<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the Quarter ended September 30, 2000 Commission File No.33-27652-NY
INVICTA CORPORATION
(FORMERLY BUSINESSNET HOLDINGS CORP.)
(Exact name of registrant as specified in its charter)
DELAWARE 22-2946374
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification Number)
1121 HOLLAND DRIVE, BOCA RATON, FL 33496
--------------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, (561) 995 - 9980
-----------------------
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934,
during the preceding 12 months (or for shorter period that the registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes: / / No: /X/
Transitional Small Business Disclosure Format:
Yes: / / No: /X/
The number of shares outstanding of each of the registrant's classes of common
stock as of November 14, 2000 is of one class of $.01 par value common stock was
6,073,965.
<PAGE>
INVICTA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY BUSINESSNET HOLDINGS CORP.)
INDEX
PAGE
PART I FINANCIAL INFORMATION
Consolidated Balance Sheet - September 30, 2000 1
Consolidated Statements of Operations - Three Months
Ended September 30, 1999 and 2000 2
Consolidated Statements of Operations - Nine Months
Ended September 30, 1999 and 2000 3
Consolidated Statement of Cash Flows - Nine Months
Ended September 30, 1999 and 2000 4
Notes to the Consolidated Financial Statements 5
Management's Discussion and Analysis of Financial
Conditions and Results of Operations 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of
Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Signature Page 21
<PAGE>
INVICTA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY BUSINESSNET HOLDINGS CORP.)
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Current assets
Cash $ 382,611
Accounts receivable, net of allowance of $0 184,821
Inventory 222,571
Prepaid expenses and other current assets 292,290
------------
Total current assets 1,082,293
Fixed assets, net of accumulated depreciation of $36,663 704,607
------------
Patents and other intangibles, net of accumulated
amortization of $312,919 7,186,336
------------
OTHER ASSETS
Investment in WHYWAIT.com, Inc. common stock,
80,000 shares at cost, held for investment 107,500
Investment in Linuxlabs, Inc. 6% convertible
preferred stock, at cost, held for investment 300,000
Investment in unconsolidated subsidiary,
Sunrise Television, Inc., equity method 1,722,366
Entertainment assets, production rights and inventory 646,795
Deposits and other assets 30,729
------------
Total other assets 2,807,390
------------
TOTAL ASSETS 11,780,626
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses 587,900
Short-term bank debt 88,910
Other current liabilities 29,998
Acquisition note payable 150,000
------------
Total current liabilities 856,808
Short term note, expected to convert to equity 500,000
------------
Minority interest 439,863
------------
Stockholders' Equity
Common Stock, $.01 par value, 50,000,000
shares authorized; 6,073,965 issued
and outstanding at September 30, 2000 60,740
Additional Paid-In Capital 13,774,896
Preferred Stock 300,000
Retained Deficit Subsequent to Reorganization (1-1-98) (4,151,681)
------------
Total Stockholders' Equity 9,983,955
------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 11,780,626
============
</TABLE>
See notes to the consolidated financial statements.
1
<PAGE>
INVICTA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY BUSINESSNET HOLDINGS CORP.)
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
From
January 1,
1998
(Date of
For the Reorganization)
Three Months Ended to
September 30, September 30,
1999 2000 2000
----------- ----------- -----------
<S> <C> <C> <C>
Revenue - Eyewear components $ -- $ 399,183 $ 510,398
----------- ----------- -----------
Direct operating expenses, including
research and development expenses
of $6,300 from inception and during
the quarter ended June 30, 2000 -- 181,484 255,428
Selling, general and administrative
expenses 105,739 1,142,426 2,680,202
Depreciation and amortization 100 163,167 349,582
Non-cash charges for stock-based
compensation -- -- 1,351,575
----------- ----------- -----------
Total expenses 105,839 1,487,077 4,636,787
----------- ----------- -----------
Loss from operations (105,839) (1,087,894) (4,126,389)
Other income (expenses)
Interest expense -- -- (7,659)
(Loss) income from unconsolidated
subsidiary -- (15,061) (17,633)
----------- ----------- -----------
Loss before income taxes (105,839) (1,102,955) (4,151,681)
Income taxes -- -- --
----------- ----------- -----------
Net Loss $ (105,839) $(1,102,955) $(4,151,681)
=========== =========== ===========
Loss per share $ (.05) $ (.19)
=========== ===========
Average shares outstanding 1,949,080 5,834,541
=========== ===========
</TABLE>
See notes to the consolidated financial statements.
2
<PAGE>
INVICTA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY BUSINESSNET HOLDINGS CORP.)
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
From
January 1,
1998
(Date of
For the Reorganization)
Nine Months Ended to
September 30, September 30,
1999 2000 2000
----------- ----------- -----------
<S> <C> <C> <C>
Revenue - Eyewear components $ -- $ 510,398 $ 510,398
----------- ----------- -----------
Direct operating expenses, including
research and development expenses
of $6,300 from inception and during
the quarter ended June 30, 2000 -- 255,428 255,428
Selling, general and administrative
expenses 124,739 2,481,053 2,680,202
Depreciation and amortization 100 349,277 349,582
Non-cash charges for stock-based
compensation -- 55,000 1,351,575
----------- ----------- -----------
Total expenses 124,839 3,140,758 4,636,787
----------- ----------- -----------
Loss from operations (124,839) (2,630,360) (4,126,389)
Other income (expenses)
Interest expense -- (7,659) (7,659)
(Loss) income from unconsolidated
subsidiary -- (17,633) (17,633)
----------- ----------- -----------
Loss before income taxes (124,839) (2,655,652) (4,151,681)
Income taxes -- -- --
----------- ----------- -----------
Net Loss $ (124,839) $(2,655,652) $(4,151,681)
=========== =========== ===========
Loss per share $ (.08) $ (.51)
=========== ===========
Average shares outstanding 1,638,786 5,173,359
=========== ===========
</TABLE>
See notes to the consolidated financial statements.
