-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RC3EdPyBxuCT0ab9kxTdEeqaWwen36oVlI1GtsPGeYL23Rx0HyuHwolNVFbXjVAw jUV52szpeL9MLiIikONPKQ== 0001264931-04-000044.txt : 20040526 0001264931-04-000044.hdr.sgml : 20040526 20040526171857 ACCESSION NUMBER: 0001264931-04-000044 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 20040526 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INVICTA GROUP INC CENTRAL INDEX KEY: 0001212570 STANDARD INDUSTRIAL CLASSIFICATION: TRANSPORTATION SERVICES [4700] FILING VALUES: FORM TYPE: SB-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-115907 FILM NUMBER: 04832980 BUSINESS ADDRESS: STREET 1: 9553 HARDING AVE STREET 2: SUITE 301 CITY: MIAMI BEACH STATE: FL ZIP: 33154 BUSINESS PHONE: 3058666525 MAIL ADDRESS: STREET 1: 9553 HARDING AVE STREET 2: SUITE 301 CITY: MIAMI BEACH STATE: FL ZIP: 33154 SB-2 1 doc1.txt 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 EX-4.1 2 doc2.txt PURCHASE AGR. W/ GOLDEN GATE SECURITIES PURCHASE AGREEMENT Securities Purchase Agreement dated as of April 27, 2004 (this "AGREEMENT") by and between Invicta Group Inc., a Nevada corporation, with principal executive offices located at 9553 Harding Avenue, Suite 33154 (the "COMPANY"), and Golden Gate Investors, Inc. ("BUYER"). WHEREAS, Buyer desires to purchase from the Company, and the Company desires to issue and sell to Buyer, upon the terms and subject to the conditions of this Agreement, the Convertible Debenture of the Company in the aggregate principal amount of $300,000 (the "DEBENTURE"); and WHEREAS, in conjunction with the Debenture, the Company has issued a Warrant to Purchase Common Stock to the Buyer (the "WARRANT OR CONVERSION WARRANT"); and WHEREAS, upon the terms and subject to the conditions set forth in the Debenture and the Warrant, the Debenture and Warrant are convertible and exercisable, respectively, into shares of the Company's Common Stock (the "COMMON STOCK"); NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto, intending to be legally bound, hereby agree as follows: I. PURCHASE AND SALE OF DEBENTURE A. TRANSACTION. Buyer hereby agrees to purchase from the Company, and the Company has offered and hereby agrees to issue and sell to Buyer in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act of 1933, as amended (the "SECURITIES ACT"), the Debenture. B. PURCHASE PRICE; FORM OF PAYMENT. The purchase price for the Debenture to be purchased by Buyer hereunder shall be $300,000 (the "PURCHASE PRICE"). Simultaneously with the execution of this Agreement, Buyer shall pay $300,000 of the Purchase Price (the "Initial Purchase Price") by wire transfer of immediately available funds to the Company. Simultaneously with the execution of this Agreement, the Company shall deliver the Convertible Debenture and the Conversion Warrants (which shall have been duly authorized, issued and executed I/N/O Buyer or, if the Company otherwise has been notified, I/N/O Buyer's nominee). II. BUYER'S REPRESENTATIONS AND WARRANTIES Buyer represents and warrants to and covenants and agrees with the Company as follows: A. Buyer is purchasing the Debenture and the Common Stock issuable upon conversion or redemption of the Debenture (the "CONVERSION SHARES" and, collectively with the Debenture and the Warrant Shares, the "SECURITIES") for its own account, for investment purposes only and not with a view towards or in connection with the public sale or distribution thereof in violation of the Securities Act. B. Buyer is (i) an "accredited investor" within the meaning of Rule 501 of Regulation D under the Securities Act, (ii) experienced in making investments of the kind contemplated by this Agreement, (iii) capable, by reason of its business and financial experience, of evaluating the relative merits and risks of an investment in the Securities, and (iv) able to afford the loss of its investment in the Securities. C. Buyer understands that the Securities are being offered and sold by the Company in reliance on an exemption from the registration requirements of the Securities Act and equivalent state securities and "blue sky" laws, and that the Company is relying upon the accuracy of, and Buyer's compliance with, Buyer's representations, warranties and covenants set forth in this Agreement to determine the availability of such exemption and the eligibility of Buyer to purchase the Securities; D. Buyer understands that the Securities have not been approved or disapproved by the Securities and Exchange Commission (the "COMMISSION") or any state or provincial securities commission. E. This Agreement has been duly and validly authorized, executed and delivered by Buyer and is a valid and binding agreement of Buyer enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and except as rights to indemnity and contribution may be limited by federal or state securities laws or the public policy underlying such laws. III. THE COMPANY'S REPRESENTATIONS The Company represents and warrants to Buyer that: A. CAPITALIZATION. 1. The authorized capital stock of the Company consists of 190,000,000 shares of Common Stock and 10,000,000 shares of Series A Preferred Stock of which 51,892,279 shares and zero shares, respectively, are issued and outstanding as of the date hereof and are fully paid and nonassessable. The amount, exercise, conversion or subscription price and expiration date for each outstanding option and other security or agreement to purchase shares of Common Stock is accurately set forth on Schedule III.A.1. ------------------ 2. The Conversion Shares and the Warrant Shares have been duly and validly authorized and reserved for issuance by the Company, and, when issued by the Company upon conversion of the Debenture, will be duly and validly issued, fully paid and nonassessable and will not subject the holder thereof to personal liability by reason of being such holder. 3. Except as disclosed on Schedule III.A.3., there are no preemptive, ----------------- subscription, "call," right of first refusal or other similar rights to acquire any capital stock of the Company or other voting securities of the Company that have been issued or granted to any person and no other obligations of the Company to issue, grant, extend or enter into any security, option, warrant, "call," right, commitment, agreement, arrangement or undertaking with respect to any of their respective capital stock. B. ORGANIZATION; REPORTING COMPANY STATUS. 1. The Company is a corporation duly organized, validly existing and in good standing under the laws of the state or jurisdiction in which it is incorporated and is duly qualified as a foreign corporation in all jurisdictions in which the failure so to qualify would reasonably be expected to have a material adverse effect on the business, properties, prospects, condition (financial or otherwise) or results of operations of the Company or on the consummation of any of the transactions contemplated by this Agreement (a "MATERIAL ADVERSE EFFECT"). 2. The Company is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"). The Common Stock is traded on the OTC Bulletin Board service of the National Association of Securities Dealers, Inc. ("OTCBB") and the Company has not received any notice regarding, and to its knowledge there is no threat of, the termination or discontinuance of the eligibility of the Common Stock for such trading. C. AUTHORIZATION. The Company (i) has duly and validly authorized and reserved for issuance shares of Common Stock, which is a number sufficient for the conversion of the Debenture and the exercise of the Conversion Warrant and (ii) at all times from and after the date hereof shall have a sufficient number of shares of Common Stock duly and validly authorized and reserved for issuance to satisfy the conversion of the Debenture in full and the exercise of the Conversion Warrant. The Company understands and acknowledges the potentially dilutive effect on the Common Stock of the issuance of the Conversion Shares and the Warrant Shares. The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of the Debenture and the exercise of the Conversion Warrant and the Initial Warrant in accordance with this Agreement is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company and notwithstanding the commencement of any case under 11 U.S.C. 101 et seq. (the -- --- "BANKRUPTCY CODE"). In the event the Company is a debtor under the Bankruptcy Code, the Company hereby waives to the fullest extent permitted any rights to relief it may have under 11 U.S.C. 362 in respect of the conversion of the Debenture. The Company agrees, without cost or expense to Buyer, to take or consent to any and all action necessary to effectuate relief under 11 U.S.C. 362. D. AUTHORITY; VALIDITY AND ENFORCEABILITY. The Company has the requisite corporate power and authority to enter into the Documents (as such term is hereinafter defined) and to perform all of its obligations hereunder and thereunder (including the issuance, sale and delivery to Buyer of the Securities). The execution, delivery and performance by the Company of the Documents and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Debenture and the issuance and reservation for issuance of the Conversion Shares and the Warrant Shares) have been duly and validly authorized by all necessary corporate action on the part of the Company. Each of the Documents has been duly and validly executed and delivered by the Company and each Document constitutes a valid and binding obligation of the Company enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and except as rights to indemnity and contribution may be limited by federal or state securities laws or the public policy underlying such laws. The Securities have been duly and validly authorized for issuance by the Company and, when executed and delivered by the Company, will be valid and binding obligations of the Company enforceable against it in accordance with their respective terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally. For purposes of this Agreement, the term "DOCUMENTS" means (i) this Agreement; (ii) the Registration Rights Agreement dated as of even date herewith between the Company and Buyer, (iii) the Debenture; and (iv) the Conversion Warrant. E. VALIDITY OF ISSUANCE OF THE SECURITIES. The Debenture, the Conversion Shares upon their issuance in accordance with the Debenture, and the Warrant Shares will be validly issued and outstanding, fully paid and nonassessable, and not subject to any preemptive rights, rights of first refusal, tag-along rights, drag-along rights or other similar rights. F. NON-CONTRAVENTION. The execution and delivery by the Company of the Documents, the issuance of the Securities, and the consummation by the Company of the other transactions contemplated hereby and thereby do not, and compliance with the provisions of this Agreement and other Documents will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or loss of a material benefit under, or result in the creation of any Lien (as such term is hereinafter defined) upon any of the properties or assets of the Company or any of its Subsidiaries under, or result in the termination of, or require that any consent be obtained or any notice be given with respect to (i) the Articles or Certificate of Incorporation or By-Laws of the Company or the comparable charter or organizational documents of any of its Subsidiaries, in each case as amended to the date of this Agreement, (ii) any loan or credit agreement, Debenture, bond, mortgage, indenture, lease, contract or other agreement, instrument or permit applicable to the Company or any of its Subsidiaries or their respective properties or assets or (iii) any Law (as such term is hereinafter defined) applicable to, or any judgment, decree or order of any court or government body having jurisdiction over, the Company or any of its Subsidiaries or any of their respective properties or assets. G. APPROVALS. No authorization, approval or consent of any court or public or governmental authority is required to be obtained by the Company for the issuance and sale of the Securities to Buyer as contemplated by this Agreement, except such authorizations, approvals and consents as have been obtained by the Company prior to the date hereof. H. COMMISSION FILINGS. The Company has properly and timely filed with the Commission all reports, proxy statements, forms and other documents required to be filed with the Commission under the Securities Act and the Exchange Act since becoming subject to such Acts (the "COMMISSION FILINGS"). As of their respective dates, (i) the Commission Filings complied in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the Commission promulgated thereunder applicable to such Commission Filings and (ii) none of the Commission Filings contained at the time of its filing any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the Commission Filings, as of the dates of such documents, were true and complete in all material respects and complied with applicable accounting requirements and the published rules and regulations of the Commission with respect thereto, were prepared in accordance with generally accepted accounting principles in the United States ("GAAP") (except in the case of unaudited statements permitted by Form 10-Q under the Exchange Act) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly presented the consolidated financial position of the Company and its Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments that in the aggregate are not material and to any other adjustment described therein). I. FULL DISCLOSURE. There is no fact known to the Company (other than general economic or industry conditions known to the public generally) that has not been fully disclosed in the Commission Filings that (i) reasonably could be expected to have a Material Adverse Effect or (ii) reasonably could be expected to materially and adversely affect the ability of the Company to perform its obligations pursuant to the Documents. J. ABSENCE OF EVENTS OF DEFAULT. No "EVENT OF DEFAULT" (as defined in any agreement or instrument to which the Company is a party) and no event which, with notice, lapse of time or both, would constitute an Event of Default (as so defined), has occurred and is continuing. K. SECURITIES LAW MATTERS. Assuming the accuracy of the representations and warranties of Buyer set forth in Article II, the offer and sale by the Company of the Securities is exempt from (i) the registration and prospectus delivery requirements of the Securities Act and the rules and regulations of the Commission thereunder and (ii) the registration and/or qualification provisions of all applicable state and provincial securities and "blue sky" laws. The Company shall not directly or indirectly take, and shall not permit any of its directors, officers or Affiliates directly or indirectly to take, any action (including, without limitation, any offering or sale to any person or entity of any security similar to the Debenture) which will make unavailable the exemption from Securities Act registration being relied upon by the Company for the offer and sale to Buyer of the Debenture, the Conversion Shares and the Warrant Shares as contemplated by this Agreement. No form of general solicitation or advertising has been used or authorized by the Company or any of its officers, directors or Affiliates in connection with the offer or sale of the Debenture (and the Conversion Shares) as contemplated by this Agreement or any other agreement to which the Company is a party. L. REGISTRATION RIGHTS. Except as set forth on Schedule III.L., no Person --------------- has, and as of the Closing (as such term is hereinafter defined), no Person shall have, any demand, "piggy-back" or other rights to cause the Company to file any registration statement under the Securities Act relating to any of its securities or to participate in any such registration statement. M. INTEREST. The timely payment of interest on the Debenture is not prohibited by the Articles or Certificate of Incorporation or By-Laws of the Company, in each case as amended to the date of this Agreement, or any agreement, contract, document or other undertaking to which the Company is a party. N. NO MISREPRESENTATION. No representation or warranty of the Company contained in this Agreement or any of the other Documents, any schedule, annex or exhibit hereto or thereto or any agreement, instrument or certificate furnished by the Company to Buyer pursuant to this Agreement contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading. O. FINDER'S FEE. There is no finder's fee, brokerage commission or like payment in connection with the transactions contemplated by this Agreement for which Buyer is liable or responsible. IV. CERTAIN COVENANTS AND ACKNOWLEDGMENTS A. FILINGS. The Company shall make all necessary Commission Filings and "blue sky" filings required to be made by the Company in connection with the sale of the Securities to Buyer as required by all applicable Laws, and shall provide a copy thereof to Buyer promptly after such filing. B. REPORTING STATUS. So long as Buyer beneficially owns any of the Securities, the Company shall timely file all reports required to be filed by it with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. C. LISTING. Except to the extent the Company lists its Common Stock on The New York Stock Exchange, The American Stock Exchange or The Nasdaq Stock Market, the Company shall use its best efforts to maintain its listing of the Common Stock on OTCBB. If the Common Stock is delisted from OTCBB, the Company will use its best efforts to list the Common Stock on the most liquid national securities exchange or quotation system that the Common Stock is qualified to be listed on. D. RESERVED CONVERSION COMMON STOCK. The Company at all times from and after the date hereof shall have such number of shares of Common Stock duly and validly authorized and reserved for issuance as shall be sufficient for the conversion in full of the Debenture and the exercise of the Conversion Warrant. E. INFORMATION. Each of the parties hereto acknowledges and agrees that Buyer shall not be provided with, nor be given access to, any material non-public information relating to the Company. F. ACCOUNTING AND RESERVES. The Company shall maintain a standard and uniform system of accounting and shall keep proper books and records and accounts in which full, true, and correct entries shall be made of its transactions, all in accordance with GAAP applied on consistent basis through all periods, and shall set aside on such books for each fiscal year all such reserves for depreciation, obsolescence, amortization, bad debts and other purposes in connection with its operations as are required by such principles so applied. G. TRANSACTIONS WITH AFFILIATES. So long as the Debenture is outstanding, neither the Company nor any of its Subsidiaries shall, directly or indirectly, enter into any material transaction or agreement with any stockholder, officer, director or Affiliate of the Company or family member of any officer, director or Affiliate of the Company, unless the transaction or agreement is (i) reviewed and approved by a majority of Disinterested Directors (as such term is hereinafter defined) and (ii) on terms no less favorable to the Company or the applicable Subsidiary than those obtainable from a nonaffiliated person. A "DISINTERESTED DIRECTOR" shall mean a director of the Company who is not and has not been an officer or employee of the Company and who is not a member of the family of, controlled by or under common control with, any such officer or employee. H. CERTAIN RESTRICTIONS. So long as the Debenture is outstanding, no dividends shall be declared or paid or set apart for payment nor shall any other distribution be declared or made upon any capital stock of the Company, nor shall any capital stock of the Company be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of shares of Common Stock made for purposes of an employee incentive or benefit plan (including a stock option plan) of the Company or pursuant to any of the security agreements listed on Schedule III.A, for any consideration by the --------------- Company, directly or indirectly, nor shall any moneys be paid to or made available for a sinking fund for the