developing and certifying the Eclipse 500, including
aerodynamic analysis, fabrication of the aircraft for flight testing, aircraft
flight testing and design of the integrated aircraft control system and avionics
package. Williams' ability to develop and certify the EJ22 engine, manufacture
the EJ22 engine, and manage the relationships among Williams and any key
suppliers and subcontractors will be critical to the success of Eclipse. If
Williams is forced to suspend work or if Williams or any of its important
subcontractors or any other supplier of products or services to Eclipse fails to
provide products or services to Eclipse on a timely basis and on contracted for
or other commercially reasonable terms, Eclipse's ability to make the Eclipse
500 commercially available on time and within estimated costs could be
materially and adversely affected, which ultimately could harm our business,
financial condition and results of operations.
WE HAVE LIMITED MARKETING AND MANAGEMENT EXPERIENCE
We currently do not have all of the necessary management and employees to market
and operate our business model. We have no experience operating an air taxi
service. We need to attract and retain experienced personnel to develop our
infrastructure and to comply with the extensive government regulations and
standards. There can be no assurance that we will be able to implement a
national air taxi service successfully, attract and retain experienced personnel
or obtain and maintain the necessary regulatory approvals to commence and/or
continue the development of our air taxi service. In addition, we currently have
limited marketing capabilities and experience and will need to hire additional
sales and marketing personnel. There can be no assurance that we will be able to
recruit, train or retain such qualified personnel to sell and market our
services. Moreover, there can be no assurance that any marketing efforts
undertaken by us will be successful or result in adequate revenues to sustain
continued operations.
SIGNIFICANT DECREASES IN COMMERCIAL AIRLINE FARE PRICES COULD HARM OUR BUSINESS
BY MAKING IT MORE ATTRACTIVE FOR PASSENGERS TO FLY COMMERCIALLY AND FORCE US TO
LOWER PRICES
A significant reduction in the price of commercial airline fares could reduce
demand for our air taxi service by making it economically more attractive to fly
commercially. This could force us to reduce our fares in response to this
reduction in demand or as a means to remain competitive. Our current estimated
fare per hour is approximately $600 per hour.
WE MAY FACE COMPETITION FROM EXISTING COMMERCIAL AIRLINE COMPANIES OR NEW
CHARTER COMPANIES THAT MAY HARM OUR BUSINESS
Today's air charter market is highly fragmented and not very efficient, with
only a few major national players. These operators' aircraft fleets are
primarily comprised of mid to large-sized corporate jet aircraft with seating
for eight to fourteen passengers, and are typically not marketed for short-range
travel or price-conscious passengers. While there are numerous smaller operators
of air charter services with a wide range of piston, turboprop, and small jet
aircraft, none has established a viable national presence or a cost efficient
operating model.
We could face competition from existing air charter services that may provide
the Nimbus Jets concept in the future. While barriers to entry are relatively
high due to the limited number of certified low-cost aircraft currently
16
available and the high initial capital costs involved, it would not be too
costly for an existing airline to modify its format to provide a Nimbus-style
service, assuming it could secure a cost efficient aircraft. There are number of
aircraft competing directly with the Eclipse 500, including both
turboprop-powered aircraft and turbofan-powered aircraft, some of which exist
today and others of which are in various stages of development. If any of these
competing aircrafts are able to come to market at operating costs comparable
with the Eclipse 500, other companies would be able to directly compete against
us and our business could be materially and adversely affected.
In addition, many of the major airline companies, if they were to compete with
us in the future, have longer operating histories, larger user bases, longer
relationships with consumers, greater brand or name recognition and
significantly greater financial, technical and marketing resources than we do.
Competitive pressures created by any one of these companies, or by new entries
using the Nimbus Jets concept, could harm our business, financial condition and
results of operations.
WE EXPECT TO GROW RAPIDLY AND MANAGING OUR GROWTH MAY BE DIFFICULT
Our business plan contemplates rapid growth during our initial five-year period
of operation. This growth is likely to place a significant strain on our
resources and systems and there can be no assurance that we will be able to
manage this growth successfully. Higher operating costs would decrease our
profit margins, though it may be possible to recover any such lost margin
through increases in our hourly rates. We also will be required to expand our
finance, administrative and operating staff. If we are unable to successfully
manage our growth as planned and become subject to higher operating costs and/or
decreased profit margins, we may be materially and adversely affected. For
example, we may not be able to retain and train the necessary pilots to fly our
Aircraft due to the overall decrease in the number of pilots being trained in
the United States Air Force.
OUR SUCCESS IS DEPENDENT ON STRONG EMPLOYEE RELATIONS
Many airline industry employees are represented by labor unions. We believe that
our employees will be subject to union organization efforts from time to time
and we are likely to be subject to future unionization efforts as our operations
expand. The unionization of our workforce could result in higher employee
compensation and working condition demands that could increase our operating
costs or constrain our operating flexibility.
WE WILL BE DEPENDENT ON THIRD PARTY SERVICE PROVIDERS
The availability of service in each region or country will depend upon the
cooperation, operational and marketing efficiency, competitiveness, finances and
regulatory status of our designated service provider in that region or country
and our ability to gain access to the requisite airports. The willingness of
persons to become service providers will depend upon a variety of factors,
including our reimbursement policies for warranty repairs, local regulations and
our competitiveness with other air charter companies. If we are unable to
establish a network of qualified service providers for our service, we may
suffer material adverse consequences.
NIMBUS JETS MAY NOT ACHIEVE BROAD MARKET ACCEPTANCE, WHICH WOULD LIMIT OUR
PROFITABILITY AND GROWTH
Our business model depends upon our ability to leverage and to expand our
membership base and our network of partners. The potential profitability of this
business model is unproven, and to be successful we must, among other things,
market our services effectively. Furthermore, we may be forced by competitive
pressures, industry consolidation or otherwise, to change our business model, in
which case our financial results could be harmed. Our business model may not be
successful and we may not achieve revenue growth or profitability.
To date, Nimbus Jets does not have any operating activities. We cannot give you
any assurance that our air taxi service will be widely accepted by either the
business community or the general population as an
17
alternative to existing methods of transportation. The acceptance of our air
taxi service may be adversely affected by the following:
- the cost of renting the air taxi
- concerns about safety
- the possibility of changes in governmental regulations
Any adverse reactions or other unfavorable publicity involving our passengers or
Aircraft could also adversely affect public acceptance of our air taxi service.
DIFFICULTIES ASSOCIATED WITH OUR BRAND DEVELOPMENT MAY HARM OUR ABILITY TO
ATTRACT MEMBERS
We believe that our growth will depend on the strengthening of our brand, which
is critical to achieving widespread acceptance of Nimbus Jets, particularly in
light of the competitive nature of the air charter industry. Promoting and
positioning our brand will depend largely on the success of our marketing
efforts and our ability to provide high quality services. To promote our brand,
we will need to increase our marketing budget and otherwise increase our
financial commitment to create and maintain brand loyalty among members. Brand
promotion activities may not yield increased revenues and any such revenues may
be offset by the expenses incurred in attempting to build our brand. If we fail
to promote and maintain our brand, or if our future strategic relationships fail
to promote our brand or increase brand recognition, our business, financial
condition and results of operations would be harmed.
WE MAY NOT BE ABLE TO OBTAIN FUEL AT FAVORABLE PRICES OR FUEL MAY NOT BE READILY
AVAILABLE
Fuel is a major expense in the airline industry, and the cost and availability
of aviation fuel are subject to economic and political factors and events that
we can neither control nor accurately predict. Higher fuel prices resulting from
fuel shortages or other factors could adversely affect our profitability if we
are unable to pass on the full amount of fuel price increases to our customers
through fuel surcharges or higher rates. In addition, a shortage of supply could
have a material adverse effect on our industry in general and could harm our
business, financial condition and results of operations.
OUR STOCK PRICE HAS BEEN VOLATILE AND FLUCTUATIONS IN OUR STOCK PRICE MAY RECUR
The market price of our common stock has historically been subject to
substantial price volatility. Such volatility may recur due to overall market
conditions or factors such as:
- our ability to effectively penetrate the market
- new aircrafts and technological changes and advances
- changes in government regulations
- concerns with regard to the safety of the Aircraft
- our ability to meet analysts' projections
- fluctuations in our financial results
In addition, our common stock could experience significant fluctuations in
market price that are unrelated to our operating performance.
18
OUR BUSINESS IS CYCLICAL IN NATURE
We are operating in a historically cyclical industry. The general aviation
industry has been sensitive to general economic conditions and has been
adversely affected by past recessions. Our future results of operations for any
interim period will not necessarily be indicative of those for the entire year,
since the air transportation business is subject to seasonal fluctuations.
Higher demand for air travel has traditionally resulted in more favorable
operating results for the second and third quarters of the year than for the
first and fourth quarters. In addition, we will be subject to fare initiatives,
fluctuations in fuel prices, labor actions and other factors that will most
likely impact this seasonal pattern.
WE NEED TO DEVELOP AND IMPLEMENT SOFTWARE FOR AN OPERATING INFRASTRUCTURE, AND
IF WE ARE UNABLE TO ADEQUATELY ASSESS THE DEMAND FOR OUR SERVICE OUR BUSINESS
WOULD BE HARMED
Before we commence commercial operations we must develop and rely on proprietary
systems, including an integrated aircraft allocation system and business support
system to maximize the utilization of our fleet of Aircraft and evaluate market
demand in any given region. The underutilization of our Aircraft or untimely
reallocation of our Aircraft would significantly reduce our revenues and,
therefore, harm our business, results of operation and financial condition.
There can be no assurance that the software necessary to operate our business
will be completed when required or that such software will function as required.
In addition, a significant delay in the development or implementation of such
software systems, or our inability to develop or implement such systems, would
have a material adverse effect on our business, financial condition and results
of operations.
GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTIES RELATING TO THE AVIATION
INDUSTRY COULD INCREASE OUR COSTS OF OPERATIONS AND OUR LEGAL AND REGULATORY
EXPENDITURES
Our business plan is dependent on the receipt of necessary regulatory
certifications and approvals from authorities in the United States and other
jurisdictions. The FAA prescribes standards and certification and operational
requirements for, among other things, air carrier operators (PART 135). The DOT
governs the economic licensing and certain business practices of air carriers,
including air taxis. Comparable agencies in other countries, such as the
Transport Canada and the Canadian Transportation Agency and the national
aviation authorities in Europe, also regulate these matters within their
respective jurisdictions. If we fail to obtain the required certifications by
the FAA or comparable agency, our service will effectively be precluded in the
United States or other relevant jurisdiction until the required certifications
are obtained. As part of the certification process, the FAA or comparable
agencies in other jurisdictions may impose special conditions that must be
satisfied to achieve certification of our service, if the FAA or comparable
agencies conclude that the normally applicable regulations do not provide
adequate safety standards. There can be no assurance that the FAA and other
regulatory agencies will not impose other special conditions on the
certification of our service. Should the FAA or other such agencies do so, we
could incur additional costs and delay as compared to the costs and timeline
described in our business plan, which could have a material adverse effect on
our business financial condition and results of operations. We believe that the
service will substantially comply with all applicable DOT and FAA requirements
as they currently exist. There can be no assurance, however, that we will so
comply, or that there will not be changes in the applicable DOT or FAA
regulations that materially and adversely affect our ability to obtain the
required certifications. Please see "Business--Government Regulation."
