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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
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.
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(Exact name of registrant as specified in its charter)
FLORIDA 01-0656115
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(State of Incorporation) (I.R.S. Employer
Identification Number)
5555 ANGLERS AVENUE, SUITE 16
FORT LAUDERDALE, FL 33312
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(Address of principal executive offices) (Zip Code)
954-987-0654
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
As of November 13, 2002, 7,438,889 shares of Common Stock, $.001 par
value were outstanding.
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NIMBUS GROUP, INC.
TABLE OF CONTENTS
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements................................................................................. 2
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................ 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk........................................... 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................................................................16
Item 2. Changes in Securities and Use of Proceeds..............................................................16
Item 6. Exhibits and Reports on Form 8-K.......................................................................16
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NIMBUS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 11,522 $ 379,775
Accounts receivable 35,490 51,641
Shareholder receivable 54,620 59,051
Inventory, net 346,945 709,329
Prepaid expenses and other current assets 68,567 159,184
------------ ------------
Total current assets 517,144 1,358,980
Property and equipment, net 416,228 755,057
Other 9,724 8,810
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Total assets $ 943,096 $ 2,122,847
============ ============
LIABILITIES AND SHAREHOLDERS' (DEFICIENCY) EQUITY
Current liabilities:
Accounts payable $ 504,306 $ 673,527
Accrued expenses 239,114 346,341
Amounts due to related party 1,991,122 965,057
Deferred revenue 11,692 66,641
------------ ------------
Total current liabilities 2,746,234 2,051,566
Commitments and Contingencies
Shareholders' (deficiency) 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 (12,799,373) (10,924,954)
------------ ------------
Total shareholders' (deficiency) equity (1,803,138) 71,281
------------ ------------
Total liabilities and shareholders' (deficiency) equity $ 943,096 $ 2,122,847
============ ============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
NIMBUS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE-MONTHS FOR THE NINE-MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------------- -----------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net revenues $ 2,405,405 $ 2,389,877 $ 8,446,282 $ 8,214,171
Cost of net revenues 1,877,235 2,031,885 6,565,802 7,373,928
----------- ----------- ----------- -----------
Gross margin 528,170 357,992 1,880,480 840,243
----------- ----------- ----------- -----------
Operating expenses:
General and administrative expenses 598,230 752,897 2,004,422 2,514,650
Auction fees 93,160 211,195 357,897 853,784
Sales and marketing 185,045 31,493 696,613 47,132
Fulfillment 116,638 181,711 490,737 475,419
Web site development expenses 58,059 74,998 205,602 220,374
----------- ----------- ----------- -----------
Total operating expenses 1,051,132 1,252,294 3,755,271 4,111,359
----------- ----------- ----------- -----------
Net loss from operations (522,962) (894,302) (1,874,791) (3,271,116)
Interest income, net 693 1,690 372 22,823
----------- ----------- ----------- -----------
Net loss $ (522,269) $ (892,612) $(1,874,419) $(3,248,293)
=========== =========== =========== ===========
Basic and diluted loss per common share $ (0.07) $ (0.12) $ (0.25) $ (0.44)
=========== =========== =========== ===========
Weighted average number of common
shares outstanding 7,438,889 7,438,889 7,438,889 7,438,889
=========== =========== =========== ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
NIMBUS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE-MONTHS
ENDED SEPTEMBER 30,
-----------------------------
2002 2001
----------- -----------
Cash flows from operating activities:
Net loss $(1,874,419) $(3,248,293)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 379,893 341,534
Change in operating assets and liabilities:
Accounts receivable 16,151 40,434
Shareholder receivables 4,431 36,519
Inventory 362,384 1,714,132
Prepaid expenses and other current assets 90,617 352,536
Other assets (914) 975
Accounts payable (169,221) (369,245)
Accrued expenses (107,227) 473,128
Amounts due to related party 1,026,065 --
Deferred revenue (54,949) (377,516)
----------- -----------
Net cash used in operating activities (327,189) (1,035,796)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (41,064) (123,020)
----------- -----------
Net cash used in investing activities (41,064) (123,020)
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Cash flows from financing activities:
Book overdraft -- 72,667
----------- -----------
Net cash provided by financing activities -- 72,667
----------- -----------
Net decrease in cash and cash equivalents (368,253) (1,086,149)
Cash and cash equivalents at beginning of period 379,775 1,086,149
----------- -----------
Cash and cash equivalents at end of period $ 11,522 $ --
=========== ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
NIMBUS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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1. BASIS OF PRESENTATION:
The accompanying unaudited financial statements of Nimbus Group, Inc. (the
"Company" or "Nimbus") for the periods indicated herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission and in accordance with accounting principles generally accepted
in the United States of America ("Generally Accepted Accounting
Principles") for interim financial information. Accordingly, they do not
include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the three and nine-month periods ended September 30, 2002 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2002. For further information, refer to the Company's
2001 financial statements and notes thereto.