redemption of any Common Stock of any such stock. I. SHORT SELLING. So long as the Debenture is outstanding, Buyer agrees and covenants on its behalf and on behalf of its affiliates that neither Buyer nor its affiliates shall at any time engage in any short sales with respect to the Company's Common Stock, or sell put options or similar instruments with respect to the Company's Common Stock. V. ISSUANCE OF COMMON STOCK A. The Company undertakes and agrees that no instruction other than the instructions referred to in this Article V and customary stop transfer instructions prior to the registration and sale of the Common Stock pursuant to an effective Securities Act registration statement shall be given to its transfer agent for the Conversion Shares and the Warrant Shares and that the Conversion Shares and the Warrant Shares shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement, the Registration Rights Agreement and applicable law. Nothing contained in this Section V.A. shall affect in any way Buyer's obligations and agreement to comply with all applicable securities laws upon resale of such Common Stock. B. Buyer shall have the right to convert the Debenture and exercise the Warrant by telecopying an executed and completed Conversion Notice (as such term is defined in the Debenture) or Warrant Notice of Exercise (as such term is defined in the Warrant) to the Company. Each date on which a Conversion Notice or Warrant Notice of Exercise is telecopied to and received by the Company in accordance with the provisions hereof shall be deemed a Conversion Date (as such term is defined in the Debenture). The Company shall cause the transfer agent to transmit the certificates evidencing the Common Stock issuable upon conversion of the Debenture (together with a new debenture, if any, representing the principal amount of the Debenture not being so converted) or exercise of the Warrant (together with a new Warrant, if any, representing the amount of the Warrant not being so exercised) to Buyer via express courier, or if a Registration Statement covering the Common Stock has been declared effective by the SEC by electronic transfer, within three (3) business days after receipt by the Company of the Conversion Notice or Warrant Notice of Exercise (the "DELIVERY DATE"). C. Upon the conversion of the Debenture or exercise of the Warrant or part thereof, the Company shall, at its own cost and expense, take all necessary action (including the issuance of an opinion of counsel) to assure that the Company's transfer agent shall issue stock certificates in the name of Buyer (or its nominee) or such other persons as designated by Buyer and in such denominations to be specified at conversion representing the number of shares of common stock issuable upon such conversion or exercise. The Company warrants that the Conversion Shares and Warrant Shares will be unlegended, free-trading, and freely transferable, and will not contain a legend restricting the resale or transferability of the Company Common Stock provided the Conversion Shares and Warrant Shares are being sold pursuant to an effective registration statement covering the Common Stock to be sold or is otherwise exempt from registration when sold. D. The Company understands that a delay in the delivery of the Common Stock in the form required pursuant to this section, or the Mandatory Redemption Amount described in Section E hereof, beyond the Delivery Date or Mandatory Redemption Payment Date (as hereinafter defined) could result in economic loss to the Buyer. As compensation to the Buyer for such loss, the Company agrees to pay late payments to the Buyer for late issuance of Common Stock in the form required pursuant to Section C hereof upon Conversion of the Debenture or late payment of the Mandatory Redemption Amount, in the amount of $100 per business day after the Delivery Date or Mandatory Redemption Payment Date, as the case may be, for each $10,000 of Debenture principal amount being converted or redeemed. The Company shall pay any payments incurred under this Section in immediately available funds upon demand. Furthermore, in addition to any other remedies which may be available to the Buyer, in the event that the Company fails for any reason to effect delivery of the Common Stock by the Delivery Date or make payment by the Mandatory Redemption Payment Date, the Buyer will be entitled to revoke all or part of the relevant Notice of Conversion or rescind all or part of the notice of Mandatory Redemption by delivery of a notice to such effect to the Company whereupon the Company and the Buyer shall each be restored to their respective positions immediately prior to the delivery of such notice, except that late payment charges described above shall be payable through the date notice of revocation or rescission is given to the Company. E. Mandatory Redemption. In the event the Company is prohibited from issuing Common Stock, or fails to timely deliver Common Stock on a Delivery Date, or upon the occurrence of an Event of Default (as defined in the Debenture) or for any reason other than pursuant to the limitations set forth herein, or upon the occurrence of an Event of Default as defined in the Debenture, then at the Buyer's election, the Company must pay to the Buyer ten (10) business days after request by the Buyer or on the Delivery Date (if requested by the Buyer) a sum of money determined by multiplying up to the outstanding principal amount of the Debenture designated by the Buyer by 130%, together with accrued but unpaid interest thereon ("Mandatory Redemption Payment"). The Mandatory Redemption Payment must be received by the Buyer on the same date as the Company Common Stock otherwise deliverable or within ten (10) business days after request, whichever is sooner ("Mandatory Redemption Payment Date"). Upon receipt of the Mandatory Redemption Payment, the corresponding Debenture principal and interest will be deemed paid and no longer outstanding. F. Buy-In. In addition to any other rights available to the Buyer, if the Company fails to deliver to the Buyer such Common Stock issuable upon conversion of a Debenture or exercise of a Warrant by the Delivery Date and if ten (10) days after the Delivery Date the Buyer purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Buyer of the Common Stock which the Buyer anticipated receiving upon such conversion (a "Buy-In"), then the Company shall pay in cash to the Buyer (in addition to any remedies available to or elected by the Buyer) the amount by which (A) the Buyer's total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (B) the aggregate principal and/or interest amount of the Debenture or Warrant for which such conversion or exercise was not timely honored, together with interest thereon at a rate of 15% per annum, accruing until such amount and any accrued interest thereon is paid in full (which amount shall be paid as liquidated damages and not as a penalty). For example, if the Buyer purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of $10,000 of Debenture or Warrant principal and/or interest, the Company shall be required to pay the Buyer $1,000, plus interest. The Buyer shall provide the Company written notice indicating the amounts payable to the Buyer in respect of the Buy-In. G. The Securities shall be delivered by the Company to the Buyer pursuant to Section I.B. hereof on a "delivery-against-payment basis" at the Closing. VI. CLOSING DATE The Closing shall occur by the delivery: (i) to the Buyer of the certificate evidencing the Debenture and all other Agreements, and (ii) to the Company the Purchase Price. VII. CONDITIONS TO THE COMPANY'S OBLIGATIONS Buyer understands that the Company's obligation to sell the Debenture on the Closing Date to Buyer pursuant to this Agreement is conditioned upon: A. Delivery by Buyer to the Company of the Initial Purchase Price; B. The accuracy on the Closing Date of the representations and warranties of Buyer contained in this Agreement as if made on the Closing Date (except for representations and warranties which, by their express terms, speak as of and relate to a specified date, in which case such accuracy shall be measured as of such specified date) and the performance by Buyer in all material respects on or before the Closing Date of all covenants and agreements of Buyer required to be performed by it pursuant to this Agreement on or before the Closing Date; and C. There shall not be in effect any Law or order, ruling, judgment or writ of any court or public or governmental authority restraining, enjoining or otherwise prohibiting any of the transactions contemplated by this Agreement. VIII. CONDITIONS TO BUYER'S OBLIGATIONS The Company understands that Buyer's obligation to purchase the Securities on the Closing Date pursuant to this Agreement is conditioned upon: A. Delivery by the Company of the Debenture, the Conversion Warrant and the other Agreements (I/N/O Buyer or I/N/O Buyer's nominee); B. The accuracy on the Closing Date of the representations and warranties of the Company contained in this Agreement as if made on the Closing Date (except for representations and warranties which, by their express terms, speak as of and relate to a specified date, in which case such accuracy shall be measured as of such specified date) and the performance by the Company in all respects on or before the Closing Date of all covenants and agreements of the Company required to be performed by it pursuant to this Agreement on or before the Closing Date, all of which shall be confirmed to Buyer by delivery of the certificate of the chief executive officer of the Company to that effect; C. There not having occurred (i) any general suspension of trading in, or limitation on prices listed for, the Common Stock on the OTCBB/Pink Sheet, (ii) the declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (iii) the commencement of a war, armed hostilities or other international or national calamity directly or indirectly involving the United States or any of its territories, protectorates or possessions or (iv) in the case of the foregoing existing at the date of this Agreement, a material acceleration or worsening thereof; D. There not having occurred any event or development, and there being in existence no condition, having or which reasonably and foreseeably could have a Material Adverse Effect; E. The Company shall have delivered to Buyer reimbursement of Buyer's reasonable out-of-pocket costs and expenses incurred in connection with the transactions contemplated by this Agreement; F. There shall not be in effect any Law, order, ruling, judgment or writ of any court or public or governmental authority restraining, enjoining or otherwise prohibiting any of the transactions contemplated by this Agreement; G. The Company shall have obtained all consents, approvals or waivers from governmental authorities and third persons necessary for the execution, delivery and performance of the Documents and the transactions contemplated thereby, all without material cost to the Company; H. Buyer shall have received such additional documents, certificates, payment, assignments, transfers and other deliveries as it or its legal counsel may reasonably request and as are customary to effect a closing of the matters herein contemplated; I. Delivery by the Company of an enforceability opinion from its outside counsel in form and substance satisfactory to Buyer J. Reimbursement of Buyer's legal fees in the amount of $5,000. IX. SURVIVAL; INDEMNIFICATION A. The representations, warranties and covenants made by each of the Company and Buyer in this Agreement, the annexes, schedules and exhibits hereto and in each instrument, agreement and certificate entered into and delivered by them pursuant to this Agreement shall survive the Closing and the consummation of the transactions contemplated hereby. In the event of a breach or violation of any of such representations, warranties or covenants, the party to whom such representations, warranties or covenants have been made shall have all rights and remedies for such breach or violation available to it under the provisions of this Agreement or otherwise, whether at law or in equity, irrespective of any investigation made by or on behalf of such party on or prior to the Closing Date. B. The Company hereby agrees to indemnify and hold harmless Buyer, its affiliates and their respective officers, directors, partners and members (collectively, the "BUYER INDEMNITEES") from and against any and all losses, claims, damages, judgments, penalties, liabilities and deficiencies (collectively, "LOSSES") and agrees to reimburse Buyer Indemnitees for all out-of-pocket expenses (including the fees and expenses of legal counsel), in each case promptly as incurred by Buyer Indemnitees and to the extent arising out of or in connection with: 1. any misrepresentation, omission of fact or breach of any of the Company's representations or warranties contained in this Agreement or the other Documents, or the annexes, schedules or exhibits hereto or thereto or any instrument, agreement or certificate entered into or delivered by the Company pursuant to this Agreement or the other Documents; 2. any failure by the Company to perform any of its covenants, agreements, undertakings or obligations set forth in this Agreement or the other Documents or any instrument, certificate or agreement entered into or delivered by the Company pursuant to this Agreement or the other Documents; 3. the purchase of the Debenture, the conversion of the Debenture, the payment of interest on the Debenture, the issuance of the Warrant Shares, the consummation of the transactions contemplated by this Agreement and the other Documents, the use of any of the proceeds of the Purchase Price by the Company, the purchase or ownership of any or all of the Securities, the performance by the parties hereto of their respective obligations hereunder and under the Documents or any claim, litigation, investigation, proceedings or governmental action relating to any of the foregoing, whether or not Buyer is a party thereto; or 4. resales of the Common Stock by Buyer in the manner and as contemplated by this Agreement and the Registration Rights Agreement. C. Buyer hereby agrees to indemnify and hold harmless the Company, its Affiliates and their respective officers, directors, partners and members (collectively, the "COMPANY INDEMNITEES") from and against any and all Losses, and agrees to reimburse the Company Indemnitees for all out-of-pocket expenses (including the fees and expenses of legal counsel), in each case promptly as incurred by the Company Indemnitees and to the extent arising out of or in connection with: 1. any misrepresentation, omission of fact or breach of any of Buyer's representations or warranties contained in this Agreement or the other Documents, or the annexes, schedules or exhibits hereto or thereto or any instrument, agreement or certificate entered into or delivered by Buyer pursuant to this Agreement or the other Documents; or 2. any failure by Buyer to perform in any material respect any of its covenants, agreements, undertakings or obligations set forth in this Agreement or the other Documents or any instrument, certificate or agreement entered into or delivered by Buyer pursuant to this Agreement or the other Documents. D. Promptly after receipt by either party hereto seeking indemnification pursuant to this Article IX (an "INDEMNIFIED PARTY") of written notice of any investigation, claim, proceeding or other action in respect of which indemnification is being sought (each, a "CLAIM"), the Indemnified Party promptly shall notify the party against whom indemnification pursuant to this Article IX is being sought (the "INDEMNIFYING PARTY") of the commencement thereof, but the omission so to notify the Indemnifying Party shall not relieve it from any liability that it otherwise may have to the Indemnified Party except to the extent that the Indemnifying Party is materially prejudiced and forfeits substantive rights or defenses by reason of such failure. In connection with any Claim as to which both the Indemnifying Party and the Indemnified Party are parties, the Indemnifying Party shall be entitled to assume the defense thereof. Notwithstanding the assumption of the defense of any Claim by the Indemnifying Party, the Indemnified Party shall have the right to employ separate legal counsel and to participate in the defense of such Claim, and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs and expenses of such separate legal counsel to the Indemnified Party if (and only if): (x) the Indemnifying Party shall have agreed to pay such fees, out-of-pocket costs and expenses, (y) the Indemnified Party and the Indemnifying Party reasonably shall have concluded that representation of the Indemnified Party and the Indemnifying Party by the same legal counsel would not be appropriate due to actual or, as reasonably determined by legal counsel to the Indemnified Party, potentially differing interests between such parties in the conduct of the defense of such Claim, or if there may be legal defenses available to the Indemnified Party that are in addition to or disparate from those available to the Indemnifying Party or (z) the Indemnifying Party shall have failed to employ legal counsel reasonably satisfactory to the Indemnified Party within a reasonable period of time after notice of the commencement of such Claim. If the Indemnified Party employs separate legal counsel in circumstances other than as described in clauses (x), (y) or (z) above, the fees, costs and expenses of such legal counsel shall be borne exclusively by the Indemnified Party. Except as provided above, the Indemnifying Party shall not, in connection with any Claim in the same jurisdiction, be liable for the fees and expenses of more than one firm of legal counsel for the Indemnified Party (together with appropriate local counsel). The Indemnifying Party shall not, without the prior written consent of the Indemnified Party (which consent shall not unreasonably be withheld), settle or compromise any Claim or consent to the entry of any judgment that does not include an unconditional release of the Indemnified Party from all liabilities with respect to such Claim or judgment. E. In the event one party hereunder should have a claim for indemnification that does not involve a claim or demand being asserted by a third party, the Indemnified Party promptly shall deliver notice of such claim to the Indemnifying Party. If the Indemnified Party disputes the claim, such dispute shall be resolved by mutual agreement of the Indemnified Party and the Indemnifying Party or by binding arbitration conducted in accordance with the procedures and rules of the American Arbitration Association. Judgment upon any award rendered by any arbitrators may be entered in any court having competent jurisdiction thereof. X. GOVERNING LAW This Agreement shall be governed by and interpreted in accordance with the laws of the State of California, without regard to the conflicts of law principles of such state. XI. SUBMISSION TO JURISDICTION Each of the parties hereto consents to the exclusive jurisdiction of the federal courts whose districts encompass any part of the City of San Diego or the state courts of the State of California sitting in the City of San Diego in connection with any dispute arising under this Agreement and the other Documents. Each party hereto hereby irrevocably and unconditionally waives, to the fullest extent it may effectively do so, any defense of an inconvenient forum or improper venue to the maintenance of such action or proceeding in any such court and any right of jurisdiction on account of its place of residence or domicile. Each party hereto irrevocably and unconditionally consents to the service of any and all process in any such action or proceeding in such courts by the mailing of copies of such process by registered or certified mail (return receipt requested), postage prepaid, at its address specified in Article XVII. Each party hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. XII. WAIVER OF JURY TRIAL TO THE FULLEST EXTENT PERMITTED BY LAW, EACH OF THE PARTIES HERETO HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OTHER DOCUMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT AND OTHER DOCUMENTS. EACH PARTY HERETO (I) CERTIFIES THAT NEITHER OF THEIR RESPECTIVE REPRESENTATIVES, AGENTS OR ATTORNEYS HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (II) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS HEREIN. XIII. COUNTERPARTS; EXECUTION This Agreement may be executed in counterparts, each of which when so executed and delivered shall be an original, but both of which counterparts shall together constitute one and the same instrument. A facsimile transmission of this signed Agreement shall be legal and binding on both parties hereto. XIV. HEADINGS The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. XV. SEVERABILITY In the event any one or more of the provisions contained in this Agreement or in the other Documents should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein or therein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. XVI. ENTIRE AGREEMENT; REMEDIES, AMENDMENTS AND WAIVERS This Agreement and the Documents constitute the entire agreement between the parties hereto pertaining to the subject matter hereof and supersede all prior agreements, understandings, negotiations and discussions, whether oral or written, of such parties. No supplement, modification or waiver of this Agreement shall be binding unless executed in writing by both parties. