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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, 2003
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 01-0656115
(State of Incorporation) (I.R.S. Employer
Identification Number)
2875 NE 191ST STREET, SUITE PH 2
AVENTURA, FL 33180
(Address of principal executive offices) (Zip Code)
305-692-3732
(Registrant's telephone number, including area code)
N/A
(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 [ ] NO [X]
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 30, 2003,
7,688,889 shares of Common Stock, $.001 par value were outstanding.
- --------------------------------------------------------------------------------
NIMBUS GROUP, INC.
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements............................................................................. 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............ 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk....................................... 14
Item 4. Controls and Procedures.......................................................................... 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................................................ 15
Item 2. Changes in Securities and Use of Proceeds........................................................ 15
Item 3. Defaults Upon Senior Securities.................................................................. 16
Item 4. Submission of Matters to a Vote of Security Holders.............................................. 16
Item 5. Other Information................................................................................ 16
Item 6. Exhibits and Reports on Form 8-K................................................................. 16
ii
Nimbus Group, Inc. and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets
September 30, June 30,
------------------ ------------------
2003 2003
------------------ ------------------
ASSETS
Current assets:
Cash and cash equivalents 15,525 354
Accounts receivable 150,000 150,000
Shareholder receivable 20,123
Inventory, net -- --
Prepaid expenses and other current assets 7,300 7,300
------------------ ------------------
Total current assets 172,825 177,777
Property and equipment, net -- --
Other -- --
------------------ ------------------
Total assets 172,825 177,777
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable 215,688 277,418
Accrued expenses 139,041 100,218
Amounts due to related party -- --
Reserve for discontinued operations --
Deferred revenue -- 100,000
------------------ ------------------
Total current liabilities 354,728 477,636
Commitments and Contingencies
Shareholders' equity (deficiency):
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 7,438 7,438
Additional paid-in capital 10,988,796 10,988,796
Accumulated deficit (11,380,283) (11,296,094)
------------------ ------------------
Total shareholders' equity (deficiency) (384,049) (299,859)
------------------ ------------------
------------------ ------------------
Total liabilities and shareholders' equity (deficiency) (29,321) 177,777
================== ==================
The accompanying notes are an integral part of these condensed
consolidated financial statements.
1
Nimbus Group, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
For the three-months
ended September 30,
----------------------------- ---------
2003 2002 2001
--------- -------- ---------
Cash flows from operating activities:
Net income/(loss) (34,189) (522,269)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization -- 127,160
Change in operating assets and liabilities:
Accounts receivable -- 64,132
Shareholder receivables 22,268 (830)
Inventory 467,249
Prepaid expenses and other current assets -- 10,684
Other assets -- (4,938)
Accounts payable (11,730) (468,951)
Accrued expenses 38,822 20,442
Amounts due to related party -- 301,275
Deferred revenue -- (11,368)
--------- -------- ---------
Net cash used in operating activities 15,171 (17,414) --
--------- -------- ---------
Cash flows from investing activities:
Purchase of property and equipment -- (1,616)
--------- -------- ---------
Net cash used in investing activities -- (1,616) --
--------- -------- ---------
Net decrease in cash and cash equivalents 15,171 (19,030)
Cash and cash equivalents at beginning of period 354 30,552
--------- -------- ---------
Cash and cash equivalents at end of period 15,525 11,522 --
========= ======== =========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
Nimbus Group, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statement of Operations
For the three-months
ended September 30,
----------------------------- ---------
2003 2002 2001
--------- --------- ---------
Net royalty revenues 75,867 -- --
Operating expenses:
General and administrative expenses 110,669 -- --
--------- --------- ---------
Total operating expenses 110,669 -- --
--------- --------- ---------
Net loss from operations (34,802) -- --
Other income/(expense):
Other income/(expense) 613 -- --
--------- --------- ---------
Net loss from continuing operations (34,189) -- --
Discontinued Operations:
Loss from discontinued operations -- (522,269) (894,302)
--------- --------- ---------
Net loss (34,189) (522,269) (894,302)
========= ========= =========
Basic and diluted loss per common share (0.00) (0.07) (0.12)
========= ========= =========
Weighted average number of common
shares outstanding 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. NATURE OF OPERATIONS AND DISCONTINUED OPERATIONS:
Currently the Company is implementing its plan and changing its focus to the
development and wholesale distribution of fragrances and skincare products, both
proprietary and under license. This new focus capitalizes on current
management's expertise. The Company acquired licensing rights to certain brands
that enabled the Company to enter into sub-licensing and distribution agreements
that has generated income for the Company.