The accompanying condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business. However, the Company has incurred net losses since inception in
the amount of approximately $12.8 million and has a deficiency in working
capital of approximately $2.2 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 condensed 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. The Company is
attempting to raise additional funds through private offerings of its
common shares and/or the sale of its wholly owned subsidiary, Take to
Auction.com ("TTA"), the proceeds of which will be used toward its working
capital. However, there can be no assurance that such financings and/or
sale will be successful or that the ultimate proceeds will prove to be
adequate.
During January 2002, the Company's Board 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.
The Company was in negotiations to acquire 100% of the outstanding shares
of a third party company (the "Target") that operated in the aviation
industry and had a fixed based operation in Florida. The operations of the
Target would have been merged into the operations of Nimbus Jets. During
October 2002, the tentative merger agreement between the Target and us was
terminated, primarily due to difficulties surrounding the listing
requirements with the American Stock Exchange based on a change of control
provision. The Company will continue to seek alternative strategies in its
development of a national air taxi service.
On September 30, 2002, the Company received an offer from a third party
company to purchase substantially all of the assets and certain liabilities
of TTA. Completion of the purchase will be contingent upon the successful
negotiation of a formal purchase agreement and successful completion of due
diligence procedures by both parties. See Note 6: Subsequent Events.
The Company anticipates that TTA 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 year 2002, as the Company cannot reasonably
determine whether a loss on disposal will be incurred. Primarily all
assets, liabilities, revenues and expenses reflected in the accompanying
condensed consolidated financial statements relate to TTA.
5
NIMBUS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
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1. BASIS OF PRESENTATION, CONTINUED:
Certain reclassifications to the Company's 2001 financial statements were
made to conform them to classifications used in 2002.
2. RECENT ACCOUNTING PRONOUNCEMENTS:
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." The standard requires
companies to recognize costs associated with exit or disposal activities
when they are incurred rather than at the date of a commitment to an exit
or disposal plan. SFAS No. 146 is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002. Management has not
yet determined the impact SFAS No. 146 compliance will have on the
condensed consolidated financial statements.
3. PROPERTY AND EQUIPMENT:
Property and equipment include the following:
ESTIMATED
USEFUL LIVES
(IN YEARS) SEPTEMBER 30, 2002 DECEMBER 31, 2001
---------- ------------------ -----------------
Computer equipment 3 $ 501,216 $ 500,607
Computer software 3 793,095 752,640
Furniture and fixtures 5 86,001 86,001
Telecommunication equipment 5 39,485 39,485
Leasehold improvements 5 130,231 130,231
-------------- ---------------
1,550,028 1,508,964
Less: accumulated depreciation
and amortization (1,133,800) (753,907)
-------------- ---------------
Property and equipment, net $ 416,228 $ 755,057
============== ===============
As of September 30, 2002, all amounts capitalized relating to internal use
software have been placed into service and are being amortized over its
estimated useful life.
6
NIMBUS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
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4. RELATED PARTY TRANSACTIONS:
During November 2000, the Company loaned its Chairman of the Board
approximately $100,000. During fiscal 2001 and during the nine-month period
ended September 30, 2002, principal payments of approximately $44,000 and
$7,000, respectively, were received. 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 condensed
consolidated balance sheet.
