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 July 31, 2002
Commission file number 033-20966
---------------------------------------
Finotec Group, Inc.
------------------------------
(Exact name of registrant as specified in Its charter)
Nevada 76-0251547
------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
110 Wall St., Suite 15c NY, NY 10005
- -------------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code 212-701-8527
-----------------------------
Online International Corporation
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common stock of $0.001 par value per share
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 twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuers classes
of common equity, as of the latest practicable date:
34,985,241 Common Series 0.001 par value
Documents incorporated by reference: None.
FINOTEC GROUP, INC. AND SUBSIDIARIES
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets
July 31, 2002 and January 31, 2002 3
Consolidated Statements of Operations
Three months and six months ended
July 31, 2002 and 2001 and June 23,
1998 (Date of Incorporation) to July 31, 2002 4
Consolidated Statements of Cash Flows
Six months ended July 31, 2002 and 2001
and June 23,1998 (Date of Incorporation) to
July 31, 2002 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Submission of Matters to a Vote of Security Holders
Item 4. Exhibits and Reports on Form 8-K
Signatures
Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ...
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FINOTEC GROUP, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
FOR THE THREE AND SIX
MONTHS ENDED JULY 31, 2002
FINOTEC GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
Consolidated Financial Statements:
Balance Sheets - July 31, 2002 (Unaudited) and January 31, 2002 1
Statements of Operations - Three Months and Six Months Ended
July 31, 2002 and 2001 (Unaudited) and June 23, 1998 (Date of Incorporation)
to July 31, 2002 2
Statements of Cash Flows - Six Months Ended July 31, 2002 and 2001 (Unaudited)
and June 23, 1998 (Date of Incorporation) to July 31, 2002 3
Notes to Consolidated Financial Statements (Unaudited) 4 - 7
FINOTEC GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
July 31, 2002
(Unaudited) January 31, 2002
--------------- ------------------
A S S E T S
Current Assets
Cash and cash equivalents $ 331,765 $ 466,550
Prepaid and other current assets 34,693 30,585
--------------- ------------------
Total Current Assets 366,458 497,135
Property and equipment, net 100,914 120,910
Note receivable 567,833 700,754
--------------- ------------------
Total Assets $1,035,205 $1,318,799
--------------- ------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accrued expenses $ 85,212 $ 54,107
Income taxes payable 58,846 71,923
Due to stockholder 2,940 4,673
Customers' deposits 141,470
Other current liabilities 12,890 20,587
--------------- ------------------
Total Liabilities, All Current 301,358 151,290
--------------- ------------------
Stockholders' Equity
Common stock, $.001 par value, 100,000,000 shares
authorized, 34,985,241 shares issued and outstanding 34,985 34,985
Additional paid-in-capital 1,545,378 1,545,378
Deficit accumulated during the development stage ( 862,367) ( 430,085)
Accumulated other comprehensive income 15,851 17,231
--------------- ------------------
Total Stockholders' Equity 733,847 1,167,509
--------------- ------------------
Total Liabilities and Stockholders' Equity $1,035,205 $1,318,799
See accompanying notes to consolidated financial statements.
FINOTEC GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended June 23, 1998
July 31, July 31, (Date of Incorporation)
2002 2001 2002 2001 to July 31, 2002
------------ ------------ ------------ --------- ------------------
Revenues
Net gains from foreign currency
future operations $ 71,821 $ 59,488 $ 62,583
Consulting 26,799
------------ ------------ ------------ --------- ------------------
Total Revenues 71,821 59,488 89,382
------------ ------------ ------------ --------- ------------------
Operating Expenses
Selling, general and administrative 225,487 $36,536 334,998 $ 65,716 608,247
Research and development 22,694 23,490 45,658 37,294 290,635
------------ ------------ ------------ --------- ------------------
Total Operating Expenses 248,181 60,026 380,656 103,010 898,882
------------ ------------ ------------ --------- ------------------
Operating Loss ( 176,360) ( 60,026) ( 321,168) ( 103,010) ( 809,500)
Other Income (Expense)
Interest income (expense) 24,974 ( 1,353) ( 33) ( 1,083) 94,879
Other expense ( 111,081) ( 111,081) ( 111,081)
------------ ------------ ------------ --------- ------------------
Loss Before Income Taxes ( 262,467) ( 61,379) ( 432,282) ( 104,093) ( 825,702)
Income tax expense ( 36,665)
------------ ------------ ------------ --------- ------------------
Net Loss ($262,467) ($61,379) ($432,282) ($104,093) ($ 862,367)
Weighted average number of
common shares outstanding 34,985,241 2,000 34,985,241 2,000
Basic and diluted loss per common share ($0.01) ($30.69) ($0.01) ($52.05)
See accompanying notes to consolidated financial statements.