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. XVII. NOTICES Except as may be otherwise provided herein, any notice or other communication or delivery required or permitted hereunder shall be in writing and shall be delivered personally, or sent by telecopier machine or by a nationally recognized overnight courier service, and shall be deemed given when so delivered personally, or by telecopier machine or overnight courier service as follows: A. if to the Company, to: Invicta Group Inc. 9553 Harding Avenue, Suite 301 Miami, FL 33154 Telephone: 305-866-6525 Facsimile: B. if to Buyer, to: Golden Gate Investors, Inc. 7817 Herschel Avenue, Suite 200 La Jolla, California 92037 Telephone: 858-551-8789 Facsimile: 858-551-8779 The Company or Buyer may change the foregoing address by notice given pursuant to this Article XVII. XVIII. CONFIDENTIALITY Each of the Company and Buyer agrees to keep confidential and not to disclose to or use for the benefit of any third party the terms of this Agreement or any other information which at any time is communicated by the other party as being confidential without the prior written approval of the other party; provide, however, that this provision shall not apply to information which, at the time of disclosure, is already part of the public domain (except by breach of this Agreement) and information which is required to be disclosed by law (including, without limitation, pursuant to Item 601(b)(10) of Regulation S-K under the Securities Act and the Exchange Act). XIX. ASSIGNMENT This Agreement shall not be assignable by either of the parties hereto prior to the Closing without the prior written consent of the other party, and any attempted assignment contrary to the provisions hereby shall be null and void; provided, however, that Buyer may assign its rights and obligations hereunder, in whole or in part, to any affiliate of Buyer. IN WITNESS WHEREOF, the parties hereto have duly caused this Agreement to be executed and delivered on the date first above written. Invicta Group Inc. Golden Gate Investors, Inc. By: _______________________ By: _________________________ Title: _______________________ Title: _________________________ SCHEDULE III.L. REGISTRATION RIGHTS Name EX-4.2 3 doc3.txt CONVERTIBLE DEBENTURE W/ GOLDEN GATE THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND IS BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THIS SECURITY MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER LAWS. 7 % CONVERTIBLE DEBENTURE COMPANY: Invicta Group Inc. COMPANY ADDRESS: 9553 Harding Avenue, Suite 301, Miami Beach, FL 33154 CLOSING DATE: April 27, 2004 MATURITY DATE: April 27, 2006 PRINCIPAL AMOUNT: $300,000 FIRST PAYMENT DUE DATE: June 15, 2004 Invicta Group Inc., a Nevada corporation, and any successor or resulting corporation by way of merger, consolidation, sale or exchange of all or substantially all of the assets or otherwise (the "COMPANY"), for value received, hereby promises to pay to the Holder (as such term is hereinafter defined), or such other Person (as such term is hereinafter defined) upon order of the Holder, on the Maturity Date, the Principal Amount (as such term is hereinafter defined), as such sum may be adjusted pursuant to Article 3, and to pay interest thereon from the Closing Date, monthly in arrears, on the 15th day of each month (each an "INTEREST PAYMENT DUE DATE" and collectively, the "INTEREST PAYMENT DUE DATES"), commencing on the First Payment Due Date, at the rate of seven and three-quarter percent (7 %) per annum (the "DEBENTURE INTEREST RATE"), until the Principal Amount of this Debenture has been paid in full. All interest payable on the Principal Amount of this Debenture shall be calculated on the basis of a 360-day year for the actual number of days elapsed. Payment of interest on this Debenture shall be in cash or, at the option of the Holder, in shares of Common Stock of the Company valued at the then applicable Conversion Price (as defined herein). This Debenture may not be prepaid without the written consent of the Holder. ARTICLE 1 DEFINITIONS SECTION 1.1 Definitions. The terms defined in this Article whenever used in ----------- this Debenture have the following respective meanings: (I) "AFFILIATE" has the meaning ascribed to such term in Rule 12b-2 under the Securities Exchange Act of 1934, as amended. (II) "BANKRUPTCY CODE" means the United States Bankruptcy Code of 1986, as amended (11 U.S.C. 101 et. seq.). -- --- (III)"BUSINESS DAY" means a day other than Saturday, Sunday or any day on which banks located in the State of California are authorized or obligated to close. (IV) "CAPITAL SHARES" means the Common Stock and any other shares of any other class or series of capital stock, whether now or hereafter authorized and however designated, which have the right to participate in the distribution of earnings and assets (upon dissolution, liquidation or winding-up) of the Company. (V) "COMMON SHARES" or "COMMON STOCK" means shares of the Company's Common Stock. (VI) "COMMON STOCK ISSUED AT CONVERSION", when used with reference to the securities deliverable upon conversion of this Debenture, means all Common Shares now or hereafter Outstanding and securities of any other class or series into which this Debenture hereafter shall have been changed or substituted, whether now or hereafter created and however designated. (VII)"CONVERSION" or "CONVERSION" means the repayment by the Company of the Principal Amount of this Debenture (and, to the extent the Holder elects as permitted by Section 3.1, accrued and unpaid interest thereon) by the delivery of Common Stock on the terms provided in Section 3.2, and "CONVERT," "CONVERTED," "CONVERTIBLE" and like words shall have a corresponding meaning. (VIII) "CONVERSION DATE" means any day on which all or any portion of the Principal Amount of this Debenture is converted in accordance with the provisions hereof. (IX) "CONVERSION NOTICE" means a written notice of conversion substantially in the form annexed hereto as Exhibit A. ---------- (X) "CONVERSION PRICE" on any date of determination means the applicable price for the conversion of this Debenture into Common Shares on such day as set forth in Section 3.1(a). (XI) "CURRENT MARKET PRICE" on any date of determination means the closing price of a Common Share on such day as reported on the NASDAQ OTCBB Exchange; provided that, if such security is not listed or admitted to trading on the -------- NASDAQ OTCBB, as reported on the principal national security exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the closing bid price of such security on the over-the-counter market on the day in question as reported by Bloomberg LP or a similar generally accepted reporting service, as the case may be. (XII)"DEADLINE" means the date that is the 90th day from the Closing Date. (XIII) "DEBENTURE" or "DEBENTURES" means this Convertible Debenture of the Company or such other convertible debenture(s) exchanged therefor as provided in Section 2.1. (XIV)"DISCOUNT MULTIPLIER" has the meaning set forth in Section 3.1(a). (XV) "EVENT OF DEFAULT" has the meaning set forth in Section 6.1. (XVI)"HOLDER" means Golden Gate Investors, Inc., any successor thereto, or any Person to whom this Debenture is subsequently transferred in accordance with the provisions hereof. (XVII) "INTEREST PAYMENT DUE DATE" has the meaning set forth in the opening paragraph of this Debenture. (XVIII) "MARKET DISRUPTION EVENT" means any event that results in a material suspension or limitation of trading of the Common Shares. (XIX) "MARKET PRICE" per Common Share means the lowest price of the Common Shares during any Trading Day as reported on the NASDAQ OTCBB; provided -------- that, if such security is not listed or admitted to trading on the NASDAQ OTCBB, as reported on the principal national security exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the lowest price of the Common Shares during any Trading Day on the over-the-counter market as reported by Bloomberg LP or a similar generally accepted reporting service, as the case may be. (XX) "MAXIMUM RATE" has the meaning set forth in Section 6.4. (XXI)"OUTSTANDING" when used with reference to Common Shares or Capital Shares (collectively, "SHARES") means, on any date of determination, all issued and outstanding Shares, and includes all such Shares issuable in respect of outstanding scrip or any certificates representing fractional interests in such Shares; provided, however, that any such Shares directly or indirectly -------- ------- owned or held by or for the account of the Company or any Subsidiary of the Company shall not be deemed "OUTSTANDING" for purposes hereof. (XXII) "PERSON" means an individual, a corporation, a partnership, an association, a limited liability company, an unincorporated business organization, a trust or other entity or organization, and any government or political subdivision or any agency or instrumentality thereof. (XXIII) "PRINCIPAL AMOUNT" means, for any date of calculation, the principal sum set forth in the first paragraph of this Debenture (but only such principal amount as to which the Holder has (a) actually advanced pursuant to the Securities Purchase Agreement, and (b) not theretofore furnished a Conversion Notice in compliance with Section 3.2). (XXIV) "REGISTRATION RIGHTS AGREEMENT" means that certain Registration Rights Agreement of even date herewith by and between the Company and Holder, as the same may be amended from time to time. (XXV) "SEC" means the United States Securities and Exchange Commission. (XXVI) "SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules and regulations of the SEC thereunder, all as in effect at the time. (XXVII) "SECURITIES PURCHASE AGREEMENT" means that certain Securities Purchase Agreement of even date herewith by and among the Company and Holder, as the same may be amended from time to time. (XXVIII) "SUBSIDIARY" means any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are owned directly or indirectly by the Company. (XXIX) "TRADING DAY" means any day on which (i) purchases and sales of securities on the principal national security exchange or quotation system on which the Common Shares are traded are reported thereon, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, as reported by Bloomberg LP or a similar generally accepted reporting service, as the case may be, (ii) at least one bid for the trading of Common Shares is reported and (iii) no Market Disruption Event occurs. All references to "cash" or "$" herein means currency of the United States of America. ARTICLE 2 EXCHANGES, TRANSFER AND REPAYMENT SECTION 2.1 Registration of Transfer of Debentures. This Debenture, when ----------------------------------------- presented for registration of transfer, shall (if so required by the Company) be duly endorsed, or be accompanied by a written instrument of transfer in form reasonably satisfactory to the Company duly executed, by the Holder duly authorized in writing. SECTION 2.2 Loss, Theft, Destruction of Debenture. Upon receipt of evidence ------------------------------------- satisfactory to the Company of the loss, theft, destruction or mutilation of this Debenture and, in the case of any such loss, theft or destruction, upon receipt of indemnity or security reasonably satisfactory to the Company, or, in the case of any such mutilation, upon surrender and cancellation of this Debenture, the Company shall make, issue and deliver, in lieu of such lost, stolen, destroyed or mutilated Debenture, a new Debenture of like tenor and unpaid Principal Amount dated as of the date hereof (which shall accrue interest from the most recent Interest Payment Due Date on which an interest payment was made in full). This Debenture shall be held and owned upon the express condition that the provisions of this Section 2.2 are exclusive with respect to the replacement of a mutilated, destroyed, lost or stolen Debenture and shall preclude any and all other rights and remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement of negotiable instruments or other securities without the surrender thereof. SECTION 2.3 Who Deemed Absolute Owner. The Company may deem the Person in ------------------------- whose name this Debenture shall be registered upon the registry books of the Company to be, and may treat it as, the absolute owner of this Debenture (whether or not this Debenture shall be overdue) for the purpose of receiving payment of or on account of the Principal Amount of this Debenture, for the conversion of this Debenture and for all other purposes, and the Company shall not be affected by any notice to the contrary. All such payments and such conversions shall be valid and effectual to satisfy and discharge the liability upon this Debenture to the extent of the sum or sums so paid or the conversion or conversions so made. SECTION 2.4 Repayment at Maturity. At the Maturity Date, the Company shall --------------------- repay the outstanding Principal Amount of this Debenture in whole in cash, together with all accrued and unpaid interest thereon, in cash, to the Maturity Date. ARTICLE 3 CONVERSION OF DEBENTURE SECTION 3.1 Conversion; Conversion Price; Valuation Event. ------------------------------------------------- (a) At the option of the Holder, this Debenture may be converted, either in whole or in part, up to the full Principal Amount hereof (in increments of $1,000 in Principal Amount) into Common Shares (calculated as to each such conversion to the nearest 1/100th of a share), at any time and from time to time on any Business Day, subject to compliance with Section 3.2. The number of Common Shares into which this Debenture may be converted is equal to the dollar amount of the Debenture being converted multiplied by eleven, minus the product of the Conversion Price multiplied by ten times the dollar amount of the Debenture being converted, and the entire foregoing result shall be divided by the Conversion Price. In addition, the Company shall pay to the Holder on the Conversion Date, in cash, any accrued and unpaid interest on the Debenture being converted not included at the option of the Holder in clause (i) of the immediately preceding sentence. The "CONVERSION PRICE" shall be equal to the lesser of (i) $0.25, or (ii) eighty percent (80%) of the average of the 3 lowest Volume Weighted Average Prices during the twenty (20) Trading Days prior to Holder's election to convert (a "DISCOUNT MULTIPLIER"); provided, that in the -------- event the Registration Statement has not been declared effective by the SEC by the Deadline or, if the Registration Statement has theretofore been declared effective but is not thereafter effective, then the applicable Discount Multiplier shall decrease by three percentage points (3%) for each month or partial month occurring after the Deadline that the Registration Statement is not effective. Beginning in the first full calendar month after the Registration Statement is declared effective, Holder shall convert at least 5%, but no more than 15% (such 15% maximum amount to be cumulative from the Deadline), of the face value of the Debenture per calendar month into Common Shares of the Company, provided that the Common Shares are available, registered and freely tradable. If Holder converts more than 5% of the face value of the Debenture in any calendar month, the excess over 5% shall be credited against the next month's minimum conversion amount. The 15% monthly maximum amount shall not be applicable if the Current Market Price of the Common Stock at anytime during the applicable month is higher than the Current Market Price of the Common Stock on the Closing Date. In the event Holder does not convert at least 5% of the Debenture in any particular calendar month, Holder shall not be entitled to collect interest on the Debenture for that month if the Company gives Holder written notice, at least 5 business days prior to the end of the month, of Holder's failure to convert the minimum required amount for that month. If the Holder elects to convert a portion of the Debenture and, on the day that the election is made, the Volume Weighted Average Price is below $0.10, the Company shall have the right to prepay that portion of the Debenture that Holder elected to convert, plus any accrued and unpaid interest, at 150% of such amount. In the event that the Company elects to prepay that portion of the Debenture, Holder shall have the right to withdraw its Conversion Notice. If, at anytime during the month, the Volume Weighted Average Price is below $0.10, Holder shall not be obligated to convert any portion of the Debenture during that month. (b) Notwithstanding the provisions of Section 3.1(a), in the event the Company's Registration Statement has not been declared effective by the Deadline or, if the Registration Statement has theretofore been declared effective but is not thereafter effective, the following will also apply in addition to any damages incurred by the Holder as a result thereof: (i) The Holder may demand repayment of one hundred and fifty percent (150%) of the Principal Amount of the Debenture, together with all accrued and unpaid interest thereon, in cash, at any time prior to the Company's Registration Statement being declared effective by the SEC or during the period that the Company's Registration Statement is not effective, such repayment to be made within three (3) business days of such demand. In the event that the Debenture is so accelerated, in addition to the repayment of one hundred and fifty percent (150%) of the Principal Amount together with accrued interest as aforesaid, the Company shall immediately issue and pay, as the case may be, to the Holder 50,000 Shares of Common Stock and $15,000 for each thirty (30) day period, or portion thereof, during which the Principal Amount, including interest thereon, remains unpaid, with the monthly payment amount to increase to $20,000 for each thirty (30) day period, or portion thereof, after the first ninety (90) day period; (ii) If the Holder does not elect to accelerate the Debenture, the Company shall immediately issue or pay, as the case may be, to Holder 50,000 Shares of Common Stock and $15,000 for each thirty (30) day period, or portion thereof, that the Registration Statement is not effective, with the monthly payment amount to increase to $20,000 for each thirty (30) day period, or portion thereof, after the first ninety (90) day period. (iii) If the SEC indicates that the Company's Registration Statement will be declared effective upon request by the Company, and the Company does not, within 3 business days of the SEC indication, request that the Registration Statement become effective, the amounts set forth in subsections (ii) and (iii) above shall double. SECTION 3.2 Exercise of Conversion Privilege. (a) Conversion of this ----------------------------------- Debenture may be exercised on any Business Day by the Holder by telecopying an executed and completed Conversion