Cara Mia is the first brand the Company acquired from Omniscient Corp. that
began distribution through a licensing agreement with Victory International
(USA) LLC. Cara Mia Skincare initially launched in Puerto Rico with four
products created specifically as skincare solutions. The Company only
distributes its product lines via licensed wholesale distributors that service
specialty retail stores across the United States and to worldwide importers and
exclusive distributors. The Company does not directly manufacture any product or
take positions in inventory.
During fiscal 2001 (January 1 to December 31, 2001), Take to Auction.com, Inc.
("TTA"), a Company which sold products online through multiple distribution
channels, reorganized its corporate structure and changed its primary business
focus. On September 26, 2001, TTA, Nimbus Group Inc., a Florida corporation and
wholly-owned subsidiary of TTA ("Nimbus"), and TTA Solutions, Inc., a Florida
corporation and wholly-owned subsidiary of Nimbus ("TTA Solutions"), entered
into an Agreement and Plan of Merger (the "Merger Agreement"). Additionally,
another wholly-owned subsidiary of Nimbus, Nimbus Jets, Inc., ("Nimbus Jets")
was formed. As a result of the Merger, Nimbus (the "Company") became the parent
Company of two wholly-owned subsidiaries, TTA and Nimbus Jets under the Merger
Agreement. All revenues generated in fiscal 2002 and prior related solely to
TTA.
During January 2002, 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.
On February 19, 2003, Watch Junction, Inc. ("Watch") purchased the technology
and certain assets of Take to Auction (the "Technology Sale"). Watch Junction is
owned 100% by the former President of TTA, Mr. Albert Friedman. Mr. Friedman
made a cash payment in the amount of $50,000 and returned 305,610 shares of our
common stock back to us for the licensing rights of the technology and purchase
of certain assets.
TTA operated the Perfumania.com retail storefront prior to January 2003, which
offered over 2,000 fragrance and fragrance-related products, including bath and
aromatherapy products. As of December 31, 2002, we owed Perfumania.com
approximately $2.1 million relating primarily to inventory purchased pursuant to
a license agreement (the "License Agreement"). On January 28,
4
2003, we received a letter from E Com Ventures, Inc. ("ECMV"), the parent of
Perfumania.com, indicating we were in default of our Website Operations Services
Agreement (the "Agreement") for non-payment of amounts due of approximately $1.9
million to Perfumania.com in connection with the Agreement. To settle the breach
of contract claim, we agreed to terminate the Agreement in exchange for a
release of the outstanding obligations owed to Perfumania.com. On February 28,
2003, The Company completed the process of returning the operations of
Perfumania.com back to ECMV (the "P.com Return"). In the condensed statement of
operations for the period ending June 30, 2003 we reflect a gain on the
extinguishment of approximately $2.6 million dollars.
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 $11.3 million
and has a deficiency in working capital of approximately $182,000 at September
30, 2003. These factors, among others, indicate that the Company may be unable
to continue as a going concern. 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.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
Basic and diluted net income (loss) per share is computed by dividing the net
income (loss) available to common shareholders for the period by the weighted
average number of Common Shares outstanding for the period.
5
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. Provisions 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. No provisions were made for the six months ending June 30,
2003, 2002 and 2001 respectively. The Company had no inventory at September 30,
2003.
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. During fiscal 2002,
based on the plan of disposal of TTA, the Company recorded a non-cash impairment
charge of approximately $279,000 on December 31, 2002 to write-down certain
assets to their net realizable value. Fair value of these impaired assets was
determined based on prices for similar assets. The impairment losses are
included in loss from discontinued operations.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, Take to Auction.com, Inc. and Nimbus Jets Inc.