3
<PAGE>
INVICTA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY BUSINESSNET HOLDINGS CORP.)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
From
January 1,
1998
(Date of
For the Reorganization)
Nine Months Ended to
September 30, September 30,
1999 2000 2000
----------- ----------- -----------
Operating Activities
Cash Flows From Operating Activities:
<S> <C> <C> <C>
Net income (loss) $ (124,839) $(2,655,652) $(4,151,681)
Adjustments for non-cash items
Issuance of common stock for services 40,000 270,063 1,566,638
Depreciation and amortization 100 349,277 349,582
Changes in assets and liabilities
Increase in accounts payable and
accrued expenses 23,195 117,090 174,583
(Increase) in inventory and other
assets (41,795) (53,953) (95,748)
(Increase) in prepaid expenses -- (292,290) (292,290)
----------- ----------- -----------
Net cash (used in) operations (103,340) (2,265,465) (2,448,916)
----------- ----------- -----------
Cash Flows (Used In) Investing Activities:
Shared production rights and syndication
costs (3,046) -- (605,000)
Purchases of fixed assets (535,790) (665,687) (668,733)
----------- ----------- -----------
Net cash (used in) investing
activities (538,836) (665,687) (1,273,733)
----------- ----------- -----------
Cash Flows From Financing Activities:
Proceeds from the issue of common stock,
including consolidated subsidiaries 508,000 3,313,613 4,104,613
----------- ----------- -----------
Net cash from financing activities 508,000 3,313,613 4,104,613
----------- ----------- -----------
Net increase (decrease) in cash (134,177) 382,461 381,964
Cash, beginning of period 135,500 150 647
----------- ----------- -----------
Cash, end of period $ 1,232 $ 382,611 $ 382,611
=========== =========== ===========
</TABLE>
See notes to the consolidated financial statements.
4
<PAGE>
INVICTA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY BUSINESSNET HOLDINGS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
NOTE A. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
NATURE OF OPERATIONS - Invicta Corporation (the "Company") is a holding company
which primarily operates subsidiaries in the optical industry which offer unique
processes and applications which are proprietary and/or patented in nature.
Previously, the Company held various subsidiaries which were designed to
capitalize on the emergence of the internet, including its subsidiaries,
Omnicast Corporation and Sunrise Entertainment. The Company has agreed to
spin-off its Sunrise subsidiary and is seeking a candidate to co-venture or
otherwise spin-off or sell its entertainment assets so it can focus on its
optical industry properties. In connection with the Company's new singular
focus, we changed our name to Invicta Corporation, effective June 30, 2000.
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 10QSB 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 September 30, 2000 are not necessarily
indicative of the results that may be expected for a full fiscal year. For
further information, refer to the financial statements and footnotes thereto
included in the Registrant Company annual report on form 10-KSB for the year
ended December 31, 1999.
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 and liabilities at
the dates of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
RECLASSIFICATIONS - Certain reclassifications have been made in the prior period
condensed consolidated financial statements to conform to the current
presentation.
EARNINGS PER SHARE - The Company computes earnings per share in accordance with
SFAS No. 128, "EARNINGS PER SHARE". Basic EPS excludes dilution and is computed
by dividing income available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock that then shared in the earnings of the entity. Common equivalent
shares have been excluded from the computation of diluted EPS since their affect
is antidilutive.
Loss per share are based on the weighted average shares outstanding for all
periods presented giving retroactive recognition for reverse stock split of 1
share for each 50 shares held on August 1, 1998 and the stock dividend in July,
1999 of 917,482 shares for both periods presented.
RESEARCH AND DEVELOPMENT - Research and development costs are charged to
operations as incurred.
5
<PAGE>
INVICTA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY BUSINESSNET HOLDINGS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
REVENUE RECOGNITION - As required, the Company has adopted the Securities and
Exchange Commission ("SEC") Staff Accounting Bulletin "(SAB") No. 101, REVENUE
RECOGNITION IN FINANCIAL STATEMENTS, which provides guidance on applying
generally accepted accounting principles to revenue recognition based on the
interpretations and practices of the SEC. The Company recognizes revenue for
its products in accordance with SAB No. 101.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - In June 2000, the FASB issued SFAS
No. 138, ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING
ACTIVITIES, which amends the accounting and reporting standards of SFAS No.
133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, for certain
derivative instruments and hedging activities. SFAS No. 133, was previously
amended by SFAS No. 137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES - DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT NO. 133, which
deferred the effective date of SFAS No. 133 to fiscal years commencing after
June 15, 2000. The Company will adopt SFAS No. 138 concurrently with SFAS No.