19
WE MAY BE SUBJECT TO POTENTIAL UNINSURED LOSSES
The White House Commission on Aviation Safety and Security reported that from
1987 to 1997, approximately 60% of all aviation accidents were attributable to
flight crew error. With respect to general aviation aircraft accidents, where
pilot involvement and responsibility are much greater, the figure was
approximately 80%. Regardless of pilot responsibility, however, many, if not
most aircraft accidents result in law suits being filed against the airline
company.
We are subject to potential losses as a result of claims arising from accidents
involving our Aircraft. Substantial claims resulting from such an accident could
exceed our policy limits and have a material adverse effect on our business,
financial condition and results of operations. Aviation insurance premiums
historically have fluctuated based on factors that include the loss history of
the industry in general and the insured carrier, and our ability to obtain and
maintain adequate insurance coverage on economical terms could be adversely
affected by general industry conditions or losses incurred by us.
OUR FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS COULD HARM OUR
BRAND-BUILDING EFFORTS AND ABILITY TO COMPETE EFFECTIVELY
We regard the protection of our copyrights, service marks, trademarks, trade
dress and trade secrets as critical to our future success, and rely on a
combination of copyright, trademark, service mark and trade secret laws and
contractual restrictions to establish and protect our proprietary rights in
products and services. We have applied for registration of the service marks
Nimbus JetTaxi and Nimbus Jets with the U.S. Patent and Trademark Office in the
United States and the corresponding agency in Mexico.
We have entered into confidentiality and invention assignment agreements with
our employees and contractors, and nondisclosure agreements with parties with
which we conduct business in order to limit access to and disclosure of our
proprietary information. These contractual arrangements or the other steps taken
to protect our intellectual property may be insufficient to prevent
misappropriation of our technology and may not deter independent third-party
development of similar technologies. To date, we have not been notified that our
technologies infringe upon the proprietary rights of third parties, but third
parties may claim infringement by us with respect to past, current or future
technologies. We expect that participants in our markets will be increasingly
subject to infringement claims as the number of services and competitors in our
industry segment grows. Any such claim, whether meritorious or not, could be
time-consuming, result in costly litigation, cause service upgrade delays, or
require us to enter into royalty or licensing agreements. These royalty or
licensing agreements might not be available on terms that are acceptable or
favorable to us. As a result, any such claim could harm our business, financial
condition and results of operations.
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
Although we do not currently meet the American Stock Exchange ("AMEX") listing
requirements, we have obtained a waiver from AMEX to list our shares. Currently,
we do not meet the listing requirements of Regular Financial Guidelines of AMEX
in that our pre-tax income for the last fiscal year was less than $750,000 and
our Stockholders' equity is less than $4,000,000. We do not meet the Alternative
Financial Guidelines for listing AMEX because the market value of our public
float is not $15,000,000, we do not have a three-year history of operations and
our Stockholders' equity is less than $4,000,000. 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 listing
requirements of AMEX and other exchanges. In such event, your shares may be
difficult or impossible to sell. Specifically, selling your 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,
20
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.
IF THE TRADING PRICE OF OUR COMMON STOCK DROPS BELOW A CERTAIN LEVEL WE MAY
BECOME SUBJECT TO THE PENNY STOCK RULE
Our common stock is currently less than $5.00 per share, therefore, our common
stock could become subject to Rule 15g-9 under the Securities and Exchange Act
of 1934 (the "Exchange Act"), 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, brokers would be required to additional
disclosures 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.
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 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. 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 aviation companies in
particular, have recently experienced extreme price and volume fluctuations.
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 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 53.6% 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
21
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 three individuals own greater than 5% of Nimbus
Group: Albert Friedman, David Shpilberg and 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."
FUTURE SHARES ELIGIBLE FOR PUBLIC SALE COULD HARM OUR STOCK PRICE
Future sales of substantial amounts of Common Shares (including shares issued
upon the exercise of outstanding options) in the public market could harm the
market price of our Common Shares. These sales also might make it more difficult
for us to sell equity or equity-related securities in the future at a time and
price that we deem appropriate. As of the date of this report, there will be
7,438,889 Common Shares outstanding, all of which are freely tradable without
restriction under the Securities Act of 1933 (the "Securities Act"), subject to
applicable volume limitations, if any, under Rule 144 promulgated under the
Securities Act and, in the case of executive officers of the Company, Section 16
of the Exchange Act. In addition, as of the date of this report, there were
outstanding options to purchase 2,977,600 Common Shares, of which there are
2,412,616 options immediately exercisable or exercisable within 60 days of the
date of this report.
On October 17, 2001, we filed a Registration Statement on Form S-8, registering
the 2,442,857 shares of Common Stock then currently authorized under the Option
Plan. Shares of Common Stock issued upon the exercise of outstanding stock
options granted under our 1999Stock Option Plan (Option Plan) are immediately
and freely tradable without restriction under the Securities Act, subject to
applicable volume limitations, if any, discussed above and, in the case of
executive officers of the Company, Section 16 of the Exchange Act. During
November 2001, our shareholders approved various amendments (the "Option Plan
Amendments") to our 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"). It is currently contemplated that at
the appropriate time we will file an additional Registration Statement on Form
S-8 in order to register the additional shares of Common Stock, which would be
reserved for issuance under the Amended Option Plan.
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 additional funds in the near future. We will require
substantial additional funds, currently estimated at $15 million, to fund the
Deposits of the Aircraft, develop the necessary operational and financial
infrastructure, and expect to obtain such funds through a combination of
sources, including private and public offerings of securities, borrowings and
possible governmental benefits and assistance, such as industrial revenue bonds
and tax credits. A substantial shortfall in meeting capital needs would prevent
completion of the development of our infrastructure and prevent us from making
the Deposits on the Aircraft in a timely manner. Failure to make the required
Deposits on the Aircraft in accordance with our agreement with Eclipse would
risk our firm delivery commitments on all future Aircraft not already secured by
22
a Deposit. Our ability to achieve positive cash flow will depend upon the
successful and timely design, certification and manufacturing of the Aircraft
and the successful marketing and sales of our air taxi service. If additional
funds are raised through the issuance of equity or convertible debt securities,
your percentage ownership will be reduced, you may experience additional
dilution 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 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 expansion, 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.
We operate several Web sites, including www.nimbusjets.com,
www.taketoauction.com, www.ttadirect.com, www.ttasuperstores.com and
www.perfumania.com. The information contained on our Web sites are not
incorporated by reference into this filing.
ITEM 2. PROPERTIES
Our principal administrative, marketing and product development facilities are
located in approximately 11,000 square feet of leased office space in Fort
Lauderdale, Florida. Currently, we are lessees under a five-year lease expiring
in 2005. Monthly lease payments during the initial term of the lease are
approximately $14,500. We believe that our current facilities will be adequate
to meet our current and future needs.
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.
23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 21, 2001, we held the 2001 annual meeting of our shareholders (the
"Annual Meeting"). The following directors were elected at the Annual Meeting:
Jonathan Geller, John-Gary Hewitt, Ilia Lekach, Mitchell Morgan and Miguel
Cauvi. Albert Friedman, David Shpilberg and Alan Greenberg had their terms
continue after the Annual Meeting. Please see "Classified Board of Directors."
Additionally, our shareholders approved the following proposals at the Annual
Meeting: The ratification of the appointment of Deloitte & Touche LLP as our
independent auditors for the 2001 fiscal year, the approval of certain
amendments to our 1999 Stock Option Plan, the approval of the issuance of up to
15 million newly issued shares of our Common Shares pursuant to a private
placement, and the adoption of an amendment to the Second Amended and Restated
Articles of Incorporation of Take to Auction.com, Inc., to eliminate the
requirements of Article 11. All matters noted above, including the election of
the directors, had 3,614,316 votes cast for, no votes cast against and no vote
abstentions.
24
PART II.
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 American
Stock Exchange 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.
FISCAL 2001 HIGH LOW
- ----------- ---- ----
First Quarter $1.44 $0.35
Second Quarter $0.70 $0.25
Third Quarter $2.20 $0.16
Fourth Quarter $2.00 $0.55
FISCAL 2000 HIGH LOW
- ----------- ---- ----
First Quarter * *
Second Quarter $8.63 $6.38
Third Quarter $8.81 $6.06
Fourth Quarter $6.38 $1.00
HOLDERS
As of March 1, 2002, there were 21 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 1, 2002 was $1.48 per
share.
* -We completed our initial public offering on June 12, 2000 and, therefore,
there are no first quarter data.
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.
25
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, 2001 and 2000 and
for the fiscal years ended 2001 and 2000 and for the period from June 2, 1999
(date of inception) through December 31, 1999 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
For the period
from June 2, 1999
For the For the (date of inception)
year ended year ended through
December 31, 2001 December 31, 2000 December 31, 1999
------------------------ ------------------------ -----------------------
STATEMENT OF OPERATIONS DATA:
Net revenues $ 12,121,853 $ 6,009,146 $ 73,824
Cost of net revenues 10,452,199 7,328,395 140,639
----------------------- ----------------------- ----------------------
Gross margin 1,669,654 (1,319,249) (66,815)
----------------------- ----------------------- ----------------------
Operating expenses:
General and administrative expenses 3,400,529 3,414,804 383,630
Auction fees 1,024,331 463,441 5,727
Sales and marketing 275,282 235,001 19,061
Fulfillment 743,622 437,113 41,792
Web site development expenses 299,234 232,047 32,637
----------------------- ----------------------- ----------------------
Total operating expenses 5,742,998 4,782,406 482,847
----------------------- ----------------------- ----------------------
Net loss from operations (4,073,344) (6,101,655) (549,662)
Interest, net (23,038) 223,331 --
----------------------- ----------------------- ----------------------
Net loss $ (4,050,306) $ (6,324,986) $ (549,662)
======================= ======================= ======================
Basic and diluted loss per share $ (0.54) $ (0.93) $ (0.10)
======================= ======================= ======================
Weighted average number of common
shares outstanding 7,438,889 6,793,002 5,696,766
======================= ======================= ======================
December 31, 2001 December 31, 2000 December 31, 1999
----------------------- ----------------------- ----------------------
BALANCE SHEET DATA
Cash and cash equivalents $ 379,775 $ 1,086,149 $ 856,949
Working capital (deficit) (692,586) 3,019,809 1,288,032
Total assets 2,122,847 5,890,253 2,579,739
Shareholders' equity 71,281 4,121,587 1,150,338
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW- NIMBUS JETS
Nimbus Jets, a start-up air taxi service, will offer a convenient and
cost-effective private jet solution for business travelers and individuals
alike. We intend 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 is a fly on-demand
private air taxi service. Pre-screened Nimbus members will have the convenience
of traveling at the spur of the moment in comfort and safety. Through an
affiliated network of travel agents, limousine companies, air charter companies
and airlines, we will provide travelers with individualized air taxi transport
on-demand from doorstep to destination.