All significant intercompany balances and transactions have been eliminated in
consolidation.
SOFTWARE DEVELOPMENT COSTS
In accordance with Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" and Emerging Issues
Task Force 00-2, "Accounting For Web Site Development Costs", the Company
capitalizes acquired and internally developed or modified software solely to
meet the Company's internal needs integral to the Company's web site. The
Company capitalizes certain internal and external costs directly associated with
developing or modifying the internal use software, which begins with the
application development stage and ends when the project is substantially
complete and ready for its intended use. The ongoing assessment of
recoverability of capitalized software development costs require considerable
judgment by management with respect to certain external factors, including, but
not limited to, estimated economic life and changes in software and hardware
technologies. No
6
software development cost was expended in the period end September 30, 2003. All
above referenced software has been disposed off and no further development is
anticipated.
REVENUE RECOGNITION
Revenues from membership fees are deferred at the time of billing and are
recognized ratably over the term of annual membership. Membership fees relate to
the fees paid by members for permitting them to sell merchandise on auction
sites. 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. We no longer generate income from membership fees nor
superstore setup fees.
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. At June 30, 2003 a 100% valuation allowance was made.
SIMPLE IRA PLAN
The Company sponsored the Nimbus Group, Inc. SIMPLE IRA Plan (the "Plan"), a
defined contribution plan provided pursuant to the requirements of the Internal
Revenue Code of 1986, as amended. All employees were eligible to participate in
the Plan as of the first day of any month. Participants made pre-tax
contributions to the Plan subject to a statutorily prescribed annual limit. The
Company was required to make matching contributions, not to exceed 3% of a
participant's annual compensation, to the Plan. Each participant was fully
vested in their account, including the participant's contributions, the
Company's matching contribution and the investment earnings thereon.
Contributions by the participants or by the Company to the Plan,
7
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 had accrued a matching
contribution to the Plan at December 31, 2002 of approximately $28,000. At June
30, 2003 the Company owed the Plan $28,000. No payment was made to the plan as
of September 30, 2003.
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.
742,000 warrants were issued during the six month transition period ended June
30, 2003, 2002 or 2001.
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"), establishes standards for recording and displaying
comprehensive income and its components. SFAS No. 130 requires certain
components of equity to be recorded as other comprehensive income. The Company
has no other comprehensive income during the fiscal transition six months period
ended June 30, 2003, 2002, and 2001.
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 only
one segment during 2003, 2002 and 2001. On February 27, 2003 the Company
completed its return of P.com to Ecomv and started its transition into the
development and licensing of cosmetics and fragrances.
RECLASSIFICATIONS
Certain reclassifications to the Company's 2002 and 2001 consolidated financial
statements were made to conform them to classifications used in June 30, 2003
statements.
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.
8
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure an amendment of FASB Statement No. 123.
This Statement amends SFAS No. 123, Accounting for Stock-Based Compensation, to
provide alternative methods of transition for an entity that voluntarily changes
to the fair value based method of accounting for stock-based employee
compensation. It also amends the disclosure provisions of that Statement to
require prominent disclosure about the effects on reported net income of an
entity's accounting policy decisions with respect to stock-based employee
compensation. Finally, this Statement amends APB Opinion No. 28, Interim
Financial Reporting, to require disclosure about those effects in interim
financial information. We intend to continue to account for stock-based
compensation based on the provisions of APB Opinion No. 25. SFAS 148's amendment
of the transition and annual disclosure provisions of SFAS 123 are effective for
fiscal years ending after December 15, 2002, and the disclosure requirements for
interim financial statements are effective for interim periods beginning after
December 15, 2002. We have adopted the disclosure provisions of SFAS 148
beginning in the quarter ending March 31, 2003.
NOTE 3. INITIAL PUBLIC OFFERING:
Effective June 12, 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. RELATED PARTY TRANSACTIONS:
During November 2000, the Company loaned its former Chairman of the Board
approximately $100,000. During 2002, principal payments of approximately $7,000
were made. This loan was classified as shareholder receivables in the
accompanying consolidated balance sheet. As of June 30, 2003 the balance was
$20,123. The loan was satisfied in August 2003. As of September 30, 2003 there
are no outstanding loans to related parties.