Notice to the Company. Each date on which a Conversion Notice is telecopied to the Company in accordance with the provisions of this Section 3.2 shall constitute a Conversion Date. The Company shall convert this Debenture and issue the Common Stock Issued at Conversion in the manner provided below in this Section 3.2, and all voting and other rights associated with the beneficial ownership of the Common Stock Issued at Conversion shall vest with the Holder, effective as of the Conversion Date at the time specified in the Conversion Notice. The Conversion Notice also shall state the name or names (with addresses) of the persons who are to become the holders of the Common Stock Issued at Conversion in connection with such conversion. As promptly as practicable after the receipt of the Conversion Notice as aforesaid, but in any event not more than three (3) Business Days after the Company's receipt of such Conversion Notice, the Company shall (i) issue the Common Stock Issued at Conversion in accordance with the provisions of this Article 3 and (ii) cause to be mailed for delivery by overnight courier, or if a Registration Statement covering the Common Stock has been declared effective by the SEC cause to be electronically transferred, to Holder (x) a certificate or certificate(s) representing the number of Common Shares to which the Holder is entitled by virtue of such conversion, (y) cash, as provided in Section 3.3, in respect of any fraction of a Common Share deliverable upon such conversion and (z) cash or shares of Common Stock, as applicable, representing the amount of accrued and unpaid interest on this Debenture as of the Conversion Date. Such conversion shall be deemed to have been effected at the time at which the Conversion Notice indicates, and at such time the rights of the Holder of this Debenture, as such (except if and to the extent that any Principal Amount thereof remains unconverted), shall cease and the Person and Persons in whose name or names the Common Stock Issued at Conversion shall be issuable shall be deemed to have become the holder or holders of record of the Common Shares represented thereby, and all voting and other rights associated with the beneficial ownership of such Common Shares shall at such time vest with such Person or Persons. The Conversion Notice shall constitute a contract between the Holder and the Company, whereby the Holder shall be deemed to subscribe for the number of Common Shares which it will be entitled to receive upon such conversion and, in payment and satisfaction of such subscription (and for any cash adjustment to which it is entitled pursuant to Section 3.4), to surrender this Debenture and to release the Company from all liability thereon (except if and to the extent that any Principal Amount thereof remains unconverted). No cash payment aggregating less than $1.00 shall be required to be given unless specifically requested by the Holder. (b) If, at any time after the date of this Debenture, (i) the Company challenges, disputes or denies the right of the Holder hereof to effect the conversion of this Debenture into Common Shares or otherwise dishonors or rejects any Conversion Notice delivered in accordance with this Section 3.2 or (ii) any third party who is not and has never been an Affiliate of the Holder commences any lawsuit or legal proceeding or otherwise asserts any claim before any court or public or governmental authority which seeks to challenge, deny, enjoin, limit, modify, delay or dispute the right of the Holder hereof to effect the conversion of this Debenture into Common Shares, then the Holder shall have the right, by written notice to the Company, to require the Company to promptly redeem this Debenture for cash at one hundred and fifty (150%) of the Principal Amount thereof, together with all accrued and unpaid interest thereon to the date of redemption. Under any of the circumstances set forth above, the Company shall be responsible for the payment of all costs and expenses of the Holder, including reasonable legal fees and expenses, as and when incurred in defending itself in any such action or pursuing its rights hereunder (in addition to any other rights of the Holder). (c) The Holder shall be entitled to exercise its conversion privilege notwithstanding the commencement of any case under the Bankruptcy Code. In the event the Company is a debtor under the Bankruptcy Code, the Company hereby waives to the fullest extent permitted any rights to relief it may have under 11 U.S.C. 362 in respect of the Holder's conversion privilege. The Company hereby waives to the fullest extent permitted any rights to relief it may have under 11 U.S.C. 362 in respect of the conversion of this Debenture. The Company agrees, without cost or expense to the Holder, to take or consent to any and all action necessary to effectuate relief under 11 U.S.C. 362. SECTION 3.3 Fractional Shares. No fractional Common Shares or scrip ------------------ representing fractional Common Shares shall be delivered upon conversion of this Debenture. Instead of any fractional Common Shares which otherwise would be delivered upon conversion of this Debenture, the Company shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction multiplied by the Current Market Price on the Conversion Date. No cash payment of less than $1.00 shall be required to be given unless specifically requested by the Holder. SECTION 3.4 Adjustments. The Conversion Price and the number of shares ----------- deliverable upon conversion of this Debenture are subject to adjustment from time to time as follows: (i) Reclassification, Etc. In case the Company shall reorganize its ---------------------- capital, reclassify its capital stock, consolidate or merge with or into another Person (where the Company is not the survivor or where there is a change in or distribution with respect to the Common Stock of the Company), sell, convey, transfer or otherwise dispose of all or substantially all its property, assets or business to another Person, or effectuate a transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Company is disposed of (each, a "FUNDAMENTAL CORPORATE CHANGE") and, pursuant to the terms of such Fundamental Corporate Change, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation ("OTHER PROPERTY") are to be received by or distributed to the holders of Common Stock of the Company, then the Holder of this Debenture shall have the right thereafter, at its sole option, to (x) require the Company to prepay this Debenture for cash at one hundred and fifty percent (150%) of the Principal Amount thereof, together with all accrued and unpaid interest thereon to the date of prepayment, (y) receive the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property as is receivable upon or as a result of such Fundamental Corporate Change by a holder of the number of shares of Common Stock into which the outstanding portion of this Debenture may be converted at the Conversion Price applicable immediately prior to such Fundamental Corporate Change or (z) require the Company, or such successor, resulting or purchasing corporation, as the case may be, to, without benefit of any additional consideration therefor, execute and deliver to the Holder a debenture with substantial identical rights, privileges, powers, restrictions and other terms as this Debenture in an amount equal to the amount outstanding under this Debenture immediately prior to such Fundamental Corporate Change. For purposes hereof, "COMMON STOCK OF THE SUCCESSOR OR ACQUIRING CORPORATION" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to prepayment and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions shall similarly apply to successive Fundamental Corporate Changes. SECTION 3.5 Certain Conversion Limits. --------------------------- Notwithstanding anything herein to the contrary, if and to the extent that, on any date, the holding by the Holder of this Debenture would result in the Holder's being deemed the beneficial owner of more than 4.99% of the then Outstanding shares of Common Stock, then the Holder shall not have the right, and the Company shall not have the obligation, to convert any portion of this Debenture as shall cause such Holder to be deemed the beneficial owner of more than 4.99% of the then Outstanding shares of Common Stock. If any court of competent jurisdiction shall determine that the foregoing limitation is ineffective to prevent a Holder from being deemed the beneficial owner of more than 4.99% of the then Outstanding shares of Common Stock, then the Company shall prepay such portion of this Debenture as shall cause such Holder not to be deemed the beneficial owner of more than 4.99% of the then Outstanding shares of Common Stock. Upon such determination by a court of competent jurisdiction, the Holder shall have no interest in or rights under such portion of the Debenture. Any and all interest paid on or prior to the date of such determination shall be deemed interest paid on the remaining portion of this Debenture held by the Holder. Such prepayment shall be for cash at a prepayment price of one hundred and fifty percent (150%) of the Principal Amount thereof, together with all accrued and unpaid interest thereon to the date of prepayment. SECTION 3.6 Surrender of Debentures. Upon any redemption of this Debenture ----------------------- pursuant to Sections 3.2, 3.5 or 6.2, or upon maturity pursuant to Section 2.4, the Holder shall either deliver this Debenture by hand to the Company at its principal executive offices or surrender the same to the Company at such address by nationally recognized overnight courier. Payment of the redemption price or the amount due on maturity specified in Section 2.4, shall be made by the Company to the Holder against receipt of this Debenture (as provided in this Section 3.5) by wire transfer of immediately available funds to such account(s) as the Holder shall specify by written notice to the Company. If payment of such redemption price is not made in full by the redemption date, or the amount due on maturity is not paid in full by the Maturity Date, the Holder shall again have the right to convert this Debenture as provided in Article 3 hereof or to declare an Event of Default. ARTICLE 4 STATUS; RESTRICTIONS ON TRANSFER SECTION 4.1 Status of Debenture. This Debenture constitutes a legal, valid ------------------- and binding obligation of the Company, enforceable in accordance with its terms subject, as to enforceability, to general principles of equity and to principles of bankruptcy, insolvency, reorganization and other similar laws of general applicability relating to or affecting creditors' rights and remedies generally. SECTION 4.2 Restrictions on Transfer. This Debenture, and any Common Shares ------------------------ deliverable upon the conversion hereof, have not been registered under the Securities Act. The Holder by accepting this Debenture agrees that this Debenture and the shares of Common Stock to be acquired as interest on and upon conversion of this Debenture may not be assigned or otherwise transferred unless and until (i) the Company has received the opinion of counsel for the Holder that this Debenture or such shares may be sold pursuant to an exemption from registration under the Securities Act or (ii) a registration statement relating to this Debenture or such shares has been filed by the Company and declared effective by the SEC. Each certificate for shares of Common Stock deliverable hereunder shall bear a legend as follows unless and until such securities have been sold pursuant to an effective registration statement under the Securities Act: "The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Securities Act"). The securities may not be offered for sale, sold or otherwise transferred except (i) pursuant to an effective registration statement under the Securities Act or (ii) pursuant to an exemption from registration under the Securities Act in respect of which the issuer of this certificate has received an opinion of counsel satisfactory to the issuer of this certificate to such effect. Copies of the agreement covering both the purchase of the securities and restrictions on their transfer may be obtained at no cost by written request made by the holder of record of this certificate to the Secretary of the issuer of this certificate at the principal executive offices of the issuer of this certificate." ARTICLE 5 COVENANTS SECTION 5.1 Conversion. The Company shall cause the transfer agent, not ---------- later than three (3) Business Days after the Company's receipt of a Conversion Notice, to issue and deliver to the Holder the requisite shares of Common Stock Issued at Conversion. Such delivery shall be by electronic transfer if a Registration Statement covering the Common Stock has been declared effective by the SEC. SECTION 5.2 Notice of Default. If any one or more events occur which ------------------- constitute or which, with notice, lapse of time, or both, would constitute an Event of Default, the Company shall forthwith give notice to the Holder, specifying the nature and status of the Event of Default or such other event(s), as the case may be. SECTION 5.3 Payment of Obligations. So long as this Debenture shall be ---------------------- outstanding, the Company shall pay, extend, or discharge at or before maturity, all its respective material obligations and liabilities, including, without limitation, tax liabilities, except where the same may be contested in good faith by appropriate proceedings. SECTION 5.4 Compliance with Laws. So long as this Debenture shall be ---------------------- outstanding, the Company shall comply with all applicable laws, ordinances, rules, regulations and requirements of governmental authorities, except for such noncompliance which would not have a material adverse effect on the business, properties, prospects, condition (financial or otherwise) or results of operations of the Company and the Subsidiaries. SECTION 5.5 Inspection of Property, Books and Records. So long as this --------------------------------------------- Debenture shall be outstanding, the Company shall keep proper books of record and account in which full, true and correct entries shall be made of all material dealings and transactions in relation to its business and activities and shall permit representatives of the Holder at the Holder's expense to visit and inspect any of its respective properties, to examine and make abstracts from any of its respective books and records, not reasonably deemed confidential by the Company, and to discuss its respective affairs, finances and accounts with its respective officers and independent public accountants, all at such reasonable times and as often as may reasonably be desired. SECTION 5.6 Right of First Refusal on Other Financing. In the event that ----------------------------------------- the Company obtains any other financing (either debt, equity, or a combination thereof) which is to close during the term of this Debenture, Holder shall be entitled to a right of first refusal to enable it to, at Holder's option, either: (i) match the terms of the other financing, or (ii) add additional principal to this Debenture, in the amount of such other financing, on the same terms and conditions as this Debenture. The Company shall deliver to Holder, at least 10 days prior to the proposed closing date of such transaction, written notice describing the proposed transaction, including the terms and conditions thereof, and providing Holder an option during the 10 day period following delivery of such notice to either provide the financing being offered in such transaction on the same terms as contemplated by such transaction, or to add additional principal to this Debenture, in the amount of such other financing, on the same terms and conditions as this Debenture. ARTICLE 6 EVENTS OF DEFAULT; REMEDIES SECTION 6.1 Events of Default. "EVENT OF DEFAULT" wherever used herein ------------------- means any one of the following events: (i) the Company shall default in the payment of principal of or interest on this Debenture as and when the same shall be due and payable and, in the case of an interest payment default, such default shall continue for five (5) Business Days after the date such interest payment was due, or the Company shall fail to perform or observe any other covenant, agreement, term, provision, undertaking or commitment under this Debenture, the Conversion Warrants (as defined in the Securities Purchase Agreement), the Securities Purchase Agreement or the Registration Rights Agreement and such default shall continue for a period of ten (10) Business Days after the delivery to the Company of written notice that the Company is in default hereunder or thereunder; (ii) any of the representations or warranties made by the Company herein, in the Securities Purchase Agreement, the Registration Rights Agreement or in any certificate or financial or other written statements heretofore or hereafter furnished by or on behalf of the Company in connection with the execution and delivery of this Debenture, the Warrants, the Securities Purchase Agreement or the Registration Rights Agreement shall be false or misleading in a material respect on the Closing Date; (iii)under the laws of any jurisdiction not otherwise covered by clauses (iv) and (v) below, the Company or any Subsidiary (A) becomes insolvent or generally not able to pay its debts as they become due, (B) admits in writing its inability to pay its debts generally or makes a general assignment for the benefit of creditors, (C) institutes or has instituted against it any proceeding seeking (x) to adjudicate it a bankrupt or insolvent, (y) liquidation, winding-up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors including any plan of compromise or arrangement or other corporate proceeding involving or affecting its creditors or (z) the entry of an order for relief or the appointment of a receiver, trustee or other similar person for it or for any substantial part of its properties and assets, and in the case of any such official proceeding instituted against it (but not instituted by it), either the proceeding remains undismissed or unstayed for a period of sixty (60) calendar days, or any of the actions sought in such proceeding (including the entry of an order for relief against it or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its properties and assets) occurs or (D) takes any corporate action to authorize any of the above actions; (iv) the entry of a decree or order by a court having jurisdiction in the premises adjudging the Company or any Subsidiary a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under the Bankruptcy Code or any other applicable Federal or state law, or appointing a receiver, liquidator, assignee, trustee or sequestrator (or other similar official) of the Company or of any substantial part of its property, or ordering the winding-up or liquidation of its affairs, and any such decree or order continues and is unstayed and in effect for a period of sixty (60) calendar days; (v) the institution by the Company or any Subsidiary of proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under the Bankruptcy Code or any other applicable federal or state law, or the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee or sequestrator (or other similar official) of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as and when they become due, or the taking of corporate action by the Company in furtherance of any such action; (vi) a final judgment or final judgments for the payment of money shall have been entered by any court or courts of competent jurisdiction against the Company and remains undischarged for a period (during which execution shall be effectively stayed) of thirty (30) days, provided that the aggregate -------- amount of all such judgments at any time outstanding (to the extent not paid or to be paid, as evidenced by a written communication to that effect from the applicable insurer, by insurance) exceeds One Hundred Thousand Dollars ($100,000); (vii) it becomes unlawful for the Company to perform or comply with its obligations under this Debenture, the Conversion Warrant, the Securities Purchase Agreement or the Registration Rights