Our private air taxi service will be available on-demand much like calling on a
car service. Without the need for extensive ground facilities and expensive
commercial airport infrastructure, we will be able to operate at significantly
lower costs than most jet charter companies today. In addition, the heart of our
strategy is the acquisition of an extremely cost-efficient fleet of jet aircraft
developed by Eclipse. Therefore, these lower operating costs will enable us to
be competitive with commercial airliners with the added advantages of
customer-dictated scheduling, privacy and most importantly, security.
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 will be $837,500 in June 2000 dollars and is subject
to pricing adjustments of up to five percent (5%) per year. Prior to this time,
Nimbus Jets intends to analyze potential air charter acquisitions and strategic
alliances. Initially, we plan to have our operations regionalized during the
initial rollout of the Aircraft and we will expand our operations geographically
as more Aircraft are delivered. As of March 30, 2002, Nimbus Jets has not yet
commenced any operational activities.
OVERVIEW- TAKE TO AUCTION
Today, all of our revenues are generated by our wholly-owned subsidiary, Take to
Auction.com, Inc. TTA commenced operations on the World Wide Web during July
1999. During its operating history, TTA has evolved from being solely a
membership community, whereby its members would list and profit from selling
merchandise at online auction sites, to selling items directly in multiple
distribution channels. These selling channels consist primarily of online
auction sites (TTA Auctions), our retail Web site (TTA Direct), a retail Web
site we operate (Perfumania.com), and our users' virtual storefronts (TTA
Superstores) (collectively the "TTA Network"). The TTA Network utilizes a common
infrastructure, including our inventory selection, order processing, payment
processing, customer service and fulfillment of the products.
TTA Auctions lists and sells merchandise at online auction sites. Currently, we
sell at eBay, Yahoo! Auctions and uBid. 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, Yahoo!
and uBid are registered service marks of eBay, Inc, Yahoo!, Inc. and uBid, Inc.,
respectively.
TTA also operates TTA Direct, our retail storefront, which sells products to the
general public, and the Perfumania.com retail storefront, which offers over
2,000 fragrance and fragrance related products, including bath and aromatherapy
products.
TTA Superstores is 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 eliminates the traditional
barriers faced by individuals and small Web sites. TTA handles order processing,
payment processing, customer service and fulfillment on behalf of our TTA
Superstore users. Our users profit from the difference between the selling price
and the price we charge them for the item that sold.
27
RESULTS OF OPERATIONS
The results of operations for the fiscal years 2001, 2000 and 1999 reflect the
results of operations for our wholly-owned subsidiary Take to Auction. Nimbus
Jets has not yet commenced any operational activities. Start-up costs for Nimbus
Jets are expensed to operations as incurred and are discussed in general and
administrative expenses.
During January 2002, our Board adopted a formal plan of disposal of TTA, in
connection with an overall strategic program designed to focus our resources on
Nimbus Jets and the development of a national air taxi service.
COMPARISON OF FISCAL YEARS 2001 AND 2000
NET REVENUES. TTA's revenues are derived from membership fees paid by our users
for TTA Auctions, set-up fees paid by users to open their own virtual storefront
through TTA Superstores, sales of product at auction and through storefronts,
sales of product through Perfumania.com and TTA Direct and shipping and handling
fees. Our net revenues increased significantly during 2001 primarily because we
expanded our product and service offerings as well as implemented strategic
marketing programs to increase sales. Net revenues increased 102% or
approximately $6.1 million to approximately $12.1 million for the year ended
December 31, 2001, from approximately $6.0 million for the year ended December
31, 2000.
Auction revenues were approximately $6.7 million for the year ended December 31,
2001 and approximately $5.1 million for the year ended December 31, 2000. The
$1.6 million increase is attributed to an increase of completed transactions. We
had approximately 74,000 completed transactions (approximately 489,000 total
auctions posted) at an average net sale price of approximately $91, for the year
ended December 31, 2001 and approximately 52,000 completed transactions
(approximately 205,000 total auctions posted) at an average net sale price of
approximately $98, for the year ended December 31, 2000. During fiscal 2001,
Yahoo! Auctions and Ubid were added to the selections of online auction sites at
which we sell products. We believe increasing the number of online auction sites
to sell products will increase our product exposure, enhance our brand
recognition and result in future revenue growth. We also expect the growth of
the online auction industry to drive future revenue growth.
We launched TTA Direct in December 2000, and accordingly we did not generate
comparable revenues for the year ended December 31, 2000. During April 2001, we
launched TTA Direct on Yahoo! Shopping. During the year ended December 31, 2001,
TTA Direct generated net revenues of approximately $1.4 million. Of this amount,
approximately $0.3 million was generated from sales to a company owned 100% by
one of our shareholders. We do not anticipate these sales to recur in the
future.
During April 2001, we launched TTA Superstores, and accordingly we did not
generate comparable revenues for the year ended December 31, 2000. For the year
ended December 31, 2001, we generated approximately $0.5 million of net revenues
from TTA Superstores.
TTA began operating Perfumania.com in September 2001, and accordingly we did not
generate comparable revenues for the year ended December 31, 2000. For the year
ended December 31, 2001, net revenues generated from Perfumania.com were
approximately $1.4 million. We expect significant future net revenue growth
primarily as a result of our strategy to increase sales through our marketing
and advertising service agreements. Additionally, we expect our "affiliate
marketing" programs to result in increased future net revenue growth. See
"Results of Operations -- Sales and Marketing."
For the year ended December 31, 2001, membership revenues increased 66% or
approximately $304,000 to approximately $767,000, from approximately $463,000
for the year ended December 31, 2000. We expect a downward trend in future
membership revenues because we suspended acceptance of new members indefinitely
effective June 2001. Membership revenue recognized during fiscal 2001 resulted
primarily from the recognition of membership fees from fiscal 2000 earned over
the annual membership term. For the year ended December 31, 2001 we generated
approximately $136,000 from TTA Superstore setup fees. We did not generate any
TTA Superstore setup fees during fiscal 2000. We had over 1,700 stores opened
28
for the year ended December 31, 2001. For the year ended December 31, 2001,
shipping and handling fees increased approximately $0.7 million to approximately
$1.1 million from approximately $0.4 million for the year ended December 31,
2000, resulting primarily from the increase in the fulfillment of completed
transaction discussed above.
COST OF NET REVENUES. Cost of net revenues consist primarily of the cost of the
merchandise sold and outbound shipping costs related to those items. Cost of net
revenues increased approximately $3.1 million to approximately $10.4 million for
the year ended December 31, 2001, from approximately $7.3 million for the year
ended December 31, 2000. Cost of net revenues as a percentage of revenues were
approximately 86% for the year ended December 31, 2001, and 122% for the year
ended December 31, 2000. The majority of our negative margins during fiscal 2000
were attributable to offering our members discounted pricing to promote our
brand. We believe that our gross margins will continue to decrease as a
percentage of net revenues as we improve our supply chain management and
continue to sell more products through Perfumania.com, TTA Superstores, and TTA
Direct. Effective September 1, 2001, we entered into a licensing agreement with
Perfumania.com to operate the Perfumania.com retail Web site. Products sold
through Perfumania.com average higher gross margins than products sold through
TTA Auctions, TTA Direct, and TTA Superstores. We expect the trend of increasing
product sales through Perfumania.com will continue to improve our cost of net
revenues, as a percentage of revenues.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses consist
of payroll and related expenses for executive, accounting and administrative
personnel, professional fees and other general corporate expenses. General and
administrative expenses remained relatively flat at approximately $3.4 million
for the year ended December 31, 2001 when compared to December 31, 2000. General
and administrative expenses as a percentage of net revenues were 28% for the
year ended December 31, 2001 and 57% for the year ended December 31, 2000. We
improved our operating efficiencies throughout fiscal 2001 by implementing
certain cost containment initiatives, which included a 30% reduction in
administrative headcount. Also included in general and administrative expenses
during fiscal 2001 are costs of approximately $226,000 relating to Nimbus Group,
including start up costs incurred in connection with our development stage
enterprise, Nimbus Jets.
AUCTION FEES. Auction fees consist of fees incurred by us for posting and
selling items at online auction sites. Auction fees increased approximately $0.6
million to approximately $1.0 million for the year ended December 31, 2001, from
approximately $0.4 million for the year ended December 31, 2000. The increased
completed transaction volume from auctions described above contributed to the
increase, along with an increase in fees charged by a certain online auction
company.
We intend to improve auctions fees, as a percentage of net revenues by using
leverage to negotiate favorable fees with other online auction companies. In
particular, on August 1, 2001 we signed a nine-month letter of intent with
Yahoo! Auctions to provide custom online auction functionality for us. As a
Featured Seller of Yahoo! Auctions, they have agreed to promote our auction
listings throughout its Web site. On November 20, 2001, we entered into a
"Preferred Merchant" agreement with uBid to list products to be offered at uBid.
During the term of this agreement, uBid will promote TTA Auctions online. Both
Yahoo! Auctions and uBid offer fees that are more advantageous than fees charged
by other online auctions sites, and thus, we believe increasing the number of
items listed at these auction sites will reduce auction fees, as a percentage of
net revenues, in the future.
29
SALES AND MARKETING. Sales and marketing expenses consist of fees incurred for
advertising and promotion of our brand. Sales and marketing increased $40,000 to
approximately $275,000 for the year ended December 31, 2001 from approximately
$235,000 for the year ended December 31, 2000. During the year ended December
31, 2000, we incurred non-recurring marketing expenses of approximately $114,000
to promote our brand during our development stage. We use "word-of-mouth"
referrals and e-mail promotions to targeted buyers of our merchandise posted on
online auction sites to expand our user and customer base and, therefore, incur
limited marketing costs to increase our revenues. In addition, we employ
"affiliate marketing", whereby we pay an affiliate for a successful referral to
one of our Web sites. We also employ search engine keyword sponsorship on a
"pay-for-performance" basis, meaning that the search engines are paid upon a
successful referral to our Web site only. We feel that this traffic is very
targeted and converts into buyers of our merchandise. We anticipate these last
two types of marketing expense to increase in the future as our affiliate
network continues to grow. Effective September 1, 2001, we entered into a
licensing agreement with Perfumania.com to operate the Perfumania.com retail Web
site. Under the terms of the agreement, we pay 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. Sales and marketing expenses will
continue to increase in the future as we continue to promote the Perfumania.com
website. Royalty expense under this agreement for the year ended December 31,
2001 was approximately $75,000.
