As filed with the Securities and Exchange Commission on May 27, 2004
An Exhibit List can be found on page II-4.
Registration No. 333-________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
_____________________________
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_____________________________
INVICTA GROUP INC.
(Name of small business issuer in its charter)
NEVADA 4700 91-2051923
(State or other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification No.)
Incorporation or
Organization)
9553 HARDING AVENUE
MIAMI BEACH, FLORIDA 33154
(305) 866-6525
(Address and telephone number of principal executive offices
and principal place of business)
WILLIAM FORHAN, CHIEF EXECUTIVE OFFICER
INVICTA GROUP INC.
9553 HARDING AVENUE
MIAMI BEACH, FLORIDA 33154
(305) 866-6525
(Name, address and telephone number of agent for service)
Copies to:
GREGORY SICHENZIA, ESQ.
STEPHEN M. FLEMING, ESQ.
SICHENZIA ROSS FRIEDMAN FERENCE LLP
1065 AVENUE OF THE AMERICAS, 21ST FLR.
NEW YORK, NEW YORK 10018
(212) 930-9700
(212) 930-9725 (FAX)
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.
If any securities being registered on this Form are to be offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. _________
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. _________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. _________
1
CALCULATION OF REGISTRATION FEE
Title of
each class Amount Proposed Proposed
of Securities to be Maximum Maximum Amount of
to be Registered Offering Price Aggregate Registration
registered (1) Per Share Offering Price Fee
- ---------- ---------- --------------- -------------- ------------
Common stock,
$.001 par value 300,000 $ .06 (3) $ 18,000 $ 2.28
Common stock, 98,625,000 $ .06 (3) $ 5,917,500 $ 749.75
$.001 par value (2)
issuable upon
conversion of
debentures
- ---------- ---------- --------------- -------------- ------------
Common Stock, 3,000,000 $1.00 (5) $ 3,000,000 $ 380.10
$.001 par value (4)
issuable upon
exercise of
warrants
- ---------- ---------- --------------- -------------- ------------
Total 101,925,000 $1,132.13
- ---------- ---------- --------------- -------------- ------------
(1) Includes shares of our common stock, par value $0.001 per share, which may
be offered pursuant to this registration statement, which shares are
issuable upon conversion of convertible debentures and the exercise of
warrants held by the selling stockholder. In addition to the shares set
forth in the table, the amount to be registered includes an indeterminate
number of shares issuable upon conversion of the debentures and exercise of
the warrants, as such number may be adjusted as a result of stock splits,
stock dividends and similar transactions in accordance with Rule 416. The
number of shares of common stock registered hereunder represents a good
faith estimate by us of the number of shares of common stock issuable upon
conversion of the debentures and upon exercise of the warrants. For
purposes of estimating the number of shares of common stock to be included
in this registration statement, we calculated a good faith estimate of the
number of shares of our common stock that we believe will be issuable upon
conversion of the debentures and upon exercise of the warrants to account
for market fluctuations, and antidilution and price protection adjustments,
respectively. Should the conversion ratio result in our having insufficient
shares, we will not rely upon Rule 416, but will file a new registration
statement to cover the resale of such additional shares should that become
necessary. In addition, should a decrease in the exercise price as a result
of an issuance or sale of shares below the then current market price,
result in our having insufficient shares, we will not rely upon Rule 416,
but will file a new registration statement to cover the resale of such
additional shares should that become necessary.
(2) Includes a good faith estimate of the shares underlying convertible
debentures to account for market fluctuations.
(3) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, using the
average of the high and low price as reported on the Over-The-Counter
Bulletin Board on May 24, 2004, which was $.06 per share.
(4) Includes a good faith estimate of the shares underlying warrants
exercisable at $1.00 per share to account for antidilution and price
protection adjustments.
(5) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(g) under the Securities Act of 1933, using the
exercise price of $1.00.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
2
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED MAY 27, 2004
INVICTA GROUP INC.
101,925,000 SHARES OF
COMMON STOCK
This prospectus relates to the resale by the selling stockholder of up to
101,925,000 shares of our common stock, including up to 98,625,000 shares of
common stock underlying convertible debentures, up to 3,000,000 issuable upon
the exercise of common stock purchase warrants and 300,000 shares of common
stock. The convertible debentures are convertible into the number of our shares
of common stock equal to the principal amount of the debentures being converted
multiplied by 11, less the product of the conversion price multiplied by ten
times the dollar amount. The conversion price for the convertible debentures is
the lesser of (i) $0.25 or (ii) eighty percent of the of the average of the
three lowest volume weighted average prices during the twenty (20) trading days
prior to the conversion. The selling stockholder may sell common stock from time
to time in the principal market on which the stock is traded at the prevailing
market price or in negotiated transactions. The selling stockholder may be
deemed underwriters of the shares of common stock, which they are offering. We
will pay the expenses of registering these shares.
Our common stock is registered under Section 12(g) of the Securities
Exchange Act of 1934 and is listed on the Over-The-Counter Bulletin Board under
the symbol "IVGA". The last reported sales price per share of our common stock
as reported by the Over-The-Counter Bulletin Board on May 24, 2004, was $.06.
INVESTING IN THESE SECURITIES INVOLVES SIGNIFICANT RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is _______, 2004.
The information in this Prospectus is not complete and may be changed.
This Prospectus is included in the Registration Statement that was filed by
Invicta Group Inc., with the Securities and Exchange Commission. The selling
stockholders may not sell these securities until the registration statement
becomes effective. This Prospectus is not an offer to sell these securities and
is not soliciting an offer to buy these securities in any state where the sale
is not permitted.
3
PROSPECTUS SUMMARY
The following summary highlights selected information contained in this
prospectus. This summary does not contain all the information you should
consider before investing in the securities. Before making an investment
decision, you should read the entire prospectus carefully, including the "risk
factors" section, the financial statements and the notes to the financial
statements.
INVICTA GROUP INC.
We offer airline tickets and other travel-related products and services
over the telephone and the Internet. The travel related services include hotel
rooms, car rentals, cruises, casino packages and vacation packages. Our web
sites are located at www.dontpayfullfare.com and www.casinoratedplayers.com. At
these websites, Internet users can view and compare air fares and book airplane
tickets, hotel rooms, car rentals, cruises, casino packages and vacation
packages. In addition, as a result of our recent acquisition of Air Plan, Inc.,
we are now also engaged in the sale of discount tickets for international
leisure travel. For the three months ended March 31, 2004, we generated
revenues in the amount of $2,213,411 and a net loss of $474,776. In addition,
for the year ended December 31, 2003, we generated revenue in the amount of
$7,806 and a net loss of $905,402. As a result of recurring losses from
operations and a net deficit in both working capital and stockholders' equity
our auditors, in their report dated April 13, 2003, have expressed substantial
doubt about our ability to continue as going concern.
Our principal offices are located at 9553 Harding Avenue, Suite 301, Miami
Beach, Florida 33154, and our telephone number is (305) 866-6525. We are a
Nevada corporation.
The Offering
Common stock offered
by selling stockholder Up to 101,925,000 shares, including
300,000 shares of common stock, up to
98,625,000 shares of common stock
underlying convertible debentures in the
amount of $300,000, up to 3,000,000
issuable upon the exercise of common
stock purchase warrants at an exercise
price of $1.00 per share, based on
current market prices and assuming full
conversion of the convertible debentures
and the full exercise of the warrants
(includes a good faith estimate of the
shares underlying convertible debentures
to account for market fluctuations).
This number represents 65.4% of our then
current outstanding stock.
Common stock to be outstanding
after the offering Up to 155,642,279 shares
Use of proceeds We will not receive any proceeds from
the sale of the common stock. However,
we will receive up to $3,000,000 upon
exercise of the warrants by the selling
stockholder. We expect to use the
proceeds received from the exercise of
the warrants, if any, for general
working capital purposes. We will
receive an aggregate of $300,000 in
connection with the issuance of the
convertible debenture to the selling
stockholder. We will use the $300,000
for the general working capital purposes
and the payment of professional fees.
4
Over-The-Counter Bulletin
Board Symbol IVGA
The above information regarding common stock to be outstanding after the
offering is based on 53,717,279 shares of common stock outstanding as of May 24,
2004 and assumes the subsequent conversion of our issued convertible debentures
and exercise of warrants by our selling stockholder.
To obtain funding for our ongoing operations, we entered into a Securities
Purchase Agreement with an accredited investor on April 27, 2004 for the sale of
(i) $300,000 in convertible debentures and (ii) warrants to buy 3,000,000 shares
of our common stock. This prospectus relates to the resale of the common stock
underlying these convertible debentures and warrants.
The investors provided us with an aggregate of $300,000 as follows:
- - $150,000 was disbursed to us on April 27, 2004; and
- - $150,000 will be disbursed to us upon effectiveness of this registration
statement, however, up to $50,000 will be retained for services provided to
our company by various professionals, which shall be disbursed upon
effectiveness of this registration statement;
The debentures bear interest at 7 %, mature two years from the date of
issuance, and are convertible into our common stock, at the selling
stockholder's option. The convertible debentures are convertible into the
number of our shares of common stock equal to the principal amount of the
debentures being converted multiplied by 11, less the product of the conversion
price multiplied by ten times the dollar amount of the debenture. The
conversion price for the convertible debenture is the lesser of (i) $0.25 or
(ii) eighty percent of the of the average of the three lowest volume weighted
average prices during the twenty (20) trading days prior to the conversion.
Accordingly, there is in fact no limit on the number of shares into which the
debenture may be converted. In addition, the selling stockholder is obligated
to exercise the warrant concurrently with the submission of a conversion notice
by the selling stockholder. The warrant is exercisable into 3,000,000 shares of
common stock at an exercise price of $1.00 per share.
The selling stockholder has contractually agreed to restrict its ability to
convert or exercise its warrants and receive shares of our common stock such
that the number of shares of common stock held by them and their affiliates
after such conversion or exercise does not exceed 4.9% of the then issued and
outstanding shares of common stock. See the "Selling Stockholders" and "Risk
Factors" sections for a complete description of the convertible debentures.
On February 18, 2004, we entered into a Purchase Agreement with John
Latimer and Karen Latimer, sole stockholders of Air Plan, Inc., a Pennsylvania
corporation, whereby we acquired all of the issued and outstanding shares of
common stock of Air Plan in exchange for 1,000,000 shares of common stock. Upon
the closing of the transactions contemplated by the Purchase Agreement, Air Plan
became our wholly owned subsidiary. In accordance with the Purchase Agreement,
John and Karen Latimer were provided with piggy back registration rights for
300,000 the shares of common stock they received in connection with this
acquisition.
5
RISK FACTORS
This investment has a high degree of risk. Before you invest you should
carefully consider the risks and uncertainties described below and the other
information in this prospectus. If any of the following risks actually occur,
our business, operating results and financial condition could be harmed and the
value of our stock could go down. This means you could lose all or a part of
your investment.
RISKS RELATING TO OUR BUSINESS:
- -----------------------------------
WE HAVE A HISTORY OF LOSSES WHICH MAY CONTINUE, REQUIRING US TO SEEK ADDITIONAL
SOURCES OF CAPITAL WHICH MAY NOT BE AVAILABLE, REQUIRING US TO CURTAIL OR CEASE
OPERATIONS.
We incurred net losses of $474,476 for the three months ended March 31,
2004 and $905,402 for the year ended December 31, 2003. We cannot assure you
that we can achieve or sustain profitability on a quarterly or annual basis in
the future. If revenues grow more slowly than we anticipate, or if operating
expenses exceed our expectations or cannot be adjusted accordingly, we will
continue to incur losses. We will continue to incur losses until we are able to
establish significant sales of our services. Our possible success is dependent
upon the successful development and marketing of our services and products, as
to which there is no assurance. Any future success that we might enjoy will
depend upon many factors, including factors out of our control or which cannot
be predicted at this time. These factors may include changes in or increased
levels of competition, including the entry of additional competitors and
increased success by existing competitors, changes in general economic
conditions, increases in operating costs, including costs of supplies, personnel
and equipment, reduced margins caused by competitive pressures and other
factors. These conditions may have a materially adverse effect upon us or may
force us to reduce or curtail operations. In addition, we will require
additional funds to sustain and expand our sales and marketing activities,
particularly if a well-financed competitor emerges. Based on our current
funding arrangement with Golden Gate Investors, Inc., we do not anticipate that
we will require additional funds to continue our operations for the next twelve
months. In the event that our financing arrangement with Golden Gate Investors,
Inc. is terminated or if we need additional financing, there can be no assurance
that financing will be available in amounts or on terms acceptable to us, if at
all. The inability to obtain sufficient funds from operations or external
sources would require us to curtail or cease operations.
IF WE ARE UNABLE TO OBTAIN ADDITIONAL FUNDING OUR BUSINESS OPERATIONS WILL BE
HARMED AND IF WE DO OBTAIN ADDITIONAL FINANCING OUR THEN EXISTING SHAREHOLDERS
MAY SUFFER SUBSTANTIAL DILUTION.
Additional capital may be required to effectively support the operations
and to otherwise implement our overall business strategy. However, there can be
no assurance that financing will be available when needed on terms that are
acceptable to us. The inability to obtain additional capital will restrict our
ability to grow and may reduce our ability to continue to conduct business
operations. If we are unable to obtain additional financing, we will likely be
required to curtail our marketing and development plans and possibly cease our
operations. Any additional equity financing may involve substantial dilution to
our then existing shareholders.
OUR INDEPENDENT AUDITORS HAVE EXPRESSED SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO
CONTINUE AS A GOING CONCERN, WHICH MAY HINDER OUR ABILITY TO OBTAIN FUTURE
FINANCING.
In their report dated April 13, 2003, our independent auditors stated that
our financial statements for the year ended December 31, 2003 were prepared
assuming that we would continue as a going concern. Our ability to continue as a
going concern is an issue raised as a result of a loss for the year ended
December 31, 2003 in the amount of $905,402 and stockholders deficit of
$1,008,169 as of December 31, 2003. We continue to experience net losses. Our
ability to continue as a going concern is subject to our ability to generate a
profit and/or obtain necessary funding from outside sources, including obtaining
additional funding from the sale of our securities, increasing sales or
obtaining loans and grants from various financial institutions where possible.
Our continued net losses and stockholders' deficit increases the difficulty in
meeting such goals and there can be no assurances that such methods will prove
successful.
6
WE COULD LOSE OUR ACCESS TO DISCOUNTED AIRFARES OFFERED BY AIRLINE CONSOLIDATORS
BECAUSE WE DO NOT HAVE WRITTEN AGREEMENTS WITH THESE AIRLINE CONSOLIDATORS.
Our ontheflyfaring search engine includes access to unpublished air fares
offered by airline consolidators. This access is a major factor in our ability
to compete in the online travel industry. We do not have any written agreements
assuring our continued access to airline consolidator fares. In the event we are
unable to continue to access airline consolidator air fares, our competitive
advantage, if we achieve any advantage, may be lost, and our viability adversely
affected.
FOR ACCESS TO NON-PUBLISHED FARES, WE DEPEND ON TRAVEL SUPPLIERS WITH WHICH WE
HAVE NO LONG-TERM OR EXCLUSIVE CONTRACTS AND MAY BE TERMINATED AT ANYTIME.
Non-published fares represented about a large percentage of our airline
gross bookings and total revenue, and we believe that our continuing ability to
obtain non-published fares is key to our success. The business could be hurt by:
- - Refusals by airlines to renew contracts for supply of non-published fares;
- - Lack of available excess capacity for an extended time period;
- - Renewals of the contracts on less favorable terms; or
- - Cancellation of contracts.
Non-published fares are tickets acquired from the airlines to resell to
consumers at substantial discounts off published fares. The airlines sell us
tickets at these non-published fares primarily to dispose of excess capacity
without eroding published fare structures. We have contracts with more than 23
airlines that permit us to acquire non-published fares on routes designated in
the contracts at specified prices. These contracts do not require airlines to
provide a specific quantity of tickets or to deal with us exclusively. Although
the terms vary, the typical contract is for a period from one to one and a half
years, and many are cancelable on 30 days' notice or less. We have a consistent
record of renewing these contracts, but airlines may decide not to do business
with us or to dispose of excess capacity themselves or through others. At times
in the past, airlines have renewed contracts with us on less favorable terms and
this may continue to occur in the future. In addition, there may be times when
they have less excess capacity to sell.
A LARGE PERCENTAGE OF OUR SALES OF NON-PUBLISHED FARES CURRENTLY COME FROM A
LIMITED NUMBER OF SUPPLIERS.
A large percentage of our non-published fares come from a few carriers. If
one or more of these carriers were to discontinue to supply non-published fares
to us, our business could be hurt. The percentages of non-published fare sales
represented by leading carriers are likely to change from year to year depending
upon a variety of factors, including the availability of excess capacity from
each carrier and the breadth of routes on which non-published fares are
available. We typically engage in ongoing discussions with existing carriers
about increasing the routes available for sale of non-published fares. From time
to time, we also discuss potential new relationships for the supply of
non-published fares with carriers with whom we currently do not have contracts.
TRAVEL SUPPLIERS MAY BE ACQUIRED AND THEN NOT CONTINUE TO DEAL WITH OUR COMPANY.
We believe that our continued ability to obtain non-published fares is key
to our success. Because many of the contracts are short-term and can be
cancelled on short notice, we depend on our relationships with our suppliers for
a continued supply of non-published fares. We also depend on continuation of
suppliers' policy of selling excess capacity through non-published fares. The
acquisition of one of suppliers could hurt the relationship with that supplier
and/or could change that supplier's policy of dealing with excess capacity.
7
A DECLINE IN LEISURE TRAVEL OR DISRUPTIONS IN TRAVEL GENERALLY COULD HURT
BUSINESS.
We earn almost all our revenue from the travel industry, particularly from
leisure travel. Leisure travel is highly sensitive to personal discretionary
spending levels and thus tends to decline during general economic downturns. In
addition, other adverse trends or events that tend to reduce leisure travel are
likely to hurt business. These may include:
- - political instability;
- - regional hostilities;
- - terrorism;
- - fuel price escalation;
- - travel-related accidents;
- - bad weather; or
- - airline or other travel related strikes.
A number of airlines are currently in various stages of negotiation with
unions representing their employees. If those negotiations fail and the unions
select to strike or effect a slowdown, business could be harmed.
WE FACE ACTUAL AND POTENTIAL COMPETITION FROM MANY SOURCES.
We compete in ticket sales against travel wholesalers, consolidators,
online travel companies, airlines and travel agents based on price and the
quality of service to the client. In the leisure travel market, it also competes
against frequent flyer awards and charter flights. Increased competition may
result in reduced operating margins, loss of market share and decreased brand
recognition. Ultimately, we may not be able to compete successfully against
current and future competitors.
Among other factors, our success depends heavily on access to non-
published fares, on brand recognition and on the ability of its systems to
integrate our non-published fares with published fares to offer clients a broad
choice. Some of our competitors, including the air carriers themselves, have
longer histories, larger client bases, greater brand recognition and
significantly greater financial, marketing and other resources than we do. These
competitors may be able to replicate the factors that make us successful. They
may also enter into strategic or commercial relationships with larger,
established and well-financed companies. Some of our competitors have agreements
to buy non-published fares from major suppliers. For example, Priceline.com,
Inc. signed an agreement to purchase non-published tickets from Continental,
United and American Airlines and others and has granted warrants to purchase
Priceline.com common stock to certain carriers, and Hotwire.com acquires
non-published fares primarily from five domestic airlines that are its
shareholders. Our competitors may be able to induce one or more of our suppliers
of non-published fares, through pricing, equity or other incentives, to cease
doing business with us, or to do business with us on less favorable terms. They
might also be able to build strong brand recognition in the leisure travel
market, through widespread advertising and other marketing efforts. Some of our
competitors may be able to devote greater resources to marketing and promotional
campaigns on the Internet. Competitors may also devote substantially more
resources to website and systems development than we can. Any or all of these
developments could bring heavy competitive pressures to bear our company.
OUR COMPANY'S BRAND MAY NOT ACHIEVE THE BROAD RECOGNITION NECESSARY TO SUCCEED.