On October 1, 2000, the Company entered into a six-month service agreement
with Perfumania.com, Inc., a subsidiary of E Com Ventures, Inc., a related
party, ("ECMV"), to outsource the Company's warehouse and distribution
functions. This agreement automatically renewed for successive one-year
terms. This service agreement included order processing, inventory
management, warehousing, fulfillment and product shipment. This agreement
was variable, based on volume of sales, however, the agreement included
monthly minimum fees if such volume levels were not obtained. 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 three and nine-month periods ended September 30, 2002
were approximately $50,000 and $139,000, respectively. Approximately $2.0
million and $1.0 million was accrued and classified as amounts due to
related party in the accompanying condensed consolidated balance sheets as
of September 30, 2002 and December 31, 2001, respectively. Of these
amounts, approximately $1.1 million and $0.2 million related to the
purchase of inventory as of September 30, 2002 and December 31, 2001,
respectively.
5. COMMITMENTS AND CONTINGENCIES:
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 9, 2001, we entered into an agreement with Eclipse Aviation
Corp. ("Eclipse"), a start up company, 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 was to be $837,500 in June
2000 dollars and was subject to pricing adjustments of up to five percent
(5%) per year.
7
NIMBUS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
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5. COMMITMENTS AND CONTINGENCIES, CONTINUED:
Under the terms of the Eclipse agreement, we were 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 was not
required to deliver the Aircraft until the Deposits were received. The
subsequent years' 930 Aircraft delivery commitment were not to become a
firm Eclipse delivery commitment until the full $11.7 million Deposit was
received.
During January 2002, the Company issued 1,532,846 shares of its common
stock, valued at $2 million, to Eclipse in satisfaction of the Deposit on
the first 10 Aircraft. On March 12, 2002, Eclipse filed with the Securities
and Exchange Commission on Form 3 - Initial Statement of Beneficial
Ownership of Securities, upon its acceptance of our common stock. Eclipse
subsequently returned the common stock to the Company, stating its
anticipated difficulty in liquidating its ownership position in the
Company. On July 3, 2002, the Company received notice from Eclipse that its
agreement to purchase the Aircraft was terminated due to the Company's
failure to make the Deposit payment by June 30, 2002. The Company did not
agree to the return of the common stock and therefore, management believes
that rights to the first 10 Aircraft are still vested in the Company. The
Company is currently contemplating its response to the contract termination
by Eclipse and how such termination and potential response will affect the
Company's ability to realize its business objectives going forward.
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.
6. SUBSEQUENT EVENTS:
On September 30, 2002, the Company received an offer from Go Antiques, Inc.
("GO") to purchase substantially all of the assets and certain liabilities
of TTA for a total purchase price of approximately $1.5 million. The
purchase price would include $1.0 million in cash, $250,000 in a
non-interest bearing note receivable due 12 months from the date of closing
and approximately 227,250 shares of GO's common stock, valued at $250,000.
The value of GO's common stock was based on the latest offering price of GO
common stock. Completion of the purchase will be contingent upon the
successful negotiation of a formal purchase agreement and approval from the
majority of our shareholders. A portion of the proceeds from the sale will
be used to pay down our payable due to Perfumania.com and a portion will be
used for general working capital.
Upon completion of the sale, senior management of TTA will continue to
operate the Perfumania.com website.
Effective October 1, 2002, the Company entered into a severance agreement
with a former executive of the Company. The resulting expense, primarily
payroll related, of approximately $40,000 will be recognized as the
liability is incurred.
8
NIMBUS GROUP, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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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. These risks and uncertainties are
described in more detail in our Annual Report on Form 10-K filed with the
Securities and Exchange Commission on April 1, 2002.
OVERVIEW- NIMBUS JETS
Nimbus Jets, a start-up air taxi service, plans to offer a convenient and
cost-effective private jet solution for business travelers and individuals
alike. Unlike current alternative methods of flying, primarily commercial,
charter or fractional ownership, Nimbus Jets would be a fly on-demand private
air taxi service. The heart of our strategy was the acquisition of an extremely
cost-efficient fleet of jet aircraft, such as the one developed by Eclipse
Aviation Corp. ("Eclipse").
On December 9, 2001, we entered into an agreement with Eclipse, a start-up
company, 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 was to be $837,500 in June 2000 dollars and was subject to pricing
adjustments of up to five percent (5%) per year.
Under the terms of the Eclipse agreement, we were 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 was not required to deliver
the Aircraft until the Deposits were received. The subsequent years' 930
Aircraft delivery commitments were not to become a firm Eclipse delivery
commitment until the full $11.7 million Deposit was received.