FULFILLMENT FEES. Fulfillment fees consist of fees incurred by us to warehouse,
fulfill and ship products to our customers as well as fees incurred by us for
payment processing. Fulfillment fees increased approximately $307,000 to
approximately $744,000 for the year ended December 31, 2001, from approximately
$437,000 for the year ended December 31, 2000. This increase directly resulted
from the increased transaction volume discussed above. Fulfillment fees as a
percentage of net revenues were 6% for the year ended December 31, 2001 and 7%
for the year ended December 31, 2000. We improved our operating efficiencies in
the warehouse throughout fiscal 2001, as well as, benefited from more
advantageous rates charged to us by our primary shipping carrier. Fulfillment
fees will continue to increase as our sales of product increase.
WEB SITE DEVELOPMENT EXPENSES. Web site development expenses consist principally
of expenses incurred to develop and maintain our network operations and systems
and telecommunications infrastructure. Web site development expenses increased
approximately $67,000 to $299,000 for the year ended December 31, 2001, from
approximately $232,000 for the year ended December 31, 2000. Although we believe
that the majority of our Web site development is currently completed, our
development costs should increase slightly in the future in order to increase
our network infrastructure to facilitate and maintain our operations. Web site
development costs, as a percentage of net revenues, are expected to continue to
decrease in the future.
INCOME TAXES. We provided a valuation allowance of approximately $1.5 million
and $2.4 million during fiscal 2001 and 2000, respectively, to provide fully for
the net deferred tax assets since management believes that it is more likely
than not that these amounts will not be realized due to our recurring losses.
NET LOSS. As a result of the factors discussed above, the net loss totaled
approximately $4.1 million for the year ended December 31, 2001 and $6.3 million
for the year ended December 31, 2000.
COMPARISON OF FISCAL YEARS 2000 AND 1999
We were incorporated on June 2, 1999, and we were a development stage enterprise
through March 31, 2000. During the second quarter of fiscal 2000, our planned
principal operations commenced and, therefore, we are no longer considered to be
in the development stage. The results for the fiscal year ended December 31,
1999 are from June 2, 1999 (date of inception) through December 31, 1999.
NET REVENUES. Net revenues include the membership fees charged to our members,
prorated over the annual membership term, the sale of products to our members
upon a successfully completed auction, the sale of products to our registered
users (members and non-members) and non-registered users through TTA Direct, and
shipping and handling fees. Revenues generated during the year ended December
30
31, 1999 were during our development stage. Net revenues increased approximately
$5.9 million to approximately $6.0 million for the year ended December 31, 2000
from approximately $0.1 million for the year ended December 31, 1999. Auction
revenues accounted for the majority of the change with an increase in revenue of
approximately $5.0 million to approximately $5.1 million for the year ended
December 31, 2000, from approximately $0.1 million for the year ended December
31, 1999. We had approximately 52,000 completed transactions (approximately
205,000 total auctions posted) and approximately 600 completed transactions
(approximately 1,800 total auctions posted) during the years ended December 31,
2000 and 1999, respectively, at an average net sale price of approximately $98
and $97, respectively. For the year ended December 31, 2000, membership revenue
increased approximately $454,000 to approximately $463,000 from approximately
$9,000 for the year ended December 31, 1999. This is primarily the result of our
membership base increasing to approximately 2,500 from approximately 100 as of
December 31, 2000 and 1999, respectively. For the year ended December 31, 2000,
shipping and handling fees increased approximately $446,000 to approximately
$450,000 from approximately $4,000 for the year ended December 31, 1999,
resulting primarily from the increase in the fulfillment of completed
transactions discussed above.
COST OF NET REVENUES. Cost of net revenues consist primarily of the cost of the
merchandise sold and outbound shipping costs related to those items. Cost of net
revenues increased approximately $7.2 million to approximately $7.3 million for
the year ended December 31, 2000, from approximately $0.1 million for the year
ended December 31, 1999. Cost of net revenues as a percentage of revenues was
approximately 122% and 191% during the years ended December 31, 2000 and 1999,
respectively. The majority of our negative margins were attributable to offering
our members discounted pricing to promote our brand.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased approximately $3.0 million to approximately $3.4 million for the year
ended December 31, 2000 from approximately $0.4 million for the year ended
December 31, 1999. The increase in general and administrative expenses resulted
primarily from costs associated with additional personnel and operating expenses
necessary to support the Company's growth after our development stage, which
ended March 31, 2000.
AUCTION FEES. Auction fees increased approximately $457,000 to approximately
$463,000 for the year ended December 31, 2000, from approximately $6,000 for the
year ended December 31, 1999. This increase directly resulted from the increased
transaction volume discussed above.
SALES AND MARKETING. Sales and marketing increased $216,000 to approximately
$235,000 for the year ended December 31, 2000, from approximately $19,000 for
the year ended December 31, 1999. The majority of the costs incurred during
fiscal 2000 were non-recurring in nature and resulted from the promotion of our
brand during our development stage and our initial web site launch in June 2000.
FULFILLMENT FEES. Fulfillment fees increased approximately $395,000 to
approximately $437,000 for the year ended December 31, 2000, from approximately
$42,000 for the year ended December 31, 1999. This increase directly resulted
from the increased transaction volume discussed above.
WEB SITE DEVELOPMENT EXPENSES. Web site development expenses increased
approximately $199,000 to $232,000 for the year ended December 31, 2000 from
approximately $33,000 for the year ended December 31, 1999. Although we believe
that the majority of our Web site development is currently completed, our
development costs should increase slightly in the future in order to increase
our network infrastructure to facilitate and maintain our operations.
INCOME TAXES. We provided a valuation allowance of approximately $2.4 million
and $0.2 million during fiscal 2000 and 1999, respectively, to provide fully for
the net deferred tax assets since management believes that it is more likely
than not that these amounts will not be realized due to our recurring losses.
NET LOSS. As a result of the factors discussed above, the net loss totaled
approximately $6.3 million and $0.5 million for the years ended December 31,
2000 and 1999, respectively.
31
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital requirements during fiscal 2002 will be to fund the start
up activities of our development stage enterprise, Nimbus Jets, Inc. We have had
negative cash flows since inception, resulting primarily from our wholly-owned
subsidiary, Take to Auction. During January 2002, our Board adopted a formal
plan of disposal of TTA, in connection with an overall strategic program
designed to focus our resources on Nimbus Jets and the development of a national
air taxi service. 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.
On February 8, 2002, we entered into a non-binding agreement with DAFIN Asset
Finance Limited to provide the financing for the Aircraft. Terms of the
agreement call for the financing of each Aircraft, upon delivery, over a 10-year
period, at a maximum interest rate of LIBOR plus four percent (4%), secured by
the Aircraft.
Cash and cash equivalents at December 31, 2001, 2000 and 1999 were approximately
$0.4 million, $1.1 million and $0.9 million, respectively. Our working capital
(deficit) totaled ($0.7) million at December 31, 2001, $3.0 million at December
31, 2000 and $1.3 million at December 31, 1999.
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 of approximately $0.3
million in operating activities for the year ended December 31, 1999. This was
primarily the result of a net loss of approximately $0.6 million, the increase
in our inventory of approximately $0.2 million, and the increase in accounts
payable, accrued expenses and deferred revenue of approximately $0.4 million.
We used cash in investing activities of approximately $0.2 million for the year
ended December 31, 2001, primarily related to certain costs capitalized in
connection with internal use software. We used cash in investing activities of
approximately $1.2 million and $0.2 million for the years ended December 31,
2000 and 1999, 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 year ended December 31,
2001. 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,
32
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. Cash provided by financing activities for the year
ended 1999 was approximately $1.4 million. This was the result of proceeds
received from our stock subscriptions receivable (relating to our initial
capitalization) in the amount of approximately $364,000, proceeds received from
the sale of our Common Shares to SLI.com Ventures Ltd. in the amount of
$350,000, proceeds received from the sale of our Common Shares to Dominion
Income Management in the amount of $350,000, and proceeds received from an
advance of $1,000,000 from ECMV, offset by payments made for offering costs of
approximately $668,000. The sale of Common Shares to SLI.com Ventures Ltd. and
Dominion Income Management was not part of the August 26, 1999 $1 million
initial capitalization.
We had two $1 million convertible promissory notes from ECMV (the "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,
2001, 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 2001, principal payments of approximately $44,000 were made.
The remaining amount 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
business plans. We are in the process of raising additional funds through the
private offering of our Common Shares and we have adopted a formal plan to
divest TTA. Although we believe that our current business strategy, a private
offering of our Common Shares, and/or the proceeds received from the sale of TTA
will provide us with sufficient operating cash flow through fiscal 2002, 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 a
private offering will be successfully completed, that the sale of TTA will be
successfully completed, or that our future cash flows will be sufficient to meet
all of our obligations and commitments. We anticipate that we may need to raise
additional funds subsequent to fiscal 2002 and through the commencement of
operations of Nimbus Jets, currently anticipated in the beginning of 2004. 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.
33
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 $59,050 bearing interest at
prime plus two percent. As of December 31, 2001, we had no short or long-term
investments.
34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
NIMBUS GROUP, INC. AND SUBSIDIARIES
(formerly known as Take to Auction.com, Inc.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report....................................................................... 36
Consolidated Balance Sheets as of December 31, 2001 and 2000....................................... 37
Consolidated Statements of Operations for the years ended December 31, 2001 and
2000 and for the period from June 2, 1999 (date of inception) through December
31, 1999........................................................................................... 38
Consolidated Statements of Changes in Shareholders' Equity for the years ended
December 31, 2001 and 2000 and for the period from June 2, 1999 (date of
inception) through December 31, 1999............................................................... 39
Consolidated Statements of Cash Flows for the years ended December 31, 2001 and
2000 and for the period from June 2, 1999 (date of inception) through December
31, 1999........................................................................................... 40
Notes to Consolidated Financial Statements......................................................... 41
35
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Shareholders of Nimbus Group, Inc.