Our company believes that we must establish, entrench and enhance our brand
to continue to attract and expand business. Failure to entrench and enhance our
brand could hurt business. The success of our brand will depend to a certain
extent on its ability to establish and enhance advertising programs. The number
of Internet sites that offer competing services increases the importance of
establishing and maintaining brand name recognition. Many online sites already
have well-established brands in online services or the travel industry
generally. We intend to expand our advertising expenditure, including television
and radio promotions, but these expenditures may not result in increased
business activity or the desired enhancement of brand recognition. This could
adversely affect results of operations.
8
OUR CURRENT AND PLANNED PERSONNEL, SYSTEMS, PROCEDURES AND CONTROLS MAY BE
INADEQUATE TO SUPPORT PLANNED GROWTH, AND MANAGEMENT MAY NOT BE ABLE TO
IDENTIFY, MANAGE AND EXPLOIT EXISTING AND POTENTIAL MARKET OPPORTUNITIES
SUCCESSFULLY.
We may not be able to keep up with the industry's rapid technological and
other changes. The industry in which we compete is characterized by:
- - rapid technological change;
- - changes in user and client requirements and preferences;
- - frequent new product and service introductions embodying new technologies;
- - the emergence of new industry standards and practices; and
- - the emerging importance of the Internet and the proliferation of companies
offering Internet-based products and services.
These developments could render existing online sites and proprietary
technology and systems to become quickly obsolete. Management's inability to
modify or adapt infrastructure in a timely manner or the expenses incurred in
making such adaptations could hurt business.
As a result, we will be required to continually improve the performance,
features and reliability of our services, particularly in response to
competitive offerings. Our success will depend, in part, on our ability to
enhance existing services and develop new services in a cost-effective and
timely manner. The development of proprietary technology entails significant
technical and business risks and requires substantial expenditures and
lead-time. We may not be able to adapt successfully to client requirements or
emerging industry standards. In addition, the widespread adoption of Internet,
networking or telecommunications technologies or other technologies could
require us to incur substantial expenditures to modify or adapt our services or
infrastructure.
REGULATORY AND LEGAL UNCERTAINTIES COULD HARM OUR BUSINESS.
The United States and other governments heavily regulate certain segments
of the travel industry. Accordingly, certain services offered by us are affected
by such regulations. New legislation or regulation, the application of laws and
regulations from jurisdictions whose laws do not currently apply to our
business, or the application of existing laws and regulations to the Internet
and commercial online services could hurt our business.
We are subject to federal regulations prohibiting unfair and deceptive
practices. In addition, federal regulations concerning the display and
presentation of information currently applicable to airline booking services
could be extended to us in the future, as well as other laws and regulations
aimed at protecting clients accessing travel services through an online or
Internet service. In California, Hawaii and certain other states, we are
required to register as a seller of travel, comply with certain disclosure
requirements and participate in the state's restitution fund.
We are also subject to regulations applicable to businesses generally and
laws or regulations applicable to online and Internet commerce. Although
currently, there are not many laws and regulations that directly apply to the
Internet and commercial online services, it is possible that laws and
regulations may be adopted with respect to the Internet or commercial online
services covering issues such as user privacy, advertising, pricing, content,
copyrights, distribution, antitrust and characteristics and quality of products
and services. Further, the growth and development of the market for online and
Internet commerce may prompt calls for more stringent consumer protection laws.
Such laws would likely impose additional burdens on companies conducting
business online. The adoption of any additional laws or regulations may decrease
the growth of the Internet or commercial online services. In turn, this could
decrease the demand for our products and services and increase our cost of doing
business, or otherwise hurt our business.
9
Moreover, in many states, there is currently great uncertainty whether or
how existing laws governing property ownership, sales and other taxes, libel,
personal jurisdiction, choice of law and privacy apply to the Internet and
commercial online services. These issues may take years to resolve. For example,
tax authorities in a number of states, as well as a Congressional advisory
commission, are currently reviewing the appropriate tax treatment of companies
engaged in online and Internet commerce, and new state tax regulations may
subject us to additional state sales and income taxes.
RISKS RELATING TO OUR CURRENT FINANCING ARRANGEMENT:
- ----------------------------------------------------------
THERE ARE A LARGE NUMBER OF SHARES UNDERLYING OUR CONVERTIBLE DEBENTURES, AND
WARRANTS THAT MAY BE AVAILABLE FOR FUTURE SALE AND THE SALE OF THESE SHARES MAY
DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.
As of May 24, 2004, we had 53,717,279 shares of common stock issued and
outstanding and convertible debentures outstanding that may be converted into an
estimated 65,750,000 shares of common stock at current market prices, and
outstanding warrants to purchase 3,000,0000 shares of common stock. In
addition, the number of shares of common stock issuable upon conversion of the
outstanding convertible debentures may increase if the market price of our stock
declines. All of the shares, including all of the shares issuable upon
conversion of the debentures and upon exercise of our warrants, may be sold
without restriction. The sale of these shares may adversely affect the market
price of our common stock.
THE CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF OUR CONVERTIBLE
DEBENTURES COULD REQUIRE US TO ISSUE A SUBSTANTIALLY GREATER NUMBER OF SHARES,
WHICH WILL CAUSE DILUTION TO OUR EXISTING STOCKHOLDERS.
Our obligation to issue shares upon conversion of our convertible
debentures is essentially limitless. The following is an example of the amount
of shares of our common stock that are issuable, upon conversion of our
convertible debentures (excluding accrued interest), based on market prices 25%,
50% and 75% below the market price, as of May 24, 2004 of $0.06.
Number % of
% Below Price Per With Discount of Shares Outstanding
Market Share at 20% Issuable Stock
- -------- --------- ------------- ----------- -----------
25% $.045 $.036 86,666,667 62.27%
50% $.030 $.024 134,500,000 71.46%
75% $.015 $.012 272,000,000 83.51%
As illustrated, the number of shares of common stock issuable upon
conversion of our convertible debentures will increase if the market price of
our stock declines, which will cause dilution to our existing stockholders.
THE CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF OUR CONVERTIBLE
DEBENTURES MAY ENCOURAGE INVESTORS TO MAKE SHORT SALES IN OUR COMMON STOCK,
WHICH COULD HAVE A DEPRESSIVE EFFECT ON THE PRICE OF OUR COMMON STOCK.
The convertible debentures are convertible into shares of our common stock
at a 20% discount to the trading price of the common stock prior to the
conversion. The significant downward pressure on the price of the common stock
as the selling stockholder converts and sells material amounts of common stock
could encourage short sales by investors. This could place further downward
pressure on the price of the common stock. The selling stockholder could sell
common stock into the market in anticipation of covering the short sale by
converting their securities, which could cause the further downward pressure on
the stock price. In addition, not only the sale of shares issued upon conversion
or exercise of debentures, warrants and options, but also the mere perception
that these sales could occur, may adversely affect the market price of the
common stock.
10
THE ISSUANCE OF SHARES UPON CONVERSION OF THE CONVERTIBLE DEBENTURES AND
EXERCISE OF OUTSTANDING WARRANTS MAY CAUSE IMMEDIATE AND SUBSTANTIAL DILUTION TO
OUR EXISTING STOCKHOLDERS.
The issuance of shares upon conversion of the convertible debentures and
exercise of warrants may result in substantial dilution to the interests of
other stockholders since the selling stockholders may ultimately convert and
sell the full amount issuable on conversion. Although the selling stockholders
may not convert their convertible debentures and/or exercise their warrants if
such conversion or exercise would cause them to own more than 4.9% of our
outstanding common stock, this restriction does not prevent the selling
stockholders from converting and/or exercising some of their holdings and then
converting the rest of their holdings. In this way, the selling stockholders
could sell more than this limit while never holding more than this limit. There
is no upper limit on the number of shares that may be issued which will have the
effect of further diluting the proportionate equity interest and voting power of
holders of our common stock, including investors in this offering.
IN THE EVENT THAT OUR STOCK PRICE DECLINES, THE SHARES OF COMMON STOCK ALLOCATED
FOR CONVERSION OF THE CONVERTIBLE DEBENTURES AND REGISTERED PURSUANT TO THIS
PROSPECTUS MAY NOT BE ADEQUATE AND WE MAY BE REQUIRED TO FILE A SUBSEQUENT
REGISTRATION STATEMENT COVERING ADDITIONAL SHARES. IF THE SHARES WE HAVE
ALLOCATED AND ARE REGISTERING HEREWITH ARE NOT ADEQUATE AND WE ARE REQUIRED TO
FILE AN ADDITIONAL REGISTRATION STATEMENT, WE MAY INCUR SUBSTANTIAL COSTS IN
CONNECTION THEREWITH.
Based on our current market price and the potential decrease in our market
price as a result of the issuance of shares upon conversion of the convertible
debentures, we have made a good faith estimate as to the amount of shares of
common stock that we are required to register and allocate for conversion of the
convertible debentures. Accordingly, subject to obtaining an increase in our
authorized shares of common stock, we will allocate and register approximately
98,625,000 shares to cover the conversion of the convertible debentures. In the
event that our stock price decreases, the shares of common stock we have
allocated for conversion of the convertible debentures and are registering
hereunder may not be adequate. If the shares we have allocated to the
registration statement are not adequate and we are required to file an
additional registration statement, we may incur substantial costs in connection
with the preparation and filing of such registration statement.
IF WE ARE REQUIRED FOR ANY REASON TO REPAY OUR OUTSTANDING CONVERTIBLE
DEBENTURES, WE WOULD BE REQUIRED TO DEPLETE OUR WORKING CAPITAL, IF AVAILABLE,
OR RAISE ADDITIONAL FUNDS. OUR FAILURE TO REPAY THE CONVERTIBLE DEBENTURES, IF
REQUIRED, COULD RESULT IN LEGAL ACTION AGAINST US, WHICH COULD REQUIRE THE SALE
OF SUBSTANTIAL ASSETS.
In May 2004, we entered into a Securities Purchase Agreement for the sale
of an aggregate of $300,000 principal amount of convertible debentures. The
convertible debentures are due and payable, with 7 % interest, two years from
the date of issuance, unless sooner converted into shares of our common stock.
In addition, any event of default could require the early repayment of the
convertible debentures at a price equal to 125% of the amount due under the
debentures. We anticipate that the full amount of the convertible debentures,
together with accrued interest, will be converted into shares of our common
stock, in accordance with the terms of the convertible debentures. If we are
required to repay the convertible debentures, we would be required to use our
limited working capital and raise additional funds. If we were unable to repay
the debentures when required, the debenture holders could commence legal action
against us and foreclose on all of our assets to recover the amounts due. Any
such action would require us to curtail or cease operations.
RISKS RELATING TO OUR COMMON STOCK:
- ----------------------------------------
IF WE FAIL TO REMAIN CURRENT ON OUR REPORTING REQUIREMENTS, WE COULD BE REMOVED
FROM THE OTC BULLETIN BOARD WHICH WOULD LIMIT THE ABILITY OF BROKER-DEALERS TO
SELL OUR SECURITIES AND THE ABILITY OF STOCKHOLDERS TO SELL THEIR SECURITIES IN
THE SECONDARY MARKET.
Companies trading on the OTC Bulletin Board, such as us, must be reporting
issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and
must be current in their reports under Section 13, in order to maintain price
quotation privileges on the OTC Bulletin Board. If we fail to remain current on
our reporting requirements, we could be removed from the OTC Bulletin Board. As
a result, the market liquidity for our securities could be severely adversely
affected by limiting the ability of broker-dealers to sell our securities and
the ability of stockholders to sell their securities in the secondary market.
11
OUR DIRECTORS AND EXECUTIVE OFFICERS BENEFICIALLY OWN APPROXIMATELY 57% OF OUR
STOCK; THEIR INTERESTS COULD CONFLICT WITH YOURS; SIGNIFICANT SALES OF STOCK
HELD BY THEM COULD HAVE A NEGATIVE EFFECT ON OUR STOCK PRICE; STOCKHOLDERS MAY
BE UNABLE TO EXERCISE CONTROL.
As of May 24, 2004, our executive officers, directors and affiliated
persons beneficially owned approximately 57% of our common stock. As a result,
our executive officers, directors and affiliated persons will have significant
influence to:
- - elect or defeat the election of our directors;
- - amend or prevent amendment of our articles of incorporation or bylaws;
- - effect or prevent a merger, sale of assets or other corporate transaction;
and
- - control the outcome of any other matter submitted to the stockholders for
vote.
As a result of their ownership and positions, our directors and executive
officers collectively are able to significantly influence all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. In addition, sales of significant amounts of
shares held by our directors and executive officers, or the prospect of these
sales, could adversely affect the market price of our common stock. Management's
stock ownership may discourage a potential acquirer from making a tender offer
or otherwise attempting to obtain control of us, which in turn could reduce our
stock price or prevent our stockholders from realizing a premium over our stock
price.
OUR COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AND THE
TRADING MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR
STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.
The Securities and Exchange Commission has adopted Rule 15g-9 which
establishes the definition of a "penny stock," for the purposes relevant to us,
as any equity security that has a market price of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require:
- - that a broker or dealer approve a person's account for transactions in
penny stocks; and
- - the broker or dealer receive from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny stock to
be purchased.
In order to approve a person's account for transactions in penny stocks,
the broker or dealer must:
- - obtain financial information and investment experience objectives of the
person; and
- - make a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure schedule prescribed by the Commission relating to the penny
stock market, which, in highlight form:
- - sets forth the basis on which the broker or dealer made the suitability
determination; and
- - that the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in
securities subject to the "penny stock" rules. This may make it more difficult
for investors to dispose of our common stock and cause a decline in the market
value of our stock.
Disclosure also has to be made about the risks of investing in penny stocks
in both public offerings and in secondary trading and about the commissions
payable to both the broker-dealer and the registered representative, current
quotations for the securities and the rights and remedies available to an
investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
12
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be offered
and sold from time to time by the selling stockholder. We will not receive any
proceeds from the sale of shares of common stock in this offering. However, we
will receive the sale price of any common stock we sell to the selling
stockholder upon exercise of the warrants and we received an aggregate of
$300,000 in connection with the issuance of the convertible debenture to the
selling stockholder. We used the $300,000 for the general working capital
purposes and the payment of professional fees. We expect to use the proceeds
received from the exercise of the warrants, if any, for general working capital
purposes.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is quoted on the OTC Bulletin Board under the symbol
"IVGA". For the periods indicated, the following table sets forth the high and
low bid prices per share of common stock. These prices represent inter-dealer
quotations without retail markup, markdown, or commission and may not
necessarily represent actual transactions.
Period Ending: High Bid Low Bid
2003
----
December 31, 2003 0.45 0.09
2004
----
March 31, 2004 0.26 0.09
June 30, 2004* 0.12 0.06
* As of May 24, 2004.
HOLDERS
As of May 24, 2004, we had approximately 750 record holders of our common
stock. The number of record holders was determined from the records of our
transfer agent and does not include beneficial owners of common stock whose
shares are held in the names of various security brokers, dealers, and
registered clearing agencies. The transfer agent of our common stock is Florida
Atlantic Stock Transfer, 7310 Nob Hill Road, Tamarac, Florida 33321 (954)
726-4954.
We have never declared or paid any cash dividends on our common stock. We
do not anticipate paying any cash dividends to stockholders in the foreseeable
future. In addition, any future determination to pay cash dividends will be at
the discretion of the Board of Directors and will be dependent upon our
financial condition, results of operations, capital requirements, and such other
factors as the Board of Directors deem relevant.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Some of the information in this Form SB-2 contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate" and "continue," or similar words. You should
read statements that contain these words carefully because they:
- - discuss our future expectations;
- - contain projections of our future results of operations or of our financial
condition; and
- - state other "forward-looking" information.
We believe it is important to communicate our expectations. However, there
may be events in the future that we are not able to accurately predict or over
which we have no control. Our actual results and the timing of certain events
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under "Risk
Factors," "Business" and elsewhere in this prospectus. See "Risk Factors."
OVERVIEW
- --------
We began our business operations in July 2001 with advertising of discount
air travel tickets in newspapers in South Florida, which resulted in limited
sales beginning in September of that year. Although we introduced our web site,
www.dontpayfullfare.com in January 2002, ticket sales have remained confined
primarily to the telephone from inception to the date hereof. In early 2002, we
initiated negotiations for the acquisition of our wholly owned subsidiary,
Casino Rated Players, which was completed on July 15, 2002.
ACQUISITIONS
- ------------
CASINO RATED PLAYERS began its operations in July 2000, with sales of
airline tickets and tour packages. Casino Rated Players introduced its web site,
www.casinoratedplayers.com , in March 2001 but did not generate any commission
revenues from casinos during that year. During 2001 and 2002, Casino Rated
Players revenues were derived almost entirely from sale of airline tickets and
general travel packages, and not from what was intended to be its primary focus
the sale of casino tour packages, which it did not have funding to advertise.
During 2002, Casino Rated Players earned approximately $1,800 in casino
commissions as a result of casino patrons who discovered casinoratedplayers.com
by doing their own web searches. We intend to begin marketing Casino Rated
Players casino travel packages in the month of June 2004 and expect casino
travel package products and casino player commissions to become a significant
part of our business.
The acquisition of Casino Rated Players by our company was treated as a
purchase in a reverse acquisition in which the subsidiary, Casino Rated Players,
is the survivor for accounting purposes, even though our company is the survivor
for legal purposes. We issued 13,151,000 of our shares in exchange for the
issued and outstanding shares of Casino Rated Players held by that company's
stockholders and an additional one million shares to Mr. Forhan in payment of
$500,000 in accrued and unpaid compensation due to him from that company, which
was valued at $.50 per share. Mr. Forhan joined the management of our company.
Accordingly, the results of operations prior to July 15, 2002 presented in the
financial statements and discussed below are the results of Casino Rated Players
only, which commenced its business on January 27, 2000. The following table
presents information to assist the reader in understanding the historical
operations conducted by each of our company and Casino Rated Players,
separately, even though the information for our company prior to the acquisition
is excluded from the financial statements presented in this report as a result
of the reverse acquisition accounting treatment.
14
INVICTA GROUP CASINO RATED PLAYERS
-------------- ----------------------
2001 2002 2003 2001 2002 2003
-------- -------- -------- -------- -------- --------
Revenues $ 0 $ 6,445 $ 7,806 $439,234* $ 1,800 $ 0
Gross profit $ 0 $ 6,445 $ 7,806 $ 33,315 $ 1,800 $ 0
* Primarily derived from sale of air travel and not the sale of casino
packages.
ISIP TELECOM GROUP .was acquired January 9, 2004 for 100,000 shares of
restricted shares of our company valued at $.21 per share. ISIP provides the
ability to make telephone calls worldwide using the internet, receiving clear
reception at low rates. The platform is based on Cisco Powered network with a
robust platform specifically designed to accommodate the delivery of IP-based
communication services, includes long distance, IP phone and enhanced services.
On February 25, 2004, we announced a strategic technology partner, Oronoco
Networks Inc. Our VoIP services will be offered to Oronoco's 35,000 database
customers. On April 29,2004 we announced we had finalized our interface with its
"IPhone", a USB connected telephone, and are ready to start marketing our
products in North and South America. Our intention is to market to the 25,000
travel agents that we have in our data base. The phone and service can be
purchased online at www.isiptelecom.com
-------------------
AIRPLAN INC was acquired February 18,2004 for $500,000 in our common stock
and acceptance of $440,000 in debt. We issued 1,000,000 shares in connection
with the acquisition. If the value of the stock is not $500,000 by August 18,
2004, we will be required to issue additional shares. Established in 1989, Air
Plan is an international Airline Ticket Consolidator serving Europe, Asia, the
Middle East, Africa and Australasian areas. Airplan has over 6,500 customers
(travel agents) that buy airline tickets online 24/7. The management is lead by
John Latimer, a 20 year veteran in the airline consolidator industry, John will
remain as President of Airplan and report to David Scott, our COO.
On March 19,2004, we announced the expansion into South America after
signing contracts with two of South America's largest airlines. The contracts
will be added to Airplan Inc.'s inventory of travel products on behalf of their
6,500 travel agents. TAM BRAZILIAN is South America's second largest airline
servicing routes throughout Brazil, North America and the world. TAM currently
operates an impressive fleet of 53 state-of-the-art airbus aircraft - the most
modern fleet in operation in the industry today. AEROLINEAS ARGENTINAS services
South America and the world, with routes to/from Asia, North America, Europe,
and Australasia.