Agreement in any respect; (viii) the Common Shares shall be delisted from the NASDAQ OTCBB (the "TRADING MARKET" or, to the extent the Company becomes eligible to list its Common Stock on any other national security exchange or quotation system, upon official notice of listing on any such exchange or system, as the case may be, it shall be the "TRADING MARKET") or suspended from trading on the Trading Market, and shall not be reinstated, relisted or such suspension lifted, as the case may be, within five (5) days or; (ix) the Company shall default (giving effect to any applicable grace period) in the payment of principal or interest as and when the same shall become due and payable, under any indebtedness, individually or in the aggregate, of more than One Hundred Thousand Dollars ($100,000); SECTION 6.2 Acceleration of Maturity; Rescission and Annulment. If an Event -------------------------------------------------- of Default occurs and is continuing, then and in every such case the Holder may, by a notice in writing to the Company, rescind any outstanding Conversion Notice and declare that all amounts owing or otherwise outstanding under this Debenture are immediately due and payable and upon any such declaration this Debenture shall become immediately due and payable in cash at a price of one hundred and fifty percent (150%) of the Principal Amount thereof, together with all accrued and unpaid interest thereon to the date of payment; provided, however, in the -------- case of any Event of Default described in clauses (iii), (iv), (v) or (vii) of Section 6.1, such amount automatically shall become immediately due and payable without the necessity of any notice or declaration as aforesaid. SECTION 6.3 Late Payment Penalty. If any portion of the principal of or ---------------------- interest on this Debenture shall not be paid within ten (10) days of when it is due, the Discount Multiplier under this Debenture, and under all warrants granted by the Company to the Holder, shall decrease by one percentage point (1%) for all conversions of this Debenture and warrant exercises thereafter. SECTION 6.4 Maximum Interest Rate. Notwithstanding anything herein to ----------------------- the contrary, if at any time the applicable interest rate as provided for herein shall exceed the maximum lawful rate which may be contracted for, charged, taken or received by the Holder in accordance with any applicable law (the "MAXIMUM RATE"), the rate of interest applicable to this Debenture shall be limited to the Maximum Rate. To the greatest extent permitted under applicable law, the Company hereby waives and agrees not to allege or claim that any provisions of this Note could give rise to or result in any actual or potential violation of any applicable usury laws. SECTION 6.5 Remedies Not Waived. No course of dealing between the Company ------------------- and the Holder or any delay in exercising any rights hereunder shall operate as a waiver by the Holder. SECTION 6.6 Remedies. The Company acknowledges that a breach by it of its -------- obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Debenture will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Debenture, that the Holder shall be entitled to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Debenture and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required. SECTION 6.7 Payment of Certain Amounts. Whenever pursuant to this Debenture -------------------------- the Company is required to pay an amount in excess of the Principal Amount plus accrued and unpaid interest, the Company and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Debenture may be difficult to determine and the amount to be so paid by the Company represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Debenture and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Debenture at a price in excess of that price paid for such shares pursuant to this Debenture. The Company and the Holder hereby agree that such amount of stipulated damages is not disproportionate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Debenture into shares of Common Stock. ARTICLE 7 MISCELLANEOUS SECTION 7.1 Notice of Certain Events. In the case of the occurrence of any ------------------------ event described in Section 3.4 of this Debenture, the Company shall cause to be mailed to the Holder of this Debenture at its last address as it appears in the Company's security registry, at least twenty (20) days prior to the applicable record, effective or expiration date hereinafter specified (or, if such twenty (20) days' notice is not possible, at the earliest possible date prior to any such record, effective or expiration date), a notice thereof, including, if applicable, a statement of (y) the date on which a record is to be taken for the purpose of such dividend, distribution, issuance or granting of rights, options or warrants, or if a record is not to be taken, the date as of which the holders of record of Common Stock to be entitled to such dividend, distribution, issuance or granting of rights, options or warrants are to be determined or (z) the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up is expected to become effective, and the date as of which it is expected that holders of record of Common Stock will be entitled to exchange their shares for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale transfer, dissolution, liquidation or winding-up. SECTION 7.2 Register. The Company shall keep at its principal office a -------- register in which the Company shall provide for the registration of this Debenture. Upon any transfer of this Debenture in accordance with Articles 2 and 4 hereof, the Company shall register such transfer on the Debenture register. SECTION 7.3 Withholding. To the extent required by applicable law, the ----------- Company may withhold amounts for or on account of any taxes imposed or levied by or on behalf of any taxing authority in the United States having jurisdiction over the Company from any payments made pursuant to this Debenture. SECTION 7.4 Transmittal of Notices. Except as may be otherwise provided ---------------------- herein, any notice or other communication or delivery required or permitted hereunder shall be in writing and shall be delivered personally, or sent by telecopier machine or by a nationally recognized overnight courier service, and shall be deemed given when so delivered personally, or by telecopier machine or overnight courier service as follows: (1) if to the Company, to: Invicta Group Inc. 9553 Harding Avenue, Suite 301 Miami, Florida 33154 Telephone: 305-866-6525 Facsimile: (2) if to the Holder, to: Golden Gate Investors, Inc. 7817 Herschel Avenue, Suite 200 La Jolla, California 92037 Telephone: 858-551-8789 Facsimile: 858-551-8779 Each of the Holder or the Company may change the foregoing address by notice given pursuant to this Section 7.4. SECTION 7.5 Attorneys' Fees. Should any party hereto employ an attorney for ---------------- the purpose of enforcing or construing this Debenture, or any judgment based on this Debenture, in any legal proceeding whatsoever, including insolvency, bankruptcy, arbitration, declaratory relief or other litigation, the prevailing party shall be entitled to receive from the other party or parties thereto reimbursement for all reasonable attorneys' fees and all reasonable costs, including but not limited to service of process, filing fees, court and court reporter costs, investigative costs, expert witness fees, and the cost of any bonds, whether taxable or not, and that such reimbursement shall be included in any judgment or final order issued in that proceeding. The "prevailing party" means the party determined by the court to most nearly prevail and not necessarily the one in whose favor a judgment is rendered. SECTION 7.6 Governing Law. This Debenture shall be governed by, and -------------- construed in accordance with, the laws of the State of California (without giving effect to conflicts of laws principles). With respect to any suit, action or proceedings relating to this Debenture, the Company irrevocably submits to the exclusive jurisdiction of the courts of the State of California sitting in San Diego and the United States District Court located in the City of San Diego and hereby waives, to the fullest extent permitted by applicable law, any claim that any such suit, action or proceeding has been brought in an inconvenient forum. Subject to applicable law, the Company agrees that final judgment against it in any legal action or proceeding arising out of or relating to this Debenture shall be conclusive and may be enforced in any other jurisdiction within or outside the United States by suit on the judgment, a certified copy of which judgment shall be conclusive evidence thereof and the amount of its indebtedness, or by such other means provided by law. SECTION 7.7 Waiver of Jury Trial. To the fullest extent permitted by law, --------------------- each of the parties hereto hereby knowingly, voluntarily and intentionally waives its respective rights to a jury trial of any claim or cause of action based upon or arising out of this Debenture or any other document or any dealings between them relating to the subject matter of this Debenture and other documents. Each party hereto (i) certifies that neither of their respective representatives, agents or attorneys has represented, expressly or otherwise, that such party would not, in the event of litigation, seek to enforce the foregoing waivers and (ii) acknowledges that it has been induced to enter into this Debenture by, among other things, the mutual waivers and certifications herein. SECTION 7.8 Headings. The headings of the Articles and Sections of this -------- Debenture are inserted for convenience only and do not constitute a part of this Debenture. SECTION 7.9 Payment Dates. Whenever any payment hereunder shall be due ------------- on a day other than a Business Day, such payment shall be made on the next succeeding Business Day. SECTION 7.10 Binding Effect. Each Holder by accepting this Debenture agrees -------------- to be bound by and comply with the terms and provisions of this Debenture. SECTION 7.11 No Stockholder Rights. Except as otherwise provided herein, ----------------------- this Debenture shall not entitle the Holder to any of the rights of a stockholder of the Company, including, without limitation, the right to vote, to receive dividends and other distributions, or to receive any notice of, or to attend, meetings of stockholders or any other proceedings of the Company, unless and to the extent converted into shares of Common Stock in accordance with the terms hereof. SECTION 7.12 Facsimile Execution. Facsimile execution shall be deemed -------------------- originals. IN WITNESS WHEREOF, the Company has caused this Debenture to be signed by its duly authorized officer on the date of this Debenture. Invicta Group Inc. By: Title: _____________________________________ EXHIBIT A DEBENTURE CONVERSION NOTICE --------------------------- TO: Invicta Group Inc. The undersigned owner of this Convertible Debenture due April ___, 2006 (the "DEBENTURE") issued by Invicta Group Inc. (the "COMPANY") hereby irrevocably exercises its option to convert $__________ Principal Amount of the Debenture into shares of Common Stock in accordance with the terms of the Debenture. The undersigned hereby instructs the Company to convert the portion of the Debenture specified above into shares of Common Stock Issued at Conversion in accordance with the provisions of Article 3 of the Debenture. The undersigned directs that the Common Stock and certificates therefor deliverable upon conversion, the Debenture reissued in the Principal Amount not being surrendered for conversion hereby, [the check or shares of Common Stock in payment of the accrued and unpaid interest thereon to the date of this Notice,] together with any check in payment for fractional Common Stock, be registered in the name of and/or delivered to the undersigned unless a different name has been indicated below. All capitalized terms used and not defined herein have the respective meanings assigned to them in the Debenture. The conversion pursuant hereto shall be deemed to have been effected at the date and time specified below, and at such time the rights of the undersigned as a Holder of the Principal Amount of the Debenture set forth above shall cease and the Person or Persons in whose name or names the Common Stock Issued at Conversion shall be registered shall be deemed to have become the holder or holders of record of the Common Shares represented thereby and all voting and other rights associated with the beneficial ownership of such Common Shares shall at such time vest with such Person or Persons. Date and time: __________________ ____________________________________ By: ____________________________ Title: ____________________________ Fill in for registration of Debenture: Please print name and address (including ZIP code number): ____________________________________ ____________________________________ ____________________________________ EX-4.3 4 doc4.txt WARRANT ISSUED TO GOLDEN GATE WARRANT TO PURCHASE COMMON STOCK (CONVERSION WARRANTS) THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT FOR DISTRIBUTION, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED NEITHER THE WARRANT NOR THE SHARES MAY BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. THIS WARRANT MUST BE SURRENDERED TO THE COMPANY OR ITS TRANSFER AGENT AS A CONDITION PRECEDENT TO THE SALE, PLEDGE OR OTHER TRANSFER OF ANY INTEREST IN THIS WARRANT OR THE SHARES ISSUABLE HEREUNDER. Issuer: Invicta Group Inc. Class of Stock: Common Stock Issue Date: April 27, 2004 Expiration Date: April 27, 2007 THIS WARRANT TO PURCHASE COMMON STOCK is being issued pursuant to that certain Securities Purchase Agreement dated as of the date hereof (the "Purchase Agreement") between Invicta Group Inc., a Nevada corporation (the "Company") and Golden Gate Investors, Inc. ("Holder"). 1.1 Warrants. The Company hereby grants to Holder the right to purchase -------- 3,000,000 shares of the Company's Common Stock (the "Shares" or "Warrant Shares. For avoidance of doubt, this Warrant may be exercised concurrently with or subsequent to the issuance of a Conversion Notice under the Debenture. The date that the Holder issues a Conversion Notice under the Debenture is hereafter referred to as the "Conversion Date." Defined terms not defined herein shall have the meanings ascribed to them in the Debenture or the Purchase Agreement. Holder agrees that, beginning in the first full calendar month after the Registration Statement is declared effective, Holder will exercise at least 5%, but no more than 15% (such 15% maximum amount to be cumulative from the Deadline), of the Warrants per calendar month, provided that the Common Shares are available, registered and freely tradable. If Holder exercises more than 5% of the Warrants in any calendar month, the excess over 5% shall be credited against the next month's minimum exercise amount. The 15% monthly maximum amount shall not be applicable if the Current Market Price of the Common Stock at anytime during the applicable month is higher than the Current Market Price of the Common Stock on the Closing Date. In the event Holder does not exercise at least 5% of the Warrants in any particular calendar month, Holder shall not be entitled to collect interest on the Debenture for that month. This Warrant shall expire and Holder shall no longer be able to purchase the Warrant Shares on April ___, 2007. ARTICLE 2 EXERCISE -------- 2.1 Method of Exercise. Holder may exercise this Warrant by delivering a -------------------- duly executed Warrant Notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company. - ----------- 2.2 Delivery of Certificate and New Warrant. As promptly as practicable ------------------------------------------- after the receipt of the Warrant Notice of Exercise, but in any event not more than three (3) Business Days after the Company's receipt of the Warrant Notice of Exercise, the Company shall issue the Shares and cause to be mailed for delivery by overnight courier, or if a Registration Statement covering the Shares has been declared effective by the SEC cause to be electronically transferred, to Holder a certificate representing the Shares acquired and, if this Warrant has not been fully exercised and has not expired, a new Warrant substantially in the form of this Warrant representing the right to acquire the portion of the Shares not so acquired. 2.3 Replacement of Warrants. On receipt of evidence reasonably satisfactory ----------------------- to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, or surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor. 2.4 Exercise Price. The Exercise Price of this Warrant shall $1.00. -------------- 2.5 Cashless Exercise. Notwithstanding anything to the contrary contained ------------------ in this Warrant, if the resale of the Warrant Shares by Holder is not then registered pursuant to an effective Registration Statement, upon the expiration of one year from the Issue Date, this Warrant may be exercised by presentation and surrender of this Warrant to the Company at its principal executive offices with a written notice of Holder's intention to effect a cashless exercise, including a calculation of the number of shares of Common Stock to be issued upon such exercise in accordance with the terms hereof ( a "Cashless Exercise"). In the event of a Cashless Exercise, in lieu of paying the Exercise Price in cash, Holder shall surrender this Warrant for that number of shares of Common Stock determined by multiplying the number of Warrant Shares to which it otherwise would be entitled by a fraction, the numerator of which shall be the difference between the then current Market Price per share of the Common Stock and the Exercise Price, and the denominator or which shall be the then current Market Price per share of Common Stock. ARTICLE 3 ADJUSTMENT TO THE SHARES ------------------------ The number of Shares purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows: 3.1 Reclassification. In case of any reclassification or change of ---------------- outstanding securities of the class issuable upon exercise of this Warrant then, and in any such case, the Holder, upon the exercise hereof at any time after the consummation of such reclassification or change, shall be entitled to receive in lieu of each Share theretofore issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money and/or property received upon such reclassification or change by a holder of one Share. The provisions of this Section 2.1 shall similarly apply to successive reclassifications or changes. 3.2 Subdivision or Combination of Shares. If the Company at any time while ------------------------------------- this Warrant remains outstanding and unexpired shall subdivide or combine its Shares, the Exercise Price shall be proportionately decreased in the case of a subdivision or increased in the case of a combination. 3.3 Stock Dividends. If the Company, at any time while this Warrant is --------------- outstanding shall pay a dividend with respect to its Shares payable in Shares, or make any other distribution of Shares with respect to Shares (except any distribution specifically provided for in Section 2.1 and Section 2.2 above), then the Exercise Price shall be adjusted, effective from and after the date of determination of shareholders entitled to received such dividend or distribution, to that price determined by multiplying the Exercise Price in effect immediately prior to such date of determination by a fraction, (a) the numerator of which shall be the total number of Shares outstanding immediately prior to such dividend or distribution, and (b) the denominator of which shall be the total number of Shares outstanding immediately after such dividend or distribution. 3.4 Non-Cash Dividends. If the Company at any time while this Warrant is ------------------ outstanding shall pay a dividend with respect to Shares payable in securities other than Shares or other non-cash property, or make any other distribution of such securities or property with respect to Shares (except any distribution specifically provided for in Section 2.1 and Section 2.2 above), then this Warrant shall represent the right to acquire upon exercise of this Warrant such securities or property which a holder of Shares would have been entitled to receive upon such dividend or distribution, without the payment by the Holder of any additional consideration for such securities or property. 