We have audited the accompanying consolidated balance sheets of Nimbus Group,
Inc. (formerly known as Take to Auction.com, Inc.) (the "Company") as of
December 31, 2001 and 2000, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for the years ended
December 31, 2001 and 2000 and for the period from June 2, 1999 (date of
inception) through December 31, 1999. 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
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 financial statements present fairly, in all material
respects, the financial position of Nimbus Group, Inc. as of December 31, 2001
and 2000, and the results of its operations and its cash flows for the years
ended December 31, 2001 and 2000 and for the period from June 2, 1999 (date of
inception) through December 31, 1999 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 dependant upon 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 described
in Note 2. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
March 20, 2002
36
NIMBUS GROUP, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS TAKE TO AUCTION.COM, INC.)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31,
2001 2000
--------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents $ 379,775 $ 1,086,149
Accounts receivable 51,641 100,123
Shareholder receivables 59,051 174,173
Inventory, net 709,329 2,935,755
Prepaid expenses and other current assets 159,184 492,275
--------------- ---------------
Total current assets 1,358,980 4,788,475
Property and equipment, net 755,057 1,091,255
Other 8,810 10,523
--------------- ---------------
Total assets $ 2,122,847 $ 5,890,253
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 673,527 $ 639,331
Accrued expenses 346,341 377,904
Amounts due related party 965,057 210,695
Deferred revenue 66,641 540,736
--------------- ---------------
Total current liabilities 2,051,566 1,768,666
Commitments and Contingencies -- --
Shareholders' equity:
Preferred shares, $0.001 par value, 10 million shares
authorized, no shares issued and outstanding -- --
Common shares, $0.001 par value, 50 million shares
authorized, 7,438,889 and 7,438,889 shares
issued and outstanding, respectively 7,439 7,439
Additional paid-in capital 10,988,796 10,988,796
Accumulated deficit (10,924,954) (6,874,648)
--------------- ---------------
Total shareholders' equity 71,281 4,121,587
--------------- ---------------
Total liabilities and shareholders' equity $ 2,122,847 $ 5,890,253
=============== ===============
The accompanying notes are an integral part of these consolidated
financial statements.
37
NIMBUS GROUP, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS TAKE TO AUCTION.COM, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD
FROM JUNE 2, 1999
FOR THE FOR THE (DATE OF INCEPTION)
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, 2001 DECEMBER 31, 2000 DECEMBER 31, 1999
----------------- ----------------- -------------------
Net revenues $ 12,121,853 $ 6,009,146 $ 73,824
Cost of net revenues 10,452,199 7,328,395 140,639
----------------- ----------------- ------------------
Gross margin 1,669,654 (1,319,249) (66,815)
----------------- ----------------- ------------------
Operating expenses:
General and administrative expenses 3,400,529 3,414,804 383,630
Auction fees 1,024,331 463,441 5,727
Sales and marketing 275,282 235,001 19,061
Fulfillment 743,622 437,113 41,792
Web site development expenses 299,234 232,047 32,637
----------------- ----------------- ------------------
Total operating expenses 5,742,998 4,782,406 482,847
----------------- ----------------- ------------------
Net loss from operations (4,073,344) (6,101,655) (549,662)
Interest income (expense), net 23,038 (223,331) --
----------------- ----------------- ------------------
Net loss $ (4,050,306) $ (6,324,986) $ (549,662)
================= ================= ==================
Basic and diluted loss per common share $ (0.54) $ (0.93) $ (0.10)
================= ================= ==================
Weighted average number of common
shares outstanding 7,438,889 6,793,002 5,696,766
================= ================= ==================
The accompanying notes are an integral part of these consolidated
financial statements.
38
NIMBUS GROUP, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS TAKE TO AUCTION.COM, INC.)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2001, 2000 AND FOR THE PERIOD FROM
JUNE 2, 1999 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1999
COMMON SHARES ADDITIONAL
------------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------------ ------------ --------- ------------
Balance at June 2, 1999 (date of inception) 5,428,572 $ 5,429 $ 994,571 $ -- $ 1,000,000
Issuance of common shares 571,428 571 699,429 -- 700,000
Net loss for the period from June 2, 1999
(date of inception)
through December 31, 1999 -- -- -- (549,662) (549,662)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1999 6,000,000 6,000 1,694,000 (549,662) 1,150,338
Issuance of common shares, net of offering costs 1,300,000 1,300 7,907,574 -- 7,908,874
Issuance of warrants -- -- 630,200 -- 630,200
Note payable converted to common shares 138,889 139 757,022 -- 757,161
Net loss for the year ended December 31, 2000 -- -- -- (6,324,986) (6,324,986)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 2000 7,438,889 7,439 10,988,796 (6,874,648) 4,121,587
Net loss for the year ended December 31, 2001 -- -- -- (4,050,306) (4,050,306)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 2001 7,438,889 $ 7,439 $ 10,988,796 $(10,924,954) $ 71,281
============ ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
39
NIMBUS GROUP, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS TAKE TO AUCTION.COM, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD
FROM JUNE 2, 1999
FOR THE FOR THE (DATE OF INCEPTION)
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, 2001 DECEMBER 31, 2000 DECEMBER 31, 1999
-------------------- --------------------- ---------------------
Cash flows from operating activities:
Net loss $ (4,050,306) $ (6,324,986) $ (549,662)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 463,349 287,060 4,886
Provision for impairment of long lived assets 41,510 -- --
Amortization of stock purchase warrants -- 319,161 --
Inventory writedown -- 291,127 39,000
Fair value of warrants issued to consultants -- 68,200 --
Change in operating assets and liabilities:
Accounts receivable 48,482 (94,159) (5,964)
Shareholder receivables 115,122 (174,173) --
Inventory 2,226,426 (3,026,453) (239,429)
Prepaid expenses and other current assets 333,091 (473,650) (18,625)
Other assets 1,713 (2,100) (8,423)
Accounts payable 34,196 349,611 289,719
Accrued expenses (31,563) 268,543 109,362
Amounts due related party 754,362 210,695
Deferred revenue (474,095) 510,416 30,320
-------------------- --------------------- ---------------------
Net cash used in operating activities (537,713) (7,790,708) (348,816)
-------------------- --------------------- ---------------------
Cash flows from investing activities:
Purchase of property and equipment (168,661) (1,192,274) (190,927)
-------------------- --------------------- ---------------------
Net cash used in investing activities (168,661) (1,192,274) (190,927)
-------------------- --------------------- ---------------------
Cash flows from financing activities:
Proceeds from issuance of common stock -- 10,045,596 1,064,534
Borrowings from affiliate -- 1,500,000 1,000,000
Payments on borrowings to affiliate -- (1,500,000) --
Payments for offering costs -- (833,414) (667,842)
-------------------- --------------------- ---------------------
Net cash provided by financing activities -- 9,212,182 1,396,692
-------------------- --------------------- ---------------------
Net increase (decrease) in cash and cash equivalents (706,374) 229,200 856,949
Cash and cash equivalents at beginning of period 1,086,149 856,949 --
-------------------- --------------------- ---------------------
Cash and cash equivalents at end of period $ 379,775 $ 1,086,149 $ 856,949
==================== ===================== =====================
Supplemental cash flow information:
o No amounts were paid for income taxes during 2001, 2000 and 1999.
o During the year ended December 31, 2000, interest paid was
approximately $50,000. No interest was paid during the fiscal years
ended December 31, 2001 and 1999, respectively.
o During the year ended December 31, 2000, the Company recorded
$630,200 to additional paid-in capital in connection with the
issuance of stock purchase warrants.
o 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.
o 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.
40
NIMBUS GROUP, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS TAKE TO AUCTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF 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 2001 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 (see
Note 9).
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:
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 $10.9 million
and has a deficiency in working capital of approximately $0.7 million. This
factor, 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.
41
NIMBUS GROUP, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS TAKE TO AUCTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED):
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 67,675 and 132,519 Common Shares issuable
upon exercise of employee stock options during fiscal 2001 and 2000,
respectively, as the effect of the exercise would be anti dilutive.
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 provisions of
approximately $0, $291,000 and $39,000 for the years ended December 31, 2001 and
2000 and for the period from June 2, 1999 (date of inception) through December
31, 1999, respectively, to reduce the carrying value of inventory to its net
realizable value. 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 during 2001, 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. 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.
42
NIMBUS GROUP, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS TAKE TO AUCTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED):
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.
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.
43
NIMBUS GROUP, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS TAKE TO AUCTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED):
SIMPLE IRA PLAN
The Company sponsors 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 eligible to participate may
enter the Plan as of the first day of any month. Participants may make pre-tax
contributions to the Plan subject to a statutorily prescribed annual limit. The
Company is required to make matching contributions, not to exceed 3% of a
participant's annual compensation, to the Plan. Each participant is 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, 2001,
2000 and 1999 of approximately $37,000, $30,000, and $5,100 respectively, which
represents the total contributions made to the Plan by the Company for the years
ended December 31, 2001, 2000 and 1999, respectively.
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, expense related to such warrants was $68,200 and is included
in general and administrative expenses in the accompanying consolidated
statement of operation. No warrants were issued during fiscal 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,
2001 and 2000 or the period from June 2, 1999 (date of inception) through
December 31, 1999.
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
operating segment during 2001, 2000 and 1999.
RECLASSIFICATIONS
Certain reclassifications to the Company's 2000 and 1999 consolidated financial
statements were made to conform them to classifications used in 2001.
44
NIMBUS GROUP, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS TAKE TO AUCTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED):
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued SFAS No. 141, Business Combinations. This
statement supercedes APB Opinion No. 16, Business Combinations, and SFAS No. 38,
Accounting for Preacquisition Contingencies of Purchased Enterprises. This
statement provides that all business combinations in the scope of this
pronouncement are to be accounted for using one method, the purchase method. The
provisions of this statement apply to all business combinations initiated after
June 30, 2001. The impact of the transition to SFAS No. 141 was not material to
the consolidated financial statements.
In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. This statement supercedes APB Opinion No. 17, Intangible Assets. This
statement provides guidance on how goodwill and other intangible assets should
be accounted for after they have been initially recognized in the financial
statements. The effective date of this statement is for fiscal years beginning
after December 15, 2001. Management had previously determined that the impact of
the transition to SFAS No. 142 would not be material to the consolidated
financial statements. The impact of the transition to SFAS No. 142 was not
material to the consolidated financial statements.
In July 2001, the FASB issued SFAS No. 143, Accounting for Obligations
associated with the Retirement of Long-Lived Assets. SFAS No. 143 provides
accounting guidance for retirement obligations associated with tangible
long-lived assets. SFAS No. 143 is effective for fiscal years beginning after
June 15, 2002. Management has not yet determined the impact of the transition to
SFAS No. 143 to the consolidated financial statements.
In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long Lived Assets. This statement replaces FASB Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of. This statement also replaces APB Opinion No. 30, Reporting
Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business. This statement requires that those long-lived assets be valued at the
lower of carrying amount or fair value less costs to sell, whether reported in
continuing operations or in discontinued operations. Accordingly, discontinued
operations will no longer be measured at net realizable value or include amounts
for operating losses that have net yet occurred. The provisions of SFAS No. 144
are effective for fiscal years beginning after December 15, 2001. Management has
not yet determined the impact of the transition to SFAS No. 143 to the
consolidated financial statements.