Through Air Plan, we offer more than 2 million non-published airfares on
more than 27 major airlines. We sell directly to travel agents through our Call
Center. We intend to expand sales of discounted airline tickets to the travel
agents (aka B2B) as well as immediately commence sales to the general public
(aka B2C).
The acquisition activity for the three months ended March 31, 2004 is
summarized in the following table. Property, plant and equipment of
approximately $534,000 will be depreciated on a straight-line basis over a 5
year life. Purchased intangible assets of approximately $535,000 will be
amortized on a straight-line basis over lives ranging from 5 to 10 years
(weighted average life of 8.8 years).
Three Months Ended
March 31, 2004 Activity
Assets (Liabilities) ISIP Telecom, Total
At Fair Value Inc. Airplan, Inc. Activity
- -------------------------- ------------- ------------ ----------
Cash and other current assets $ - $ 362,925 $ 362,925
Property, plant equipment - net - 534,112 534,112
Purchased intangible assets 10,000 525,078 535,078
Accounts payable and other
current liabilities - (922,115) (922,115)
------------- ------------ ----------
Net Assets Acquired $ 10,000 $ 500,000 $ 510,000
============= ============ ==========
15
Fair values were determined by management's estimates without independent
appraisal.
NEW SUBSIDIARY STARTUP
- ------------------------
LAS VEGAS EXCITEMENT INC. On March 15, 2004, we opened our Las Vegas
office. We are setting up a inbound tour operation which will offer Las Vegas
rooms, car rentals, air transportation, show tickets, limos, sightseeing tours
and free rooms to casino qualified players; reservations can be made by phone or
on the internet 24/7. The name of the newest subsidiary is "Las Vegas Excitement
Inc." and can be found online at www.lasvegasexcitement.com. On April 5, 2004
Las Vegas Excitement Inc. entered into services agreements with 18 hotels in Las
Vegas to provide hotel rooms for its packages. Las Vegas Excitement has also
entered into arrangements with various sightseeing and tour operators who will
provide tours by air, and motor coach and private limousines to the various
sites in and around Las Vegas
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2004 COMPARED TO
THREE MONTHS ENDED MARCH 31, 2003
- --------------------------------------------------------------------------------
REVENUES
Revenues for the quarter ended March 31 2004 were $2,213,411 as compared to
revenues of $3,089 for the quarter ended March 31, 2003. The revenues in both
periods were derived principally from the sale of airline tickets. The primary
reason for the increase in 2004 over 2003 was the acquisition of Airplan Inc.
Revenues of Airplan were driven principally by marketing to their 6,500 travel
agents with Fax and Email communication of international airline seats on sale.
Airplan also markets print ads in travel trade publications' generating new
clients and revenues. Their revenues are generated from their B-2B website and
their call center located in Pittsburgh, PA.
COST OF REVENUES
Revenues are the gross sales earned from airline tickets and travel
products, and the cost of revenues are the net fares charged by the airlines and
travel suppliers. The net fare for first quarter 2004 was 94% of revenues. The
competitive market place and airlines fare price wars has decreased gross
operating profits margins from 9% to 6%. Management will seek to add new travel
products: hotels, cruise, tour packages, and car rental services in an effort to
increase margins and enhance revenues.
EXPENSES
The majority of the selling, general and administrative expenses are
comprised of professional fees of $42,811, the market awareness campaign
totaling $235,000, and salaries of $90,000. The total selling, general and
administrative expenses for the three months ended March 31, 2004 were $602,597,
which was an increase of $456,611 as compared to $145,986 for the three months
ended March 31, 2003.
NET LOSSES
Net loss increased for the first quarter ended March 31, 2004 to $474,776
and the loss per share was $0.01compared to a net loss of $142,897 and a net
loss per share $0.005 for the first quarter March 31, 2003. The increase in loss
was principally due to professional fees of $42,811 and $235,000 cost for the
market awareness program.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2003 AS COMPARED TO THE
YEAR ENDED DECEMBER 31, 2002
- --------------------------------------------------------------------------------
16
REVENUES
Revenues for the year ended December 31 2003 were $7,806 as compared to
revenues of $8,245 for the year ended December 31, 2002. The revenues in both
periods were derived principally from the sale of airline tickets. The primary
reason for the decrease in 2003 over 2002 was the reduction of advertising.
Revenues in 2002 were driven principally by marketing in the Sunday Travel
section of the Miami Herald newspaper and in 2001 by yellow page and outdoor
advertising. Revenues are commissions on air tickets booked directly with
airlines (eight percent), on hotel and motel rooms (eight to sixteen percent),
on rental cars (ten percent), on cruises (sixteen to eighteen percent) and
casino based travel (as described below). Revenues on air travel tickets
purchased through airline consolidators are booked at the commission earned, not
the gross sales price. We believe that an increase in our marketing expenditures
will generate additional revenues.
Revenues are the net amount earned from airline tickets, car rentals,
cruises and travel products. Revenues are the commission earned from these
sources; resulting in revenues between 8% and 18% of the cost of the product
sold to the consumer.
EXPENSES
The major components of selling, general and administrative expenses for
the twelve months ended December 31, 2003 and the twelve months ended December
30, 2002, in round numbers, are set forth in the following table.
Year ended Year ended
December 31, 2002 December 31, 2003
------------------- -------------------
Advertising $ 17,200 $ 6,642
Executive compensation $ 342,000 $ 360,000
Professional fees $ 25,600 $ 155,640
Amortization and depreciation $ 24,500 $ 33,265
Automobile expense $ 12,100 $ 16,478
Insurance $ 7,400 $ 5,316
Rent $ 21,600 $ 8,544
Telephone $ 12,100 $ 14,202
Asset Impairment $ 95,000
Marketing $ 116,837
Misc. General Administrative $ 85,782 $ 101,284
The major components of expenses are general and administrative expense.
The results for the twelve months ended December 31, 2003 were expenses of
$905,402 versus expenses of $548,282 for December 31, 2002. The additional costs
in 2003 are professional fees ($155,640) for the SB-2 registration and financial
reports, and the market awareness campaign totaling $116,837.
Executive compensation has been accrued and not paid in 2001, 2002 and
2003. We made the acquisition of our ontheflyfaring software, custom Internet
search engine software, from an unrelated third party for two million shares of
our common stock valued at $100,000. We expect to purchase another software
package for $40,000 cash and $35,000 of stock in the near future. We expect to
have ongoing software development costs incurred under contracts with various
software and website developers for the enhancement of its existing software and
website platforms.
NET LOSSES
Net loss increased for the year ended December 31, 2003, to $905,402
compared to a net loss of $540,037 for the 2002 fiscal year. The increase in
loss in year 2003 compared to 2002 was principally due to additional
professional fees of $155,640, compared to $25,600 in 2002, plus additional
expenses incurred in 2003 including $116,837 marketing of our company and the
write off of an asset of $95,000 in 2003. The asset written off was the value of
the software "ontheflyfaring". Our auditors decided to write off the asset
because it was not able to generate revenues in 2003.
17
LIQUIDITY & CAPITAL RESOURCES
- --------------------------------
At March 31, 2004 and 2003, our current ratios are .372% and .007%,
respectively. We have not generated sufficient revenue in any period to carry
our costs of operations, realizing a negative cash flow from operations of
$191,582 for the first quarter 2004 compared to a negative cash flow of $17,418
for March 31, 2003. We have derived our liquidity principally from a loan from
Mr. Forhan in the amount of $320,671 in 2000, the sale of our common stock by
our company and Casino Rated Players for an aggregate of $493,700 in 2000 thru
2002, $76,800 raised in 2003 from the sale of common stock, deferred executive
compensation of $668,250 through December 31, 2003 and $503,595 equity funding
from the sale of 5,400,000 shares of common stock in the first quarter of 2004.
We owes $302,703 to Mr. Forhan and $41,443 to David Scott in loan
repayments. We will not make any payments to Mr. Forhan or Mr. Scott of deferred
compensation or repayment of loans until we have obtained more than $1 million
from the sale of our shares.
CAPITAL RESOURCES:
- -------------------
We anticipate generating cash to continue our operations either though
private sales of our common stock or from capital contributions from our
officers and/or directors. In addition, we hope to reach levels of revenue
sufficient to meet our operating costs. There is no guarantee that we will be
able to reach these levels or generate cash through the sale of our common
stock.
Our ability to continue as a going concern is dependent upon several
factors. These factors include our ability to:
- - generate sufficient cash flows to meet our obligations on a timely basis;
- - obtain additional financing or refinancing as may be required;
- - aggressively control costs; and
- - achieve profitability and positive cash flows.
To obtain funding for our ongoing operations, we entered into a Securities
Purchase Agreement with an accredited investors in May 2004 for the sale of (i)
$300,000 in convertible debentures and (ii) warrants to buy 3,000,000 shares of
our common stock.
This prospectus relates to the resale of the common stock underlying these
convertible debentures and warrants. Golden Gate Investors, Inc. provided us
with an aggregate of $300,000 as follows:
- - $150,000 was disbursed to us in May 2004; and
- - $150,000 will be disbursed upon effectiveness of this registration
statement of which $50,000 will be retained for services provided to our
company by various professionals.
The debentures bear interest at 7 %, mature two years from the date of
issuance, and are convertible into our common stock, at the selling
stockholder's option. The convertible debentures are convertible into the
number of our shares of common stock equal to the principal amount of the
debentures being converted multiplied by 11, less the product of the conversion
price multiplied by ten times the dollar amount of the debenture. The
conversion price for the convertible debenture is the lesser of (i) $0.25 or
(ii) eighty percent of the of the average of the three lowest volume weighted
average prices during the twenty (20) trading days prior to the conversion.
Accordingly, there is in fact no limit on the number of shares into which the
debenture may be converted. In addition, the selling stockholder is obligated
to exercise the warrant concurrently with the submission of a conversion notice
by the selling stockholder. The warrant is exercisable into 3,000,000 shares of
common stock at an exercise price of $1.00 per share.
18
Golden Gate Investors, Inc. has contractually committed to convert not less
than 5.0% of the original face value of the debenture monthly beginning the
month after the effective date of the Registration Statement. Golden Gate
Investors, Inc. is required to exercise warrants concurrently with the exercise
of a conversion notice under the debenture and is committed to exercise at least
5% of the warrants per month after the effective date of the Registration
Statement. In the event that Golden Gate Investors breaches the minimum
restriction on the debenture and warrant, Golden Gate Investors, Inc. will not
be entitled to collect interest on the debenture for that month. If Golden Gate
Investors, Inc. submits a conversion notice and the volume weighted average
price is less then $.05 per share, then we will be entitled to prepay the
portion of the debenture that is being converted at 150% of such amount. If we
elect to prepay, then Golden Gate Investors, Inc. may withdraw its conversion
notice.
Golden Gate Investors, Inc. has further contractually agreed to restrict
its ability to convert the debenture or exercise their warrants and receive
shares of our common stock such that the number of shares held by the Holder and
its affiliates after such conversion or exercise does not exceed 4.9% of the
then issued and outstanding shares of our common stock.
In the event that the registration statement is not declared effective by
the required deadline, Golden Gate Investors, Inc. may demand repayment of the
Debenture of 125% of the face amount outstanding, plus all accrued and unpaid
interest, in cash. If the repayment is accelerated, we are also obligated to
issue to Golden Gate Investors, Inc. 50,000 shares of common stock for each 30
day period, or portion thereof, during which the face amount, including interest
thereon, remains unpaid. If Golden Gate Investors, Inc. does not elect to
accelerate the debenture, we are required to immediately issue to Golden Gate
Investors, Inc. 50,000 shares of common stock for each 30 day period, or portion
thereof, during which the face amount, including interest thereon, remains
unpaid.
19
BUSINESS
OVERVIEW
We began our business in July 2000 by offering airline tickets and other
travel-related products and services over the telephone and have expended to
offering them over the Internet. The travel related services include hotel
rooms, car rentals, cruises, casino packages and vacation packages. Our websites
are located at www.dontpayfullfare.com and www.casinoratedplayers.com. At these
websites, Internet users can view and compare air fares and book airplane
tickets, hotel rooms, car rentals, cruises, casino packages and vacation
packages. As the on-line travel services industry continues to evolve and
mature, we believe consumers will increase their patronage of easy-to-use web
sites that provide a broad range of travel services, including transportation,
accommodations, activities, travel packages and travel-related content, as well
as the ability compare prices. Our "ontheflyfaring" proprietary search engine
software includes these features. This software searches domestic and
international published airfares and air consolidators' unpublished databases.
Based on its search of the published and unpublished airfares, the software
automatically calculates the price offered to the Internet user which is between
our cost and the price the Internet user could obtain from most other sources on
the Internet with whom we compete, including fares offered directly by the air
carriers, and it does this at a level which is designed to optimize our markup
within the range between our cost and our competitors' pricing. In addition,
with our acquisition of Air Plan, Inc., we are now engaged in the slae of
discount tickets to the airline industry.
DONTPAYFULLFARE.COM
Our Internet website is located at www.dontpayfullfare.com. Visitors to our
website are greeted by a home page, from which users can select the type of
travel product they desire. By clicking the desired menu item, visitors are
guided through a series of screens that enable them to select the particular
travel product(s) they are seeking and dates on which they desire to travel.
Once the desired selections are made, visitors can obtain pricing information
and make reservations for their selections. Payment can be made by most major
credit cards.
Our web site was designed and is maintained for it by an independent third
party, whose services our web site on an as-needed basis, at prevailing hourly
rates. The website is updated on a continuing basis to ensure that offerings are
current. We have expended approximately $35,000 on development of
dontpayfullfare.com. Other than costs of maintenance and enhancement, we do not
anticipate expending any substantial amounts or hours on web site development in
the future.
Our dontpayfullfare.com website offers the following products and services
to visitors:
- - Air Line Tickets - Visitors can view and compare fares and purchase tickets
for domestic and international flights. We display airfares offered by
major airline carriers worldwide.
- - Hotel Accommodations - Visitors can select hotel accommodations by
selecting their destination country, state/province and city, and viewing a
list of properties available on the dates selected. We offer hotel
reservations through an affiliate program of CNG Group that enables us to
sell hotel rooms online, worldwide.
- - Car Rentals - Our website offers car rental services through Alamo Car
Rental.
- - Cruises - We offer cruises from all of the major cruise lines including
Crystal Cruise Lines, Carnival Cruise Lines, Norwegian Cruise Lines and
Royal Caribbean Lines. We utilize a third-party cruise booking engine.
- - Casino Packages - We offer discounted casino tour packages to website
customers, and complementary rooms and suites to qualified players through
our Casino Rated Players website.
Our access to the operators of global reservation systems is based on our
participation in the travel industry. These products and services are available
to us through the personal relationships Mr. Scott has developed over his years
in the travel industry. None of these relationships are reflected in written
agreements. Our primary reliance on informal relationships which Mr. Scott
maintains based on his many years of involvement in the travel industry and his
personal relationships with the airline consolidators with which he does
business, rather than written agreements, for access to airline consolidators
and other services makes us vulnerable to loss to such access. We offer hotel
accommodations to our customers under CNG Group's standard affiliate contract.
We also offer car rentals to our customers provided by Alamo Car Rental under
that company's standard affiliate contract. In the case of both hotel bookings
and car rentals, we are paid the standard commission under the respective
affiliate agreements.
20
ONTHEFLYFARING (TM)
Increasingly, in the competition for the travel customer, price and
selection are the overwhelming factors in the decision to purchase. For this
reason, airline consolidators have become increasingly popular sources for last
minute and price conscious consumers. Airline consolidators contract for excess
capacity and unsold seats from scheduled air carriers and resell those seats to
travel agency customers at a markup generally specified by the travel agency on
a ticket by ticket basis. There are currently about thirty large airline
consolidators in the United States. The airline consolidators negotiate
contracts for discounts directly with the air lines and suppliers of travel
products and services. These contracts are difficult to obtain and are
significant barriers to entry into the consolidation market. Access to
consolidator air fares is critical to positioning us to effectively compete in
the travel market. We have purchased our ontheflyfaring search engine from an
unrelated third-party software developer. The core of our web site software is
the "ontheflyfaring" search engine. This search engine provides us with access
to airfares from published sources and from unpublished sources not available to
the general public. dontpayfullfare.com displays these prices adjusted for our
markup. Unpublished prices are generally those offered by airline consolidators.
Airline consolidators are a major source of seats for our customers.
Ontheflyfaring searches AirPlan of Pittsburgh, Pennsylvania, which we
recently acquired, and Picasso of Los Angeles, California. We have maintained a
relationship with Picasso based on Mr. Scott's long association with the
operators of these organizations. The system enables ontheflyfaring to search up
to fifteen data bases for fares. Tickets purchased by our customers are booked
through global reservation systems, including WorldSpan, Amadeus and Sabre. We
have an arrangement with a ticket fulfillment house, Global Marine, for tickets
booked through Amadeus. For a flat fee per ticket, the fulfillment house issues
the physical ticket upon our instruction and mails the ticket to our customer.
AIR PLAN
Through our acquisition of Air Plan, we are now engaged in the sale of
discount tickets for international leisure travel. A majority of Air Plan's
gross bookings have historically come from the sale of non-published fares,
which Air Plan acquires from airlines and resells to the travel industry at a
profit. We purchase non-published fares only when we resell them to clients, so
that we have no inventory carrying costs. On these fares, we set our resale
prices to meet the demands of leisure travelers who are looking for the lowest
price. We also sell published fares for which we receives commissions from the
airlines. Sales of non-published fares generally carry higher margins as a
percentage of gross bookings than commissions on published fare bookings.
Air Plan's revenue historically has been generated by ticket sales through
one call center. In April 2002, Air Plan broadened its ticket distribution by
offering online booking. We believe online gross bookings and online revenue
will represent an increasing portion of gross bookings and revenue in future
periods.
Products and Services
- -----------------------
Leisure Airline Tickets. Though our wholly owned subsidiary, we have the
right to acquire non-published fares pursuant to contracts from carriers. We
then resell these tickets at profit margins. The prices we offer to clients are
generally at a substantial discount to published fares. We purchase these fares
only when we resell them to clients, so that it does not have inventory carrying
costs. Our non-published fares are not available to consumers directly from the
airlines and are not published, except as advertised by us or other companies
that offer similar discount tickets. Availability of non-published fares varies
from route to route based on availability from the airline carriers. We
currently offer approximately 2 million non-published fares at any given time,
covering most major international routes. We sell these tickets with limitations
and restrictions that make them unappealing for full fare travelers, who seek
the convenience of tickets that can be exchanged or canceled and do not have
advance purchase or minimum stay requirements.
For clients who are unable to find a non-published fare for a particular
itinerary, Air Plan also offers a full menu of regularly published fares. For
published fares, we receive commissions on gross bookings. We receive
commissions from a select group of carriers, and with many carriers, receives a
higher commission if it has negotiated more favorable commission rates. In
addition, we frequently benefit from performance-based override commissions.
21
Call Center Operations. We have approximately 20 reservation agents and
other call center employees at our call center. Reservation agents at this call
center receive all in-bound calls to our toll free number. On average, the call
center receives approximately 400 calls per day. Reservation agents currently
conduct fare searches for requested itineraries, sell airline tickets, and
explain rules and restrictions applicable to fares and ticket delivery details.
We use an intelligent call routing and interactive voice response technology
that enables callers to direct inquiries in an automated phone-based
environment. By automating caller activities, we seek to maximize agent
productivity.
Internet Operations. We have begun accepting online reservations and
provides ticketing service through our website at "www.airplan.com." On the
website, travel agents can access information on schedules, availability and
non-published fares and book their own travel arrangements at their convenience.
The web site is designed to provide travel agents with quick, efficient and
flexible service in a manner that facilitates comparison-shopping. Air Plan's
online service automates the processing of client orders, interacts with the
systems of third-party travel suppliers, and allows Air Plan to gather, store
and use client and transaction information in a comprehensive and cost-efficient
manner. The web site requires users to complete a profile before searching for
fares. The web site permits Air Plan to expand its client base through better
service while reducing transactional costs. The web site contains customized
software applications that interface the website with an electronic booking
system and database that allow reservation agents to see what the user is
seeing.