During January 2002, we issued 1,532,846 shares of its common stock, valued at
$2 million, to Eclipse in satisfaction of the Deposit on the first 10 Aircraft.
On March 12, 2002, Eclipse filed with the Securities and Exchange Commission on
Form 3 - Initial Statement of Beneficial Ownership of Securities, upon its
acceptance of our common stock. Eclipse subsequently returned the common stock
to us, stating its anticipated difficulty in liquidating its ownership position
in us. On July 3, 2002, we received notice from Eclipse that its agreement to
purchase the Aircraft was terminated due to our failure to make the Deposit
payment by June 30, 2002. We did not agree to the return of the common stock and
therefore, management believes that rights to the first 10 Aircraft are still
vested with us.
We were in negotiations to acquire 100% of the outstanding shares of a third
party company (the "Target") that operated in the aviation industry and had a
fixed based operation in Florida. The operations of the Target would have been
merged into the operations of Nimbus Jets. During October 2002, the tentative
merger agreement between the Target and us was terminated, primarily due to
difficulties surrounding the listing requirements with the American Stock
Exchange based on a change of control provision. We will continue to seek
alternative strategies in our development of a national air taxi service.
As of November 1, 2002, Nimbus Jets has not yet commenced any operational
activities.
9
NIMBUS GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONTINUED)
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OVERVIEW - TAKE TO AUCTION
Today, all of our revenues are generated by our wholly owned subsidiary, Take to
Auction.com, Inc. (TTA). TTA commenced operations on the World Wide Web during
July 1999. During its operating history, TTA has evolved from being solely a
membership community, where its members would list and profit from selling
merchandise at online auction sites, to selling items directly in multiple
wholesale and retail distribution channels. These selling channels consist
primarily of online auction sites (TTA Auctions), a retail Web site (TTA
Direct), a retail Web site we operate through a license agreement
(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.
TTA also operates TTA Direct, our virtual 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 and
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 sold item.
During January 2002, our Board adopted a formal plan of disposition 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.
On September 30, 2002, we received an offer from Go Antiques, Inc. ("GO") to
purchase substantially all of the assets and certain liabilities of TTA for a
total purchase price of approximately $1.5 million. The purchase price would
include $1.0 million in cash, $250,000 in a non-interest bearing note receivable
due 12 months from the date of closing and approximately 227,250 shares of GO's
common stock, valued at $250,000. The value of GO's common stock was based on
the latest offering price of GO common stock. Completion of the purchase will be
contingent upon the successful negotiation of a formal purchase agreement and
approval from the majority of our shareholders. A portion of the proceeds from
the sale will be used to pay down our payable due to Perfumania.com and a
portion will be used for general working capital.
Upon completion of the sale, senior management of TTA will continue to operate
the Perfumania.com website.
RESULTS OF OPERATIONS
The results of operations for the three and nine-month periods ended September
30, 2002 and 2001 reflect the results of operations for our wholly owned
subsidiary TTA. Nimbus Jets has not yet commenced any operational activities.
Start-up costs for Nimbus Jets are expensed to operations as incurred and are
discussed further in general and administrative expenses below.
10
NIMBUS GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
NET REVENUES. TTA's revenues are derived from sales of product at auction and
through storefronts, sales of product through Perfumania.com and TTA Direct,
membership fees paid by our users for TTA Auctions, set-up fees paid by users to
open their own virtual storefront through TTA Superstores, and shipping and
handling fees.
Overall net revenues increased 3% or approximately $0.2 million to approximately
$8.4 million for the nine-month period ended September 30, 2002, compared to
approximately $8.2 million for the nine-month period ended September 30, 2001.
Auction revenues decreased by approximately $2.6 million to $2.8 million for the
nine-month period ended September 30, 2002 compared to $5.4 million for the
nine-month period ended September 30, 2001. We continue to make a concerted
effort to decrease the number of auction listings at auction sites that charge
listing fees due to the high variable costs associated with selling items at
these auction sites verses selling items through our other sales outlets.
Accordingly, we believe auction revenues will continue to decrease in the
future.