In June 1999, the FASB issued Statement of Financial Accounting Standards No.
137 ("SFAS No. 137"), "Accounting for Derivative Instruments and Hedging
Activities - Deferral of Effective Date of FASB Statement No. 133." SFAS No. 137
defers for one year the effective date of SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 will now apply to
all fiscal quarters of all fiscal years beginning after June 15, 2000 and
requires the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. The Company will adopt SFAS No. 133 as required in fiscal 2001. The
Company's adoption of this Statement did not have a material effect on the
earnings and financial position of the Company.
45
NIMBUS GROUP, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS TAKE TO AUCTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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:
Estimated
Useful
Lives
(in years) DECEMBER 31, 2001 DECEMBER 31, 2000
---------- ----------------- -----------------
Computer equipment 3 $ 500,607 $ 496,530
Computer software 3 752,640 596,504
Furniture and fixtures 5 86,001 120,118
Telecommunication equipment 5 39,485 39,485
Leasehold improvements 5 130,231 129,176
------------ ------------
1,508,964 1,381,813
------------ ------------
Less: accumulated depreciation
and amortization (753,907) (290,558)
------------ ------------
Property and equipment, net $ 755,057 $ 1,091,255
============ ============
As of December 31, 2001, all amounts capitalized relating to internal use
software have been placed into service and are being amortized over its
estimated useful life.
NOTE 5. INCOME TAXES:
The income tax provision differs from the amount obtained by applying the
statutory Federal income tax rate to pretax income as follows:
For the period
from June 2, 1999
For the For the (date of inception)
year ended year ended through
December 31, 2001 December 31, 2000 December 31, 1999
---------------------- ----------------------- -------------------------
Benefit at Federal statutory rates $ 1,377,104 $ 2,150,495 $ 186,885
State income taxes, net of Federal benefit 147,026 229,597 19,952
-------------------- ----------------------- -------------------------
1,524,130 2,380,092 206,837
Valuation allowance (1,524,130) (2,380,092) (206,837)
-------------------- ----------------------- -------------------------
$ -- $ -- $ --
==================== ======================= =========================
46
NIMBUS GROUP, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS TAKE TO AUCTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5. INCOME TAXES - (CONTINUED):
The primary components of temporary differences, which give rise to the
Company's net deferred tax assets at December 31, 2001 and 2000, respectively,
are as follows:
DECEMBER 31, 2001 DECEMBER 31, 2000
----------------------- -----------------------
Deferred tax assets:
Net operating loss carryforwards $ 4,111,059 $ 2,586,929
Valuation allowance (4,111,059) (2,586,929)
----------------------- -----------------------
$ -- $ --
======================= =======================
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 $10.9 million at December 31, 2001, both of which will begin to
expire in the year 2019.
47
NIMBUS GROUP, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS TAKE TO AUCTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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 fiscal 2001, principal payments of approximately $44,000 were
made. The remaining amount 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.
On October 1, 2000, the Company entered into a six-month service agreement with
Perfumania.com, Inc., a subsidiary of ECMV, to outsource the Company's 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 December 31, 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 consolidated 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 year ended
December 31, 2001 was approximately $75,000. In addition, the Company rents
approximately 20,000 square feet of warehouse facilities from Perfumania.com for
approximately $15,000 per month.
48
NIMBUS GROUP, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS TAKE TO AUCTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7. COMMITMENTS AND CONTINGENCIES:
Effective August 25, 1999, the Company entered into employment agreements with
two executives for a three year initial term. On October 1, 1999, the Company
entered into an Employment Agreement with another executive for a three-year
term. The aggregate annual base salaries are $402,400. A total of 127,755
options to purchase Common Shares were granted (73,469 options were granted on
August 26, 1999 and 54,286 options were granted on October 1, 1999) at a
weighted average exercise price equal to $1.23 per share. These Options vest
over a three-year period from the date of grant. Upon a change of control of the
Company (as defined in the agreements), the executives will be entitled to
receive severance compensation in the amount of 200 percent of their annual base
salaries.
During October 2001, based on the reorganization of the corporate structure and
the change in control of the Company's Board, Messrs. Friedman, Morgan and
Geller signed separate agreements waiving and releasing the Company from any and
all claims arising under their respective employment agreements, as noted above,
solely for the change in control occurring during October 2001. In consideration
for the foregoing agreements, the Company agreed to issue Messrs. Friedman,
Morgan and Geller an additional 25,000 non-qualified stock options, at an
exercise price of $1.00 per share. Furthermore, the Company agreed that any and
all options to purchase common stock in the Company already held by Messrs.
Friedman, Morgan and Geller would likewise become immediately vested and
exercisable.
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.
The Company entered into an agreement with Eclipse Aviation Corporation
("Eclipse") to purchase 1,000 Eclipse 500 aircraft (the "Aircraft") to be
delivered over a five-year period beginning in 2004. See NOTE 9. SUBSEQUENT
EVENTS.
NOTE 8. 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.
49
NIMBUS GROUP, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS TAKE TO AUCTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8. STOCK OPTION PLAN - (CONTINUED):
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.
A summary of the status of the Company's Amended Option Plan as of December 31,
2001, 2000 and 1999 is presented below:
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
--------------- -------------------------
Outstanding on June 2, 1999 -- $ --
Granted 157,755 $ 1.23
Exercised -- $ --
Forfeited -- $ --
--------------
Outstanding on December 31, 1999 157,755 $ 1.23
Granted 775,995 $ 6.97
Exercised - $ --
Forfeited (38,750) $ 7.26
--------------
Outstanding on December 31, 2000 895,000 $ 5.94
Granted 2,149,650 $ 0.93
Exercised -- $ --
Forfeited (67,050) $ 4.40
--------------
Outstanding on December 31, 2001 2,977,600 $ 2.35
==============
The weighted-average fair value of stock options granted during 2001, 2000 and
1999 was $1.39, $3.40 and $1.05, respectively. The number of options exercisable
at December 31, 2001, 2000 and 1999 was 2,412,616, 52,585 and 0, respectively.
50
NIMBUS GROUP, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS TAKE TO AUCTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8. STOCK OPTION PLAN - (CONTINUED):
The following table summarizes information about stock options outstanding at
December 31, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------------- ----------------------------------------
WEIGHTED-AVERAGE
SHARES REMAINING SHARES
WEIGHTED-AVERAGE OUTSTANDING AT CONTRACTUAL LIFE WEIGHTED-AVERAGE EXERCISABLE AT WEIGHTED-AVERAGE
EXERCISE PRICE DECEMBER 31, 2001 (YEARS) EXERCISE PRICE DECEMBER 31, 2001 EXERCISE PRICE
---------------- ----------------- --------------- ---------------- ----------------- -------------------
$0.50 - $0.90 820,350 6.84 $ 0.84 516,8$6 $ 0.90
$1.00 - $1.23 1,487,755 6.45 $ 1.03 1,467,755 $ 1.03
$4.13 - $8.00 669,495 5.53 $ 7.03 427,995 $ 7.03
------------ ------------
2,977,600 2,412,616
============ ============
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 grant 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 2001, 2000 and
1999:
2001 2000 1999
----- ----- ----
Expected volatility.............. 226.3% 93.7% 100.0%
Risk-free interest rate.......... 3.5% 6.0% 6.0%
Dividend yield................... 0.0% 0.0% 0.0%
Expected life..................... 5 years 5 years 7 years
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:
For the period
from June 2, 1999
For the For the (Date of Inception)
year ended year ended through
December 31, 2001 December 31, 2000 December 31, 1999
---------------------- ---------------------- ---------------------
Net Loss:
As reported $ (4,050,306) $ (6,324,986) $ (549,662)
Proforma (5,018,442) (6,973,002) (560,876)
Diluted net loss per common share:
As reported $ (0.54) $ (0.93) $ (0.10)
Proforma (0.67) (1.03) (0.10)
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.
51
NIMBUS GROUP, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS TAKE TO AUCTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. SUBSEQUENT EVENTS:
During January 2002, our Board adopted a formal plan of disposal of its
wholly-owned subsidiary, Take to Auction.com, Inc., 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. The Company anticipates
that the business will be disposed of by December 31, 2002. The disposition will
be accounted for in accordance with SFAS No. 144, which among other provisions,
requires the plan of disposal to be carried out within one year. No provisions
for estimated losses on disposal have been recorded during fiscal 2001.
Primarily all assets, liabilities, revenues and expenses reflected in the
accompanying consolidated financial statements relate to Take to Auction.com,
Inc.
On December 9, 2001, we entered into an agreement with Eclipse, which is a
start-up of Company to purchase 1,000 Eclipse 500 Aircraft to be delivered over
a five-year period beginning in 2004. The price to be paid for each Aircraft
will be $837,500 in June 2000 dollars and is subject to pricing adjustments of
up to five percent (5%) per year. Prior to this time, Nimbus Jets intends to
analyze potential air charter acquisitions and strategic alliances.
Under the terms of the Eclipse agreement, we are to make non-escrowed deposits
(the "Deposits") to Eclipse in the amount of 20% of the estimated delivery price
for the first two-year delivery commitment of 70 Aircraft, or $11.7 million
($167,500 per Aircraft) by June 30, 2002. Eclipse will not be required to
deliver the Aircraft until the Deposits are received. The subsequent years' 930
Aircraft delivery commitment will not become a firm Eclipse delivery commitment
until the full $11.7 million Deposit is received.
On February 8, 2002, we entered into a non-binding agreement with DAFIN Asset
Finance Limited to provide the financing for the Aircraft. Terms of the
agreement call for the financing of each Aircraft over a 10-year period, at a
maximum interest rate of LIBOR plus four percent (4%), secured by the Aircraft.
NOTE 10. CAPITAL STOCK:
The Company completed an equity offer of 1.3 million Common Shares during June
2000 (see Note 3).
52
PART III.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding our executive
officers and directors.
NAME AGE POSITION
- ---- --- --------
Ilia Lekach............................51 Chairman of the Board, Interim
Chief Executive Officer and
Class II Director
General Charles A. Horner..............67 Vice-Chairman of the Board and
Class I Director
Mitchell Morgan........................30 Vice-President, Chief Financial
Officer and Class II Director
Jonathan Geller........................24 Vice-President, Chief Technology
Officer and Class I Director
Albert Friedman........................29 Class III Director
David Shpilberg........................51 Class III Director
Alan Greenberg.........................50 Class III Director
John-Gary Hewitt.......................51 Class I Director
Miguel Cauvi...........................39 Class II Director
Each director will hold office until his term expires and until his successor is
elected at an annual meeting of shareholders and qualified or until his earlier
resignation or removal. Each officer serves at the discretion of the Board.