Strategic Relationships
- ------------------------
Airline Relationships. Air Plan currently has contracts with more than 20
airlines. For the year ended December 31, 2003, approximately 90% of sales of
non-published fares came from tickets acquired from 10 airlines. Air Plan sells
non-published fares purchased under these contracts, with minimum stay and
advance purchase requirements, as non-refundable, non-endorsable and
non-changeable tickets and some without frequent flyer mileage or upgrades.
Generally, the airline contracts range from one to one and a half years in
length and can be cancelled on short notice. None of these carriers has any
obligation to renew the contracts at their expiration. Management believes that
Air Plan's track record of selling excess capacity without compromising the
airlines' fare structures provides a strong incentive for the airlines to
continue to use Air Plan for the sale of International non- published fares.
Although Air Plan has a consistent history of renewing its contracts, there are
no assurances that any one or several of them will be renewed.
SABRE Relationship. SABRE is a world leader in the electronic distribution
of travel-related products and services and is a leading provider of information
technology solutions for the travel and transportation industry. SABRE's
electronic booking system and database contains flight schedules, availability,
and published fare information for more than 440 airlines, 50 auto rental
companies, 47,000 hotel properties, and dozens of railways, tour companies,
passenger ferries, and cruise lines located throughout the world. Through the
SABRE reservations system, Air Plan offers millions of published airfares,
including those of all major domestic and international commercial airlines.
CASINO RATED PLAYERS
On July 15, 2002, we acquired Casino Rated Players. At our website,
www.casinoratedplayers.com, we offer gamblers with a history of gaming activity
the opportunity to visit casino properties in the United States and the
Caribbean Islands, and to obtain complementary rooms, meals and other services.
The availability and extent of complementary products and services is dependent
upon the gaming history of the player. In general, we are compensated by the
casino owner/operator based upon a percentage of the players' betting activity.
The percentage of our compensation varies from casino to casino generally
between ten and fifteen percent of the player's estimated average bet per hand
multiplied by the estimated number of hands per hour of play in domestic casinos
and ten to fifteen percent of the player's estimated loss at foreign casinos.
Membership is free; however, if a guest fails to wager at the casino in
which he is booked, he will be charged a room fee. Members of Casino Rated
Players can obtain reservations at over forty casinos identified on
www.casinoratedplayers.com. In addition, our website at www.dontpayfullfare.com
- --------------------------
includes access to the products and services of Casino Rated Players.
22
Our web site was designed and is maintained for us by an independent third
party, whose services we secured on an as-needed basis, at prevailing hourly
rates. The website is updated on a continuing basis to ensure that offerings are
current. We have expended approximately $82,000 on development of
casinoratedplayers.com. Other than costs of maintenance and enhancement, we do
not anticipate expending any substantial amounts or hours on web site
development in the future.
MARKETING
The marketing plan for our travel related services is principally print
advertising in the travel section of Sunday newspapers. The marketing plan for
Casino Rated Players includes advertising in the travel section of Sunday
newspapers, but also includes direct mail and email to online gamblers.
GROWTH THROUGH ACQUISITIONS
We intend to grow our business, in part, by acquiring one or more airline
consolidators, of which we already have acquired one, and companies who
represent and market casino vacation packages. The typical acquisition target
will be an established business with a track record of profits or customer base
and strategic relationships which our management believes can become profitable.
In general, these figures would initially be annual revenues of $1 million for
an airline consolidator and of $500,000 for a casino representative company. We
may consider subsequent acquisitions with lower annual revenues. We believe that
direct ownership of companies offering these products and services will improve
its gross margin.
We anticipate that acquisitions would involve primarily or entirely
exchanges of stock. We believe that such acquisitions will not involve a change
in our management or control, although we anticipates they will involve
additions to management, including the possible addition of directors to our
board. We do not intend to acquire businesses outside of the travel, resort and
casino industries; however, we may attempt to acquire software development or
web services companies who provide software and services which we can use in our
travel related business.
COMPETITION
We face competition primarily from other online travel companies, including
airlines and travel agencies. Online travel companies traditionally have
established a strong market presence primarily based on the sale at published
fares. Some of these companies also sell non-published fares. Two primary online
competitors have emerged in the sale of non-published fares. The leading online
competitor is Priceline.com, which sells tickets in an auction-based setting.
The other online competitor is Hotwire.com, which acquires non-published fares
primarily from five domestic airlines that are Hotwire shareholders. Users must
decide whether to purchase tickets without knowing the specific carrier,
schedule, connections or equipment type. Unlike these competitors, our website
permits users to choose a specific airline, knowing the schedule, connections
and equipment, and immediately book a flight.
The online travel services market is relatively new, rapidly evolving and
intensely competitive. we expects competition to intensify in the future. In the
online travel services market, we competes for published fares with similar
commercial websites of other companies, such as Expedia, which is operated by
USA Networks, Travelocity, which is operated by Sabre, TravelWeb, which is
operated by Pegasus, as well as Cheap Tickets, Cendant Corporation, Internet
Travel Network, Biztravel.com and TheTrip.com.
Airlines do not generally offer non-published fares directly or indirectly
through affiliates or travel agents for regularly scheduled travel, presumably
to prevent the erosion of their published fare structure. Many airlines do offer
limited special discounted fares through their own websites that are not
generally made available to travel agents. These fares are typically offered
only on a last-minute, "special sale" basis.
Many of our competitors are subsidiaries, divisions or joint ventures whose
participants include large companies having substantially longer operating
histories and greater financial and other resources than us. Our ability to
compete successfully will depend on many factors, including our ability to adapt
to changing technologies and meet the needs of the marketplace on a price
competitive and timely basis. While we believe our ontheflyfaring search engine
will be attractive to consumers of online travel services, there is no assurance
that we can attract online traffic on a high volume basis or that we can become
a competitive force in our industry.
23
While we will compete with travel agents for a share of the travel market,
we believe that traditional travel agents and agencies offer services to a
different market segment from that serviced by online providers. Given the
increasing popularity of online travel services, and continued disincentives to
travel agents (e.g., discontinuation of commissions from airlines), we believe
online providers will continue to take market share from traditional travel
agents and travel agencies.
EMPLOYEES
We currently have a total of 24 employees, of which all are full time. None
of our employees is represented by a labor organization, and we are not a party
to any collective bargaining agreement. We have never had any employee strike or
work stoppage and considers our relations with our employees to be good.
DESCRIPTION OF PROPERTIES
Our principal executive offices are located at 9553 Harding Avenue, Miami
Beach, Florida 33154. We lease 900 square feet of commercial office space. The
one-year lease terminated August 31, 2003 and we are on a month to month basis
at $840 per month, totaling $10,080 per year.
Air Plan, Inc., our wholly owned subsidiary, maintains offices at 2600
Boyce Plaza Rd., Pitts, Pennsylvania 15241. We lease 3,000 square feet of
commercial office space. The three year lease terminates April 2006. We pay
monthly rent of $3,455, totaling $41,460 per year. This facility is adequate for
our current operations.
Las Vegas Excitement, Inc., our wholly owned subsidiary, maintains offices
at 2004 W. Sunset Rd., Suite 110, Henderson, Nevada 89104. We lease 1,473 square
feet of commercial office space. The 5-year lease terminates April 31, 2009. We
pay monthly rent at the rate of $2,350 totaling $28,200 per year.
LEGAL PROCEEDINGS
From time to time, we may become party to litigation or other legal
proceedings that we consider to be a part of the ordinary course of our
business. We are not involved currently in legal proceedings that could
reasonably be expected to have a material adverse effect on our business,
prospects, financial condition or results of operations. We may become involved
in material legal proceedings in the future.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table includes the names, ages, positions held and terms of
office of Invicta Group's directors and executive officers.
NAME AGE POSITION DIRECTOR SINCE
- ------------------- --- ------------------------- --------------
William G. Forhan 59 Chief Executive Officer, July 2002
President and Director
Richard David Scott 57 Chief Operating Officer, inception
Chief Financial Officer
and Director
Mercedes Henze 57 Vice President Not Applicable
Secretary
John Latimer 54 Director and
President of Airplan, Inc. February 2004
24
William G. Forhan has served as our Chief Executive Officer, President and
director since July 15, 2002. From January 5, 2000 to July 15, 2002, he was the
founder, director, president and owner of a majority of the stock of Casino
Rated Players, Inc. which we acquired for stock on July 15, 2002. From June 1,
1999 until January 5, 2000 he served as President of byebyenow.com, Inc., a
South Florida-based internet travel company. In January 2001, thirteen months
after Mr. Forhan's departure, byebyenow.com filed a petition for liquidation
under Chapter 7 of the Bankruptcy Code in the U.S. Federal Bankruptcy Court for
the Southern District of Florida, Ft. Lauderdale Division, Case No.
01-20536-EKC-RBR. byebyenow.com's Amended Plan was confirmed on February 13,
2002. In related cases which are still pending, none of which involve Mr.
Forhan, certain of byebyenow.com's management is being sued for claims including
alleged securities fraud. From June 15, 1998 thru December 31, 1999, Mr. Forhan
served as President of Aviation Industries Corp., a holding company specializing
in the travel industry that acquired five (5) travel related companies. From
January 5, 1994 to January 5, 2000, he served as President and Chief Executive
Officer of Integrated Marketing Professionals, Inc., an over-the-counter (Pink
Sheets: POKR) provider of casino package tours. More than two years after Mr.
Forhan left the company, Integrated Marketing Professionals, Inc. filed a
petition for relief under Chapter 7 of the Bankruptcy Code and has liquidated
all of their assets
Richard David Scott is our founder, Chief Operating Officer and a director.
From May 1, 1999 to August 15, 2001, Mr. Scott served as our president. From May
1, 1999 to August 15, 2001, Mr. Scott served as Chief Executive Officer of
Globalfare.com, a California-based travel company specializing in both last
minute travel specials and in travel for consumers who plan their vacations a
year or more in advance. From June 1, 1981 until November 28, 1999 he served as
President of Euram Flight Center, a Washington D.C.-based air consolidator. Mr.
Scott is married to Ms. Henze.
Mercedes Henze has served as our Vice President since July 1, 2001. From
August 1, 2000 to April 1, 2001, Ms. Henze served as Vice President for
Globalfare.com. From November 1, 1982 to November 15, 2001, she served as
Executive Vice President of Euram Flight Center. Ms. Henze is married to Mr.
Scott.
John Latimer has served as our Director since February 2004. Mr. Latimer,
was an officer and director of our wholly owned subsidiary, Air Plan, Inc.,
which we acquired in February 2004. For the last 15 years, Mr. Latimer has
served as an officer and director of Air Plan, Inc., which he founded. Prior to
founding Air Plan, Inc. he worked in the sales area for several carriers
including Quantas, South African Airways, Braniff and U.S. Air.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with Mr. Forhan, our Chief
Executive Officer, Mr. Scott, our Chief Operating Officer and Ms. Henze, our
Vice President. Each agreement is for a term of two years, terminating August 1,
2004, which provide for automatic annual renewals, unless either our company or
the employee elects to terminate the agreement at the end of the initial or any
renewal term. Claims under the agreements are to be resolved by arbitration
before the American Arbitration Association.
Our stockholders elect the directors at the annual meeting to serve for one
year and until their successors are elected and qualify. Directors do not
receive compensation for serving as directors. Officers are elected by the board
of directors and their terms of office are, except as otherwise stated in
employment contracts, at the discretion of the board of directors.
25
AUDIT COMMITTEE FINANCIAL EXPERT
We do not have a separately designated standing audit committee. Pursuant
to Section 3(a)(58)(B) of the Exchange Act, the entire Board of Directors acts
as an audit committee for the purpose of overseeing the accounting and financial
reporting processes, and our audits of the financial statements. The Commission
recently adopted new regulations relating to audit committee composition and
functions, including disclosure requirements relating to the presence of an
"audit committee financial expert" serving on its audit committee. In connection
with these new requirements, our Board of Directors examined the Commission's
definition of "audit committee financial expert" and concluded that we do not
currently have a person that qualifies as such an expert. Presently, there are
only four (4) directors serving on our Board, and we are not in a position at
this time to attract, retain and compensate additional directors in order to
acquire a director who qualifies as an "audit committee financial expert", but
we intend to retain an additional director who will qualify as such an expert,
as soon as reasonably practicable. While neither of our current directors meets
the qualifications of an "audit committee financial expert", each of our
directors, by virtue of his past employment experience, has considerable
knowledge of financial statements, finance, and accounting, and has significant
employment experience involving financial oversight responsibilities.
Accordingly, we believe that our current directors capably fulfill the duties
and responsibilities of an audit committee in the absence of such an expert.
CODE OF ETHICS
We have adopted our Code of Ethics and Business Conduct for Officers,
Directors and Employees that applies to all of the officers, directors and
employees of our company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on the Company's review of copies of all disclosure reports filed by
directors and executive officers of our company pursuant to Section 16(a) of the
Securities Exchange Act of 1934, as amended, the Company believes that there was
compliance with all filing requirements of Section 16(a) applicable to directors
and executive officers of our company during 2003.
EXECUTIVE COMPENSATION
The following tables set forth certain information regarding our CEO and
each of our most highly-compensated executive officers whose total annual salary
and bonus for the fiscal year ending December 31, 2003, 2002 and 2001 exceeded
$100,000:
SUMMARY COMPENSATION TABLE
Annual Compensation Awards Payout
---------------------------- -------------------- ---------------------
Name and Other Restricted LTIP All Other
Principal Year Salary Bonus annual Stock Options Payouts Compensation
Position ($) ($) Compensation Awards($) SARs (#) ($) ($)
($)
- --------- ---- -------- ----- ------------ ---------- -------- ------- ------------
William 2003 120,000(1) 0 0 - - - -
G. Forhan 2002 50,000(1) 0 0 - - - -
President 2001 72,000(1) 0 0 - - - -
and CEO
Richard 2003 120,000(2) 0 0 - - - -
D. Scott 2002 110,000(2) 0 0 - - - -
COO and 2001 0(2) 0 0 - - - -
CFO
Mercedes 2003 86,250(3) 0 0 - - - -
Henze 2002 110,000(3) 0 0 - - - -
Vice 2001 0(3) 0 0 - - - -
President
(1) The above salary was accrued but not paid. However, in January 2004, in
consideration for the forgiveness of $220,000 in owed salary we issued the
executive 2,750,000 shares of common stock and 1,375,000 options to
purchase common stock. We currently still owe the executive $38,000 in back
salary.
26
(2) The above salary was accrued but not paid. However, in January 2004, in
consideration for the forgiveness of $195,500 in owed salary we issued the
executive 2,443,750 shares of common stock and 1,221,875 options to
purchase common stock. We currently still owe the executive $51,000 in back
salary.
(3) The above salary was accrued but not paid. However, in January 2004, in
consideration for the forgiveness of $205,725 in owed salary we issued the
executive 2,571,562 shares of common stock and 1,285,781 options to
purchase common stock. We currently still owe the executive $7,000 in back
salary.
INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN
The following table sets forth information about our 2002 Incentive and
Non-Qualified Stock Option Plan approved by directors and stockholders on August
1, 2002.
Shares remaining Shares issuable upon Weighted average exercise
available exercise of price of outstanding
for future issuance outstanding options options
- ------------------- ---------------------- --------------------------
Stockholder
approved none none
plan 5,000,000
- ------------------- ---------------------- --------------------------
We do not have any equity compensation plan, which have not been approved
by stockholders. The 2002 plan is intended to assist us in securing and
retaining key employees, directors and consultants by allowing them to
participate in our ownership and growth through the grant of incentive and
non-qualified options, as well as direct stock grants. Under the 2002 plan, we
may grant incentive stock options only to key employees and employee directors.
We may grant non-qualified options and issue direct stock awards to its
employees, officers, directors and consultants. The 2002 equity compensation
plan is administered by our board of directors.
Subject to the provisions of the 2002 plan, the board determines who
receives options or grants, the number of shares of common stock that may be
purchased under the options, the time and manner of exercise of options and
exercise prices. The term of options granted under the stock option plan may not
exceed ten years or five years for an incentive stock option granted to an
optionee owning more than ten percent of our voting stock. The exercise price
for incentive stock options will be equal to or greater than the fair market
value of the shares of the common stock at the time granted. However, the
incentive stock options granted to a ten percent holder of our voting stock are
exercisable at a price equal to or greater than 110 percent of the fair market
value of the common stock on the date of the grant. The exercise price for
non-qualified options will be set by the board, in its discretion, but in no
event will the exercise price be less than the par value for our common stock.
The exercise price may be payable in cash or, with the approval of the board, by
delivery of shares or by a combination of cash and shares. The board may also
direct the issuance of shares of our common stock as awards under the 2002 plan.
Absent registration under the Securities Act of 1933, as amended, or the
availability of an exemption from registration, shares of common stock received
as stock grants and upon exercise of options will be subject to restrictions on
sale or transfer provided in the federal securities laws.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We issued 11,000,000 shares to Mr. Forhan, as consideration for the
acquisition of Casino Rated Players on July 15, 2002. Mr. Forhan was a founder
of Casino Rated Players and purchased its stock at the time of its organization
on January 27, 2000 for $.001 per share. At that time, Mr. Forhan was the Chief
Executive Officer of Casino Rated Players and owned approximately two-thirds of
its stock, but he was not a stockholder, director or officer of our company. The
transaction was negotiated between Mr. Forhan and Mr. Scott. Mr. Forhan received
one share of our company for each share of Casino Rated Players he owned (ten
million shares) and two shares of our company for each dollar of $500,000 in
deferred compensation, which Casino Rated Players owed to Mr. Forhan (one
million shares).
27
Mr. Forhan loaned Casino Rated Players and aggregate of $320,671 during
2000, before its acquisition by our company in July 2002. Casino Rated Players
used the borrowing for the following purposes.
Uses: Amount
- ---- ---------
Investment Tours By Charlie. $ 50,000
Cash: working capital 18,731
Marketing 29,593
Advertising and Promo 16,391
Legal 7,800
Furniture, Equip. and computers 18,000
Web site Development 16,500
Wages 122,000
G&A Exp 41,656
---------
Total uses of loan $ 320,671
We have executed a promissory note to Mr. Forhan for the loan. The note
does not bear interest, and is due and payable in equal monthly installments
over eighteen months commencing upon our obtaining not less than $1 million in
additional equity funding, of which there is no assurance.
Mr. Scott sold 380,000 of his shares of our company in a private
transaction and has loaned the proceeds of $38,000 to us for corporate working
capital without interest. Mr. Forhan sold 250,000 shares of his shares of our
company in a private transaction and has loaned the proceeds of $50,000 to our
company for use in corporate working capital without interest. Subsequently,
loans were converted into 380,000 shares and 250,000 shares of our common stock,
respectively.
CHANGES IN REGISTRANTS CERTIFYING ACCOUNTANT
On March 23, 2004, our Board of Directors of Invicta Group Inc. approved
the resignation of the registrant's Certifying Accountant, Dreslin Financial
Services, Certified Public Accountants (the "Former Accountants") and engaged
Larry Wolfe, CPA, Certified Public Accountants (the "New Accountants").
Reports in connection with audits of the two most recent fiscal years
ending December 31, 2002 and 2001 were provided by the Former Accountants. The
reports in connection with audits of the two most recent fiscals years did not
contain an adverse opinion or a disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principles, except for
going concern opinions.
During the period since the Former Accountant's engagement (inception to
March 23, 2004, which was the New Accountant's engagement date) there were
no disagreements with the Former Accountant, whether resolved or not resolved,
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not
resolved to the satisfaction of the Former Accountant, would have caused it to
make reference to the subject matter of the disagreements in connection with
its report.
On March 23, 2004, we engaged the New Accountants as our principal
independent accountant. This decision to engage the New Accountants was taken
upon the unanimous approval of the Board of Directors of our company.
28
During the two most recent fiscal years and through March 23, 2004, we
have not consulted with the New Accountants regarding either:
1. the application of accounting principles to any specified transaction,
either completed or proposed, or the type of audit opinion that might be
rendered on our financial statements, and neither a written report was
provided to us nor oral advice was provided that the New Accountants
concluded was an important factor considered by us in reaching a decision
as to the accounting, auditing or financial reporting issue; or
2. any matter that was either subject of disagreement or event, as defined in
Item 304(a)(1)(iv)(A) of Regulation S-B and the related instruction to Item
304 of Regulation S-B, or a reportable event, as that term is explained in
Item 304(a)(1)(iv)(A) of Regulation S-B.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of our common stock as of May 21, 2004
- - by each person who is known by us to beneficially own more than 5% of our
common stock;
- - by each of our officers and directors; and
- - by all of our officers and directors as a group.