133, however, management does not believe that such adoptions will have a
material impact on the Company's results of operations.
In March 2000, the FASB issued Interpretation (FIN) No. 44, "ACCOUNTING FOR
CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION - AN INTERPRETATION OF APB
OPINION NO. 25" "FIN 44 clarifies the definition of employees, the criteria for
determining whether a plan qualifies as a non-compensatory plan, the accounting
consequences of various modifications of the terms of a previously fixed stock
option or award and the accounting for an exchange of stock compensation awards
in a business combination. FIN 44 is effective July 1, 2000, but certain
conclusions of the Interpretation cover specific events that occurred after
either December 15, 1998 or January 12, 2000. The Company adopted the provisions
of FIN 44 as of July 1, 2000.
NOTE B. RELATED PARTY TRANSACTIONS
During 1999, the Company leased its administration offices from the Company's
president for $500 on a monthly basis, of which $3,000 was included in expense
for the nine months ended September 30, 1999.
During 2000, the Company paid legal fees through the issuance of common stock to
its prior president and different attorneys, whom were already shareholders,
valued at $215,063 for the nine months ended September 30, 2000.
6
<PAGE>
INVICTA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY BUSINESSNET HOLDINGS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
NOTE C. INVESTMENTS IN UNCONSOLIDATED ENTITIES
At March 3, 2000, the Company's investments in WhyWait.com F/K/A Docunet, Inc.
and Linuxlabs, Inc. are carried at cost. These companies are privately held and
although both contemplate completing their initial public offering or another
capital event in 2000, no quoted market for their common or preferred stock is
available. Additionally, both WhyWait.com and Linuxlabs have a limited operating
history and no public financial information is available at this time.
Management believes its interest, as convertible to common shares, in each
company, will exceed the carrying value when these company's become publicly
traded.
Effective January 6, 2000, the Company acquired a 40% interest in Sunrise
Entertainment, Inc. for a total of 870,000 shares of the Company's common stock
and other consideration valued at $1,740,000. The Company accounts for this
investment under the equity method. Included in the Statement of Operations for
the nine months ended September 30,2000 is $17,634 of the Company's share of the
loss from this unconsolidated subsidiary.
NOTE D. PURCHASE OF SUBSIDIARIES
EYE AMERICA, INC.
On January 31, 2000, the Company issued 1,925,000 shares of its common stock and
other cash consideration, as amended, in exchange for all of the issued and
outstanding shares of Eye America, Inc., (formerly Chemko), a Florida
corporation. The transaction is an acquisition accounted for as a purchase of
Eye America, Inc. pursuant to APB 16. The excess (approximately $6,087,766) of
the total acquisition cost over the recorded value of assets acquired was
allocated to patents and will be amortized over sixteen years effective January
31, 2000. Pursuant to the agreement of merger, Eye America, Inc. had become a
wholly owned subsidiary. During the quarters ended June 30, 2000 and September
30, 2000, the Company's Eye America subsidiary issued shares to private
investors for proceeds of approximately $3,000,000 creating a minority interest
and subsequent to September 30, 2000, the Company agreed to issue 500,833 shares
of Invicta stock to these shareholders eliminating the minority interest in this
subsidiary.
TRUE-LITE, INC.
Effective May 1, 2000, the Company issued 200,000 shares of its common stock and
other cash consideration in exchange for all of the issued and outstanding
shares of True-Lite, Inc., a Florida corporation. The transaction is an
acquisition accounted for as a purchase of True-Lite, Inc. pursuant to APB 16.
The excess (approximately $615,807 of the total acquisition cost over the
recorded value of assets acquired was allocated to other intangibles and will be
amortized over seven years effective May 1, 2000. Pursuant to the agreement of
merger, True-Lite, Inc. has become a wholly owned subsidiary.
ACTION SERVICES, INC.
Effective June 1, 2000, the Company issued 100,000 shares of its common stock in
exchange for all of the issued and outstanding shares of Action Service, inc., a
Florida corporation. The transaction is an acquisition accounted for as a
purchase of Action Services, Inc. pursuant to APB 16. The excess (approximately
$307,725) of the total acquisition cost over the recorded value of assets
acquired was allocated to other intangibles and will be amortized over seven
years effective June 1, 2000. Pursuant to the agreement of merger, Action
Services, Inc. has become a wholly owned subsidiary.
7
<PAGE>
INVICTA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY BUSINESSNET HOLDINGS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
NOTE D. PURCHASE OF SUBSIDIARIES - (CONTINUED)
BIZ AUCTIONS, INC.
Effective July 31, 2000, the Company issued 100,000 shares of its common stock
and other cash consideration in exchange for all of the issued and outstanding
shares of Biz Auctions, Inc., a Florida corporation. The transaction is an
acquisition accounted for as a purchase of Biz Auctions, Inc. pursuant to APB
16. The excess (approximately $487,846) of the total acquisition cost over the
recorded value of assets acquired was allocated to other intangibles and will be
amortized over seven years effective August 1, 2000. Pursuant to the agreement
of merger, Biz Auctions, Inc. has become a wholly owned subsidiary.