ILIA LEKACH has been our Chairman of the Board and a Class II director since
October 1999 and our interim 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 serious 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.
GENERAL CHARLES A. HORNER has been our Vice-Chairman of the Board since January
2002. General Horner retired from the United States Air Force while serving as
the Commander in Chief for the North American Aerospace Defense Command and the
United States Space Command and Commander for the Air Force Space Command.
During his 36-year career, he commanded two tactical fighter wings, two air
divisions, the Air Defense Weapons Center and 9th Air Force prior to being
assigned to command the Unified Space Command/NORAD. As Commander of the United
States Central Command Air Forces and during Operations Desert Shield and Desert
Storm he was in command of all U.S. and allied air assets.
53
General Horner, received his B.A. in 1958 from the University of Iowa and his
MBA from the College of William and Mary in 1972. He continues to serve as an
air and space consultant to a number of leading aerospace companies including
General Electric, Lockheed Martin, and Northrop Grumman Corporations, as well as
being a Commissioner of the Congressional Commission to Assess United States
National Security Space Management, also referred to as the Rumsfeld Space
Commission.
MITCHELL MORGAN has been our Vice-President, Chief Financial Officer and a Class
II director since August 1999. From January 1994 to August 1999, Mr. Morgan held
various positions in PriceWaterhouseCoopers, LLP, most recently as business
assurance manager. Mr. Morgan holds a degree in accounting from the University
of Florida. Mr. Morgan is a Certified Public Accountant.
JONATHAN GELLER has been our Vice President, Chief Technology Officer and a
Class I director since October 1999. From January 1998 until September 1999, 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, where he served as 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.
ALBERT FRIEDMAN has been our President and Chief Executive Officer and a
director since July 1999 and a Class III director since August 1999. Mr.
Friedman resigned as our President and Chief Executive Officer effective October
2001, however, Mr. Friedman will remain President of our wholly-owned
subsidiary, Take to Auction.com, Inc. Prior to joining us, Mr. Friedman served
as Chief Operating Officer, Interim Chief Financial Officer and director of
Perfumania.com, Inc. from its inception in January 1999 until June 1999. From
April 1998 until January 1999, Mr. Friedman was President of Corporate
Communications Solutions, Inc., an investment banking firm. From January 1997
until April 1998, Mr. Friedman was Executive Vice President and Chief Financial
Officer of L. Luria & Son, Inc., a catalog showroom, where Mr. Friedman also
served as a director. From June 1996 to December 1996, Mr. Friedman served as an
analyst for ORM, Inc., an investment-banking boutique. From 1994 to 1996, Mr.
Friedman was Vice President of Art and Precision, Inc., a manufacturer and
distributor of fine jewelry.
On August 13, 1997, L. Luria & Son, Inc. filed for relief under Chapter 11 of
the Bankruptcy Code and was liquidated. Mr. Friedman was the senior officer in
charge of managing the liquidation process of L. Luria & Son, Inc.
DAVID SHPILBERG has been a Class III director since October 2001. Dr. Shpilberg
resigned as our interim Chief Executive Officer effective January 1, 2002, after
accepting a senior position with Bain & Company, a leading business consulting
firm. Dr. Shpilberg, is Chairman and CEO of Shpilberg Management Associates, LLP
(SMA), a strategy-consulting firm that helps its clients develop business
opportunities enabled by disruptive technology. Prior to founding SMA, Dr.
Shpilberg was Chief Operating Officer and Executive Vice President of Knight
Trading Group, Inc., an electronic trading securities firm, where he was
responsible for the expansion of Knight's technology and process infrastructure
to new products, and new operations in Europe and Japan. Before that, he was
Vice-Chairman of Ernst & Young Consulting Services. In this post, he was
responsible for Information Technology Services worldwide, corporate strategy,
and new business ventures. Before that, he was Vice President of Information
Technology at Goldman, Sachs and Company, where he oversaw the firm's global
information systems for the equities and asset management divisions.
ALAN GREENBERG has been a Class III director since October 2001. Mr. Greenberg
is currently Chairman and Managing Partner of Greenberg Ventures, LLC, a private
equity firm focusing on investments in the communications, education, technology
and financial services sectors. Prior to forming Greenberg Ventures, Mr.
Greenberg was founder and Chairman of Greenberg News Networks where he
established a nationwide healthcare information network, which was sold to
Healtheon/WebMD. Prior to the creation of Greenberg News Networks, Mr. Greenberg
was the publisher of Esquire magazine, leading its much-publicized turnaround.
54
Mr. Greenberg currently serves on the boards of LearningSoft Corporation, a
provider of educational software solutions for the K-12 market, the New York
Private Placement Exchange, a leading electronic communications network for the
secondary private equity marketplace, and Vidyah, a provider of streaming media
services for the corporate training marketplace.
JOHN-GARY HEWITT has been a Class I director since October 2001. 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. Before that, he worked
at Goldman Sachs in strategic and business building roles related to Goldman's
international equities business. Prior to that, Mr. Hewitt 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 NYU.
MIGUEL CAUVI has been a Class II director since February 15, 2000 and serves on
our audit committee. Mr. Cauvi is currently employed with IBM Global Services
since October 1999. From October 1994 until October 1999, Mr. Cauvi was an
independent consultant. During this time Mr. Cauvi worked for Hencorp Beckstone
& Co., a privately held securities firm and Groupo Ormeno, a large Peruvian bus
transportation company. From July 1993 until October 1994, Mr. Cauvi was the
Chief Information Officer for JE Seagram & Sons, Inc. (Spain) and a member of
the JE Seagram & Sons, Inc. worldwide re-engineering team. From January 1991
until June 1993, Mr. Cauvi was the Director of Organization and Information
Systems with CPC Spain, S.A. an affiliate of Corn Product Corporation USA, the
manufacturer and distributor of Mazzola and Hellman's brands. From October 1989
until January 1991 Mr. Cauvi was a manager with Ernst & Young consulting
division. From January 1984 until March 1989 Mr. Cauvi was an Experienced Senior
of Arthur Andersen & Co. consulting division.
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 2000, its directors, executive officers and greater than ten
percent beneficial owners complied with all applicable Section 16(a) filing
requirements.
55
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 October 2001, due to the Company changing its primary focus to the
development of its new air taxi service, the following directors resigned from
our Board: Hugo Calemczuk, Alan Blaustein and Dr. Horacio Groisman. On July 12,
2000, Garrick Hileman resigned as a Class I director for personal reasons.
The remaining Class I directors are General Charles A. Horner, Jonathan Geller
and John-Gary Hewitt. Although Mr. Geller's term expired in 2000, he agreed to
continue to serve until his successor was duly elected at the Annual Meeting.
Mr. Geller was elected to serve another term at the Annual Meeting, which will
be a two (2) year term in order to preserve the classified aspect of our Board.
Mr. Hewitt was appointed a Class I director at the Annual Meeting. General
Horner was appointed a Class I director subsequent to our Annual Meeting. Both
General Horner and Mr. Hewitt's terms expire at the 2003 annual meeting of our
shareholders. Mr. Lekach, Mr. Morgan and Mr. Cauvi currently serve as Class II
directors whose terms expire at the 2004 annual meeting of shareholders. Mr.
Friedman, Dr. Shpilberg and Mr. Greenberg serve as Class III directors whose
terms expire at the 2002 annual meeting of shareholders.
BOARD COMMITTEES
The audit committee of our Board consists of Mr. Cauvi, Mr. Greenberg and Mr.
Hewitt. 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 compensation committee of our
Board consists of Ilia Lekach and Mr. Greenberg. The compensation committee
makes recommendations to the Board concerning salaries and incentive
compensation for our officers and employees and administers our employee benefit
plans. As of the date of this filing, our Board has performed all functions of
the compensation and audit committees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the compensation committee of the Board was at any time
since our formation an officer or employee of ours. Ilia Lekach, our Chairman of
the Board and non-salaried interim CEO, serves as the chairman of the board of
directors of ECMV. There is no business relationship between us and ECMV, other
than the license agreement with Perfumania.com, Inc. further described in
"Certain Relationships and Related Transactions."
DIRECTOR COMPENSATION
Our independent directors receive cash compensation in the amount of $2,500 and
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.
56
EMPLOYMENT ARRANGEMENTS
In September 2001, David Shpilberg, interim Chief Executive Officer, entered
into a three-year executive employment agreement with Nimbus Group. Dr.
Shpilberg was granted non-qualified stock options to purchase a total of 500,000
Common Shares, immediately exercisable and fully vested, at a weighted average
price of $1.00 per share. Dr. Shpilberg resigned as our interim Chief Executive
Officer effective January 1, 2002, after accepting a senior position with Bain &
Company, a leading business consulting firm. Ilia Lekach, our chairman of the
board, accepted the position of interim chief executive officer until a
permanent replacement can be found.
During October 2001, based on the reorganization of the corporate structure and
the change in control of the Company's Board, Messrs. Friedman, Morgan and
Geller signed separate agreements waiving and releasing the Company from any and
all claims arising under their respective employment agreements, as noted above,
solely for the change in control occurring during October 2001. In consideration
for the foregoing agreements, the Company agreed to issue Messrs. Friedman,
Morgan and Geller an additional 25,000 non-qualified stock options, at an
exercise price of $1.00 per share. Furthermore, the Company agreed that any and
all options to purchase common stock in the Company already held by Messrs.
Friedman, Morgan and Geller would likewise become immediately vested and
exercisable.
In August 1999, each of Messrs. Albert Friedman, currently President of Take to
Auction and director and Mitchell Morgan, Vice President, Chief Financial
Officer and director, entered into executive employment agreements with Nimbus
Group (formerly "Take to Auction.com"). Each agreement has a term of three years
unless terminated earlier for cause, death, and disability or upon a change in
control of Nimbus Group. Mr. Friedman's agreement provides for an initial base
salary of $125,000. Mr. Morgan's agreement provides for an initial base salary
of $120,000. The above salaries are subject to annual increases equal to the
greater of 5% or the annual increase in the consumer price index plus other
annual increases, if any, as determined by the Compensation Committee in its
sole discretion. In addition, Mr. Friedman and Mr. Morgan were granted
non-qualified stock options through December 31, 2001 to purchase a total of
275,000 and 375,000 Common Shares, respectively, exercisable at a weighted
average price of $2.12 and $3.06, per share, respectively.
In October 1999, Jonathan Geller, our Chief Technology Officer, entered into an
executive employment agreement with Nimbus Group. The agreement has a term of
three years and provides for an initial base salary of $120,000 subject to
annual increases equal to the greater of 5% or the annual increase in the
consumer price index. In addition, Mr. Geller was granted non-qualified stock
options through December 31, 2001 to purchase a total of 375,000 Common Shares,
exercisable at a weighted average price of $2.97 per share.