Name of Beneficial Owner Common Stock Percentage of
Beneficially Owned Common Stock(1)
- ------------------------ ------------------ ----------------
William G. Forhan (2) 13,050,000 24.29%
- ------------------------ ------------------ ----------------
Richard David Scott (2) 8,873,750 16.52%
- ------------------------ ------------------ ----------------
Mercedes Henze (2) 8,571,562 15.96%
- ------------------------ ------------------ ----------------
John Latimer (2) 1,000,000 1.86%
- ------------------------ ------------------ ----------------
All executive officers 31,495,312 58.63%
and directors (3 persons)
- ------------------------ ------------------ ----------------
* Less than 1% of the outstanding common stock.
(1) Beneficial Ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock subject
to options or warrants currently exercisable or convertible, or exercisable
or convertible within 60 days of May 21, 2004 are deemed outstanding for
computing the percentage of the person holding such option or warrant but
are not deemed outstanding for computing the percentage of any other
person. Percentages are based on a total of 53,717,279 shares of common
stock outstanding on May 21, 2004, and the shares issuable upon the
exercise of options and warrants exercisable on or within 60 days of May
21, 2004.
(2) Executive officer and/or director.
The address of each beneficial owner in the table set forth above, unless
otherwise indicated, is care of Invicta Group Inc., 9553 Harding Avenue, Suite
301, Miami Beach, Florida 33154. Mr. Scott and Ms. Henze are married. The
shares legally owned by one are treated as being beneficially owned by the
other, but have not been presented in this way in the table above in order to
avoid possible confusion.
29
DESCRIPTION OF SECURITIES
COMMON STOCK
We are authorized to issue up to 190,000,000 shares of Common Stock, par
value $.001. As of May 21, 2004, there were 53,717,279 shares of common stock
outstanding. Holders of the common stock are entitled to one vote per share on
all matters to be voted upon by the stockholders. Holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared by the
Board of Directors out of funds legally available therefor. Upon the
liquidation, dissolution, or winding up of our company, the holders of common
stock are entitled to share ratably in all of our assets which are legally
available for distribution after payment of all debts and other liabilities and
liquidation preference of any outstanding common stock. Holders of common stock
have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of common stock are validly issued, fully paid and
nonassessable.
We have engaged Florida Atlantic Stock Transfer, 7310 Nob Hill Road,
Tamarac, Florida 33321 as independent transfer agent or registrar.
PREFERRED STOCK
We are authorized to issue 10,000,000 shares of preferred stock, $.001 par
value per share, and no share of preferred stock are currently outstanding. The
shares of preferred stock may be issued in series, and shall have such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions providing for the issuance of such
stock adopted from time to time by the board of directors. The board of
directors is expressly vested with the authority to determine and fix in the
resolution or resolutions providing for the issuances of preferred stock the
voting powers, designations, preferences and rights, and the qualifications,
limitations or restrictions thereof, of each such series to the full extent now
or hereafter permitted by the laws of the State of Nevada.
WARRANTS
In connection with a Securities Purchase Agreement dated May 2004, the
accredited investor was issued 3,000,000 warrants to purchase shares of common
stock. The warrants are exercisable until three years from the date of issuance
at a purchase price of $1.00 per share.
CONVERTIBLE SECURITIES
To obtain funding for our ongoing operations, we entered into a Securities
Purchase Agreement with an accredited investor in May 2004 for the sale of (i)
$300,000 in convertible debentures and (ii) warrants to buy 3,000,000 shares of
our common stock. This prospectus relates to the resale of the common stock
underlying these convertible debentures and warrants.
The investors provided us with an aggregate of $300,000 as follows:
- - $150,000 was disbursed to us in May 2004; and
- - $150,000 will be disbursed upon effectiveness of this registration
statement of which $50,000 will be retained for services provided to our
company by various professionals.
The debentures bear interest at 7 %, mature two years from the date of
issuance, and are convertible into our common stock, at the selling
stockholder's option. The convertible debentures are convertible into the
number of our shares of common stock equal to the principal amount of the
debentures being converted multiplied by 11, less the product of the conversion
price multiplied by ten times the dollar amount of the debenture. The
conversion price for the convertible debenture is the lesser of (i) $0.25 or
(ii) eighty percent of the of the average of the three lowest volume weighted
average prices during the twenty (20) trading days prior to the conversion.
Accordingly, there is in fact no limit on the number of shares into which the
debenture may be converted. In addition, the selling stockholder is obligated
to exercise the warrant concurrently with the submission of a conversion notice
by the selling stockholder. The warrant is exercisable into 3,000,000 shares of
common stock at an exercise price of $1.00 per share.
30
The selling stockholder has contractually agreed to restrict its ability to
convert or exercise its warrants and receive shares of our common stock such
that the number of shares of common stock held by them and their affiliates
after such conversion or exercise does not exceed 4.9% of the then issued and
outstanding shares of common stock. See the "Selling Stockholders" and "Risk
Factors" sections for a complete description of the convertible debentures.
In the event that the registration statement is not declared effective by
the required deadline, Golden Gate Investors, Inc. may demand repayment of the
Debenture of 125% of the face amount outstanding, plus all accrued and unpaid
interest, in cash. If the repayment is accelerated, we are also obligated to
issue to Golden Gate Investors, Inc. 50,000 shares of common stock for each 30
day period, or portion thereof, during which the face amount, including interest
thereon, remains unpaid. If Golden Gate Investors, Inc. does not elect to
accelerate the debenture, we are required to immediately issue to Golden Gate
Investors, Inc. 50,000 shares of common stock for each 30 day period, or portion
thereof, during which the face amount, including interest thereon, remains
unpaid.
SAMPLE CONVERSION CALCULATION
The convertible debentures are convertible into the number of our shares of
common stock equal to the principal amount of the debentures being converted
multiplied by 11, less the product of the conversion price multiplied by ten
times the dollar amount. The conversion price for the convertible debentures is
the lesser of (i) $0.25 or (ii) eighty percent of the of the average of the
three lowest volume weighted average prices during the twenty (20) trading days
prior to the conversion. For example, assuming conversion of $300,000 of
debentures on May 24, 2004, a conversion price of $0.048 per share, the number
of shares issuable upon conversion would be:
($300,000 x 11) - ($.048 x (10 x $300,000)) = 3,156,000 /$.048 = 65,750,000
The following is an example of the amount of shares of our common stock
that are issuable, upon conversion of the principal amount of our convertible
debentures, based on market prices 25%, 50% and 75% below the market price, as
of May 24, 2004 of $0.06.
Number % of
% Below Price Per With Discount of Shares Outstanding
Market Share at 20% Issuable Stock
- -------- --------- ------------- ----------- -----------
25% $.045 $.036 86,666,667 62.27%
50% $.030 $.024 134,500,000 71.46%
75% $.015 $.012 272,000,000 83.51%
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our Articles of Incorporation, as amended, provide to the fullest extent
permitted by Nevada law, our directors or officers shall not be personally
liable to us or our shareholders for damages for breach of such director's or
officer's fiduciary duty. The effect of this provision of our Articles of
Incorporation, as amended, is to eliminate our rights and our shareholders
(through shareholders' derivative suits on behalf of our company) to recover
damages against a director or officer for breach of the fiduciary duty of care
as a director or officer (including breaches resulting from negligent or grossly
negligent behavior), except under certain situations defined by statute. We
believe that the indemnification provisions in our Articles of Incorporation, as
amended, are necessary to attract and retain qualified persons as directors and
officers.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act" or "Securities Act") may be permitted to directors, officers
or persons controlling us pursuant to the foregoing provisions, or otherwise, we
have been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
31
PLAN OF DISTRIBUTION
The selling stockholders and any of their respective pledgees, donees,
assignees and other successors-in-interest may, from time to time, sell any or
all of their shares of common stock on any stock exchange, market or trading
facility on which the shares are traded or in private transactions. These sales
may be at fixed or negotiated prices. The selling stockholders may use any one
or more of the following methods when selling shares:
- - ordinary brokerage transactions and transactions in which the broker-dealer
solicits the purchaser;
- - block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
- - purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
- - an exchange distribution in accordance with the rules of the applicable
exchange;
- - privately-negotiated transactions;
- - broker-dealers may agree with the selling stockholders to sell a specified
number of such shares at a stipulated price per share;
- - through the writing of options on the shares
- - a combination of any such methods of sale; and
- - any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus. The selling
stockholders shall have the sole and absolute discretion not to accept any
purchase offer or make any sale of shares if they deem the purchase price to be
unsatisfactory at any particular time.
The selling stockholders or their respective pledgees, donees, transferees
or other successors in interest, may also sell the shares directly to market
makers acting as principals and/or broker-dealers acting as agents for
themselves or their customers. Such broker-dealers may receive compensation in
the form of discounts, concessions or commissions from the selling stockholders
and/or the purchasers of shares for whom such broker-dealers may act as agents
or to whom they sell as principal or both, which compensation as to a particular
broker-dealer might be in excess of customary commissions. Market makers and
block purchasers purchasing the shares will do so for their own account and at
their own risk. It is possible that a selling stockholder will attempt to sell
shares of common stock in block transactions to market makers or other
purchasers at a price per share which may be below the then market price. The
selling stockholders cannot assure that all or any of the shares offered in this
prospectus will be issued to, or sold by, the selling stockholders. The selling
stockholders and any brokers, dealers or agents, upon effecting the sale of any
of the shares offered in this prospectus, may be deemed to be "underwriters" as
that term is defined under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, or the rules and regulations under
such acts. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the registration
of the shares, including fees and disbursements of counsel to the selling
stockholders, but excluding brokerage commissions or underwriter discounts.
The selling stockholders, alternatively, may sell all or any part of the
shares offered in this prospectus through an underwriter. No selling stockholder
has entered into any agreement with a prospective underwriter and there is no
assurance that any such agreement will be entered into.
The selling stockholders may pledge their shares to their brokers under the
margin provisions of customer agreements. If a selling stockholders defaults on
a margin loan, the broker may, from time to time, offer and sell the pledged
shares. The selling stockholders and any other persons participating in the
sale or distribution of the shares will be subject to applicable provisions of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
under such act, including, without limitation, Regulation M. These provisions
may restrict certain activities of, and limit the timing of purchases and sales
of any of the shares by, the selling stockholders or any other such person. In
the event that the selling stockholders are deemed affiliated purchasers or
distribution participants within the meaning of Regulation M, then the selling
stockholders will not be permitted to engage in short sales of common stock.
Furthermore, under Regulation M, persons engaged in a distribution of securities
are prohibited from simultaneously engaging in market making and certain other
activities with respect to such securities for a specified period of time prior
to the commencement of such distributions, subject to specified exceptions or
exemptions. In regards to short sells, the selling stockholder is contractually
restricted from engaging in short sells. In addition, if a such short sale is
deemed to be a stabilizing activity, then the selling stockholder will not be
permitted to engage in a short sale of our common stock. All of these
limitations may affect the marketability of the shares.
32
We have agreed to indemnify the selling stockholders, or their transferees
or assignees, against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments the selling
stockholders or their respective pledgees, donees, transferees or other
successors in interest, may be required to make in respect of such liabilities.
If the selling stockholders notify us that they have a material arrangement
with a broker-dealer for the resale of the common stock, then we would be
required to amend the registration statement of which this prospectus is a part,
and file a prospectus supplement to describe the agreements between the selling
stockholders and the broker-dealer.
PENNY STOCK
The Securities and Exchange Commission has adopted Rule 15g-9 which
establishes the definition of a "penny stock," for the purposes relevant to us,
as any equity security that has a market price of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require:
- - that a broker or dealer approve a person's account for transactions in
penny stocks; and
- - the broker or dealer receive from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny stock to
be purchased.
In order to approve a person's account for transactions in penny stocks,
the broker or dealer must
- - obtain financial information and investment experience objectives of the
person; and
- - make a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure schedule prescribed by the Commission relating to the penny
stock market, which, in highlight form:
- - sets forth the basis on which the broker or dealer made the suitability
determination; and
- - that the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
Disclosure also has to be made about the risks of investing in penny stocks
in both public offerings and in secondary trading and about the commissions
payable to both the broker-dealer and the registered representative, current
quotations for the securities and the rights and remedies available to an
investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
33
SELLING STOCKHOLDERS
The table below sets forth information concerning the resale of the shares
of common stock by the selling stockholders. We will not receive any proceeds
from the resale of the common stock by the selling stockholders. We will receive
proceeds from the exercise of the warrants. Assuming all the shares registered
below are sold by the selling stockholders, none of the selling stockholders
will continue to own any shares of our common stock.
The following table also sets forth the name of each person who is offering
the resale of shares of common stock by this prospectus, the number of shares of
common stock beneficially owned by each person, the number of shares of common
stock that may be sold in this offering and the number of shares of common stock
each person will own after the offering, assuming they sell all of the shares
offered.
Total
Total Shares of Percentage Percentage
Common Stock of Common Shares of Beneficial of Common
Issuable Upon Stock, Common Stock Beneficial Percentage of Ownership Stock Owned
Conversion of Assuming Included in Ownership Common Stock After the After
Name Debentures Full Prospectus Before the Owned Before Offering Offering
and/or Warrants Conversion (1) Offering* Offering* (4) (4)
- ------------ --------------- ---------- ------------ ---------- ------------- ---------- -----------
Golden Gate 68,750,000 (3) 56.14% Up to 2,767,767 4.9% -- --
Investors, 101,625,000
Inc.(2) shares of
common stock
- ------------ --------------- ---------- ------------ ---------- ------------- ---------- -----------
John and Karen N/A N/A 300,000 1,000,000 1.9% 700,000 1.3%
Latimer (5)
- ------------ --------------- ---------- ------------ ---------- ------------- ---------- -----------
* These columns represents the aggregate maximum number and percentage of
shares that the selling stockholders can own at one time (and therefore,
offer for resale at any one time) due to their 4.9% limitation.
** Less than one percent.
The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rule, beneficial ownership includes any shares as to which
the selling stockholders has sole or shared voting power or investment power and
also any shares, which the selling stockholders has the right to acquire within
60 days. The actual number of shares of common stock issuable upon the
conversion of the convertible debentures is subject to adjustment depending on,
among other factors, the future market price of the common stock, and could be
materially less or more than the number estimated in the table.
(1) Includes a good faith estimate of the shares issuable upon conversion of
the convertible debentures and exercise of warrants, based on current
market prices. Because the number of shares of common stock issuable upon
conversion of the convertible debentures is dependent in part upon the
market price of the common stock prior to a conversion, the actual number
of shares of common stock that will be issued upon conversion will
fluctuate daily and cannot be determined at this time. Under the terms of
the convertible debentures, if the convertible debentures had actually been
converted on May 24, 2004, the conversion price would have been $.048. The
actual number of shares of common stock offered in this prospectus, and
included in the registration statement of which this prospectus is a part,
includes such additional number of shares of common stock as may be issued
or issuable upon conversion of the convertible debentures and exercise of
the related warrants by reason of any stock split, stock dividend or
similar transaction involving the common stock, in accordance with Rule 416
under the Securities Act of 1933. However the selling stockholders have
contractually agreed to restrict their ability to convert their convertible
debentures or exercise their warrants and receive shares of our common
stock such that the number of shares of common stock held by them in the
aggregate and their affiliates after such conversion or exercise does not
exceed 4.9% of the then issued and outstanding shares of common stock as
determined in accordance with Section 13(d) of the Exchange Act.
Accordingly, the number of shares of common stock set forth in the table
for the selling stockholders exceeds the number of shares of common stock
that the selling stockholders could own beneficially at any given time
through their ownership of the convertible debentures and the warrants. In
that regard, the beneficial ownership of the common stock by the selling
stockholder set forth in the table is not determined in accordance with
Rule 13d-3 under the Securities Exchange Act of 1934, as amended.
34
(2) The selling stockholder is an unaffiliated third party. In accordance with
rule 13d-3 under the Securities Exchange Act of 1934, Norman Lizt may be
deemed a control person of the shares owned by the selling stockholder.
(3) Includes 65,750,000 shares of common stock underlying our $300,000
convertible debenture and 3,000,000 shares of common stock underlying
common stock purchase warrants issued to Golden Gate Investors, Inc.
(4) Assumes that all securities registered will be sold.
(5) John Latimer serves as an officer and director of our company.
TERMS OF CONVERTIBLE DEBENTURES
To obtain funding for our ongoing operations, we entered into a Securities
Purchase Agreement with an accredited investor in May 2004 for the sale of (i)
$300,000 in convertible debentures and (ii) warrants to buy 3,000,000 shares of
our common stock. This prospectus relates to the resale of the common stock
underlying these convertible debentures and warrants.
The investors provided us with an aggregate of $300,000 as follows:
- - $150,000 was disbursed to us in May 2004; and
- - $150,000 will be disbursed upon effectiveness of this registration
statement of which 50,000 will be retained for services provided to our
company by various professionals.
The debentures bear interest at 7 %, mature two years from the date of
issuance, and are convertible into our common stock, at the selling
stockholder's option. The convertible debentures are convertible into the
number of our shares of common stock equal to the principal amount of the
debentures being converted multiplied by 11, less the product of the conversion
price multiplied by ten times the dollar amount of the debenture. The
conversion price for the convertible debenture is the lesser of (i) $0.25 or
(ii) eighty percent of the of the average of the three lowest volume weighted
average prices during the twenty (20) trading days prior to the conversion.
Accordingly, there is in fact no limit on the number of shares into which the
debenture may be converted. In addition, the selling stockholder is obligated
to exercise the warrant concurrently with the submission of a conversion notice
by the selling stockholder. The warrant is exercisable into 3,000,000 shares of
common stock at an exercise price of $1.00 per share.
The selling stockholder has contractually agreed to restrict its ability to
convert or exercise its warrants and receive shares of our common stock such
that the number of shares of common stock held by them and their affiliates
after such conversion or exercise does not exceed 4.9% of the then issued and
outstanding shares of common stock. See the "Selling Stockholders" and "Risk
Factors" sections for a complete description of the convertible debentures.
In the event that the registration statement is not declared effective by
the required deadline, Golden Gate Investors, Inc. may demand repayment of the
Debenture of 125% of the face amount outstanding, plus all accrued and unpaid
interest, in cash. If the repayment is accelerated, we are also obligated to
issue to Golden Gate Investors, Inc. 50,000 shares of common stock for each 30
day period, or portion thereof, during which the face amount, including interest
thereon, remains unpaid. If Golden Gate Investors, Inc. does not elect to
accelerate the debenture, we are required to immediately issue to Golden Gate
Investors, Inc. 50,000 shares of common stock for each 30 day period, or portion
thereof, during which the face amount, including interest thereon, remains
unpaid.
A complete copy of the Securities Purchase Agreement and related documents
were filed with the SEC as exhibits to our Form SB-2 relating to this
prospectus.
35
SAMPLE CONVERSION CALCULATION
The convertible debentures are convertible into the number of our shares of
common stock equal to the principal amount of the debentures being converted
multiplied by 11, less the product of the conversion price multiplied by ten
times the dollar amount. The conversion price for the convertible debentures is
the lesser of (i) $0.25 or (ii) eighty percent of the of the average of the
three lowest volume weighted average prices during the twenty (20) trading days
prior to the conversion. For example, assuming conversion of $300,000 of
debentures on April 5, 2004, a conversion price of $0.08 per share, the number
of shares issuable upon conversion would be:
($300,000 x 11) - ($.08 x (10 x $300,000)) = 3,060,000 /$.08 = 38,250,000
The convertible debentures are convertible into the number of our shares of
common stock equal to the principal amount of the debentures being converted
multiplied by 11, less the product of the conversion price multiplied by ten
times the dollar amount. The conversion price for the convertible debentures is
the lesser of (i) $0.25 or (ii) eighty percent of the of the average of the
three lowest volume weighted average prices during the twenty (20) trading days
prior to the conversion. For example, assuming conversion of $300,000 of
debentures on May 24, 2004, a conversion price of $0.048 per share, the number
of shares issuable upon conversion would be:
($300,000 x 11) - ($.048 x (10 x $300,000)) = 3,156,000 /$.048 = 65,750,000
Number % of
% Below Price Per With Discount of Shares Outstanding
Market Share at 20% Issuable Stock
- -------- --------- ------------- ----------- -----------
25% $.045 $.036 86,666,667 62.27%
50% $.030 $.024 134,500,000 71.46%
75% $.015 $.012 272,000,000 83.51%
LEGAL MATTERS
Sichenzia Ross Friedman Ference LLP, New York, New York will issue an
opinion with respect to the validity of the shares of common stock being
offered hereby.