For the nine-month period ended September 30, 2002, revenues from TTA Direct
increased approximately $0.8 million to approximately $1.4 million compared to
approximately $0.6 million for the nine-month period ended September 30, 2001
(excludes sales during the nine-month period ended September 30, 2001 of
approximately $350,000 to a company owned 100% by one of our shareholders. We do
not anticipate these sales to recur in the future). Sales from TTA Direct
increased due to our continued focus on marketing. See "Results of Operations -
Sales and Marketing."
During April 2001, we launched TTA Superstores. For the nine-month period ended
September 30, 2002, revenues from TTA Superstores increased approximately $0.2
million to approximately $0.4 million compared to approximately $0.2 million for
the nine-month period ended September 30, 2001. The increase in revenue from TTA
Superstores is primarily attributable to the increase in the number of
Superstores from approximately 1,600 as of September 30, 2001 to approximately
2,400 as of September 30, 2002.
TTA began operating Perfumania.com in September 2001. For the nine-month period
ended September 30, 2002, revenues from Perfumania.com increased approximately
$2.6 million to approximately $2.8 million compared to approximately $0.2
million for the nine-month period ended September 30, 2001. We expect to grow
our "affiliate marketing" programs, resulting in an increase in future net
revenue. See "Results of Operations -- Sales and Marketing."
For the nine-month period ended September 30, 2002, membership revenues
decreased approximately $0.7 million to approximately $30,000, compared to
approximately $0.7 million for the nine-month period ended September 30, 2001.
Effective June 2001, we suspended acceptance of new TTA Auction members, and
accordingly, membership revenues continued to decrease during 2002 as membership
terms expired in June 2002. Membership revenue recognized during the nine-month
period ended September 30, 2001 resulted primarily from the recognition of
membership fees from fiscal year 2000 earned over the annual membership term.
For the nine-month periods ended September 30, 2002 and 2001, we generated
approximately $87,000 and $81,000, respectively, from TTA Superstore setup fees
resulting primarily from the increase in the number of stores discussed above.
For the nine-month period ended September 30, 2002, shipping and handling fees
increased approximately $0.2 million to approximately $0.9 million compared to
approximately $0.7 million for the nine-month period ended September 30, 2001,
primarily due to the additional transactional volume generated from the
Perfumania.com sales discussed above.
Overall net revenues remained relatively flat at $2.4 million for the
three-month period ended September 30, 2002 compared to the three-month period
ended September 30, 2001.
11
NIMBUS GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
Auction revenues were approximately $1.0 million for the three-month period
ended September 30, 2002 and approximately $1.4 million for the three-month
period ended September 30, 2001. During 2002, we made a concerted effort to
decrease the number of auction listings at auction sites that charge listing
fees due to the high variable costs associated with selling items at these
auction sites verses selling items through our other sales outlets. Accordingly,
auction revenues decreased by $0.4 million when compared to the comparable
period in 2001.
For the three-month period ended September 30, 2002, revenues from TTA Direct
increased approximately $0.1 million to approximately $0.3 million compared to
approximately $0.2 million for the three-month period ended September 30, 2001.
Sales increased due to our continued focus on marketing. See "Results of
Operations - Sales and Marketing."
During April 2001, we launched TTA Superstores. For the three-month period ended
September 30, 2002, revenues from TTA Superstores decreased approximately
$38,000 to approximately $87,000 compared to approximately $125,000 for the
three-month period ended September 30, 2001, primarily attributable to the
overall decrease in our inventory levels.
TTA began operating Perfumania.com in September 2001. For the three-month
periods ended September 30, 2002 and 2001, net revenues generated from
Perfumania.com were approximately $0.8 million and $0.2 million, respectively.
We expect to grow our "affiliate marketing" programs, resulting in an increase
in future net revenue. See "Results of Operations -- Sales and Marketing."
For the three-month period ended September 30, 2002, we did not generate
membership revenues, compared to approximately $0.2 million for the three-month
period ended September 30, 2001. Effective June 2001, we suspended acceptance of
new TTA Auction members, and accordingly, membership revenues continued to
decrease during 2002 as membership terms expired in June 2002. Membership
revenue recognized during the three-month period ended September 30, 2001
resulted primarily from the recognition of membership fees from fiscal 2000
earned over the annual membership term. For the three-month periods ended
September 30, 2002 and 2001, we generated approximately $21,000 and $58,000,
respectively, from TTA Superstore setup fees resulting primarily from the
increase in the number of stores discussed above. For the three-month period
ended September 30, 2002, shipping and handling fees remained relatively flat at
$0.2 million due to net revenues remaining relatively flat during the comparable
period.