3.5 Effect of Reorganization and Asset Sales. If any (i) reorganization or ---------------------------------------- reclassification of the Common Stock (ii) consolidation or merger of the Company with or into another corporation, or (iii) sale or all or substantially all of the Company's operating assets to another corporation followed by a liquidation of the Company (any such transaction shall be referred to herein as an "Event"), is effected in such a way that holders of common Stock are entitled to receive securities and/or assets as a result of their Common Stock ownership, the Holder, upon exercise of this Warrant, shall be entitled to receive such shares of stock securities or assets which the Holder would have received had it fully exercised this Warrant on or prior the record date for such Event. The Company shall not merge into or consolidate with another corporation or sell all of its assets to another corporation for a consideration consisting primarily of securities of such corporation, unless the successor or acquiring corporation, as the case may be, shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant to be performed or observed by the Company and all of the obligations and liabilities hereunder, subject to such modification as shall be necessary to provide for adjustments which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 2. The foregoing provisions shall similarly apply to successive mergers, consolidations or sales of assets. 3.6 Adjustment of Number of Shares. Upon each adjustment in the Exercise --------------------------------- Price, the number of Shares shall be adjusted, to the nearest whole share, to the product obtained by multiplying the number of Shares, purchasable immediately prior to such adjustment by a fraction, the numerator of which shall be the Exercise Price immediately prior to such adjustment and the denominator of which shall be the Exercise Price immediately thereafter. 3.7 No Impairment. The Company shall not, by amendment of its articles of -------------- incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out all of the provisions of this Warrant and in taking all such action as may be reasonably necessary or appropriate to protect Holder's rights hereunder against impairment. If the Company takes any action affecting its Common Stock other than as described above that adversely affects Holder's rights under this Warrant, the Exercise Price shall be adjusted downward and the number of Shares issuable upon exercise of this Warrant shall be adjusted upward in such a manner that the aggregate Exercise Price of this Warrant is unchanged. 3.8 Fractional Shares. No fractional Shares shall be issuable upon the ------------------ exercise of this Warrant, and the number of Shares to be issued shall be rounded down to the nearest whole Share. 3.9 Certificate as to Adjustments. Upon any adjustment of the Exercise -------------------------------- Price, the Company, at its expense, shall compute such adjustment and furnish Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, furnish Holder a certificate setting forth the Exercise Price in effect upon the date thereof and the series of adjustments leading to such Exercise Price. 3.10 No Rights of Shareholders. This Warrant does not entitle Holder to any ------------------------- voting rights or any other rights as a shareholder of the Company prior to the exercise of Holder's right to purchase Shares as provided herein. ARTICLE 4 REPRESENTATIONS AND COVENANTS OF THE COMPANY -------------------------------------------- 4.1 Representations and Warranties. The Company hereby represents and -------------------------------- warrants to Holder that all Shares which may be issued upon the exercise of the purchase right represented by this Warrant, shall, upon issuance, be duly authorized, validly issued, fully paid and nonasessable, and free of any liens and encumbrances. 4.2 Notice of Certain Events. If the Company proposes at any time (a) to --------------------------- declare any dividend or distribution upon its Common Stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (c) to effect any reclassification or recapitalization of Common Stock; (d) to merge or consolidate with or into any other corporation, or sell, lease, license, or convey all or substantially all of its assets, or to liquidate, dissolve or wind up; or (e) offer holders of registration rights the opportunity to participate in an underwritten public offering of the Company's securities for cash, then, in connection with each such event, the Company shall give Holder (1) at least 20 days prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of Common Stock will be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (c) and (d) above; (2) in the case of the matters referred to in (c) and (d) above at least 20 days prior written notice of the date when the same will take place (and specifying the date on which the holders of Common Stock will be entitled to exchange their Common Stock for securities or other property deliverable upon the occurrence of such event); and (3) in the case of the matter referred to in (e) above, the same notice as is given to the holders of such registration rights. 4.3 Information Rights. So long as Holder holds this Warrant and/or any of ------------------ the Shares, the Company shall deliver to Holder (a) promptly after mailing, copies of all notices or other written communications to the shareholders of the Company, (b) within ninety (90) days of their availability, the annual audited financial statements of the Company certified by independent public accountants of recognized standing, and (c) within forty-five (45) days after the end of each fiscal quarter or each fiscal year, the Company's quarterly, unaudited financial statements. 4.4 Reservation of Warrant Shares. The Company has reserved and will keep ----------------------------- available, out of the authorized and unissued shares of Common Stock, the full number of shares sufficient to provide for the exercise of the rights of purchase represented by this Warrant. 4.5 Registration Rights. If Holder exercises this Warrant and purchases some ------------------- or all of the Shares, Holder shall have the Registration Rights set forth in that certain Registration Rights Agreement executed concurrently therewith. ARTICLE 5 REPRESENTATIONS AND COVENANTS OF THE HOLDER ------------------------------------------- 5.1 Private Issue. Holder understands (i) that the Shares issuable upon -------------- exercise of Holder's rights contained in the Warrant are not registered under the Act or qualified under applicable state securities laws on the ground that the issuance contemplated by the Warrant will be exempt from the registration and qualifications requirements thereof, and (ii) that the Company's reliance on such exemption is predicated on Holder's representations set forth in this Article 5. 5.2 Financial Risk. Holder has such knowledge and experience in financial --------------- and business matters as to be capable of evaluating the merits and risks of its investment and has the ability to bear the economic risks of its investment. 5.3 Risk of No Registration. Holder understands that if the Company does ----------------------- not register with the Securities and Exchange Commission pursuant to Section 12 of the Act, or file reports pursuant to Section 15(d), of the Securities Exchange Act of 1934 (the "1934 Act"), or if a registration statement covering the securities under the Act is not in effect when it desires to sell (i) the right to purchase Shares pursuant to the Warrant, or (ii) the Shares issuable upon exercise of the right to purchase, it may be required to hold such securities for an indefinite period. 5.4 Accredited Investor. Holder is an "accredited investor," as such term ------------------- is defined in Regulation D promulgated pursuant to the Act. ARTICLE 6 MISCELLANEOUS ------------- 6.1 Term. This Warrant is exercisable, in whole or in part, at any time and ---- from time to time on or after the Conversion Date and on or before the Expiration Date set forth above. 6.2 Compliance with Securities Laws on Transfer. This Warrant may not be ---------------------------------------------- transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company). The Company shall not require Holder to provide an opinion of counsel if the transfer is to an affiliate of Holder. 6.3 Transfer Procedure. Holder shall have the right without the consent of ------------------ the Company to transfer or assign in whole or in part this Warrant and the Shares issuable upon exercise of this Warrant. Holder agrees that unless there is in effect a registration statement under the Act covering the proposed transfer of all or part of this Warrant, prior to any such proposed transfer the Holder shall give written notice thereof to the Company (a "Transfer Notice"). Each Transfer Notice shall describe the manner and circumstances of the proposed transfer in reasonable detail and, if the company so requests, shall be accompanied by an opinion of legal counsel, in a form reasonably satisfactory to the Company, to the effect that the proposed transfer may be effected without registration under the Act; provided that the Company will not require opinions of counsel for transactions involving transfers to affiliates or pursuant to Rule 144 promulgated by the Securities and Exchange Commission under the act, except in unusual circumstances. 6.4 Notices, etc. All notices and other communications required or permitted ------------ hereunder shall be in writing and shall be delivered personally, or sent by telecopier machine or by a nationally recognized overnight courier service, and shall be deemed given when so delivered personally, or by telecopier machine or overnight courier service as follows: if to the Company, to: Invicta Group Inc. 9553 Harding Avenue, Suite 301 Miami Beach, FL 33154 Telephone: 305-866-6525 Facsimile: if to the Holder, to: Golden Gate Investors, Inc. 7817 Herschel Avenue, Suite 200 La Jolla, CA 92037 Telephone: 858-551-8789 Facsimile: 858-551-8779 or at such other address as the Company shall have furnished to the Holder. Each such notice or other communication shall for all purposes of this agreement be treated as effective or having been given when delivered if delivered personally, or, if sent by mail, at the earlier of its receipt or five days after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid. 6.5 Counterparts. This agreement may be executed in any number of ------------ counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. Facsimile execution shall be deemed originals. 6.6 Waiver. This Warrant and any term hereof may be changed, waived, ------ discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. 6.7 Attorneys Fees. In the event of any dispute between the parties --------------- concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys fees. 6.8 Governing Law; Jurisdiction. This Warrant shall be governed by and --------------------------- construed in accordance with the laws of the State of California, without giving effect to its principles regarding conflicts of law. Each of the parties hereto consents to the jurisdiction of the federal courts whose districts encompass any part of the City of San Diego or the state courts of the State of California sitting in the City of San Diego in connection with any dispute arising under this Warrant and hereby waives, to the maximum extent permitted by law, any objection including any objection based on forum non conveniens, to the bringing of any such proceeding in such jurisdictions. 6.9 Remedies. The Company acknowledges that a breach by it of its -------- obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transactions hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Warrant will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Warrant, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Warrant and to enforce specifically the terms and provisions hereof, without the necessity of showing economic loss and without any bond or other security being required. IN WITNESS WHEREOF, the parties hereto have duly caused this Warrant to Purchase Common Stock to be executed and delivered on the date first above written. Invicta Group Inc. Golden Gate Investors, Inc. By: __________________________ By: _________________________ Title: __________________________ Title: _________________________ APPENDIX 1 WARRANT NOTICE OF EXERCISE -------------------------- 1. The undersigned hereby elects to purchase _____ shares of the Common Stock of Invicta Group Inc. pursuant to the terms of the Warrant to Purchase Common Stock issued by Invicta Group Inc. on April ___, 2004. 2. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name as is specified below: _____________________ _____________________ _____________________ (Name and Address) 3. The undersigned makes the representations and covenants set forth in Article 5 of the Warrant to Purchase Common Stock. ___________________________ (Signature) ___________________________ (Date) EX-4.4 5 doc5.txt REGISTRATION RIGHTS AGR. W/ GOLDEN GATE REGISTRATION RIGHTS AGREEMENT Registration Rights Agreement dated as of April 27, 2004 (this "AGREEMENT") by and between Invicta Group Inc., a Nevada corporation, with principal executive offices located at 9553 Harding Avenue, Suite 301, Miami Beach, Florida 33154 (the "COMPANY"), and Golden Gate Investors, Inc. (the "INITIAL INVESTOR"). WHEREAS, upon the terms and subject to the conditions of the Securities Purchase Agreement dated as of even date herewith, by and between the Initial Investor and the Company (the "SECURITIES PURCHASE AGREEMENT"), the Company has agreed to issue and sell to the Initial Investor a Convertible Debenture (the "DEBENTURE") of the Company in the aggregate principal amount of $300,000 which, upon the terms of and subject to the conditions contained therein, is convertible into shares of the Company's Common Stock (the "COMMON STOCK") ; and WHEREAS, to induce the Initial Investor to execute and deliver the Securities Purchase Agreement, the Company has agreed to provide with respect to the Common Stock issued upon conversion of the Debenture and the Warrant Shares certain registration rights under the Securities Act; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Definitions (A) As used in this Agreement, the following terms shall have the meanings: (1) "AFFILIATE" of any specified Person means any other Person who directly, or indirectly through one or more intermediaries, is in control of, is controlled by, or is under common control with, such specified Person. For purposes of this definition, control of a Person means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person whether by contract, securities ownership or otherwise; and the terms "CONTROLLING" and "CONTROLLED" have the respective meanings correlative to the foregoing. (2) "CLOSING DATE" means the date of this Agreement. (3) "COMMISSION" means the Securities and Exchange Commission. (4) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder, or any similar successor statute. (5) "INVESTOR" means each of the Initial Investor and any transferee or assignee of Registrable Securities which agrees to become bound by all of the terms and provisions of this Agreement in accordance with Section 8 hereof. (6) "PERSON" means any individual, partnership, corporation, limited liability company, joint stock company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof. (7) "PROSPECTUS" means the prospectus (including, without limitation, any preliminary prospectus and any final prospectus filed pursuant to Rule 424(b) under the Securities Act, including any prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance on Rule 430A under the Securities Act) included in the Registration Statement, as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement and by all other amendments and supplements to such prospectus, including all material incorporated by reference in such prospectus and all documents filed after the date of such prospectus by the Company under the Exchange Act and incorporated by reference therein. (8) "PUBLIC OFFERING" means an offer registered with the Commission and the appropriate state securities commissions by the Company of its Common Stock and made pursuant to the Securities Act. (9) "REGISTRABLE SECURITIES" means the Common Stock issued or issuable (i) upon conversion or redemption of the Debenture, (ii) exercise of the Conversion Warrants (iii) pursuant to the terms and provisions of the Debenture or the Securities Purchase Agreement, (iv) in connection with any distribution, recapitalization, stock-split, stock adjustment or reorganization of the Company; provided, however, a share of Common Stock shall cease to be a -------- ------- Registrable Security for purposes of this Agreement when it no longer is a Restricted Security. (10) "REGISTRATION STATEMENT" means a registration statement of the Company filed on an appropriate form under the Securities Act providing for the registration of, and the sale on a continuous or delayed basis by the holders of, all of the Registrable Securities pursuant to Rule 415 under the Securities Act, including the Prospectus contained therein and forming a part thereof, any amendments to such registration statement and supplements to such Prospectus, and all exhibits to and other material incorporated by reference in such registration statement and Prospectus. (11) "RESTRICTED SECURITY" means any share of Common Stock issued upon conversion or redemption of the Debenture or Warrant except any such share that (i) has been registered pursuant to an effective registration statement under the Securities Act and sold in a manner contemplated by the prospectus included in such registration statement, (ii) has been transferred in compliance with the resale provisions of Rule 144 under the Securities Act (or any successor provision thereto) or is transferable pursuant to paragraph (k) of Rule 144 under the Securities Act (or any successor provision thereto) or (iii) otherwise has been transferred and a new share of Common Stock not subject to transfer restrictions under the Securities Act has been delivered by or on behalf of the Company. (12) "SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder, or any similar successor statute. (B) All capitalized terms used and not defined herein have the respective meaning assigned to them in the Securities Purchase Agreement or the Debenture. 