EXPERTS
Larry Wolfe, CPA, has audited, as set forth in their report thereon
appearing elsewhere herein, our financial statements at December 31, 2003, and
for the years then ended that appear in the prospectus. Dreslin Financial
Services, has audited, as set forth in their report thereon appearing elsewhere
herein, our financial statements at December 31, 2002, and for the years then
ended that appear in the prospectus. STELMACK DOBRANSKY & EANNACE, LLC,
has audited, as set forth in their report thereon appearing elsewhere herein,
Air Plan, Inc's financial statements at December 31, 2003 and 2002, and for the
years then ended that appear in the prospectus. The financial statements
referred to above are included in this prospectus with reliance upon the
auditors' opinion based on their expertise in accounting and auditing.
AVAILABLE INFORMATION
We have filed a registration statement on Form SB-2 under the Securities
Act of 1933, as amended, relating to the shares of common stock being offered by
this prospectus, and reference is made to such registration statement. This
prospectus constitutes the prospectus of Invicta Group Inc., filed as part of
the registration statement, and it does not contain all information in the
registration statement, as certain portions have been omitted in accordance with
the rules and regulations of the Securities and Exchange Commission.
We are subject to the informational requirements of the Securities Exchange
Act of 1934 which requires us to file reports, proxy statements and other
information with the Securities and Exchange Commission. Such reports, proxy
statements and other information may be inspected at public reference facilities
of the SEC at Judiciary Plaza, 450 Fifth Street N.W., Washington D.C. 20549.
Copies of such material can be obtained from the Public Reference Section of the
SEC at Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549 at
prescribed rates. Because we file documents electronically with the SEC, you may
also obtain this information by visiting the SEC's Internet website at
http://www.sec.gov.
36
INVICTA GROUP INC. - FINANCIAL STATEMENTS
INVICTA GROUP INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 2004 AND 2003
UNAUDITED
================================================================================
MARCH 31,
2004
----------
ASSETS
------
Current assets:
Cash and cash equivalents $ 319,826
Prepaid Expenses 4,089
----------
Total current assets 323,915
----------
Property and equipment, net of accumulated
depreciation of $ 699,646 524,985
Other assets:
Surety Bond Deposit $ 71,410
Intangible assets, net of accumulated
amortization of $ 81,124 616,253
----------
Total Assets $1,536,563
==========
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
------------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 678,115
Notes payable and convertible debentures 107,999
Deferred officer compensation 85,025
----------
Total current liabilities 871,139
----------
Long-term debt
Notes Payable - shareholders 369,549
----------
Total Liabilities 1,240,688
----------
Shareholders' (Deficit):
Preferred stock par value $ .001, 10,000,000
shares authorized; none outstanding 0
Common stock, par value $ .001, 190,000,000
shares authorized, 51,590,282 issued and
outstanding 51,597
Additional paid in capital 2,647,246
Notes Receivable related to stock sales
and Subscriptions Receivable (78,000)
Retained (Deficit) (2,324,968)
----------
Total Shareholders' Equity 295,875
----------
Total Liabilities and Shareholders'
Equity $1,536,563
==========
37
INVICTA GROUP INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
UNAUDITED
==================================================================================
2004 2003
---------- ----------
Revenues $2,213,411 $ 3,089
Cost of sales 2,085,590
---------- ----------
Gross Profit 127,821 3,089
Selling, general, and administrative
expenses 602,597 145,986
---------- ----------
Operating loss (474,776) (142,897)
NET LOSS (474,776) (142,897)
========== ==========
Net loss per weighted average share, basic $ (0.010) $ (0.005)
========== ==========
Net loss per weighted average share, diluted $ (0.009) $ (0.005)
========== ==========
Weighted average shares, basic 45,340,316 31,682,200
========== ==========
Weighted average shares, diluted 54,958,398 31,682,200
========== ==========
38
INVICTA GROUP INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
UNAUDITED
==================================================================================
2004 2003
---------- ----------
Cash flows from operating activities:
Net (Loss) $ (474,776) $ (142,897)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 14,260 2,250
Amortization 13,950 10,800
Stock issued for services 233,000
Changes in assets and liabilities:
Accounts receivable and prepaid expenses 37,353
Stock subscription receivable (70,000)
Other assets (71,410)
Accounts payable and accrued expenses 163,394 75,078
---------- ----------
Net Cash (used) by Operating Activites $ (191,582) $ (17,416)
---------- ----------
Cash flows used in investing activities:
Capital asset expenditures $ - $ -
---------- ----------
Net Cash (used in ) Investing Activities $ - $ -
---------- ----------
Cash flows from financing activities:
Proceeds from long term debt $ 34,000 $ 35,446
Proceeds from sale of comon stock 484,595 800
Payments on long term debt (367,782) (22,277)
---------- ----------
Net Cash provided by Financing
Activities $ 150,813 $ 13,969
---------- ----------
Net change in cash and cash equivalents (40,769) (3,447)
Cash and cash equivalents, beginning of period 360,595 4,528
---------- ----------
Cash and cash equivalents, end of year $ 319,826 $ 1,081
========== ==========
ADDITIONAL CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
Interest (non capitalized) $ 896 $ -
========== ==========
INCOME TAXES $ - $ -
========== ==========
NON-CASH ACTIVITIES:
Stock issued for acquisitions $ 510,000 $ -
========== ==========
Stock issued for deferred compensation
payable $ 621,225 $ -
========== ==========
39
INVICTA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2004
UNAUDITED
================================================================================
NOTE A. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31, 2004
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2004.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Registrant Company and Subsidiaries' annual
report on Form 10-K for the year ended December 31, 2003.
NOTE B. CHANGES IN STOCKHOLDERS' (DEFICIT) FOR THE THREE MONTHS ENDED MARCH
31, 2004
Common Stock Additional Paid
Shares $ in capital Deficit
---------- ------------ --------------- -------------
BALANCE DECEMBER 31, 2003 34,629,970 $ 34,637 $ 815,386 $ (1,850,192)
Stock issued for cash 5,205,000 5,205 479,390
Stock issued for services 2,890,000 2,890 230,110
Stock issued for acquisitions 1,100,000 1,100 508,900
Stock issued to officers in exchange
for prior years deferred compensation 7,765,312 7,765 613,460
Net loss for the period ended
December 31, 2002 (474,776)
---------- ------------ --------------- -------------
BALANCE MARCH 31, 2004 51,590,282 $ 51,597 $ 2,647,246 $ (2,324,968)
========== ============ =============== =============
NOTE C. INCOME PER SHARE
Basic Earnings per Share ("EPS") is computed by dividing net income
available to common stockholders by the weighted average number of common stock
shares outstanding during the year. Diluted EPS is computed by dividing net
income available to commons stockholders by the weighted average number of
common stock shares outstanding during the year plus potential dilutive
instruments such as stock options and warrants. The effect of stock options on
diluted EPS is determined through the application of the treasury stock method,
whereby proceeds received by the Company based on assumed exercises are
hypothetically used to repurchase the Company's common stock at the average
market price during the period.
40
INVICTA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2004
UNAUDITED
================================================================================
NOTE D. ACQUISITIONS
ISIP TELECOM, INC.
- --------------------
On January 8, 2004, the Company used the purchase method to acquire all of
the common stock of ISIP Telecom, Inc., a Florida Corporation formed in 2003, in
exchange for 100,000 restricted shares of the Company's common stock with a
value of $.10 per share resulting in a total purchase price of $10,000. ISIP
Telecom is a voice over internet protocol telecommunications company that will
market long distance services over the internet to worldwide telephones and will
be sold to the travel industry. The Company's 2004 consolidated results include
the operations of ISIP Telecom, Inc. from the date of acquisition.
AIRPLAN, INC.
- --------------
On February 23, 2004, the Company acquired all of the outstanding capital
stock of Airplan, Inc., a Pennsylvania Corporation organized in 1989, for
1,000,000 shares of the Company's common stock of which 700,000 shares are
restricted. Additionally, the Company will guarantee the value of the stock
given as consideration to be at least $500,000 at 180 days after closing the
transaction. If the value of the stock is less than $500,000, then additional
shares will be issued based on the current market value to a total of $500,000.
Airplan, Inc. is involved in the wholesale and retail travel industry. The
acquisition was accounted for as a purchase of a wholly-owned subsidiary and the
results of its operations were included in the consolidated results of the
Company from the date of acquisition. In addition, the selling shareholders have
a 5 year Earn Out Agreement offering an earn out of 10% of EBITDA of Airplan,
Inc. for each of the fiscal years ending December 31, 2004 through December 31,
2008.
The acquisition activity for the three months ended March 31, 2004 is
summarized in the following table. Property, plant and equipment of
approximately $534,000 will be depreciated on a straight-line basis over a 5
year life. Purchased intangible assets of approximately $535,000 will be
amortized on a straight-line basis over lives ranging from 5 to 10 years
(weighted average life of 8.8 years).
Three Months Ended
March 31, 2004 Activity
Assets (Liabilities) ISIP Telecom, Total
At Fair Value Inc. Airplan, Inc. Activity
- -------------------------- ------------- ------------ ----------
Cash and other current assets $ - $ 362,925 $ 362,925
Property, plant equipment - net - 534,112 534,112
Purchased intangible assets 10,000 525,078 535,078
Accounts payable and other
Current liabilities - (922,115) (922,115)
------------- ------------ ----------
Net Assets Acquired $ 10,000 $ 500,000 $ 510,000
============= ============ ==========
Fair values were determined by management's estimates without independent
appraisal.
41
INVICTA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2004
UNAUDITED
================================================================================
The unaudited pro forma information for the three months ended March 31, 2004
and 2003 assumes the acquisitions occurred as of the beginning of each
respective year, after giving effect to certain adjustments, including
amortization and depreciation based upon the adjustments to the fair values of
intangibles and property, plant and equipment acquired. The pro forma results
have been prepared for comparative purposes only and are not necessarily
indicative of the results of operations that may occur in the future or that
would have occurred had the acquisitions been effected at the beginning of each
period presented.
PRO FORMA INFORMATION FOR ACQUISITIONS:
Three Months Ended
MARCH 31, MARCH 31,
2004 2003
---------- ----------
Gross Revenues $4,224,275 $2,223,434
Net Income (Loss) (501,150) (206,908)
Earnings (Loss) Per Share (.011) (.007)
NOTE E. DEFERRED OFFICER'S COMPENSATION AND STOCK OPTIONS
On January 6, 2004, the Company entered into an agreement with its officers
to issue restricted common stock and options in lieu of the deferred salary owed
to the officers. The board approved and authorized the issuance of 765,313
shares of its common stock, and granted options for and additional 3,882,656
shares, in exchange for approximately $621,000 of deferred compensation. The
stock issued is restricted for one year. The exercise price of the options are
$.25, and are for a period of 5 years.
NOTE F. GOING CONCERN
The Company's financial statements are prepared using the generally
accepted accounting principles applicable to a going concern, which contemplates
the realization of assets and liquidation of liabilities in the normal course of
business.
However, the Company has not generated any income and is unable to predict
when its operations will generate income. The Company has raised over $350,000
in equity funding in 2004 and expects to be able to raise an additional $700,000
to aggressively market and staff the subsidiaries currently owned. Management
plans to continue to look for acquisitions to enhance revenues and
profitability. The Company is also negotiating a $6 million equity
line-of-credit that will become effective when a new SEC registration is
approved which should be about July, 2004. Management feels that its equity and
line-of-credit funding will provide the working capital to allow it to continue
as a going concern, however, there can be no assurances that additional funding
will become available when required.
42
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders of Invicta Group Inc.
I have audited the accompanying consolidated balance sheets of Invicta
Group Inc. and subsidiaries (a Nevada Corporation) as of December 31, 2003, and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. MY responsibility is to express
an opinion on these financial statements based on my audit. The financial
statements of Invicta Group Inc. and subsidiaries as of December 31, 2002, were
audited by other auditors whose report dated April 3, 2003, on those statements
included an explanatory paragraph that described the significant losses and
working capital deficiency discussed in Note L to the financial statements.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes, examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Invicta Group Inc. and
subsidiaries as of December 31, 2003 and the results of its operations and its
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note L to the
financial statements, the Company incurred significant losses from operations,
and because of these losses, the Company has a working capital deficiency, which
raises substantial doubts about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note L. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Larry Wolfe
- -----------------
Larry Wolfe
Certified Public Accountant
Miami, Florida
April 13, 2003
43
INVICTA GROUP INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2003 AND 2002
================================================================================
2003 2002
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 1,759 $ 4,528
---------- ----------
Total current assets 1,759 4,528
Property and equipment, net of accumulated
depreciation of $ 22,966 for 2003 and
$ 15,406 for 2002 $ 5,132 12,632
Other assets:
Intangible assets, net of accumulated
amortization of $ 67,174 for 2003 and
$ 46,709 for 2002 95,125 215,890
---------- ----------
Total Assets $ 102,016 $ 233,050
========== ==========
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities $ 43,689 $ 14,922
Notes payable and convertible debentures 54,100 10,000
Deferred officer compensation 668,250 342,000
---------- ----------
Total current liabilities 766,039 366,922
Long-term debt
Notes Payable - shareholders 344,146 320,671
---------- ----------
Total Liabilities 1,110,185 687,593
---------- ----------
Shareholders' (Deficit):
Preferred stock par value $ .001 10,000,000
shares authorized; none outstanding 0 0
Common stock, par value $ .001, 90,000,000 shares
authorized, 34,629,970 issued and outstanding 34,637 31,717
Additional paid in capital 815,386 498,530
Notes Receivable related to stock sales
and Subscriptions Receivable (8,000) (40,000)
Retained (Deficit) (1,850,192) (944,790)
Total Shareholders' (Deficit) (1,008,169) (454,543)
---------- ----------
Total Liabilities and Shareholders'
(Deficit) $ 102,016 $ 233,050
========== ==========
44
INVICTA GROUP INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWO YEARS ENDED DECEMBER 31, 2003
================================================================================
2003 2002
---------- ----------
Commissions earned $ 7,806 $ 8,245
Selling, general, and administrative expenses 818,208 548,282
Asset impairment charge 95,000
---------- ----------
Operating loss (905,402) (540,037)
NET LOSS (905,402) (540,037)
========== ==========
Net loss per weighted average share, basic $ (0.028) $ (0.032)
========== ==========
Net loss per weighted average share, diluted $ (0.028) $ (0.032)
========== ==========
Weighted average shares, basic 32,088,263 16,642,200
========== ==========
Weighted average shares, diluted 32,186,100 16,662,200
========== ==========
45
INVICTA GROUP INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIT)
FOR THE TWO YEARS ENDED DECEMBER 31, 2003
=======================================================================================================
Common Stock Additional Paid
Shares $ in capital Deficit
------------- ---------- ---------- -----------
BALANCE DECEMBER 31, 2001 12,901,000 $ 12,901 $ 273,652 $ (904,753)
Stock issued for cash 14,892,000 14,892 164,556
Stock issued for services 2,621,200 2,621 118,576
Stock issued for acquisitions 14,151,000 14,151 62,604
Equity effect - reverse
acquisition - note 4 (12,848,000) (12,848) (120,858)
Debt Restructuring - reverse
acquisition - note 4 500,000
Net loss for the period ended
December 31, 2002 (540,037)
------------- ---------- ---------- -----------
BALANCE DECEMBER 31, 2002 31,717,200 $31,717 $ 498,530 $ (944,790)
Issuance of Common Stock for
cash from January 3, 2003 thru
September 19, 2003
@ $ .10 per share 428,000 435 42,365
Issuance of Common Stock issued in
exchange for legal fees at the
fair value of the legal
fees @ $.10 per share 539,770 540 53,436
Issuance of Common Stock issued in
exchange for marketing services at
the fair value of the marketing
@ $.08 per share 1,310,000 1,310 97,690
Issuance of Common Stock issued in
exchange for Legal fees at the fair
value of the legal fees
@ $.20 per share 100,000 100 19,900
Issuance of Common Stock for Cash on
September 19, 2003 @ $.15 per share 60,000 60 8,940
Issuance of Common Stock for Cash on
December 9, 2003 @ $.20 per share 125,000 125 24,875
Issuance of Common Stock issued in
exchange for marketing services at
the fair value of the marketing
@ $.20 per share 350,000 350 69,650
Net loss for the period ended
December 31, 2003 (905,402)
------------- ---------- ---------- -----------
BALANCE DECEMBER 31, 2003 34,629,970 $ 34,637 $ 815,386 $(1,850,192)
============= ========== ========== ===========
46
INVICTA GROUP INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE TWO YEARS ENDED DECEMBER 31, 2003
================================================================================
2003 2002
---------- ----------
Cash flows from operating activities:
Net (Loss) $ (905,402) $ (540,037)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 7,500 6,196
Amortization 25,765 15,934
Stock issued for services 242,976 121,198
Asset impairment charge 95,000
Changes in assets and liabilities:
Prepaid expenses 30,000
Accounts payable and accrued expenses 355,017 278,830
---------- ----------
Net Cash (used) by Operating Activites $ (179,144) $ (87,879)
---------- ----------
Cash flows used in investing activities:
Capital asset expenditures $ - $ -
---------- ----------
Net Cash (used in ) Investing Activities $ - $ -
---------- ----------
Cash flows from financing activities:
Proceeds from long term debt $ 170,457 $ 13,200
Proceeds from sale of comon stock 108,800 137,905
Payments on long term debt (102,882) (64,277)
---------- ----------
Net Cash provided by Financing Activities $ 176,375 $ 86,828
---------- ----------
Net change in cash and cash equivalents (2,769) (1,051)
Cash and cash equivalents, beginning of year 4,528 5,579
---------- ----------
Cash and cash equivalents, end of year $ 1,759 $ 4,528
========== ==========
ADDITIONAL CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
Interest (non capitalized) $ - $ -
========== ==========
INCOME TAXES $ - $ -
========== ==========
47
INVICTA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
================================================================================
NOTE A: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Organization
The Company was incorporated in Nevada on June 1, 2000 for the purpose of
engaging in the travel industry. On July 15, 2002 the Company acquired all of
the common stock of Casino Rated Players, Inc. and the transaction was accounted
for as a reverse acquisition.
2. Principles of Consolidation
The consolidated financial statements include the accounts of Invicta Group,
Inc. and its subsidiary. All significant intercompany transactions and balances
have been eliminated in consolidation.
3. Impairment of Long-Lived Assets and Intangible Assets
The Company makes reviews for the impairment of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable under SFAS No. 121.
An impairment loss would be recognized when estimated future cash flows expected
to result from the use of the asset and its eventual disposition is less than
its carrying amount. During 2003, the Company identified certain software with a
cost of $100,000 and a net book value of $95,000 that required an adjustment for
impairment in the amount of $95,000.
The remaining intangible assets at the balance sheet date consist of web site
development and a client list that are carried at cost. The Company amortizes
these assets on a straight-line basis over 7 years and 5 years, respectively.
4. Revenue Recognition
The Company derives its revenue from the commissions earned from travel
suppliers, and on the direct sale of travel related products. Revenue is
recognized upon the receipt of the commission.
5. Income Per Share
Basic Earnings per Share ("EPS") is computed by dividing net income available to
common stockholders by the weighted average number of common stock shares
outstanding during the year. Diluted EPS is computed by dividing net income
available to common stockholders by the weighted average number of common
48
INVICTA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
================================================================================
stock shares outstanding during the year plus potential dilutive instruments
such as stock options and warrants. The effect of stock options on diluted EPS
is determined through the application of the treasury stock method, whereby
proceeds received by the Company based on assumed exercises are hypothetically
used to repurchase the Company's common stock at the average market price during
the period.