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 decreased approximately $0.8 million to approximately $6.6 million for
the nine-month period ended September 30, 2002, compared to approximately $7.4
million for the nine-month period ended September 30, 2001. Cost of net revenues
as a percentage of revenues were approximately 78% for the nine-month period
ended September 30, 2002, and 90% for the nine-month period ended September 30,
2001. Cost of net revenues decreased approximately $0.2 million to approximately
$1.8 million for the three-month period ended September 30, 2002, compared to
approximately $2.0 million for the three-month period ended September 30, 2001.
Cost of net revenues as a percentage of revenues were approximately 78% for the
three-month period ended June 30, 2002, and 85% for the three-month period ended
September 30, 2001. We believe that our cost of net revenues will continue to
decrease as a percentage of net revenues as we continue to sell more products
through our retail outlets, including 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.
12
NIMBUS GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONTINUED)
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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 decreased approximately $0.2 million to approximately
$0.6 million for the three-month period ended September 30, 2002 compared to
approximately $0.8 million for the three-month period ended September 30, 2001.
General and administrative expenses as a percentage of net revenues were 25% for
the three-month period ended September 30, 2002 and 32% for the three-month
period ended September 30, 2001. General and administrative expenses decreased
approximately $0.5 million to approximately $2.0 million for the nine-month
period ended September 30, 2002 compared to approximately $2.5 million for the
nine-month period ended September 30, 2001. General and administrative expenses
as a percentage of net revenues were 24% for the nine-month period ended
September 30, 2002 and 31% for the nine-month period ended September 30, 2001.
We continued to improve our operating efficiencies throughout the three and
nine-month periods ended September 30, 2002 by implementing certain cost
containment initiatives. Included in general and administrative expenses during
the three and nine-month periods ended September 30, 2002 are costs of
approximately $21,000 and $75,000, respectively, 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 decreased approximately $0.1
million to approximately $0.1 million for the three-month period ended September
30, 2002, compared to approximately $0.2 million for the three-month period
ended September 30, 2001. Auction fees decreased approximately $0.5 million to
approximately $0.4 million for the nine-month period ended September 30, 2002,
compared to approximately $0.9 million for the nine-month period ended September
30, 2001. The decreased completed transaction volume from auctions described
above contributed to the decline in auction fees.
We intend to improve auctions fees, as a percentage of net revenues by using
leverage to negotiate favorable fees with other online auction companies. We
signed a 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 their 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 auction 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.
SALES AND MARKETING. Sales and marketing expenses consist of fees incurred for
advertising and promotion of our brand. Sales and marketing increased
approximately $0.1 million to approximately $0.2 million for the three-month
period ended September 30, 2002 compared to approximately $0.1 million for the
three-month period ended September 30, 2001. Sales and marketing increased
approximately $0.6 million to approximately $0.7 million for the nine-month
period ended September 30, 2002 compared to approximately $0.1 million for the
nine-month period ended September 30, 2001. We use e-mail promotions to targeted
buyers of our merchandise. 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. Finally, we submit our products through a data-feed to several high
trafficked price comparison Web sites. We feel that this traffic is very
targeted and converts into buyers of our merchandise. We anticipate these last
three types of marketing expenses to increase in the
13
NIMBUS GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONTINUED)
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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 three and nine-month periods ended September 30, 2002 were
approximately $50,000 and $139,000, respectively, compared with $9,000 for each
of the three and nine-month periods ended September 30, 2001.
FULFILLMENT FEES. Fulfillment fees consist of payroll expenses for our warehouse
personnel and fees incurred by us to warehouse and fulfill products shipped to
our customers as well as fees incurred by us for payment processing. Fulfillment
fees decreased approximately $65,000 to approximately $117,000 for the
three-month period ended September 30, 2002 compared to approximately $182,000
for the three-month period ended September 30, 2001. Fulfillment fees increased
approximately $15,000 to approximately $491,000 for the nine-month period ended
September 30, 2002 compared to approximately $476,000 for the nine-month period
ended September 30, 2001. Fulfillment fees as a percentage of net revenues
remained relatively flat at 6% for the nine-month periods ended September 30,
2002 and 2001, respectively.