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries from their respective dates of
acquisition, including Eye America, Inc., effective January 31, 2000, True-
Lite, Inc., effective May 1, 2000, Action Services, Inc., effective June 1,
2000, and Biz Auctions, Inc., effective July 31, 2000. Inter-company
transactions and balances have been eliminated in consolidation. The following
pro-forma statement of operations illustrates operating results had the
acquisitions been in effect on January 1, 2000.
Pro-forma Consolidated Condensed
Statement of Operations
for the Nine Months Ended September 30, 2000
(Unaudited)
<TABLE>
<S> <C>
Proforma revenue - eyewear components $ 1,354,501
-----------
Direct operating expenses 636,317
Other expenses 3,396,436
-----------
Proforma net loss $(2,678,252)
===========
</TABLE>
NOTE E. INCOME TAXES
The Company accounts for income taxes using the asset and liability method in
accordance with SFAS No. 109 "ACCOUNTING FOR INCOME TAXES". Under this method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Because of the
uncertainty as to their future realizability, net deferred tax assets,
consisting primarily of net operating loss carryforwards, have been fully
reserved for. Accordingly, no income tax benefit for the net operating loss has
been recorded in the accompanying consolidated financial statements.
Utilization of net operating losses generated through September 30, 2000 may be
limited due to changes in ownership that have occurred.
8
<PAGE>
INVICTA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results during the periods included in the accompanying condensed consolidated
financial statements.
CHANGE OF NAME TO INVICTA CORPORATION
On June 13, 2000, the Company announced that it had received shareholder
approval to change the name of the corporation to Invicta Corporation effective
at the close of business on June 30, 2000, with a new trading symbol "IVIA"
assigned to the Company's common stock.
ADMISSION TO TRADING ON BOSTON STOCK EXCHANGE
On October 27, 2000, the Company announced that its Common Stock had been
accepted for trading on the Boston Stock Exchange, a member of the National
Market System which provides marginability and additional liquidity for its
listed securities. On the Boston Stock Exchange the Company's Common Stock
trades under the symbol "IVI".
GENERAL INTRODUCTION
Invicta Corporation is presently structured as an optical technology operating
company which is focusing its business plan and acquisition program on the
high-growth and high-margin consumer optical industry, particularly proprietary,
patent-protected products. The Company, through its subsidiaries, specializes in
optical technology, products and services for the optical industry, as well as
cutting-edge consumer optical products, including the patented SOLERA(TM) line
of photochromic fashion lenses which are scheduled for roll-out during the third
quarter of 2000.
Management believes that its recent and pending acquisitions within this
industry have provided the Company with a state-of-the-art research and
development facility, a new lens production facility for the patented SOLERA(TM)
line of fashion photochromic lenses, and new capabilities for manufacturing and
distributing laboratory equipment, chemicals and supplies to the worldwide
optical industry. In addition, its pending acquisition of Biz Auctions, Inc.
will provide the Company with two popular optical industry business-to-business
websites, OpticalAuctions.com and OpticalMall.com. As a result of the continuing
operations of its recently acquired subsidiaries, the operations of pending
acquisitions which will be closed during the third quarter of 2000, and the
commencement of production and marketing of the Company's SOLERA(TM) line,
management expects a significant increase in revenues and results from
operations during the third quarter of 2000 and going forward. Continuing
improvements in operating margins are also expected as newly-acquired operations
are integrated and economies of scale achieved.
9
<PAGE>
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 VS. SEPTEMBER 30, 1999
The Company reported no revenue in 1998 and 1999, and recorded its initial
revenue in the Eye America subsidiary during the March, 2000 quarter. During the
quarter ended June, 2000, the Company also recorded revenue from its
acquisitions of True-Lite, Inc. and Action Services, Inc. and during the
quarter ended September 30, 2000, the Company recorded revenue from its
acquisition of Biz Auctions, Inc.
The Company reported a net loss of $1,102,955 during the quarter ended September
30, 2000 and $2,655,652 for the nine months ended September 30, 2000 vs.
$105,839 and $124,839 for the prior periods, respectively. This represents a
loss per share of $(.19) for the quarter and $(.51) for the nine months in 2000
vs. $(.05) and $(.08) in 1999, respectively.
Total expenses for the nine months increased from $124,839 in 1999 to $3,140,758
in 2000 as the Company completed additional acquisitions and commenced
operations. Comparisons to the prior year are not meaningful due to the scope of
the change in operations in 2000 vs. 1999.
EYE AMERICA, INC. SUBSIDIARY
On January 30, 2000, the Company completed its acquisition of Chemko Optical
Supplies, Inc., a Hudson, FL based optical technology company, through an
exchange of shares of Common Stock. This subsidiary, which has been renamed Eye
America, Inc., recently developed and was awarded the first (and only) process
patent that allows the conversion of popular plastic CR-39 lenses into
photochromic sunglass lenses, which will be offered in a variety of fashion
colors under the SOLERA(TM) brand-name. The lenses will be available in both
non- prescription (plano) and prescription form, and will also be available as a
polarized lens.
The CR-39 plastic lenses, renowned for their durability and optical precision,
represent 57% of all lenses sold in the United States with about $4.6 billion in
retail sales in 1998. The patented SOLERA(TM) photochromic tinting process
permits lenses to change shade and darken as brightness levels increase, and
provide comfort from glare. Until the application of the Company's patented
process chemistry to the more widely available CR-39 lens, photochromic tinting
was restricted to inferior polycarbonate and glass lenses, and color choices
solely in gray or brown.