6. Cash
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
7. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates. The most significant estimates
included in the preparation of the financial statements are related to asset
lives and accruals.
8. Financial Instruments
The Company's short-term financial instruments consist of cash and cash
equivalents, notes payable and accounts payable. The carrying amounts of these
financial instruments approximates fair value because of their short-term
maturities. Financial instruments that potentially subject the Company to a
concentration of credit risk consist principally of cash. During the period the
Company did not maintain cash deposits at financial institutions in excess of
the $100,000 limit covered by the Federal Deposit Insurance Corporation. The
Company does not hold or issue financial instruments for trading purposes nor
does it hold or issue interest rate or leveraged derivative financial
instruments.
9. Stock-Based Compensation
The Company adopted Statement of Financial Accounting Standard No. 123 (FAS
123), Accounting for Stock-Based Compensation beginning with the Company's
existence. Upon adoption of FAS 123, the Company continued to measure
compensation expense for its stock-based employee compensation plans using the
intrinsic value method prescribed by APB No. 25, Accounting for Stock Issued to
Employees. The Company did not pay any stock-based compensation during the
period presented.
49
INVICTA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
================================================================================
10. Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income", establishes guidelines for all
items that are to be recognized under accounting standards as components of
comprehensive income to be reported in the financial statements. To date, the
Company has not engaged in transactions which would result in any significant
difference between its reported net loss and comprehensive net loss as defined
in the statement.
11. Costs of Computer Software
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-1 provides
authoritative guidance on when internal-use software costs should be capitalized
and when these costs should be expenses as incurred.
Effective January 3, 2001, the Company adopted SOP 98-1, however, the Company
has not incurred costs to date which would require evaluation in accordance with
the SOP.
12. Segments
Effective January 3, 2001, the Company adopted SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information ("SFAS 131"). SFAS 131
superseded SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise. SFAS 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports. SFAS 131 also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. The adoption of SFAS 13 did not affect results of
operations or financial position.
13. Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation of plant and
equipment is computed principally by the straight-line method based upon the
estimated useful lives of the assets, which range as follows:
Office furniture and equipment - 5-7 years Computer equipment - 5 years
14. Pensions and Other Post-Retirement Benefits
Effective January 3, 2001, the Company adopted the provisions of SFAS No. 132,
Employers' Disclosures about Pensions and other
50
INVICTA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
================================================================================
Post-Retirement Benefits ("SFAS 132"). SFAS 132 supersedes the disclosure
requirements in SFAS No. 87, Employers' Accounting for Pensions, and SFAS No.
106, Employers' Accounting for Post-Retirement Benefits Other Than Pensions. The
overall objective of SFAS 132 is to improve and standardize disclosures about
pensions and other post-retirement benefits and to make the required information
more understandable. The adoption of SFAS 132 did not affect results of
operations or financial position.
The Company has not initiated benefit plans to date which would require
disclosure under the statement.
15. Derivative Instruments
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), which
is required to be adopted in years beginning after June 15, 1999. SFAS 133 will
require the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset against the
change in fair value of hedged assets, liabilities, or firm commitments through
earnings or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in fair
value will be immediately recognized in earnings. The Company has not yet
determined what the effect of SFAS 133 will be on earnings and the financial
position of the Company, however, it believes that it has not to date engaged in
significant transactions encompassed by the statement.
16. Advertising Costs
Advertising costs generally will be charged to operations in the year incurred.
Advertising expense approximated $7,000 for 2003 and $17,000 for 2002.
17. Environmental Cleanup Matters
The Company expenses environmental expenditures related to existing conditions
resulting from past or current operations and from which no current or future
benefit is discernable. The Company determines its liability on a site-by-site
basis and records a liability at the time when it is probable and can be
reasonably estimated.
51
INVICTA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
================================================================================
18. Business Concentrations
As indicated in Note A-4, the Company derives its revenue from commissions
earned from travel suppliers and the direct sale of travel related products and,
therefore, the Company is subject to the economic conditions of the travel
market place. Changes in this industry may significantly affect management's
estimates and the Company's performance.
19. Income Taxes
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", effective January 3, 2001. Under SFAS, deferred
tax assets and liabilities are determined based on differences between the
financial reporting and tax basis of assets and liabilities and are measured by
applying enacted tax rates and laws to taxable years in which such differences
are expected to reverse.
The Company has not provided either a provision or a credit for income taxes due
to recurring losses from inception. At December 31, 2003, the Company had
approximately $1,100,000 of federal and state operating loss carryforwards
available to offset future taxable income. These net operating loss
carryforwards will begin expiring in 2017.
20. Gains and Losses from Extinguishment of Debt
In May 2002, the FASB issued Statement of Financial Accounting Standards No. 145
"Reporting Gains and Losses from Extinguishment of Debt", which rescinded SFAS
No. 4, No. 44 and No. 64 and amended SFAS No. 13. The new standard addresses the
income statement classification of gains or losses from the extinguishment of
debt and criteria for classification as extraordinary items. The new standard
became effective for fiscal years beginning after May 15, 2002. The Company
adopted this pronouncement on May 1, 2003. The adoption of this pronouncement is
not expected to have a material impact on the Company's results of operations or
financial position.
21. Guarantor's Accounting
In November 2002 the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others". FIN 45 requires certain guarantees to be
recorded at fair value, instead of recording a liability only when a loss is
probable and reasonably estimable, as those terms are defined in FASB Statement
No. 5 Accounting for Contingencies. FIN 45 also requires a guarantor to make
significant new disclosures, even when the likelihood of making any payments
under the guarantee is
52
INVICTA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
================================================================================
remote. The disclosure requirements of FIN 45 are effective for financial
statements of interim or annual periods ending after December 15, 2002. The
Company adopted the disclosure provisions of FIN 45 effective December 31, 2002
and its adoption is not expected to have a material impact on the Company's
results of operations or financial position.
22. Consolidation of Variable Interest Entities
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities". FIN 46 clarifies the application of existing
accounting pronouncements to certain entities in which equity investors do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. The provisions of
FIN 46 will be immediately effective for all variable interests in variable
interest entities created after January 31, 2003, and the Company will need to
apply its provisions to any existing variable interests in variable interest
entities by no later than December 31, 2004. The Company does not believe that
FIN 46 will have a significant impact on the Company's financial statements.
23. Start-Up and Organization Costs
Start-up and organization costs are accounted for under the provisions of the
American Institute of Certified Public Accountants' Statement of Position (SOP)
98-5, "Reporting on the Costs of Start-up Activities". Adopted by the Company at
its inception, SOP 98-5 provides guidance on the financial reporting of start-up
and organization costs and requires such costs to be expensed as incurred. The
Company's adoption of SOP 98-5 will not have a significant effect on its
financial position or results of operation.
NOTE B: CONVERTIBLE DEBENTURES PAYABLE
Principal balances outstanding and details of notes payable are summarized as
follows:
2003 2002
---------- ----------
1. 10% convertible debenture, payable
December 31, 2003. The note is
convertible into company stock @
$.10 per share. The debenture was
renewed during February, 2004 $ 10,000 $ -
53
INVICTA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
================================================================================
2003 2002
---------- ----------
2. 10% convertible debenture, payable
December 31, 2003. The notes are
convertible into company stock @
$.30 per share. These debentures
have or will be paid in 2004 34,100 -
3. 7% convertible debenture, payable
July 1, 2004. The debenture is
Convertible into company stock @
$.50 per share 10,000 10,000
Total Convertible Debentures Payable $ 54,100 $ 10,000
========== ==========
NOTE C: NOTES PAYABLE - SHAREHOLDERS
0% notes payable to shareholders, uncollateralized, payable on the first month
after the Company has received $1,000,000 in equity funding in monthly
installments of approximately $20,000. Management does not expect the $1,000,000
equity funding to occur during 2004. Therefore, the entire balance of $344,146
is classified as long-term debt for 2003 and $320,671 for 2002.
NOTE D: STOCKHOLDERS' EQUITY (DEFICIT)
During 2002, the Company issued 14,892,000 shares of its $.001 par value common
stock for $179,448 in cash, 2,621,200 shares for services with a value of
$121,197.
During 2002, the Company issued 14,151,000 shares of its common stock for an
acquisition with a fair value of approximately $77,000.
During 2002, the Company's equity effect of the reverse acquisition retained and
cancelled 12,848,000 shares of the common stock with a decrease in common stock
and additional paid in capital of $133,706.
During 2002, the Company issued 620,000 shares of its $.001 par value common
stock for $76,800.
During 2002, the Company issued for services 2,299,770 shares with a fair value
of $242,976.
NOTE E: RELATED PARTY TRANSACTIONS
See Note C - Notes Payable - Shareholders which describes certain related party
transactions for 2003 and 2002.
54
INVICTA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
================================================================================
NOTE F: WARRANTS AND OPTIONS
There are no warrants or options outstanding to acquire any additional shares of
common stock. However, see Note B - Convertible Debentures Payable which may be
converted into additional shares of common stock.
NOTE G: EMPLOYMENT AGREEMENTS AND DEFERRED OFFICER'S COMPENSATION
The Company entered into employment agreements with its Chief Executive Officer,
Chief Operating Officer, and its Vice-President for the period July 23, 2002
until August 1, 2004. The annual base salary of each officer will be $120,000.
Each officer will be paid for equity funding equal to 5% of funding.
The Company has accrued for each officers'salaries in deferred officers'
compensation with balances of:
2003 2002
- ---------- ----------
$ 668,250 $ 342,000
========== ==========
See Note K-1 for subsequent event with respect to Deferred Officers'
Compensation.
NOTE H: LEASES
The Company leases office space for its operations on a month-to-month basis at
$800 per month. Rent expense for 2003 and 2002 approximated $10,000, and $9,000
respectively.
NOTE I: 2002 ACQUISITION OF BUSINESS
On July 15, 2002, the Company acquired all of the common stock of Casino Rated
Players, Inc. in exchange for 14,151,000 restricted shares of the Company's
stock, including 1,000,000 shares as payment for $500,000 of deferred officers
compensation on the books of Casino Rated Players, Inc. The calculated per share
value of $.005 per share resulted in a total purchase price of $70,755, and the
reduction of $500,000 of the outstanding liabilities were recorded as a
reduction to retained earnings.
Based on the resulting outstanding shares of the Company at the conclusion of
the transaction, the former shareholders of Casino Rated Players, Inc. held a
majority voting position in the combined company. Accordingly, based on the
criteria of SFAS 141, the acquisition was accounted for as a reverse
acquisition. All assets of Invicta Group, Inc. were recorded at fair market
value, and all assets and liabilities of Casino Rated Players have been recorded
at historical cost. The transaction resulted in a reduction of paid in capital
of $120,858 to account for the elimination of the accumulated deficit of Invicta
Group, Inc. and the elimination for the outstanding common stock of Casino
Related Players, Inc.
55
INVICTA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
================================================================================
The following pro forma information is presented as required by SFAS 141
regarding the presentation of any period present in the financial statements.
The following selected financial information is presented as if the transaction
has occurred at the beginning of each period presented, and the operations were
consolidated.
2002
----------
Gross Revenues $ 12,316
Net Income $ (611,999)
Earnings per Share (.021)
NOTE J: 2002 RESTATEMENT
The balance sheet was restated for year-end 2002 to properly account for the
acquisition of Casino Rated Players, Inc. as a reverse acquisition instead of a
purchase as originally reported. The income statement was restated to remove the
write off of goodwill that was recorded as part of the purchase, then written
off as an impaired asset.
The net loss for year-end 2002 as restated is ($540,037) reduced from ($754,798)
after the effect of the removal of the written off impaired asset, and the
effect of the operations of Casino Rated Players through July 15, 2002. Total
shareholders equity was unchanged, as the effect of the reverse acquisition
resulted in a reduction to additional paid in capital.
NOTE K: SUBSEQUENT EVENTS
1. On January 6, 2004, the Company entered into an agreement with its officers
to issue restricted common stock, and options in lieu of the deferred salary
owed to the officers. The board approved and authorized the issuance of
$7,765,313 shares of its common stock, and granted options for and additional
3,882,656 shares, in exchange for $621,000 of deferred compensation. The stock
issued is restricted for one year. The exercise price of the options are $.25,
and are for a period of 5 years. The Company at December 31, 2003 has accrued
the payroll tax liability for the Company's share of the payroll taxes
associated with the transaction.
2. On February 18, 2004, the Company acquired all of the outstanding capital
stock of Airplan, Inc. for 1,000,000 shares of the Company's common stock of
which 700,000 shares are restricted. Additionally, the Company will guarantee
the value of the stock given as consideration to be at least $500,000 at 180
days after closing the transaction. If the value of the stock is less than
$500,000, then additional shares will be issued based on the current market
value to a total of $500,000. Airplan, Inc. is involved in the wholesale and
retail travel industry. The acquisition will be accounted for as a purchase of a
wholly-owned subsidiary and the results of its operations will be included in
the
56
INVICTA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
================================================================================
consolidated financial statements of the Company from the date of the
acquisition.
3. On January 9, 2004 the Company acquired all of the outstanding stock of ISIP
Telecom, Inc. in exchange for 100,000 shares of Invicta's common stock. ISIP
Telecom is a voice over internet protocol telecommunications company that will
market long distance services over the internet to worldwide telephones, and
will be sold to the travel industry.
NOTE L: GOING CONCERN
The Company's financial statements are prepared using the generally accepted
accounting principles applicable to a going concern, which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business.
However, the Company has not generated any income and is unable to predict when
its operations will generate income. The Company has raised over $350,000 in
equity funding in 2004 and expects to be able to raise an additional $700,000 to
aggressively market and staff the subsidiaries currently owned. Management plans
to continue to look for acquisitions to enhance revenues and profitability. The
Company is also negotiating a $6 million equity line-of-credit that will become
effective when a new SEC registration is approved which should be about July,
2004. Management feels that its equity and line-of-credit funding will provide
the working capital to allow it to continue as a going concern, however, there
can be no assurances that additional funding will become available when
required.
57
INDEPENDENT AUDITOR'S REPORT
Airplan, Inc.
2600 Boyce Plaza Road
Pittsburgh, Pennsylvania
We have audited the accompanying balance sheets of Airplan, Inc. (a Pennsylvania
corporation) as of December 31, 2003 and 2002 and the related statements of
income (loss) and retained earnings (deficit) and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Airplan, Inc. as of December
31, 2003 and 2002, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United State of America.
Our audits were conducted for the purpose of forming an opinion on the basis
financial statements taken as a whole. The supplemental schedule on page 10 is
presented for purposes of additional analysis and is not a required part of the
basic financial statements. Such information has been subjected to the auditing
procedures applied in the audit of the basic financial statements, and in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
The accompanying financial statements have been prepared assuming that the
Company will continued as a going concern. As discussed in Note 7 to the
financial statements, the Company's significant operating losses raise
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ STELMACK DOBRANSKY & EANNACE, LLC
- ------------------------------------------
STELMACK DOBRANSKY & EANNACE, LLC
PITTSBURGH, PENNSYLVANIA
March 18, 2004
58
AIRPLAN, INC.
BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
================================================================================
2003 2002
---------- ----------
ASSETS
------
CURRENT ASSETS
Cash $ 35,625 $ 163,069
Accounts receivable - shareholder 105,000 105,000
Prepaid expenses 4,089 2,978
---------- ----------
Total current assets 144,714 271,047
---------- ----------
PROPERTY, PLANT AND EQUIPMENT
Automobiles 47,582 47,582
Computer and telephone equipment 586,653 599,827
Office furniture and equipment 50,989 57,271
Equipment under capital lease 158,889 158,889
---------- ----------
Total property, plant and equipment 844,113 863,569
Less accumulated depreciation
(accumulated depreciation on capital
leases: 2003 - $96,279; 2002 - $64,501) 698,632 622,329
---------- ----------
Total property, plant and equipment- net 145,481 241,240
---------- ----------
TOTAL ASSETS $ 290,195 $ 512,287
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
---------------------------------------
CURRENT LIABILITIES
Accounts payable $ 291,472 $ 243,564
Bank line of credit - demand (Note 4) 150,000 0
Loan payable - shareholder (Note 5) 69,460 0
Capital lease obligations - amounts due
within one year (Note 2) 43,859 40,908
Deferred revenue 18,526 19,082
Accrued expenses
Accrued salaries and wages 0 26,150
Accrued payroll taxes 0 2,740
---------- ----------
Total current liabilities 573,317 332,444
---------- ----------
LONG-TERM LIABILITIES
Capital lease obligations - amounts due
after one year (Note 2) 5,692 49,441
---------- ----------
SHAREHOLDER'S EQUITY (DEFICIT)
Capital stock, $1 par value per share,
1,000 shares authorized, 501 shares
issued and outstanding 501 501
Additional paid-in capital 27,436 27,436
Retained earnings (deficit) (316,751) 102,465
---------- ----------
Total shareholder's equity (deficit) (288,814) 130,402
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S
EQUITY $ 290,195 $ 512,287
========== ==========
See Independent Auditor's Report and Notes to the Financial Statements
----------------------------------------------------------------------
59
AIRPLAN, INC.
STATEMENTS OF INCOME (LOSS) AND RETAINED EARNINGS (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
================================================================================
2003 2002
---------- ----------
AMOUNT PERCENT AMOUNT PERCENT
------------ ----------- ------------ -----------
SALES $ 7,849,047 100.0% $ 13,760,708 100.0%
COST OF SALES 7,219,657 92.0 12,494,758 90.8
------------ ----------- ------------ -----------
GROSS PROFIT ON SALES 629,390 8.0 1,265,950 9.2
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,049,067 13.4 1,361,394 9.9
INCOME (LOSS) FROM
OPERATIONS (419,677) (5.4) (95,444) (0.7)
OTHER INCOME - Interest 461 0.0 9,160 0.1
------------ ----------- ------------ -----------
NET INCOME (LOSS) (419,216) (5.4)% (86,284) (0.6)%
============ =========== ============ ===========
RETAINED EARNINGS
- - Beginning of year 102,465 426,659
LESS SHAREHOLDER
DISTRIBUTIONS 0 (237,910)
------------ ----------- ------------ -----------
RETAINED EARNINGS
(DEFICIT)
- - End of year $ (316,751) $ 102,465
============ =========== ============ ===========
See Independent Auditor's Report and Notes to the Financial Statements
60
AIRPLAN, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
================================================================================
2003 2002
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (419,216) $ (86,284)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 95,758 143,502
(Increase) decrease in
Prepaid expenses (1,111) (2,978)
Accounts receivable 0 (105,000)
Increase (decrease) in
Accounts payable 47,908 23,788
Deferred revenue (556) 19,082
Accrued expenses (28,890) 8,763
---------- ----------
Net cash provided by (used in) operating
activities (306,107) 873
---------- ----------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Purchase of fixed assets 0 (70,460)
---------- ----------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
New borrowings:
Bank line of credit 150,000 0
Shareholder loans 69,460 0
Capitalized lease obligations 0 70,460
Debt reductions:
Capitalized lease obligations (40,797) (40,191)
Distributions to shareholder 0 (237,910)
---------- ----------
Net cash provided by (used in) financing
activities 178,663 (207,641)
---------- ----------
NET INCREASE (DECREASE) IN CASH (127,444) (277,228)
CASH - Beginning of year 163,069 440,297
---------- ----------
CASH - End of year $ 35,625 $ 163,069
========== ==========
SUPPLEMENTAL INFORMATION
Interest paid $ 0 $ 7,790
Income taxes paid $ 0 $ 0
Non cash investing and financing activities:
Capitalized lease obligation incurred in
connection with the acquisition of equipment $ 0 $ 70,460
See Independent Auditor's Report and Notes to the Financial Statements
61
AIRPLAN, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
- ------------
Airplan, Inc. was organized and incorporated under the laws of the state of
Pennsylvania in July 1989. The Company is involved nationwide in the air travel
business, specifically involving the overseas discount ticket market.
ACCOUNTING METHOD
- ------------------
These financial statements are prepared using the accrual method of accounting.