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 decreased
approximately $17,000 to $58,000 for the three-month period ended September 30,
2002 compared to approximately $75,000 for the three-month period ended
September 30, 2001. Web site development expenses decreased approximately
$15,000 to $205,000 for the nine-month period ended September 30, 2002 compared
to approximately $220,000 for the nine-month period ended September 30, 2001.
Although we believe that the majority of our Web site development is currently
completed, we will continue to incur development costs in the future in order to
increase our network infrastructure, which in turn 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 $0.2 million
and $0.7 million for the three and nine-month periods ended September 30, 2002,
respectively and $0.3 million and $1.2 million for the three and nine-month
periods ended September 30, 2001, 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 $0.5 million and $0.9 million for the three-month periods ended
September 30, 2002 and 2001, respectively, and $1.9 million and $3.2 million for
the nine-month periods ended September 30, 2002 and 2001, respectively.
LIQUIDITY AND CAPITAL RESOURCES
We have had negative cash flows since inception, resulting primarily from our
wholly owned subsidiary, TTA. During January 2002, our Board adopted a formal
plan of disposition 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
and our initial public offering consummated in June 2000.
14
NIMBUS GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
Cash and cash equivalents at September 30, 2002 and December 31, 2001 were
approximately $12,000 and $380,000, respectively. Our working capital deficit
totaled $2.3 million and $0.7 million at September 30, 2002 and December 31,
2001, respectively.
We used cash of approximately $0.3 million in operating activities for the
nine-month period ended September 30, 2002. This was primarily the result of a
loss of approximately $1.9 million, as well as a decreases in accounts payable
of $0.2 million and accrued expenses of approximately $0.2 million, offset
primarily by a decrease in inventory of approximately $0.4 million, as well as
an increase in amounts due to related party of $1.0 million. The increase in
amounts due to related party resulted primarily from the cost of inventory sold
through Perfumania.com. We used cash of approximately $1.0 million in operating
activities for the nine-month period ended September 30, 2001. This was
primarily the result of a loss of approximately $3.2 million, as well as
decreases in accounts payable of $0.4 million, and in deferred revenue of $0.4
million, all of which were offset in part by an increase in accrued expenses of
$0.5 million and decreases in our inventory of $1.7 million and prepaid expenses
and other current assets of $0.4 million. During the nine-month period ended
September 30, 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.
We used cash in investing activities of approximately $0.1 million and $0.1
million for the nine-month periods ended September 30, 2002 and 2001,
respectively, primarily related to certain costs capitalized in connection with
internal use software.
We had no cash flows from financing activities for the nine-month period ended
September 30, 2002. Net cash provided by financing activities for the nine-month
period ended September 30, 2001 was approximately $0.1 million, resulting from a
book overdraft.
During November 2000, the Company loaned its Chairman of the Board approximately
$100,000. During 2001 and during the nine-month period ended September 30, 2002,
principal payments of approximately $44,000 and $6,000, respectively, were made.
The remaining amount is due on demand and accrues interest at the prime rate
plus two percent.
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.
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 attempting to raise additional funds through the private
offering of our Common Shares and we have entered into a purchase agreement 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 year 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 year 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.
15
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the quarter ended September 30, 2002, there have been no material changes
in the information about our market risk as of December 31, 2001 as set forth in
item 7A. of the 2001 Form 10-K.
PART II - OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
See Note 5 to the Condensed Consolidated Financial Statements included in Part
I, Item 1 of this quarterly report for certain other information relevant to
ongoing legal matters, which is incorporated herein by this reference.
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
The Company did not issue or sell any unregistered securities during the quarter
ended September 30, 2002.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits.
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- --------- ---------------------
99.1 Certification by Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes - Oxley Act of 2002.
99.2 Certification by Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes - Oxley Act of 2002.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the
quarter ended September 30, 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized officer.
Take to Auction.com
By: /s/ Ilia Lekach
------------------------------
Ilia Lekach
Chairman of the Board and
interim Chief Executive Officer
By: /s/ Mitchell Morgan
------------------------------
Mitchell Morgan
Chief Financial Officer
Date: November 13, 2002
16