About 15.5% of all lenses processed in the United States, or $1.3 billion at
retail in 1998, are photochromic lenses, with a compound growth rate of 12% per
year (by pairs sold). The Eye America photochromic patent substantially expands
the market for photochromic lenses to the most popular plastic lenses and a full
spectrum of fashion colors. The founder of the Company, George Kohan, has been
an optical industry pioneer for 40 years, and created the first one-hour eye
wear company which was later sold to Pearle Vision in 1970. Mr. Kohan has joined
the Company as Vice President for Research and Development.
ACTION SERVICES, INC. SUBSIDIARY
In May, 2000, the Company completed its acquisition of Action Services, Inc., a
Tennessee based optical products manufacturer and distributor with operations in
Knoxville, TN and Miami, FL. The Company has merged Action Services' operations
with the Chemko Optical Supplies Division of its Eye America, Inc. subsidiary to
create ASI, which management believes will be one of the largest chemical and
technology suppliers to Opticians, Ophthalmologists, Optometrists and optical
laboratories worldwide.
10
<PAGE>
By combining the operations of two long-established former competitors,
management believes that the new ASI will emerge as a leader in what has to date
been a highly-fragmented industry, while allowing the Company to continue to be
a pioneer in developing, manufacturing and distributing innovative, high-quality
and high-value products to the optical industry. Additional gains in revenue and
profitability are expected from joining ASI's experienced marketing experience
with Chemko's patented products and new products under development, and from the
economies which are expected to result from combined management, sales forces,
advertising campaigns and a state-of-the-art Internet business-to-business
presence.
TRUE-LITE, INC. SUBSIDIARY
On May 2, 2000, the Company announced that it had acquired True-Lite, Inc., an
optical supplies manufacturer and laboratory headquartered in Boca Raton, FL.
The Boca Raton facility is presently being expanded to serve as the primary
manufacturing, warehouse and distribution facility for the Company's SOLERA(TM)
product line, and will utilize a custom-designed, automated computer-aided
manufacturing process. Mr. Al de Rojas, the CEO of True-Lite, Inc. and a
well-known innovator of lens and resin technology with over thirty years of
experience in the ophthalmic industry, has been named Vice President of
Manufacturing for EyeAmerica.
SPIN-OFF OF SUNRISE ENTERTAINMENT, INC. SUBSIDIARY
As a result of Management's decision to re-focus the Company's business
operations on the optical technology industry, the Company announced on January
18, 2000 that it had received shareholder approval to distribute its 40%
interest in its Sunrise Entertainment, Inc. subsidiary to Invicta Corporation
shareholders, through a taxable distribution. The fixing of the Shareholder
Record Date for this distribution will be set upon the filing of the appropriate
registration documents.
Sunrise Entertainment specializes in high-definition television (HDTV)
production and distribution. Its most recent project in the high-definition
programming market is "LIVING LEGENDS OF ROCK & ROLL: LIVE FROM ITCHYKOO PARK",
the first major rock & roll festival to be shot in HDTV format. The programming
has been packaged as both a two-hour special, complete with artists' interviews,
and as a 90-minute, music-only version edited for NHK Enterprises America for
broadcast on the NHK Japan Network. Sunrise will also begin distribution of its
extensive library of finished products, as well as projects in development.
SUBSEQUENT EVENTS AND ACQUISITIONS
FB OPTICAL MFG., INC.
On June 13, 2000, the Company announced that it had agreed to acquire FB Optical
Mfg., Inc., a St. Stephen, MN-based optical equipment manufacturer, through an
exchange of shares. Established in 1981, FB Optical manufactures and has
installed hundreds of optical laboratories in the United States, and sells a
proprietary optical surfacing system for glass, plastic and polycarbonate lenses
throughout the world. Major U.S. customers include the optical laboratories of
the Eyecare Centers of America and Sears retail chains. Mr. Keith West,
President of FB Optical, has over 44 years of expertise in optical equipment
manufacturing. A past President of the Optical Laboratories Association and of
Benson Optical Company. As of November 15, 2000 the acquisition of FB Optical
Mfg. Inc. had not been completed.
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BIZ AUCTIONS, INC.
The Company announced on July 14, 2000 that its Eye America, Inc. subsidiary had
agreed to acquire Biz Auctions, Inc., a pioneer in the business-to-BUSINEss
interactive e-auction format whose websites specialize in the ophthalmic
industry. The acquisition includes two popular optical industry websites,
OpticalAuctions.com and OpticalMall.com.
Management believes that this acquisition will provide Eye America with
proprietary web sites and an established e-commerce component, will greatly
enhance the on-line e-commerce capabilities which the Company has already
established with its Eye-America.com web site, and will allow the Company to
market and distribute optical equipment, chemicals, services and products
through a world-wide industry network.
OpticalAuctions.com is a leading optical industry business-to-business Internet
auction site, with an exclusive format which allows sellers an alternative
distribution channel for targeted buyers for an ever-changing mix of new
products, odd lots, closeouts and refurbished goods and equipment.
OpticalMall.com provides the worldwide optical industry with the largest, one-
click information resource, including a data base of optical companies and web
site addresses, new product information, an optical shopping cart, and a direct
link to OpticalAuctions.com.