CASH AND CASH EQUIVALENTS
- ----------------------------
Cash and cash equivalents consist of deposits with banks and financial
institutions which are unrestricted as to withdrawal or use, and which have an
original maturity of three months or less. The carrying amount approximates fair
value because of the short maturity of those instruments.
USE OF ESTIMATES
- ------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues, expenses and
certain disclosures in the financial statements. Actual results could differ
from those estimates and ultimately affect the reported amounts and disclosures
in the financial statements.
FIXED ASSETS
- -------------
Fixed assets are recorded at cost.
Major improvements and betterments to the fixed assets are capitalized.
Expenditures for maintenance and repairs which do not extend the lives of the
applicable assets are charged to expense as incurred. When fixed assets are
sold, retired or otherwise disposed of, the cost and accumulated depreciation
are removed from the respective accounts with any resulting gains or losses
being reflected in income.
Depreciation is computed using the straight-line method over the following
estimated useful lives:
Years
---------
Office furniture and equipment 7 to 10
Computer and telephone equipment 5 to 10
Automobiles 5
(Continued)
62
AIRPLAN, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
INCOME TAXES
- -------------
The Company has elected S Corporation status for federal and Pennsylvania income
tax purposes. Under S corporation status, all items of revenue, expenses, and
credits will be included in the personal income tax returns of the stockholders.
Accordingly, the Company will not incur federal or Pennsylvania income tax
obligations, and the financial statements do not include provisions for federal
or Pennsylvania income taxes.
Depreciation is computed using the various accelerated methods as allowed by the
income tax regulations in effect when the property is placed in service.
CASH FLOW INFORMATION
- -----------------------
The Company considers all short-term investments with an original maturity of
three months or less to be cash equivalents.
CONCENTRATION OF CREDIT RISK
- -------------------------------
Financial instruments which potentially subject the Company to a concentration
of credit risk, as defined by Financial Accounting Statement No. 105, consist
principally of cash. The Company's cash accounts are maintained at a high
quality financial institution. At times such accounts are in excess of FDIC
insurance limits but pose no significant concentration of credit risk.
2. CAPITAL LEASE OBLIGATIONS
Capital lease obligations from equipment consists of the following:
2003 2002
---------- ----------
Capital lease obligation payable in
monthly installments of $1,799,
including interest at 8.1%, through
February 2005;secured by telephone
equipment $ 25,182 $ 46,766
Capital lease obligation payable in
monthly installments of $2,030,
including interest at 6.0%, through
February 2005; secured by telephone
equipment 26,395 50,760
---------- ----------
Total 51,577 97,526
Less amount representing interest 2,026 7,177
---------- ----------
Present value of net minimum lease payments 49,551 90,349
Less principal amounts due within one year 43,859 40,908
---------- ----------
Principal amounts due after one year $ 5,692 $ 49,441
========== ==========
(Continued)
63
AIRPLAN, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
================================================================================
2. CAPITAL LEASE OBLIGATIONS, CONTINUED
Maturities of the capital lease obligations are as follows:
Year Ended
December 31, Amount
------------- --------
2004 $ 45,949
2005 5,628
--------
Total 51,577
Less amounts representing interest 2,026
--------
Present value of net minimum lease payments $ 49,551
========
3. OPERATING LEASES
The Company conducts its operations from facilities that are leased under an
operating lease which expires in April 2006 and which provides for an optional
annual rental escalation percentage of 11.66%. Rental payments are $3,455 per
month.
The Company also leases three automobiles under operating lease agreements which
expire in 2004 and 2005.
The future annual minimum lease obligations are as follows:
Year Ended
December 31, Amount
- ------------- --------
2004 $ 53,504
2005 43,947
2006 10,364
2007 0
--------
Total $107,815
========
4. BANK LINE OF CREDIT
Airplan, Inc. currently has a revolving line of credit agreement totaling
$150,000 with Citizens Bank that expires May 1, 2004. Borrowings under the line
of credit for the years ended December 31, 2003 and 2002 amounted to $150,000
and $0, respectively. The balance is payable on demand with interest payable
monthly at 4.5%. The line of credit is secured by a personal asset of the
shareholder. The bank line of credit was paid off on February 16, 2004 when the
shareholder loaned the Company the money to pay it off.
5. SHAREHOLDER NOTE PAYABLE
Shareholder note payable represents an unsecured note payable to the shareholder
and represents a direct investment into the Company for working capital from the
shareholder. The note has no fixed principal repayment schedule and no interest
payable.
On February 16, 2004, the shareholder loaned the Company an additional $150,000
which was used to pay off the bank line of credit.
(Continued)
64
AIRPLAN, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
================================================================================
6. RELATED PARTY
The Company is related through common ownership with Fareline International,
Inc.
Fareline is an agent for Airplan, Inc. and receives a commission for ticket
sales. Commissions for the years ended December 31, 2003 and 2002 amounted to
$10,392 and $10,581, respectively.
7. GOING CONCERN
As shown in the accompanying financial statements, the Company incurred net
losses for the years ended December 31, 2003 and 2002 in the amount of $419,216
and $86,284, respectively. As of December 31, 2003 and 2002, the Company's
current liabilities exceeded its current assets by $428,603 and $61,397,
respectively. These factors, as well as uncertain conditions of the economic
airline travel market create an uncertainty as to the Company's ability to
continue as a going concern. Management believes that the 2003 loss was
primarily the result of the Iraq war and the 2002 loss was primarily the result
of September 11, 2001. Prior to 2002, the revenues and profit for the preceding
three years were:
Year Revenues Net Income
- ---- -------------- -----------
2001 $ 16,242,210 $ 348,826
2000 19,059,230 322,948
1999 13,333,989 178,950
The financial statements do not include any adjustments that might be necessary
should the Company be unable to continue as a going concern.
Revenues through March 31, 2004 are approximately $4,221,236 which is 53% more
than revenues for the same period in 2003.
8. ACQUISITION
As of February 23, 2004, Airplan, Inc. has been purchased by Invicta Group,
Inc., a NASDAQ listed company.
65
INVICTA GROUP, INC.
PROFORMA CONSOLIDATED BALANCE SHEET
31-DEC-03
=====================================================================================================================
Invicta
Stock Consolidation Consolidated
Invicta Airplan Issuance Adj. Totals
------------ ---------- ---------- ------------- ------------
ASSETS
Cash 1,759.00 35,625.00 37,384.00
Prepaid Expense 4,089.00 4,089.00
Fixed Assets, Net 5,132.00 145,481.00 400,000.00 550,613.00
Intangible Assets, Net 95,125.00 493,814.00 588,939.00
------------ ---------- ---------- ------------- ------------
Total 102,016.00 185,195.00 893,814.00 1,181,025.00
============ ========== ========== ============= ============
LIABILITIES & SHAREHOLDERS EQUITY
Accounts Payable & Accrued Expenses 43,689.00 291,472.00 335,161.00
Deferred Revenue 18,526.00 18,526.00
Notes Payable & Debentures 54,100.00 199,551.00 253,651.00
Deferred Officer Comp 668,250.00 668,250.00
Notes Payable Shareholders 344,146.00 69,460.00 413,606.00
------------ ---------- ---------- ------------- ------------
Total Liabilities 1,110,185.00 579,009.00 1,689,194.00
Equity Investment Airplan (500,000.00) 500,000.00 0.00
Common Stock 34,637.00 501.00 1,000.00 (501.00) 35,637.00
Additional Paid In Capital 815,386.00 27,436.00 499,000.00 (27,436.00) 1,314,386.00
Notes Receivable Relating to Stock Sales (8,000.00) (8,000.00)
Retained Deficit (1,850,192.00) (421,751.00) 421,751.00 (1,850,192.00)
------------ ---------- ---------- ------------- ------------
Total Shareholders Equity (1,008,169.00) (393,814.00) 0.00 893,814.00 (508,169.00)
------------ ---------- ---------- ------------- ------------
Total 102,016.00 185,195.00 0.00 893,814.00 1,181,025.00
============ ========== ========== ============= ============
66
INVICTA GROUP, INC.
PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDING DECEMBER 31, 2003
=====================================================================================================================
Consolidation Consolidated
Invicta Airplan Adj. Totals
------------ ------------ ---------- ------------- ------------
Commissions Earned - Revenues 7,806.00 7,849,047.00 7,856,853.00
Cost of Sales (7,219,657.00) (7,219,657.00)
Selling, General & Adminstrative (818,208.00) (1,049,067.00) (156,000.00) (2,023,275.00)
Asset Impairment Charge (95,000.00) (95,000.00)
------------ ------------ ---------- ------------- ------------
Income (Loss) From Operations (905,402.00) (419,677.00) (156,000.00) (1,481,079.00)
Interest Income 461.00 461.00
------------ ------------ ---------- ------------- ------------
Net Income (Loss) (905,402.00) (419,216.00) (156,000.00) (1,480,618.00)
============ ============ ========== ============= ============
Net Loss Per Weighted Average Share $ (0.028) $ (0.045)
============ ============ ========== ============= ============
Weighted Average Shares 32,088,263 33,088,263
============ ============ ========== ============= ============
(1) The above unaudited pro forma financial information for the Year Ended
12/31/03 assumes the Airplan acquisition occurred as of 01/01/03, after
giving effect to certain adjustments, including amortization and
depreciation based upon the adjustments to the fair values of intangibles
and property, plant, and equipment acquired. The pro forma results have
been prepared for comparative purposes only and are not necessarily
indicative of the financial condition or the results of operations that may
occur in the future or that would have occurred had the acquisition of
Airplan been affected on January 1, 2003.
67
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our Articles of Incorporation, as amended, provide to the fullest extent
permitted by Nevada law, our directors or officers shall not be personally
liable to us or our shareholders for damages for breach of such director's or
officer's fiduciary duty. The effect of this provision of our Articles of
Incorporation, as amended, is to eliminate our right and our shareholders
(through shareholders' derivative suits on behalf of our company) to recover
damages against a director or officer for breach of the fiduciary duty of care
as a director or officer (including breaches resulting from negligent or grossly
negligent behavior), except under certain situations defined by statute. We
believe that the indemnification provisions in its Articles of Incorporation, as
amended, are necessary to attract and retain qualified persons as directors and
officers.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemization of all estimated expenses,
all of which we will pay, in connection with the issuance and distribution of
the securities being registered:
NATURE OF EXPENSE AMOUNT
SEC Registration fee $ 1,132.13
Accounting fees and expenses 10,000.00*
Legal fees and expenses 35,000.00*
Miscellaneous 5,000.00
------------
TOTAL $ 51,132.13*
============
* Estimated.
68
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
On July 1, 2001, Invicta Group issued a total of 12,500,000 founders'
shares to Mr. Scott and Ms. Henze, Invicta Group's Chief Operating
officer/director/founder and Vice President, respectively. No commissions or
other compensation was paid for the issue of these shares. These persons were
fully familiar with Invicta Group's condition and prospects and the condition
and prospects of Casino Rated Players, which Invicta Group acquired
simultaneously with the issuance of these shares.
On July 15, 2002, Invicta Group issued 13,151,000 shares of common stock to
all thirty-eight shareholders of Casino Rated Players, Inc. in exchange for all
of the issued and outstanding shares of Casino Rated Players, Inc. and 1,000,000
to William Forhan for compensation accrued by Casino Rated Players, Inc. No
commissions or other compensation was paid for the issue of these shares. Not
only did these stockholders have information about Casino Rated Players, Invicta
Group provided access to financial statements and other relevant information
concerning Invicta Group. Invicta Group believes the shareholders had such
knowledge and experience in business and financial transactions that they were
able to understand and evaluate the risks and merits of the transaction.
On July 28, 2002, Invicta Group issued 2,000,000 shares of common stock to
Innovapp Inc., as consideration for Invicta Group's purchase of the
ontheflyfaring software. No commission or other compensation was paid on the
issue of this stock. The board of directors of Innovapp Inc. had access to
financial statements and other relevant information concerning Invicta Group.
Invicta Group believes Innovapp had such knowledge and experience in business
and financial transactions that they were able to understand and evaluate the
risks and merits of the transaction.
During November 2001, Invicta Group issued 3,081,200 shares of common stock
to thirty-seven persons, the proceeds of which were used for general working
capital purposes. The prices at which the shares were issued ranged from $.10 to
$1, with aggregate proceeds to Invicta Group of $188,700. Thirty-six investors
were non-accredited and one was accredited.
On December 12, 2003, Invicta Group issued a total of 2,580,000 shares of
its common stock to eight individuals and two corporations, in each case the
shares being issued in compensation for services. On that same date Invicta
Group issued 10,000 shares to one individual in payment for computer equipment.
On December 12, 2003, Invicta Group sold 380,000 shares and 250,000 shares
of its common stock to Mr. Scott and Mr. Forhan, respectively, who are its
directors and officers. The price paid for the shares was $38,000 and $55,000,
respectively, in the form of conversion of loans recently made to Invicta Group.
In February 2004, we issued 40,000 shares of common stock to an employee in
consideration for the forgiveness of salary owed.
On March 29, 2004, we issued 250,000 shares of common stock to a consultant
in consideration for services provided.
In January 2004, in consideration for the forgiveness of $220,000 in owed
salary, we issued an executive 2,750,000 shares of common stock and 1,375,000
options to purchase common stock.
In January 2004, in consideration for the forgiveness of $195,500 in owed
salary we issued an executive 2,443,750 shares of common stock and 1,221,875
options to purchase common stock.
In January 2004, in consideration for the forgiveness of $205,725 in owed
salary we issued an executive 2,571,562 shares of common stock and 1,285,781
options to purchase common stock.
69
On February 18, 2004, the Company entered into a Purchase Agreement (the
"Agreement") with John Latimer and Karen Latimer, sole stockholders of Air Plan,
Inc., a Pennsylvania corporation ("Air Plan"), whereby the Company acquired all
of the issued and outstanding shares of common stock of Air Plan in exchange for
1,000,000 shares of common stock of the Company. Upon the closing of the
transactions contemplated by the Agreement, Air Plan became a wholly owned
subsidiary of the Company.
To obtain funding for our ongoing operations, we entered into a Securities
Purchase Agreement with an accredited investor in May 2004 for the sale of (i)
$300,000 in convertible debentures and (ii) warrants to buy 3,000,000 shares of
our common stock. This prospectus relates to the resale of the common stock
underlying these convertible debentures and warrants.
The investors provided us with an aggregate of $300,000 as follows:
- - $150,000 was disbursed to us in May 2004; and
- - $150,000 will be disbursed upon effectiveness of this registration
statement of which 50,000 will be retained for services provided to our
company by various professionals.
The debentures bear interest at 7 %, mature two years from the date of
issuance, and are convertible into our common stock, at the selling
stockholder's option. The convertible debentures are convertible into the
number of our shares of common stock equal to the principal amount of the
debentures being converted multiplied by 11, less the product of the conversion
price multiplied by ten times the dollar amount of the debenture. The
conversion price for the convertible debenture is the lesser of (i) $0.25 or
(ii) eighty percent of the of the average of the three lowest volume weighted
average prices during the twenty (20) trading days prior to the conversion.
Accordingly, there is in fact no limit on the number of shares into which the
debenture may be converted. In addition, the selling stockholder is obligated
to exercise the warrant concurrently with the submission of a conversion notice
by the selling stockholder. The warrant is exercisable into 3,000,000 shares of
common stock at an exercise price of $1.00 per share.
The selling stockholder has contractually agreed to restrict its ability to
convert or exercise its warrants and receive shares of our common stock such
that the number of shares of common stock held by them and their affiliates
after such conversion or exercise does not exceed 4.9% of the then issued and
outstanding shares of common stock. See the "Selling Stockholders" and "Risk
Factors" sections for a complete description of the convertible debentures.
In the event that the registration statement is not declared effective by
the required deadline, Golden Gate Investors, Inc. may demand repayment of the
Debenture of 125% of the face amount outstanding, plus all accrued and unpaid
interest, in cash. If the repayment is accelerated, we are also obligated to
issue to Golden Gate Investors, Inc. 50,000 shares of common stock for each 30
day period, or portion thereof, during which the face amount, including interest
thereon, remains unpaid. If Golden Gate Investors, Inc. does not elect to
accelerate the debenture, we are required to immediately issue to Golden Gate
Investors, Inc. 50,000 shares of common stock for each 30 day period, or portion
thereof, during which the face amount, including interest thereon, remains
unpaid.
* All of the above offerings and sales were deemed to be exempt under rule
506 of Regulation D and Section 4(2) of the Securities Act of 1933, as
amended. No advertising or general solicitation was employed in offering
the securities. The offerings and sales were made to a limited number of
persons, all of whom were accredited investors, business associates of the
Company or executive officers of the Company, and transfer was restricted
by the Company in accordance with the requirements of the Securities Act of
1933. In addition to representations by the above-referenced persons, we
have made independent determinations that all of the above-referenced
persons were accredited or sophisticated investors, and that they were
capable of analyzing the merits and risks of their investment, and that
they understood the speculative nature of their investment. Furthermore,
all of the above-referenced persons were provided with access to our
Securities and Exchange Commission filings.
Except as expressly set forth above, the individuals and entities to whom
we issued securities as indicated in this section of the registration statement
are unaffiliated with the Company.
70
ITEM 27. EXHIBITS.
The following exhibits are included as part of this Form SB-2. References
to "the Company" in this Exhibit List mean Invicta Group Inc., a Nevada
corporation.
Exhibit # Exhibit Name
- ---------- -------------
3.1 Articles of Incorporation of Invicta Group Inc.*
3.2 Articles of Amendment*
3.3 Bylaws*
4.1 Securities Purchase Agreement dated March 2004 entered between
the Company and Golden Gate Investors, Inc.
4.2 Convertible Debenture dated March 2004 entered between the
Company and Golden Gate Investors, Inc.
4.3 Warrant to Purchase Common Stock dated May 2004 issued to Golden
Gate Investors, Inc.
4.4 Registration Rights Agreement dated March 2004 entered between
Golden Gate Investors, Inc. and the Company
5.1 Sichenzia Ross Friedman Ference LLP Opinion and Consent (filed
herewith)
10.1 2002 Equity Compensation Plan*
10.2 Employment Agreement between Invicta Group and William G. Forhan*
10.3 Employment Agreement between Invicta Group and R. David Scott*
10.4 Employment Agreement between Invicta Group and Mercedes Henze*
10.5 Lease for Miami Beach, Florida Office*
10.6 Stock Purchase Agreement for the Shares of Casino Rated Players.
Inc.*
10.7 Asset Purchase Agreement with Innovapp Inc.*
10.8 Promissory Note to William G. Forhan*
10.9 Notice of Termination of Consulting Agreement with Frank
Pinizzotto*
10.10 Agreement with ANC Rental Corporation regarding Alamo Car Rental*
10.11 CNG Group Agreement*
10.12 Air Plan, Inc. Purchase Agreement entered February 18, 2004**
14.1 Code of Ethics***
22 Subsidiaries of the Registrant*
23.1 Consent of Larry Wolfe, CPA
23.2 Consent of Dreslin Financial Services
23.3 Consent of STELMACK DOBRANSKY & EANNACE, LLC
23.3 Consent of legal counsel (see Exhibit 5.1)
* Previously filed as an exhibit to a Registration on Form SB-2, Commission
File No. 333-102555
** Previously filed with Form 8-K Current Report on March 11, 2004
*** Previously filed with 10KSB annual report on April 19, 2004
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes to:
(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933, as amended (the "Securities Act");
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
the securities offered would not exceed that which was registered) and
any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with
the Commission pursuant to Rule 424(b) under the Securities Act if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement, and
71
(iii)Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) For purposes of determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act as part of this registration statement as
of the time it was declared effective.
(5) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
72
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, in the City of Miami
Beach, State of Florida, on May 27, 2004.
INVICTA GROUP INC.
By: /s/ William Forhan
--------------------
William Forhan, President, CEO and
Director
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
SIGNATURE TITLE DATE
/s/ William Forhan President, Chief Executive Officer, May 27, 2004
- -------------------- and Director
William Forhan
/s/ Richard David Scott Chief Operating Officer, May 27, 2004
- ------------------------- Chief Financial Officer
Richard David Scott and Director
/s/ Mercedes Henze Vice President and May 27, 2004
- --------------------- Secretary
Mercedes Henze
/s/ John Latimer Director May 27, 2004
- -------------------
John Latimer
73