Effective September 1, 2001, the Company entered into a licensing agreement (the
"License Agreement") with Perfumania.com to license its retail fragrance Web
site. Under the terms of the agreement, the Company paid royalties to
Perfumania.com in the amount of 5% of defined product sales for sales up to $8
million per annum, decreasing to 3% on sales exceeding $11 million per annum.
Royalty expense under this agreement for the years ended December 31, 2002 and
2001 were approximately $277,000 and $75,000, respectively.
As of December 31, 2002, we owed Perfumania.com approximately $2.1 million
relating primarily to inventory purchased from the License Agreement. On January
28, 2003, we received a letter from ECMV stating that we were in default of the
License Agreement for non-payment of amounts due and based on recent public
filings that showed that we continue to report losses, have negative working
capital and equity, ECMV was terminating the License Agreement. The Company is
in the process of returning the operations of Perfumania.com back to ECMV. As
part of the transition of the P.com return, ECMV assumed certain liabilities of
9
TTA, relating to the operations of Perfumania.com. The debt was extinguished
during the six month period ended June 30, 2003 and was reflected in the
statement of operations through discontinued operations.
On February 19, 2003, Watch Junction, Inc. ("Watch") purchased the technology
and certain assets of Take to Auction (the "Technology Sale"). Watch Junction is
owned 100% by the former President of TTA, Mr. Albert Friedman. Mr. Friedman
made a cash payment in the amount of $50,000 and returned 305,610 shares of our
common stock back to us for the licensing rights of the technology and the
purchase of certain assets. The Company believes that this transaction was made
at fair market value. The returned stock was sold to Omniscent on September 1,
2003.
On May 19, 2003, we entered into an agreement with Omniscent Corp. to acquire
certain rights to a portfolio of fragrance brands and Skincare line that
include; The Cara Mia Swiss Formulated Skincare line. The Cara Mia line
initially debuted with four products created specifically to repair and
rejuvenate the users skin. The Company has until January 31, 2004 to determine
whether it will close on the acquisition. At its sole option it may terminate
the agreement. The purchase price for the development and licensing rights is
for up to 2,500,000 shares of preferred convertible stock or a cash payment of
$500,000 at the Company's option, for the design and development rights and 30%
of all revenues and or sub-licensing fees. If issued, the preferred shares will
be convertible into shares of common stock of our Company on a one to one basis
at the option of the holder, but in no event may the preferred shares be
converted into more than 19.9% of our issued and outstanding common stock.
Sharon Lallouz is the principal shareholder of Omniscent Corp. and is also the
spouse of the Company's Chief Executive. Mr. Lallouz was appointed Chief
Executive Officer and director of the Company subsequent to the acquisition. In
addition, Mr. Lallouz disclaims any beneficial ownership in Omniscent Corp. As
of this date no determination has been made as to whether this acquisition will
be consummated.
Effective May 21, 2003 we also entered into an assignment agreement with
Omniscent, where we acquired the licensing rights of the Phantom Fragrances
brand licensed to Moar International. Under the terms of the licensing agreement
a royalty fee of 5% on net sales of the brand is payable to us by Moar
International. Under the assignment agreement 1.5% from the 5% will revert to
Omniscent leaving Nimbus with a net of 3.5% of all royalties collected from this
licensing assignment. We anticipate the launch of the Phantom Fragrance line
will commence in March 2004.
On June 10, 2003 the Company, ECOM and Perfumania.com signed an agreement, as of
March 2003, in which Perfumania.com extinguished the receivable due from the
Company, various assets and liabilities were transferred between Perfumania.com
and the Company and the operations of Perfumania.com were transitioned back to
ECOM by the Company.
On September 1, 2003 Omniscent Corp. loaned the Company $30,000, which is an
interest free loan due on demand. The Company also sold Omniscent Corp., 305,610
shares of the common stock of the corporation for $50,000 at $.16 per share
which is approximately 115% of the closing trading price of the Company's common
stock on September 1, 2003.