OTHER INVESTMENTS
OMNICAST CORP.
On August 2, 2000, the Company entered into an agreement to sell the assets of
its Omnicast Corp. subsidiary, which are not synergistic to the Company's focus
on optical technology, to HardDrive Records.com, Inc. These assets include
fanclubmusic.com, an Internet entertainment content producer and web site which
is developing a full-time, video-based transactional network via on-line
services, and its $600,000 investment for production costs of the "Itchykoo `99"
Classic Rock music festival and over forty hours of high-definition television
(HDTV) video and music recordings. The Omnicast Corp. subsidiary has not had any
revenues to date.
WHYWAIT.COM (FORMERLY DOCUNET, INC.)
On August 17, 1999, the Company exchanged 10,000 shares of its common stock for
80,000 shares of common stock of WhyWait.com, formerly Docunet, Inc., and the
right to exchange an additional 20,000 Shares of Common Stock. WhyWait.com is a
privately-held Internet-based e-commerce company that has a patented technology
and proprietary "Super ATM" machine that will be capable of issuing airline
tickets, event tickets, and prepaid phone cards as well as cash. The Company's
initial focus is on the U.S. travel industry, where its Personal Travel Agent
(PTA) system search engine software allows end users to reduce transaction time
and to self-process travel reservations and itineraries over the Internet while
providing them with instantaneous access to a database of pricing, scheduling
and seat availability information.
INVESTMENT IN LINUXLAB, INC. CONVERTIBLE PREFERRED STOCK
On October 6, 1999, the Registrant completed a private placement of 30,000
shares of Series A convertible preferred stock for total consideration of
$300,000. The proceeds of this transaction were used to purchase 30,000 shares
of class a PIK convertible preferred stock of Linuxlab, Inc. Linuxlab, located
in Silicon Valley, is a designer and producer of servers utilizing the Linux
operating system. Their servers are designed for web site hosting, file sharing,
and providing Internet audio, video and data transmission. This company,
Linuxlab, also contemplates completing an initial public offering or other
capital event in 2000.
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CURRENT PLAN OF OPERATIONS
Management anticipates that the third and fourth quarters of 2000 will show the
first material sales volume growth since the reorganization primarily due to
sales from the Eye America, Inc. subsidiary, which will begin shipping its
patented SOLERA(TM) line of photochromic lenses in September, 2000. Additional
revenue growth will also be provided by the operations of the Company's ASI
subsidiary, as well as the acquisitions of FB Optical and Biz Auctions, Inc.
As a result of these continuing operations of its recently acquired
subsidiaries, the operations of the pending acquisitions which will be closed
during the third quarter of 2000, and the commencement of production and
marketing of the Company's SOLERA(TM) line, management expects a significant
increase in revenues and results from operations during the third quarter of
2000 and going forward. Continuing improvements in operating margins are also
expected as newly-acquired operations are integrated and economies of scale
achieved.
It is also anticipated that either WhyWait.com or Linuxlabs, Inc., or both, will
complete their initial IPO in 2000, and the Company is presently seeking a
purchaser for these assets in an effort to maximize the value of the Company's
investments.
EFFECT OF INFLATION ON OPERATION
Management believes inflation had no material effect on operations during 1999
and 2000.
SEASONALITY
Management believes seasonality had no material effect on operations during 1999
nor should it have a material effect on 2000.
CAPITAL RESOURCES AND LIQUIDITY
At September 30, 2000 the Company had a $500,000 Bridge financing which is
expected converted to equity during, 2000. The Company expects that it will
develop and/or acquire new business operations in the future, and that it will
finance its capital requirements in the future through equity offerings, cash
generated from acquired operations and borrowings from possible new credit
facilities. The Company's independent auditor's report on the December 31, 1999
financial statements includes a going concern qualification based on the
Company's lack of capital and losses since the reorganization.
At September 30, 2000 the Company had working capital of $225,485. During the
quarters ended June 30, 2000 and September 30, 2000, the Company raised over
$2,000,000 and $900,000, respectively through the issuance of common stock of
its Eye America subsidiary for approximately a 32% minority interest the
subsidiary. These minority interest shareholders of the subsidiary have agreed
to have their interest be converted to 500,833 shares of the Company's common
stock during November, 2000, eliminating any minority interest in this
subsidiary and in turn the Company. Based upon the current business operations
and financial commitments, management believes that the Registrant's financial
condition is adequate for the foreseeable future as it believes it can raise
equity capital through the issuance of common stock, which it expects to raise
between $2,500,000 and $7,500,000 during the fourth quarter of 2000 and the
first quarter of 2001 from accredited investors in transactions that are
intended to be exempt from registration, until such time it obtains profitable
operations. There can be no future assurance, that the Registrant's future
business operations will generate sufficient cash flow from operations or that
future working capital borrowings will be available in sufficient amounts and
required time frames to accomplish all of the Registrant's potential future
operating requirements.
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DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS
The disclosures included in this Form 10-QSB, incorporated documents included by
reference herein and therein, contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These statements are
identified by words such as "expects", "very satisfactory", "confident" and
words of similar import. Forward-looking statements are inherently subject to
risks and uncertainties, many of which cannot be predicted with accuracy and
some of which might not even be anticipated. Future events and actual results,
financial and otherwise, may differ materially from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in this Form 10-KSB and other matters
detailed from time-to-time in the Company's Securities and Exchange filings,
including the Company's periodic filings on Form 10-QSB and Form 10-KSB.