2. Registration ------------ (A) FILING AND EFFECTIVENESS OF REGISTRATION STATEMENT. The Company shall prepare and file with the Commission as soon as practicable a Registration Statement relating to the offer and sale of the Registrable Securities and shall use its best efforts to cause the Commission to declare such Registration Statement effective under the Securities Act as promptly as practicable but in no event later than the Deadline (as defined in the Debenture). The Company shall promptly (and, in any event, no more than 24 hours after it receives comments from the Commission), notify the Buyer when and if it receives any comments from the Commission on the Registration Statement and promptly forward a copy of such comments, if they are in writing, to the Buyer. At such time after the filing of the Registration Statement pursuant to this Section 2(A) as the Commission indicates, either orally or in writing, that it has no further comments with respect to such Registration Statement or that it is willing to entertain appropriate requests for acceleration of effectiveness of such Registration Statement, the Company shall promptly, and in no event later than two (2) business days after receipt of such indication from the Commission, request that the effectiveness of such Registration Statement be accelerated within forty-eight (48) hours of the Commission's receipt of such request. The Company shall notify the Initial Investor by written notice that such Registration Statement has been declared effective by the Commission within 24 hours of such declaration by the Commission. (B) ELIGIBILITY FOR USE OF FORM S-3 OR AN SB-2. The Company agrees that at such time as it meets all the requirements for the use of Securities Act Registration Statement on Form S-3 or SB-2 and it shall file all reports and information required to be filed by it with the Commission in a timely manner and take all such other action so as to maintain such eligibility for the use of such form. (C) ADDITIONAL REGISTRATION STATEMENT. In the event the Current Market Price declines to a price per share the result of which is that the Company cannot satisfy its conversion obligations to Initial Investor hereunder, the Company shall, to the extent required by the Securities Act (because the additional shares were not covered by the Registration Statement filed pursuant to Section 2(a)), as reasonably determined by the Initial Investor, file an additional Registration Statement with the Commission for such additional number of Registrable Securities as would be issuable upon conversion of the Debenture (the "ADDITIONAL REGISTRABLE SECURITIES") in addition to those previously registered. The Company shall, to the extent required by the Securities Act, as reasonably determined by the Initial Investor, prepare and file with the Commission not later than the 30th day thereafter, a Registration Statement relating to the offer and sale of such Additional Registrable Securities and shall use its best efforts to cause the Commission to declare such Registration Statement effective under the Securities Act as promptly as practicable but not later than the Deadline. The Company shall not include any other securities in the Registration Statement relating to the offer and sale of such Additional Registrable Securities. (D) (i) If the Company proposes to register any of its warrants, Common Stock or any other shares of common stock of the Company under the Securities Act (other than a registration (A) on Form S-8 or S-4 or any successor or similar forms, (B) relating to Common Stock or any other shares of common stock of the Company issuable upon exercise of employee share options or in connection with any employee benefit or similar plan of the Company or (C) in connection with a direct or indirect acquisition by the Company of another Person or any transaction with respect to which Rule 145 (or any successor provision) under the Securities Act applies), whether or not for sale for its own account, it will each such time, give prompt written notice at least 20 days prior to the anticipated filing date of the registration statement relating to such registration to each Investor, which notice shall set forth such Investor's rights under this Section 2(D) and shall offer such Investor the opportunity to include in such registration statement such number of Registrable Securities as such Investor may request. Upon the written request of any Investor made within 10 days after the receipt of notice from the Company (which request shall specify the number of Registrable Securities intended to be disposed of by such Investor), the Company will use its best efforts to effect the registration under the Securities Act of all Registrable Securities that the Company has been so requested to register by each Investor, to the extent requisite to permit the disposition of the Registrable Securities so to be registered; provided, however, that (A) if such registration involves -------- a Public Offering, each Investor must sell its Registrable Securities to any underwriters selected by the Company with the consent of such Investor on the same terms and conditions as apply to the Company and (B) if, at any time after giving written notice of its intention to register any Registrable Securities pursuant to this Section 2 and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register such Registrable Securities, the Company shall give written notice to each Investor and, thereupon, shall be relieved of its obligation to register any Registrable Securities in connection with such registration. The Company's obligations under this Section 2(D) shall terminate on the date that the registration statement to be filed in accordance with Section 2(A) is declared effective by the Commission. (ii) If a registration pursuant to this Section 2(D) involves a Public Offering and the managing underwriter thereof advises the Company that, in its view, the number of shares of Common Stock that the Company and the Investors intend to include in such registration exceeds the largest number of shares of Common Stock that can be sold without having an adverse effect on such Public Offering (the "MAXIMUM OFFERING SIZE"), the Company will include in such registration only such number of shares of Common Stock as does not exceed the Maximum Offering Size, and the number of shares in the Maximum Offering Size shall be allocated among the Company, the Investors and any other sellers of Common Stock in such Public Offering ("THIRD-PARTY SELLERS"), first, pro rata among the Investors until all the shares of Common Stock originally proposed to be offered for sale by the Investors have been allocated, and second, pro rata among the Company and any Third-Party Sellers, in each case on the basis of the relative number of shares of Common Stock originally proposed to be offered for sale under such registration by each of the Investors, the Company and the Third-Party Sellers, as the case may be. If as a result of the proration provisions of this Section 2(D)(ii), any Investor is not entitled to include all such Registrable Securities in such registration, such Investor may elect to withdraw its request to include any Registrable Securities in such registration. With respect to registrations pursuant to this Section 2(D), the number of securities required to satisfy any underwriters' over-allotment option shall be allocated among the Company, the Investors and any Third Party Seller pro rata on the basis of the relative number of securities offered for sale under such registration by each of the Investors, the Company and any such Third Party Sellers before the exercise of such over-allotment option. 3. Obligations of the Company -------------------------- In connection with the registration of the Registrable Securities, the Company shall: (A) Promptly (i) prepare and file with the Commission such amendments (including post-effective amendments) to the Registration Statement and supplements to the Prospectus as may be necessary to keep the Registration Statement continuously effective and in compliance with the provisions of the Securities Act applicable thereto so as to permit the Prospectus forming part thereof to be current and useable by Investors for resales of the Registrable Securities for a period of five (5) years from the date on which the Registration Statement is first declared effective by the Commission (the "EFFECTIVE TIME") or such shorter period that will terminate when all the Registrable Securities covered by the Registration Statement have been sold pursuant thereto in accordance with the plan of distribution provided in the Prospectus, transferred pursuant to Rule 144 under the Securities Act or otherwise transferred in a manner that results in the delivery of new securities not subject to transfer restrictions under the Securities Act (the "REGISTRATION PERIOD") and (ii) take all lawful action such that each of (A) the Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, not misleading and (B) the Prospectus forming part of the Registration Statement, and any amendment or supplement thereto, does not at any time during the Registration Period include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (B) During the Registration Period, comply with the provisions of the Securities Act with respect to the Registrable Securities of the Company covered by the Registration Statement until such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition by the Investors as set forth in the Prospectus forming part of the Registration Statement; (C) (i) Prior to the filing with the Commission of any Registration Statement (including any amendments thereto) and the distribution or delivery of any Prospectus (including any supplements thereto), provide (A) draft copies thereof to the Investors and reflect in such documents all such comments as the Investors (and their counsel) reasonably may propose and (B) to the Investors a copy of the accountant's consent letter to be included in the filing and (ii) furnish to each Investor whose Registrable Securities are included in the Registration Statement and its legal counsel identified to the Company, (A) promptly after the same is prepared and publicly distributed, filed with the Commission, or received by the Company, one copy of the Registration Statement, each Prospectus, and each amendment or supplement thereto and (B) such number of copies of the Prospectus and all amendments and supplements thereto and such other documents, as such Investor may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Investor; (D) (i) Register or qualify the Registrable Securities covered by the Registration Statement under such securities or "blue sky" laws of such jurisdictions as the Investors who hold a majority-in-interest of the Registrable Securities being offered reasonably request, (ii) prepare and file in such jurisdictions such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof at all times during the Registration Period, (iii) take all such other lawful actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period and (iv) take all such other lawful actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the -------- ------- Company shall not be required in connection therewith or as a condition thereto to (A) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(D), (B) subject itself to general taxation in any such jurisdiction or (C) file a general consent to service of process in any such jurisdiction; (E) As promptly as practicable after becoming aware of such event, notify each Investor of the occurrence of any event, as a result of which the Prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and promptly prepare an amendment to the Registration Statement and supplement to the Prospectus to correct such untrue statement or omission, and deliver a number of copies of such supplement and amendment to each Investor as such Investor may reasonably request; (F) As promptly as practicable after becoming aware of such event, notify each Investor who holds Registrable Securities being sold (or, in the event of an underwritten offering, the managing underwriters) of the issuance by the Commission of any stop order or other suspension of the effectiveness of the Registration Statement at the earliest possible time and take all lawful action to effect the withdrawal, rescission or removal of such stop order or other suspension; (G) Cause all the Registrable Securities covered by the Registration Statement to be listed on the principal national securities exchange, and included in an inter-dealer quotation system of a registered national securities association, on or in which securities of the same class or series issued by the Company are then listed or included; (H) Maintain a transfer agent and registrar, which may be a single entity, for the Registrable Securities not later than the effective date of the Registration Statement; (I) Cooperate with the Investors who hold Registrable Securities being offered to facilitate the timely preparation and delivery of certificates for the Registrable Securities to be offered pursuant to the registration statement and enable such certificates for the Registrable Securities to be in such denominations or amounts, as the case may be, as the Investors reasonably may request and registered in such names as the Investor may request; and, within three (3) business days after a registration statement which includes Registrable Securities is declared effective by the Commission, deliver and cause legal counsel selected by the Company to deliver to the transfer agent for the Registrable Securities (with copies to the Investors whose Registrable Securities are included in such registration statement) an appropriate instruction and, to the extent necessary, an opinion of such counsel; (J) Take all such other lawful actions reasonably necessary to expedite and facilitate the disposition by the Investors of their Registrable Securities in accordance with the intended methods therefor provided in the Prospectus which are customary under the circumstances; (K) Make generally available to its security holders as soon as practicable, but in any event not later than three (3) months after (i) the effective date (as defined in Rule 158(c) under the Securities Act) of the Registration Statement and (ii) the effective date of each post-effective amendment to the Registration Statement, as the case may be, an earnings statement of the Company and its subsidiaries complying with Section 11 (a) of the Securities Act and the rules and regulations of the Commission thereunder (including, at the option of the Company, Rule 158); (L) In the event of an underwritten offering, promptly include or incorporate in a Prospectus supplement or post-effective amendment to the Registration Statement such information as the managers reasonably agree should be included therein and to which the Company does not reasonably object and make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after it is notified of the matters to be included or incorporated in such Prospectus supplement or post-effective amendment; (M) (i) Make reasonably available for inspection by Investors, any underwriter participating in any disposition pursuant to the Registration Statement, and any attorney, accountant or other agent retained by such Investors or any such underwriter all relevant financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries, and (ii) cause the Company's officers, directors and employees to supply all information reasonably requested by such Investors or any such underwriter, attorney, accountant or agent in connection with the Registration Statement, in each case, as is customary for similar due diligence examinations; provided, however, that all records, information and -------- ------- documents that are designated in writing by the Company, in good faith, as confidential, proprietary or containing any material nonpublic information shall be kept confidential by such Investors and any such underwriter, attorney, accountant or agent (pursuant to an appropriate confidentiality agreement in the case of any such holder or agent), unless such disclosure is made pursuant to judicial process in a court proceeding (after first giving the Company an opportunity promptly to seek a protective order or otherwise limit the scope of the information sought to be disclosed) or is required by law, or such records, information or documents become available to the public generally or through a third party not in violation of an accompanying obligation of confidentiality; and provided, further, that, if -------- ------- the foregoing inspection and information gathering would otherwise disrupt the Company's conduct of its business, such inspection and information gathering shall, to the maximum extent possible, be coordinated on behalf of the Investors and the other parties entitled thereto by one firm of counsel designated by and on behalf of the majority in interest of Investors and other parties; (N) In connection with any underwritten offering, make such representations and warranties to the Investors participating in such underwritten offering and to the managers, in form, substance and scope as are customarily made by the Company to underwriters in secondary underwritten offerings; (O) In connection with any underwritten offering, obtain opinions of counsel to the Company (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managers) addressed to the underwriters, covering such matters as are customarily covered in opinions requested in secondary underwritten offerings (it being agreed that the matters to be covered by such opinions shall include, without limitation, as of the date of the opinion and as of the Effective Time of the Registration Statement or most recent post-effective amendment thereto, as the case may be, the absence from the Registration Statement and the Prospectus, including any documents incorporated by reference therein, of an untrue statement of a material fact or the omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in light of the circumstances under which they were made) not misleading, subject to customary limitations); (P) In connection with any underwritten offering, obtain "cold comfort" letters and updates thereof from the independent public accountants of the Company (and, if necessary, from the independent public accountants of any subsidiary of the Company or of any business acquired by the Company, in each case for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to each underwriter participating in such underwritten offering (if such underwriter has provided such letter, representations or documentation, if any, required for such cold comfort letter to be so addressed), in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with secondary underwritten offerings; (Q) In connection with any underwritten offering, deliver such documents and certificates as may be reasonably required by the managers, if any, and (R) In the event that any broker-dealer registered under the Exchange Act shall be an "AFFILIATE" (as defined in Rule 2729(b)(1) of the rules and regulations of the National Association of Securities Dealers, Inc. (the "NASD RULES") (or any successor provision thereto)) of the Company or has a "CONFLICT OF INTEREST" (as defined in Rule 2720(b)(7) of the NASD Rules (or any successor provision thereto)) and such broker-dealer shall underwrite, participate as a member of an underwriting syndicate or selling group or assist in the distribution of any Registrable Securities covered by the Registration Statement, whether as a holder of such Registrable Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, the Company shall assist such broker-dealer in complying with the requirements of the NASD Rules, including, without limitation, by (A) engaging a "QUALIFIED INDEPENDENT UNDERWRITER" (as defined in Rule 2720(b)(15) of the NASD Rules (or any successor provision thereto)) to participate in the preparation of the Registration Statement relating to such Registrable Securities, to exercise usual standards of due diligence in respect thereof and to recommend the public offering price of such Registrable Securities, (B) indemnifying such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 6 hereof and (C) providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the NASD Rules. 4. Obligations of the Investors ---------------------------- In connection with the registration of the Registrable Securities, the Investors shall have the following obligations: (A) It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities of a particular Investor that such Investor shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request; (B) Each Investor by its acceptance of the Registrable Securities agrees to cooperate with the Company in connection with the preparation and filing of the Registration Statement hereunder, unless such Investor has notified the Company in writing of its election to exclude all of its Registrable Securities from the Registration Statement; and (C) Each Investor agrees that, upon receipt of any notice from the Company of the occurrence of any event of the kind described in Section 3(E) or 3(F), it shall immediately discontinue its disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such Investor's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3(E) and, if so directed by the Company, such Investor shall deliver to the Company (at the expense of the Company) or destroy (and deliver to the Company a certificate of destruction) all copies in such Investor's possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice. 5. Expenses of Registration ------------------------ All expenses, other than underwriting discounts and commissions, incurred in connection with registrations, filings or qualifications pursuant to Section 3, but including, without limitation, all registration, listing, and qualifications fees, printing and engraving fees, accounting fees, and the fees and disbursements of counsel for the Company, and the reasonable fees of one firm of counsel to the holders of a majority in interest of the Registrable Securities shall be borne by the Company. 