10
NOTE 5. SUBSEQUENT EVENTS AND AGREEMENT:
On November 21, 2003, the AMEX suspended trading of the Company common stock due
to failure to file this transition report and the quarterly report on Form 10-Q
on a timely basis. AMEX will recommence trading of our common stock upon the
filing of and review of such reports by the staff of AMEX. AMEX staff have
indicated that if the filings are not made by December 12, 2003, de-listing
proceedings will commence.
On December 28, 1999, the Company entered into a five year operating lease
agreement for its corporate headquarters. The monthly rent payments under this
lease were approximately $14,500 from the period January 1, 2000 to April 1,
2003. On April 1, 2003 the Company moved to another office building in Aventura,
Florida and leased facilities at that office building at 2999 N.E. 191st Street
for the period from April 1, 2003 to December 15, 2003 for initially $3,883 and
then for $1,702 for suites 805 and 903, respectively. The Company entered a new
lease in the building next door on October 7, 2003 with occupancy effective on
December 14, 2003. The following is a schedule by year of the minimum future
lease commitments:
Fiscal Year Ended Amount
----------------- --------
June 30, 2004 $ 18,179
June 30, 2005 15,820
June 30, 2006 16,479
June 30, 2007 7,062
Thereafter --
--------
Total operating lease commitments $ 57,540
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 2003 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 Transition Report on Form 10-K for the six month
period ended June 30, 2003 filed with the Securities and Exchange Commission.
OVERVIEW
11
Nimbus Group, Inc. (the "Company") has discontinued its prior operations and is
focusing its efforts to the development of fragrance and cosmetics brands, both
proprietary and under license. Effective August 6, 2003 the Company determined
to change its fiscal year end from that used in its most recent periodic report
filing with the SEC (December 31, 2003). The date of the new fiscal year end is
now June 30.
The Company distributes its product lines via licensed wholesale distributors
that service specialty retail stores across the United States and to worldwide
importers and exclusive distributors. The Company does not directly manufacture
any product nor takes positions in inventory.
On May 19, 2003, we entered into an agreement with Omniscent Corp. to acquire
certain rights to a portfolio of fragrance brands and Skincare line that
include; The Cara Mia Swiss Formulated Skincare line. The Cara Mia line
initially debuted with four products created specifically to repair and
rejuvenate the users skin. The Company has until January 31, 2004 to determine
whether it will close on the acquisition. At its sole option it may terminate
the agreements. The purchase price for these development and licensing rights
for Cara Mia is up to 2,500,000 shares of preferred convertible stock or a cash
payment of $500,000 at the Company's option, for the design and development
rights and 30% of all revenues and or sub-licensing fees. If issued, the
preferred shares will be convertible into shares of common stock of our Company
on a one to one basis at the option of the holder, but in no event may the
preferred shares be converted into more than 19.9% of our issued and outstanding
common stock. Sharon Lallouz is the principal shareholder of Omniscent Corp. and
is also the spouse of Lucien Lallouz, Chief Executive Officer of the Company.
Mr. Lallouz was appointed Chief Executive Officer and director of the Company
subsequent to the acquisition. In addition, Mr. Lallouz disclaims any beneficial
ownership in Omniscent Corp. As of this date no determination has been made as
to whether this acquisition will be consummated.
Effective May 20, 2003, we entered into a licensing agreement with Victory
International USA LLC to distribute its Cara Mia Cosmetics brand worldwide.
Under the terms of the agreement, Victory is to advance the company $200,000
against royalties of 12% on all net sales made by Victory International USA LLC.
First deposit of $50,000 was received on May 21, 2003, the second was received
on July 9, 2003 and the balance has been received as of November 30, 2003.
Ongoing royalties are payable quarterly.
Effective May 21, 2003, we also acquired the licensing rights for the Phantom
Fragrances brand, which is licensed to Moar International. Under the terms of
the licensing agreement a royalty fee of 5% on net sales of the brand will be
paid to us by Moar International. First payment has been changed from August
2003 to March 2004 due to production delays.
Cara Mia Skincare initially launched in Puerto Rico in October 2003 with four
products created specifically as a skincare solution. Victory intends to
continue its brand roll-out in the continental United States starting in January
2004.