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RISK FACTORS WHICH MAY AFFECT OUR BUSINESS
THE COMPANY IS A DEVELOPMENT STAGE COMPANY
The Company remains in the development stage, as it has not yet commenced full
commercial operations. Since inception, the Company has been engaged principally
in the development of its patents. Therefore, the Company has a limited
operating history upon which an evaluation of its prospects can be made. The
Company's prospects must be considered in light of the risk, uncertainties,
expenses, delays and difficulties associated with the establishment of a new
business in the competitive lenswear industry, as well as those risks
encountered in the shift development to commercialization of new technology and
products or services based upon such technology.
THE COMPANY'S BUSINESS WOULD BE SERIOUSLY IMPAIRED IF ITS RIGHTS IN THE
EYEAMERICA TECHNOLOGY ARE COMPROMISED IN ANY WAY
The Company believes its patents are strong and comprehensive. However, it is
always possible that challenges to the science or to the processes covered
within its patents may be filed by competitors, and that it may be required to
expend considerable resources in defending its rights. Where patent protection
is possible, it is often expensive and time-consuming to obtain. Even if patents
are obtained, there can be no assurance that unauthorized persons or entities
will not utilize some or all of the Company's technology without compensation to
the Company. In addition, third parties may allege that there has been an
infringement on their patents or patent rights. Such allegations could result in
protracted settlement negotiations or expensive litigation, either of which
could adversely affect the Company. Furthermore, future challenges to the
Company's ownership of the patents may be filed by competitors or others who
allege a prior interest.
THE COMPANY HAS A HISTORY OF LOSSES AND MAY INCUR LOSSES IN THE FUTURE, AND IT
MAY NEVER ACHIEVE PROFITABILITY
As of September 30, 2000 the Company had only limited sales of its photochromic
and chemistry products. The Company is only now beginning to market its
photochromic products to the industry. In the course of the Company's
pre-commercial development activities, it has not achieved profitability. Due to
the need to establish its brand and service, the Company expects to incur
increasing sales and marketing, product development and administrative expenses.
As a result, the Company will need to generate significant revenues to achieve
and maintain profitability.
THE PHOTOCHROMIC LENS MARKET IS COMPETITIVE AND THE COMPANY'S BUSINESS MAY NOT
DEVELOP
The Company faces entrenched competition from well-funded and highly regarded
competitors such as Transitions and Corning. The competitive response of these
(and other similar companies) to the introduction of the Company's products
cannot be predicted.
IF THE COMPANY DOES NOT ACHIEVE BRAND RECOGNITION NECESSARY TO SUCCEED IN THE
MARKET, ITS BUSINESS WILL SUFFER
The Company must quickly build its brands to gain market acceptance for its
products and services. The Company must make substantial expenditures on product
development, strategic relationships and marketing initiatives in an effort to
establish its brand awareness. The Company cannot be certain that it will have
sufficient resources to build its brand and recognize commercial acceptance of
its products and services. If the Company fails to gain market acceptance for
its photochromic products, business will suffer dramatically.
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IF THE COMPANY CANNOT EFFECTIVELY MANAGE ITS GROWTH, THE ABILITY TO PROVIDE
SERVICES WILL SUFFER
The Company's reputation and ability to attract, retain and serve customers
depends upon the reliable performance of products and processes. The Company
anticipates that it will expand its operations significantly in the near future,
and further expansion will be required to address the anticipated growth in its
customer base and market opportunities. To manage the expected growth of
operations and personnel, the Company will need to improve existing systems and
implement new systems, procedures and controls. In addition, the Company will
need to expand, train and manage an increasing employee base. It will also need
to expand finance, administrative and operations staff. The Company may not be
able to effectively manage this growth. Planned personnel, systems, procedures
and controls may be inadequate to support the Company's future operations. If
the Company is unable to manage growth effectively or experience disruptions
during expansion, the business will suffer and its financial condition and
results of operations will be seriously affected.
OUR OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS.
Our revenues and operating results may vary significantly from quarter to
quarter due to a number of factors. Many of these factors are outside our
control and include:
- timing of production and market acceptance of our products;
- fluctuations in consumer purchasing patterns and advertising
spending;
- changes in the growth rate of Internet usage and online user
traffic levels;
- actions of our competitors;
- the timing and amount of costs relating to the expansion of
our operations and acquisitions of technology or business; and
- general economic and market conditions.
Because we have a limited operating history, our future revenues are difficult
to forecast. A shortfall in revenues will damage our business and would likely
affect the market price of our common stock. Our limited operating history and
the new and rapidly evolving Internet market make it difficult to ascertain the
effects of seasonality on our business. If seasonal and cyclical patterns emerge
in Internet purchasing, our results of operations from quarter to quarter may
vary greatly and may cause our business to suffer.
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WE MAY NOT BE ABLE TO SUCCESSFULLY COMPETE AS WE FACE INTENSE COMPETITION FROM
INTERNET-BASED AND RETAIL-BASED BUSINESS.