In the event any of these individuals terminate the agreement (i) within 180
days from the date a person or entity acquires the beneficial ownership of 20
percent or more of the then outstanding Common Shares or 20 percent or more of
the voting power, or (ii) pursuant to certain transactions (including a merger
or a sale of substantially all the assets) approved by the shareholders, they
will be entitled to receive severance compensation in the amount of 200 percent
of their annual base salary.
A committee of our Board determined the exercise price of the options granted to
the employees was the fair market value of the common stock on the date of
grant.
57
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 2001, 2000 and 1999 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, 2001 (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 $50,000
or 10% of the Named Executive Officer's total annual salary and bonus reported
for such Named Executive Officer.
SUMMARY COMPENSATION TABLE
SECURITIES
FISCAL COMPENSATION UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS(#) (1) COMPENSATION ($)
- ---------------------------------- -------- ------------- ----------- ---------------- ----------------
Ilia Lekach 2001 -- -- 700,000 --
Chairman and Interim CEO 2000 -- -- 270,000 --
1999 -- -- -- --
Mitchell Morgan 2001 128,463 -- 200,000 1,348
Chief Financial Officer 2000 123,020 -- 126,531 1,348
1999 45,000 -- 48,469 --
Jonathan Geller 2001 127,837 -- 200,000 190
Chief Technology Officer 2000 121,250 -- 120,714 190
1999 30,000 -- 54,286 --
Albert Friedman 2001 133,711 -- 200,000 2,227
President, Take to Auction.com, 2000 127,083 -- 50,000 270
Inc. 1999 52,082 -- 25,000 --
(1) See "Option Grants and Holdings" below for a description of such executive
officers' options.
OPTION GRANTS AND HOLDINGS
2001 OPTION GRANTS TABLE
The following table sets forth grants of stock options to our interim Chief
Executive Officer and our three other most highly compensated executive officers
during 2001. We have never granted any stock appreciation rights. The weighted
average exercise price of each option is equal to $0.97 per share. The potential
realizable value is calculated based upon the term of the option at its time of
grant (seven years). It is calculated assuming that the value of Common Shares
appreciates at the indicated annual rate compounded annually for the entire term
of the option and that the option is exercised and sold on the last day of its
term for the appreciated stock price. These numbers are calculated based on the
requirements of the SEC and do not reflect our estimate of future stock price
growth.
58
Individual Grants Potential Realizable
-------------------------------------------------------------------- Value
Percentage of at Assumed Annual Rates
Number of Total Option of Share Price
Securities Granted to Appreciation
Underlying options Employees in Exercise Price Expiration for Option term (1)(2)
Name Granted (#) Fiscal Year (%) Per Share ($/Sh) Date 5%($) 10%($)
- ---- ----------- --------------- ---------------- ---- ----- ------
Ilia Lekach 200,000 9.30% $1.01 09/01/08 284,234 393,641
500,000 23.26% $0.90 11/21/08 633,195 876,923
---------------------------------------- --------------------------
700,000 32.56% 917,429 1,270,564
======================================== ==========================
Albert Friedman 175,000 8.14% $1.01 09/01/08 248,705 344,436
25,000 1.16% $1.00 10/10/08 35,178 48,718
---------------------------------------- --------------------------
200,000 9.30% 283,883 393,154
======================================== ==========================
Mitchell Morgan 175,000 8.14% $1.01 09/01/08 248,705 344,436
25,000 1.16% $1.00 10/10/08 35,178 48,718
---------------------------------------- --------------------------
200,000 9.30% 283,883 393,154
======================================== ==========================
Jonathan Geller 175,000 8.14% $1.01 09/01/08 248,705 344,436
25,000 1.16% $1.00 10/10/08 35,178 48,718
--------------------------------------- --------------------------
200,000 9.30% 283,883 393,154
======================================== ==========================
(1) Potential realizable value is based on the assumption that the common
share price appreciates at the annual rate shown (compounded annually)
from the date of grant until the end of the option term. The amounts
have been calculated based on the requirements promulgated by the
Securities and Exchange Commission. The actual value, if any, a named
executive officer may realize will depend on the excess of the shares
on the date of exercise. Accordingly, there is no assurance that the
value realized will be at or near the potential realizable value as
calculated in the table.
(2) These options have a term of seven years from the date of grant.
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, 2001 by our four most highly compensated
executive officers. No options have been exercised as of December 31, 2001 by
any of the officers. The value of unexercised in-the-money options at December
31, 2001 is based on the value of the Common Shares on December 31, 2001
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT DECEMBER 31, 2001 DECEMBER 31, 2001
------------------------------- --------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------ ----------- -------------- ----------- -------------
Ilia Lekach....................................... 790,000 180,000 $ 83,000 $ --
Albert Friedman................................... 275,000 -- 8,250 --
Mitchell Morgan................................... 375,000 -- 8,250 --
Jonathan Geller................................... 375,000 -- 8,250 --
59
EMPLOYEE BENEFIT PLANS
Stock Option Plan
In November 2001, the shareholders approved an amendment to the 1999 Stock
Option Plan (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, 2001, options to
purchase 2,977,600 Common Shares were outstanding with a weighted average
exercise price of $2.35 per share, and 1,465,257 shares were available for
future grants.
SIMPLE IRA Plan
We sponsor 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 eligible to participate may enter the SIMPLE IRA Plan as
of the first day of any month. Participants may make pre-tax contributions to
the SIMPLE IRA Plan subject to a statutorily prescribed annual limit. We will
make matching contributions, not to exceed 3% of a participant's annual
compensation, to the SIMPLE IRA Plan. Each participant is 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 2001 of approximately $33,000.
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,
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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 maintain directors' and officers' liability insurance.
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, 2001 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.
COMMON SHARES
BENEFICIALLY OWNED
--------------------------
NAME OF BENEFICIAL OWNER(1) NUMBER PERCENTAGE(2)
- --------------------------- --------- -------------
Ilia Lekach(5).............................. 2,073,000 27.87%
Pacific Investments(8)...................... 1,283,000 17.25%
E Com Ventures(7)........................... 932,889 12.54%
Horacio Groisman(3)......................... 562,957 7.57%
Magdalena Zafir............................. 542,857 7.30%
Albert Friedman(4).......................... 640,600 8.61%
Jonathan Geller(4).......................... 375,000 5.04%
Mitchell H. Morgan(4)....................... 375,000 5.04%
David Shpilberg(10)......................... 500,000 6.72%
Alan Greenberg(9)........................... 8,333 *
John-Gary Hewitt(9)......................... 8,333 *
Miguel Cauvi(6)............................. 5,000 *
Executive officers and directors as a group
(8 persons)............................... 3,985,266 53.57%
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(*) 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, 2001. Common Shares subject to options currently
exercisable or exercisable within 60 days of December 31, 2001 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 25,000 shares.
(4) Total options to purchase 275,000, 375,000 and 375,000 Common Shares,
granted to Messrs. Friedman, Morgan and Geller as of December 31, 2001.
All of the options issued to Messrs. Friedman, Morgan and Geller are
currently exercisable.
(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 180,000 shares.
(6) Options to purchase 5,000 Common Shares, granted to Mr. Cauvi on March
29, 2001, currently exercisable.
(7) E Com Ventures, Inc.'s address is 11701 N.W. 101st Road, Miami, Florida
33178.
(8) 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.
(9) Options to purchase a total of 100,000 and 100,000 shares granted to
Messrs. Greenberg and Hewitt, respectively, 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
91,667 and 91,667 shares for Messrs. Greenberg and Hewitt,
respectively.
(10) Options to purchase 500,000 Common Shares, granted to David Shpilberg
on September 14, 2001, currently exercisable.
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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.
EMPLOYMENT AGREEMENTS BETWEEN US AND OUR OFFICERS AND DIRECTORS
Pursuant to employment agreements between Nimbus Group and each of Messrs.
Friedman, Morgan and Geller, our executive officers and directors, we have
agreed to pay an initial annual base salary to them in the amount of $125,000,
$120,000 and $120,000, respectively.
PERFUMANIA.COM SERVICE AGREEMENT
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 year period
ended December 31, 2001 was approximately $75,000. In addition, we rent
approximately 20,000 square feet of warehouse facilities from Perfumania.com for
approximately $15,000 per month.
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PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
"Exhibit Schedule"
(a) The following exhibits are filed herewith or incorporated herein by
reference:
Exhibit
Number Description of Exhibit
- ------ ----------------------
2.01 Agreement and Plan of Merger among Nimbus Group, Inc. and TTA
Solutions, Inc. and Take to Auction.com, Inc.**
3.01 Articles of Incorporation as currently in effect.
3.02 Bylaws as currently in effect.
10.01 Executive Employment Agreement between Registrant and Albert Friedman
dated August 25, 1999.*
10.02 Executive Employment Agreement between Registrant and Mitchell H.
Morgan dated August 25, 1999.*
10.03 Executive Employment Agreement between Registrant and Jonathan Geller
dated October 1, 1999.*
10.04 Office Building Net Lease between Anglers Office Park, Inc., a
Florida corporation doing business as Anglers Corporate Center, and
the Registrant dated December 28, 1999.*
10.05 Office Lease between Miami Freezone Corporation, a Florida
corporation, and the Registrant dated August 4, 1999.*
10.06 Form of Indemnification Agreement to be entered into by Registrant
with each of its directors and executive officers.*
10.07 2001 Amended Stock Option Plan and related documents.
10.14 Perfumania.com Service Agreement. ***
10.15 E Com Ventures, Inc. Note Agreement. ***
* 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.
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(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 October 11, 2001, the Company filed a Current Report on Form 8-K reporting
that the company had entered into an Agreement and Plan of Merger (the "Merger
Agreement") resulting in a reorganization of our corporate structure. In
addition, we changed the corporate name from Take to Auction.com, Inc. to Nimbus
Group, Inc.
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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 1, 2002
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.
DATE
----
By: /s/ General Charles A. Horner
------------------------------ April 1, 2002
General Charles A. Horner
Vice-Chairman of the Board
By: /s/ Mitchell Morgan April 1, 2002
------------------------------
Mitchell Morgan
Vice President, Chief Financial Officer
and Director
By: /s/ Jonathan Geller April 1, 2002
------------------------------
Jonathan Geller
Vice President, Chief Technology Officer
and Director
By: /s/ Albert Friedman April 1, 2002
------------------------------
Albert Friedman
Director
By: /s/ David Shpilberg April 1, 2002
------------------------------
David Shpilberg
Director
By: /s/ Alan Greenberg April 1, 2002
------------------------------
Alan Greenberg
Director
By: /s/ John-Gary Hewitt April 1, 2002
------------------------------
John-Gary Hewitt
Director
By: /s/ Miguel Cauvi April 1, 2002
------------------------------
Miguel Cauvi
Director
66