6. Indemnification and Contribution -------------------------------- (A) INDEMNIFICATION BY THE COMPANY. The Company shall indemnify and hold harmless each Investor and each underwriter, if any, which facilitates the disposition of Registrable Securities, and each of their respective officers and directors and each person who controls such Investor or underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (each such person being sometimes hereinafter referred to as an "INDEMNIFIED PERSON") from and against any losses, claims, damages or liabilities, joint or several, to which such Indemnified Person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement of a material fact contained in any Registration Statement or an omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, not misleading, or arise out of or are based upon an untrue statement of a material fact contained in any Prospectus or an omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and the Company hereby agrees to reimburse such Indemnified Person for all reasonable legal and other expenses incurred by them in connection with investigating or defending any such action or claim as and when such expenses are incurred; provided, -------- however, that the Company shall not be liable to any such Indemnified ------- Person in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon (i) an untrue statement or alleged untrue statement made in, or an omission or alleged omission from, such Registration Statement or Prospectus in reliance upon and in conformity with written information furnished to the Company by such Indemnified Person expressly for use therein or (ii) in the case of the occurrence of an event of the type specified in Section 3(E), the use by the Indemnified Person of an outdated or defective Prospectus after the Company has provided to such Indemnified Person an updated Prospectus correcting the untrue statement or alleged untrue statement or omission or alleged omission giving rise to such loss, claim, damage or liability. (B) NOTICE OF CLAIMS, ETC. Promptly after receipt by a party seeking indemnification pursuant to this Section 6 (an "INDEMNIFIED PARTY") of written notice of any investigation, claim, proceeding or other action in respect of which indemnification is being sought (each, a "CLAIM"), the Indemnified Party promptly shall notify the party against whom indemnification pursuant to this Section 6 is being sought (the "INDEMNIFYING PARTY") of the commencement thereof; but the omission to so notify the Indemnifying Party shall not relieve it from any liability that it otherwise may have to the Indemnified Party, except to the extent that the Indemnifying Party is materially prejudiced and forfeits substantive rights and defenses by reason of such failure. In connection with any Claim as to which both the Indemnifying Party and the Indemnified Party are parties, the Indemnifying Party shall be entitled to assume the defense thereof. Notwithstanding the assumption of the defense of any Claim by the Indemnifying Party, the Indemnified Party shall have the right to employ separate legal counsel and to participate in the defense of such Claim, and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs and expenses of such separate legal counsel to the Indemnified Party if (and only if): (x) the Indemnifying Party shall have agreed to pay such fees, costs and expenses, (y) the Indemnified Party and the Indemnifying Party shall reasonably have concluded that representation of the Indemnified Party by the Indemnifying Party by the same legal counsel would not be appropriate due to actual or, as reasonably determined by legal counsel to the Indemnified Party, potentially differing interests between such parties in the conduct of the defense of such Claim, or if there may be legal defenses available to the Indemnified Party that are in addition to or disparate from those available to the Indemnifying Party or (z) the Indemnifying Party shall have failed to employ legal counsel reasonably satisfactory to the Indemnified Party within a reasonable period of time after notice of the commencement of such Claim. If the Indemnified Party employs separate legal counsel in circumstances other than as described in clauses (x), (y) or (z) above, the fees, costs and expenses of such legal counsel shall be borne exclusively by the Indemnified Party. Except as provided above, the Indemnifying Party shall not, in connection with any Claim in the same jurisdiction, be liable for the fees and expenses of more than one firm of counsel for the Indemnified Party (together with appropriate local counsel). The Indemnified Party shall not, without the prior written consent of the Indemnifying Party (which consent shall not unreasonably be withheld), settle or compromise any Claim or consent to the entry of any judgment that does not include an unconditional release of the Indemnifying Party from all liabilities with respect to such Claim or judgment. (C) CONTRIBUTION. If the indemnification provided for in this Section 6 is unavailable to or insufficient to hold harmless an Indemnified Person under subsection (A) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and the Indemnified Party in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such Indemnifying Party or by such Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 6(D) were determined by pro rata allocation (even if the Investors or any underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 6(D). The amount paid or payable by an Indemnified Party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The obligations of the Investors and any underwriters in this Section 6(D) to contribute shall be several in proportion to the percentage of Registrable Securities registered or underwritten, as the case may be, by them and not joint. (D) Notwithstanding any other provision of this Section 6, in no event shall any (i) Investor be required to undertake liability to any person under this Section 6 for any amounts in excess of the dollar amount of the proceeds to be received by such Investor from the sale of such Investor's Registrable Securities (after deducting any fees, discounts and commissions applicable thereto) pursuant to any Registration Statement under which such Registrable Securities are to be registered under the Securities Act and (ii) underwriter be required to undertake liability to any Person hereunder for any amounts in excess of the aggregate discount, commission or other compensation payable to such underwriter with respect to the Registrable Securities underwritten by it and distributed pursuant to the Registration Statement. (E) The obligations of the Company under this Section 6 shall be in addition to any liability which the Company may otherwise have to any Indemnified Person and the obligations of any Indemnified Person under this Section 6 shall be in addition to any liability which such Indemnified Person may otherwise have to the Company. The remedies provided in this Section 6 are not exclusive and shall not limit any rights or remedies which may otherwise be available to an indemnified party at law or in equity. 7. Rule 144 -------- With a view to making available to the Investors the benefits of Rule 144 under the Securities Act or any other similar rule or regulation of the Commission that may at any time permit the Investors to sell securities of the Company to the public without registration ("RULE 144"), the Company agrees to use its best efforts to: (1) comply with the provisions of paragraph (c) (1) of Rule 144 and (2) file with the Commission in a timely manner all reports and other documents required to be filed by the Company pursuant to Section 13 or 15(d) under the Exchange Act; and, if at any time it is not required to file such reports but in the past had been required to or did file such reports, it will, upon the request of any Investor, make available other information as required by, and so long as necessary to permit sales of, its Registrable Securities pursuant to Rule 144. 8. Assignment ---------- The rights to have the Company register Registrable Securities pursuant to this Agreement shall be automatically assigned by the Investors to any permitted transferee of all or any portion of such Registrable Securities (or all or any portion of the Debenture or Warrant of the Company which is convertible into such securities) only if (a) the Investor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment, (b) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (i) the name and address of such transferee or assignee and (ii) the securities with respect to which such registration rights are being transferred or assigned, (c) immediately following such transfer or assignment, the securities so transferred or assigned to the transferee or assignee constitute Restricted Securities and (d) at or before the time the Company received the written notice contemplated by clause (b) of this sentence the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein. 9. Amendment and Waiver -------------------- Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and Investors who hold a majority-in-interest of the Registrable Securities. Any amendment or waiver effected in accordance with this Section 9 shall be binding upon each Investor and the Company. 10. Changes in Common Stock ----------------------- If, and as often as, there are any changes in the Common Stock by way of stock split, stock dividend, reverse split, combination or reclassification, or through merger, consolidation, reorganization or recapitalization, or by any other means, appropriate adjustment shall be made in the provisions hereof, as may be required, so that the rights and privileges granted hereby shall continue with respect to the Common Stock as so changed. 11. Miscellaneous ------------- (A) A person or entity shall be deemed to be a holder of Registrable Securities whenever such person or entity owns of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more persons or entities with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities. (B) If, after the date hereof and prior to the Commission declaring the Registration Statement to be filed pursuant to Section 2(a) effective under the Securities Act, the Company grants to any Person any registration rights with respect to any Company securities which are more favorable to such other Person than those provided in this Agreement, then the Company forthwith shall grant (by means of an amendment to this Agreement or otherwise) identical registration rights to all Investors hereunder. (C) Except as may be otherwise provided herein, any notice or other communication or delivery required or permitted hereunder shall be in writing and shall be delivered personally, or sent by telecopier machine or by a nationally recognized overnight courier service, and shall be deemed given when so delivered personally, or by telecopier machine or overnight courier service as follows: (1) if to the Company, to: Invicta Group Inc. 9553 Harding Avenue, Suite 301 Miami Beach, FL 33154 Telephone: 305-866-6525 Facsimile: (2) if to the Investor, to: Golden Gate Investors, Inc. 7817 Herschel Avenue, Suite 200 La Jolla, California 92037 Telephone: 858-551-8789 Facsimile: 858-551-8779 (3) if to any other Investor, at such address as such Investor shall have provided in writing to the Company. The Company, the Initial Investor or any Investor may change the foregoing address by notice given pursuant to this Section 11(C). (D) Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. (E) This Agreement shall be governed by and interpreted in accordance with the laws of the State of California. Each of the parties consents to the jurisdiction of the federal courts whose districts encompass any part of the City of San Diego or the state courts of the State of California sitting in the City of San Diego in connection with any dispute arising under this Agreement and hereby waives, to the maximum extent permitted by law, any objection including any objection based on forum non conveniens, to the bringing of any such proceeding in such jurisdictions. (F) Should any party hereto employ an attorney for the purpose of enforcing or construing this Agreement, or any judgment based on this Agreement, in any legal proceeding whatsoever, including insolvency, bankruptcy, arbitration, declaratory relief or other litigation, the prevailing party shall be entitled to receive from the other party or parties thereto reimbursement for all reasonable attorneys' fees and all reasonable costs, including but not limited to service of process, filing fees, court and court reporter costs, investigative costs, expert witness fees, and the cost of any bonds, whether taxable or not, and that such reimbursement shall be included in any judgment or final order issued in that proceeding. The "prevailing party" means the party determined by the court to most nearly prevail and not necessarily the one in whose favor a judgment is rendered. (G) The remedies provided in this Agreement are cumulative and not exclusive of any remedies provided by law. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (H) The Company shall not enter into any agreement with respect to its securities that is inconsistent with the rights granted to the holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. The Company is not currently a party to any agreement granting any registration rights with respect to any of its securities to any person which conflicts with the Company's obligations hereunder or gives any other party the right to include any securities in any Registration Statement filed pursuant hereto, except for such rights and conflicts as have been irrevocably waived. Without limiting the generality of the foregoing, without the written consent of the holders of a majority in interest of the Registrable Securities, the Company shall not grant to any person the right to request it to register any of its securities under the Securities Act unless the rights so granted are subject in all respect to the prior rights of the holders of Registrable Securities set forth herein, and are not otherwise in conflict or inconsistent with the provisions of this Agreement. The restrictions on the Company's rights to grant registration rights under this paragraph shall terminate on the date the Registration Statement to be filed pursuant to Section 2(A) is declared effective by the Commission. (I) This Agreement, the Securities Purchase Agreement, the Debenture and the Conversion Warrants Agreement, of even date herewith among the Company and the Initial Investor constitute the entire agreement among the parties hereto with respect to the subject matter hereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein. These Agreements supersede all prior agreements and undertakings among the parties hereto with respect to the subject matter hereof. (J) Subject to the requirements of Section 8 hereof, this Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto. (K) All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require. (L) The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning thereof. (M) The Company acknowledges that any failure by the Company to perform its obligations under Section 3, or any delay in such performance, could result in direct damages to the Investors and the Company agrees that, in addition to any other liability the Company may have by reason of any such failure or delay, the Company shall be liable for all direct damages caused by such failure or delay. (N) This Agreement may be executed in counterparts, each of which shall be deemed an original but both of which shall constitute one and the same agreement. A facsimile transmission of this signed Agreement shall be legal and binding on the parties hereto. IN WITNESS WHEREOF, the parties hereto have duly caused this Agreement to be executed and delivered on the date first above written. Invicta Group Inc. By: Name: Title: Golden Gate Investors, Inc. By: Name: Title: EX-5.1 6 doc6.txt LEGAL OPINION EXHIBIT 5.1 SICHENZIA ROSS FRIEDMAN FERENCE LLP 1065 Avenue of the Americas, 21st Flr. New York, NY 10018 Telephone: (212) 930-9700 Facsimile: (212) 930-9725 May 27, 2004 VIA ELECTRONIC TRANSMISSION Securities and Exchange Commission 450 Fifth Street, N.W. Washington, DC 20549 RE: INVICTA GROUP INC. FORM SB-2 REGISTRATION STATEMENT (FILE NO. 333-_______) ------------------------------------------------------- Ladies and Gentlemen: We refer to the above-captioned registration statement on Form SB-2 (the "Registration Statement") under the Securities Act of 1933, as amended (the "Act"), filed by Invicta Group Inc., a Nevada corporation (the "Company"), with the Securities and Exchange Commission. We have examined the originals, photocopies, certified copies or other evidence of such records of the Company, certificates of officers of the Company and public officials, and other documents as we have deemed relevant and necessary as a basis for the opinion hereinafter expressed. In such examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as certified copies or photocopies and the authenticity of the originals of such latter documents. Based on our examination mentioned above, we are of the opinion that the securities being sold pursuant to the Registration Statement, including up to 65,750,000 shares of common stock underlying convertible debentures and up to 3,000,000 shares of common stock underlying common stock purchase warrants, are duly authorized and will be, when issued in the manner described in the Registration Statement, legally and validly issued, fully paid and non-assessable. We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement and to the reference to our firm under "Legal Matters" in the related Prospectus. In giving the foregoing consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the Act, or the rules and regulations of the Securities and Exchange Commission. /s/ Sichenzia Ross Friedman Ference LLP - -------------------------------------------- Sichenzia Ross Friedman Ference LLP EX-23.1 7 doc7.txt CONSENT OF LARRY WOLFE, CPA EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS ------------------------------- As independent certified public accountants of Invicta Group Inc., we hereby consent to the reference to our firm under the caption "Experts" and to the use of our report dated April 13, 2004 in the Registration Statement (Form SB-2) filed with the Securities and Exchange Commission. /s/ Larry Wolfe CPA - ---------------------- Larry Wolfe, CPA Miami, Florida May 27, 2004 EX-23.2 8 doc8.txt CONSENT OF DRESLIN FINANCIAL SERVICES EXHIBIT 23.2 CONSENT OF INDEPENDENT AUDITORS ------------------------------- As independent certified public accountants of Invicta Group Inc., we hereby consent to the reference to our firm under the caption "Experts" and to the use of our report dated April 4, 2003, and July 11, 2003 for Note 13, in the Registration Statement (Form SB-2) filed with the Securities and Exchange Commission. /s/ Dreslin Financial Services - --------------------------------- Dreslin Financial Services Pittsburgh, Pennsylvania May 27, 2004 EX-23.3 9 doc9.txt CONSENT OF STELMACK DOBRANSKY EXHIBIT 23.3 CONSENT OF INDEPENDENT AUDITORS ------------------------------- As independent certified public accountants of Airplan, Inc., we hereby consent to the reference to our firm under the caption "Experts" and to the use of our report dated March 18, 2004 in the Registration Statement (Form SB-2) filed with the Securities and Exchange Commission. /s/ STELMACK DOBRANSKY & EANNACE, LLC - ------------------------------------------ STELMACK DOBRANSKY & EANNACE, LLC Pittsburgh, Pennsylvania May 27, 2004 -----END PRIVACY-ENHANCED MESSAGE-----