We cannot assure you that we will be able to compete successfully or that
competitive pressures will not damage our business. Our competition includes:
- traditional retailers;
- Web sites maintained by online retailers of similar
merchandise; and
- Internet portals and online service providers that feature
shopping services, such as America Online, Yahoo!, Excite and
Lycos.
WE BELIEVE THAT OUR ABILITY TO COMPETE DEPENDS ON MANY FACTORS, INCLUDING:
- The quality of our products;
- the market acceptance of our products, Web sites and online
services; and
- the success of our sales and marketing efforts.
Our competitors may be larger than us and may have substantially greater
financial, distribution and marketing resources. In addition, our competitors
may be able to secure products from vendors on more favorable terms, fulfill
customer orders more efficiently and adopt more aggressive pricing or inventory
availability policies than we can.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD BURDEN OUR BUSINESS.
The adoption or modification of laws or regulations applicable to the Internet
could harm our business. The U.S. Congress recently passed laws regarding online
children's privacy, copyrights and taxation. The law governing the Internet,
however, remains largely unsettled. New laws may impose burdens on companies
conducting business over the Internet. It may take years to determine whether
and how existing laws governing intellectual property, privacy, libel and
taxation apply to the Internet and online advertising. In addition, the growth
and development of online commerce may prompt calls for more stringent consumer
protection laws, both in the United States and abroad. We also may be subject to
regulation not specifically related to the Internet, including laws affecting
direct marketers.
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OUR STOCK PRICE COULD BE EXTREMELY VOLATILE, AS IS TYPICAL OF TECHNOLOGY
DEVELOPMENT STAGE COMPANIES.
Our stock price has been volatile and is likely to continue to be volatile. The
stock market has experienced significant price and volume fluctuations, and the
market price of securities of technology companies, particularly
Internet-related companies, have been highly volatile.
The market price for Invicta's stock is likely to be highly volatile and subject
to wide fluctuations in response to the following factors:
- actual or anticipated variations in our quarterly operating
results;
- announcements of technological innovations or new products
or services by us or our competitors;
- changes in financial estimated by securities analysts;
- conditions or trends in e-commerce;
- announcements by us or our competitors of significant
acquisitions, strategic partnership, joint ventures or
capital commitments;
- additions or departures of key personnel;
- release of lock-up or other transfer restrictions on our
outstanding shares of common stock or sales of additional
shares of common stock; and
- potential litigation.
In the past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted against
such a company. The institution of such litigation against us could result in
substantial costs to us and a diversion of our management's attention and
resources.
We have a limited operating history upon which you can evaluate our performance.
Before investing in our common stock, you should consider the risks and
difficulties we may encounter as an early-stage company in the new and rapidly
evolving market. These risks include our ability to:
- implement our business model;
- anticipate and adapt to rapid changes in our markets;
- attract new customers and maintain customer satisfaction;
- introduce new and enhanced websites, services, products and
alliances;
- manage the timing or promotions and sales programs.
If we do not successfully manage these risks, our business will suffer. We
cannot assure you that we will successfully address these risks or that our
business strategy will be successful.
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WE MAY NEED ADDITIONAL CAPITAL TO CONTINUE OUR BUSINESS IF WE DO NOT GENERATE
ENOUGH REVENUE.
We require substantial working capital to fund our business and may need more in
the future. We will likely experience negative cash flow from operations for the
foreseeable future. If we need to raise additional funds through the issuance of
equity, equity-related or debt securities, your rights may be subordinate to
other investors and your stock ownership percentage may be diluted. We cannot be
certain that additional financing will be available to us.
WE MAY NOT BE ABLE TO SUCCESSFULLY COMPETE AS WE FACE INTENSE COMPETITION FROM
INTERNET-BASED AND RETAIL-BASED BUSINESS.
We cannot assure you that we will be able to compete successfully or that
competitive pressures will not damage our business. Our competition includes:
- traditional retailers;
- Web sites maintained by online retailers of similar
merchandise; and
- Internet portals and online service providers that feature
shopping services, such as America Online, Yahoo!, Excite and
Lycos.
We believe that our ability to compete depends on many factors, including:
- The quality of our products;
- the market acceptance of our products, Web sites and online
services; and
- the success of our sales and marketing efforts.
Our competitors may be larger than us and may have substantially greater
financial, distribution and marketing resources. In addition, our competitors
may be able to secure products from vendors on more favorable terms, fulfill
customer orders more efficiently and adopt more aggressive pricing or inventory
availability policies than we can.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Registrant and its subsidiaries are at present not
involved in any legal proceedings, nor are any legal
proceedings anticipated.
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
On November 14, 2000, Alan Yuster became the Company's
President and a member of the Board of Directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
NONE
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Company caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INVICTA CORPORATION
November 20, 2000 by: /s/ Alan Yuster
------------------
Alan Yuster
President
November 20, 2000 by: /s/ Joseph Degise
-----------------
Joseph DeGise
Acting Principle Accounting
Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
November 20, 2000 by: /s/ Joseph Degise
-----------------
Joseph DeGise, Director
November 20, 2000 by: /s/ Alan Yuster
------------------
Alan Yuster, President and
Director
November 20, 2000 by: /s/ Kenneth Brown
-----------------
Kenneth Brown, Secretary and
Director
November 20, 2000 by: /s/ William Reilly
--------------------
William Reilly, Director
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