RESULTS OF OPERATIONS. As discussed above, we have recently changed our business
strategy and discontinued prior operations. Results of operations for the three
month periods ended September
12
30, 2003 and September 30, 2002 are not comparable due to this change. As such,
any comparison of these periods is meaningless.
REVENUES. Overall net revenues for the three months period ended September 30,
2003 were $75,867 relating exclusively to royalty payments under our licensing
of the Cara Mia product line.
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 for the three months transition period ended September
30, 2003 were $110,669.The decrease in general and administrative expenses as
compared to our discontinued operations was due to the reduction in
administrative and executive personal associated with the change of our business
and winding down of our prior operations. We anticipate that as our new business
operations develop, our general and administrative expenses will increase.
ROYALTY EXPENSES. No royalty expense payment was made during the three month
transition period ended September 30, 2003. Our royalty expense will
proportionally increase or decrease depending on future revenues derived under
the Omniscent Corp. licensing arrangement.
NET INCOME (LOSS). The net (loss) totaled approximately ($34,189) for the three
months transition period ended September 30, 2003 as compared to a net loss of
($522,269) for the three months period ended September 30, 2002.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at September 30, 2003 were $15,525 and at June 30,
2003 were approximately $354. Our working capital (deficit) totaled ($384,049)
at September 30, 2003 and ($299,859) at June 30, 2003.
Our principal capital requirements during the next 12 months will be to fund the
operations of our future business plan. We have had negative cash flows since
inception, resulting primarily from our wholly-owned subsidiary, TTA. Our
working capital to date has been provided primarily by the proceeds from our
initial capitalization of $1,000,000, other private placements, the issuance of
promissory notes to affiliates, and our initial public offering consummated in
June 2000. On September 1, 2003 Omniscent Corp. loaned the Company $30,000,
which is an interest free loan due on demand. The Company also sold Omniscent
Corp., 305,610 shares of the common stock of the corporation for $50,000 at $.16
per share which is approximately 115% of the closing trading price of the
Company's common stock on September 1, 2003.
The Company had net income of $1,437,477 for the transition period ended June
30, 2003 which resulted from the completion of our return of the operations of
Perfumania.com back to ECOM. The return of Perfumania.com was in settlement of
the breach of contract claim made by ECOM, the parent of Perfumania.com.
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The Company had no cash flows from financing activities for the transition
period ended June 30, 2003, nor the three month period ended September 30, 2003.
During November 2000, the Company loaned its former Chairman of the Board
approximately $100,000. The remaining amount outstanding as of June 30, 2003,
approximately $20,123, was due on demand and accrued interest at the prime rate
plus two percent. The loan was repaid in full during the three month period
ended September 30, 2003.
The Company has incurred net losses since inception, and its ability to
ultimately obtain profitable operations is dependent upon future events,
including without limitation, obtaining financing adequate to support its cost
structure and future business plans. There can be no assurance that the
Company's new business strategy will be successfully implemented, or that
private funding will be successfully completed, or that our future cash flows
will be sufficient to meet all of our obligations and commitments. The failure
to generate such sufficient cash flows could significantly adversely affect the
market value of our common stock and the operation of our business, results of
operations and financial condition.
New Accounting Pronouncements
None.
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.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure an amendment of FASB Statement No. 123.
This Statement amends SFAS No. 123, Accounting for Stock-Based Compensation, to
provide alternative methods of transition for an entity that voluntarily changes
to the fair value based method of accounting for stock-based employee
compensation. It also amends the disclosure provisions of that Statement to
require prominent disclosure about the effects on reported net income of an
entity's accounting policy decisions with respect to stock-based employee
compensation. Finally, this Statement amends APB Opinion No. 28, Interim
Financial Reporting, to require disclosure about those effects in interim
financial information. We intend to continue to account for stock-based
compensation based on the provisions of APB Opinion No. 25. SFAS 148's amendment
of the transition and annual disclosure provisions of SFAS 123 are effective for
fiscal years ending after December 15, 2002, and the disclosure requirements for
interim financial statements are effective for interim periods beginning after
December 15, 2002. We have adopted the disclosure. provisions of SFAS 148
beginning in the quarter ending March 31, 2003.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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During the quarter ended September 30, 2003, there have been no material changes
in the information about our market risk as of June 30, 2003 as set forth in
item 7A of the Company's Transition Report on Form 10-K for the year ended June
30, 2003. Our market risk exposure with respect to financial instruments is to
changes in the "prime rate" in the United States. As of September 30, 2003, we
had no short or long-term investments.
ITEM 4: CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
At the end of the period covered by this report, the Company carried out an
evaluation of the effectiveness of the design and operation of its disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14. This evaluation
was done under the supervision and with the participation of the Company's
Principal Executive Officer and Principal Financial Officer. Based upon that
evaluation, they concluded that the Company's disclosure controls and procedures
are effective in gathering, analyzing and disclosing information needed to
satisfy the Company's disclosure obligations under the Exchange Act.
CHANGES IN INTERNAL CONTROLS
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect those controls since the most recent
evaluation of such controls.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Change in Securities and Use of Proceeds
On July 2, 2003 the Company issued an aggregate of 250,000 shares of common
stock to two law firms in consideration for legal services performed for the
Company and future services to be performed for the Company. The shares were
valued at $.14 per share, equal to the closing bid price of the common stock of
the Company on the date of grant. The shares were issued pursuant to the
exemption from registration provided by Section 4(2) of the Securities Act. The
shares contain the appropriate legend restricting their transferability absent
registration or applicable exemption. The shareholders had access to current
information on the Company and had the ability to ask questions about the
Company.
On September 1, 2003 Omniscent Corp. loaned the Company $30,000, which is an
interest free loan due on demand. The Company also sold Omniscent Corp., 305,610
shares of the common stock of the corporation for $50,000 at $.16 per share
which is approximately 115% of the closing trading price of the Company's common
stock on September 1, 2003. The shares were issued pursuant to the exemption
from registration provided by Section 4(2) of the Securities
15
Act. The shares contain the appropriate legend restricting their transferability
absent registration or applicable exemption. Omniscent Corp. had access to
current information on the Company and had the ability to ask questions about
the Company.
In October 2003 the Company entered into a consulting agreement with Jack Smith
under which Mr. Smith received options to purchase an aggregate of 371,000
shares of the Company's common stock. The options are exercisable at $.18 per
share which is over 110% of the closing trading price of the Company's common
stock on the date of grant. The options were issued pursuant to the exemption
from registration provided by Section 4(2) of the Securities Act. The options
contain the appropriate legend restricting the transferability absent
registration or applicable exemption. Mr. Smith had access to current
information on the Company and had the ability to ask questions about the
Company.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Index to Exhibits.
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
31.1 Certification by Chief Executive Officer pursuant to Section 302.
31.2 Certification by Interim Chief Financial Officer pursuant to
Section 302.
32.1 Section 906 Certification by Chief Executive Officer
32.2 Section 906 Certification by Interim Chief Financial Officer
(b) Reports on Form 8-K.
On August 11, 2003, the company filed a current report on Form 8-K to disclose
under Item 4 a change in its certifying accountant. In addition, the report also
included disclosure under Item 8 disclosing a change in fiscal year from
December 31 to June 30.
On October 20, 2003, the Company filed a current report on Form 8-K disclosing
under Item 4 that it had dismissed its recently appointed certifying accountant,
effective October 15, 2003. On November 18, 2003, the Company filed an amended
current report on Form 8-KA amending its previously filed current report and
disclosing under Item 4 that the firm of DeMeo, Young,
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McGrath had been appointed to replace the previously certifying accountant,
effective November 12, 2003. The amended current report also included a letter
from the former accountant addressing the statements made in the current report
relating to the former certifying accountants dismissal.
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.
NIMBUS GROUP, INC.
By: /s/ Lucien Lallouz
-------------------------------------
Lucien Lallouz
Chief Executive Officer
By: /s/ Michael Wellikoff
-------------------------------------
Michael Wellikoff
Interim Chief Financial Officer
Date: December 22, 2003
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