FINOTEC GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 23, 1998
July 31, (Date of Incorporation)
2002 2001 to July 31, 2002
------------ ------------ -------------------------
Cash Flows from Operating Activities
Net loss ($432,282) ($104,093) ($862,367)
Adjustment to Reconcile Net Loss to
Net Cash Used in Operating Activities
Depreciation 23,904 20,178 72,674
Changes in Operating Assets and Liabilities
Increase in prepaid and other current assets ( 4,108) ( 22,013) ( 20,393)
Increase in accrued expenses 31,105 43,065
(Decrease) increase in income taxes payable ( 13,077) 58,846
Increase in customers' deposits 141,470 141,470
(Decrease) increase in other current liabilities ( 7,697) 3,908 ( 29,236)
(Decrease) increase in due to stockholder ( 1,733) ( 2,353) 2,940
------------ ------------ -------------------------
Net Cash Used in Operating
Activities ( 262,418) ( 104,373) ( 593,001)
------------ ------------ -------------------------
Cash Flows from Investing Activities
Collection of note receivable 132,921 142,276
Acquisition of property and equipment ( 6,616) ( 2,618) ( 173,588)
Cash acquired in connection with
acquisition of subsidiaries 680,227
------------ ------------ -------------------------
Net Cash Provided by (Used in)
Investing Activities 126,305 ( 2,618) 648,915
------------ ------------ -------------------------
Cash Flows from Financing Activities
Proceeds of related party loans 250,000 159,384
Repayment of related party loans ( 157,825) ( 159,384)
Proceeds from stock issuance 180,000 260,000
------------ ------------ -------------------------
Net Cash Provided by
Financing Activities 272,175 260,000
------------ ------------ -------------------------
Effect of Foreign Currency Translation 1,328 ( 33,618) 15,851
------------ ------------ -------------------------
Net (Decrease) Increase in
Cash and Cash Equivalents ( 134,785) 131,566 331,765
Cash and Cash Equivalents - Beginning 466,550 23,405
------------ ------------ -------------------------
Cash and Cash Equivalents
- Ending $331,765 $154,971 $331,765
------------ ------------ -------------------------
Supplemental Disclosure of
Cash Flow Information
Cash paid during the period for income taxes $13,078 $13,078
------------ ------------ -------------------------
See accompanying notes to consolidated financial statements.
FINOTEC GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- -----------------------------------------------------------------------------
1. Summary of Significant Accounting Policies
Interim Financial
Information
The accompanying unaudited consolidated financial statements of the Company
(as defined below) should be read in conjunction with the consolidated
financial statements and notes thereto filed with the U.S. Securities and
Exchange Commission in the Company's Annual Report on Form 10-KSB for the
fiscal year ended January 31, 2002. In the opinion of management, the
accompanying consolidated financial statements reflect all adjustments of a
normal recurring nature considered necessary to present fairly the
financial position of the Company and its consolidated subsidiaries at July
31, 2002, and the results of their operations and their cash flows for the
three and six months ended July 31, 2002 and July 31, 2001, and for the
period from June 23, 1998 (date of incorporation) to July 31, 2002. The
results of interim periods are not necessarily indicative of the results
that may be expected for the year ending January 31, 2003.
Principles of
Consolidation
The consolidated financial statements include the accounts of Finotec Inc.
and its wholly-owned subsidiaries, Finotec Trading, Finotec Ltd., and
Finotec Ltd.'s 99.7% owned subsidiary, Forexcash (collectively referred to
as the "Company", unless otherwise indicated). All material intercompany
transactions and balances have been eliminated in consolidation.
Since the liabilities of Forexcash exceed its assets, and the owner of the
0.3% minority interest has no obligation to supply additional capital, no
minority interest has been recorded in the consolidated financial
statements.
Going Concern
The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown in
the financial statements, since inception, the Company incurred losses of
$862,367, which resulted mainly from research and development and selling,
general and administrative expenses. In addition, to date, the Company's
revenues from operations have been minimal. These factors, among others,
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
<page>
FINOTEC GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------
1. Summary of Significant Accounting Policies
(Continued)
Going Concern
(Continued)
The Company is in the development stage and its continued existence is
dependent upon its ability to generate sufficient cash flow from
operations, to obtain financing arrangements or equity investments on a
timely basis sufficient to satisfy current working capital needs and
ultimately to attain profitability. The Company is actively pursuing
additional financing and equity financing through discussions with lenders
and investment bankers.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect certain reported
amounts and disclosures. Actual results could differ from those estimates.
Earning Per Common
Share
Basic earnings per share is based on the weighted effect of all common
shares issued and outstanding, and is calculated by dividing net income
(loss) by the weighted average shares outstanding during the period.
Diluted earnings per share is calculated by dividing net income (loss) by
the weighted average number of common shares used in the basic earnings per
share calculation plus the number of common shares that would be issued
assuming exercise or conversion of all stock options. The dilutive effect
of stock options was not considered for the three and six month periods
ended July 31, 2002 and 2001, because the effect of these securities is
antidilutive.
Recent Accounting
Pronouncements
In June, 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Board ("SFAS") No. 146, Accounting for
Costs Associated with Exit or Disposal Activities. SFAS No. 146 provides
guidance on the timing of the recognition of costs associated with exit or
disposal activities. The new guidance requires costs associated with exit
or disposal activities to be recognized when incurred. Previous guidance
required recognition of costs at the date of commitment to an exit or
disposal plan. The provisions of the statement are to be adopted
prospectively after December 31, 2002. Although SFAS No. 146 may impact the
accounting for costs related to exit or disposal activities the Company may
enter into in the future, particularly the timing of recognition of these
costs, the adoption of the statement will not have an impact on the
Company's present financial condition or results of operations.
FINOTEC GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- -----------------------------------------------------------------------------
2. Property and
Equipment
Property and equipment consist of the following:
Estimated Useful July 31, 2002 January 31,
Lives (Years) (Unaudited) 2002
Computer equipment 3 $ 59,412 $ 55,015
Purchased software 3 82,633 84,195
Office furniture and
equipment 7 11,492 10,488
Leasehold improvements 10 20,051 20,430
- -----------------------------------------------------------------------------
Total Property and
Equipment at Cost 173,588 170,128
Less accumulated depreciation
and amortization 72,674 49,218
- -----------------------------------------------------------------------------
Property and Equipment - Net $100,914 $120,910
3. Comprehensive
Loss
The Company's comprehensive loss is comprised of net loss and foreign
currency translation adjustments. Comprehensive loss for the three and six
month periods ended July 31, 2002 and 2001, and for the period from June
23, 1998 (date of incorporation) to July 31, 2002, was as follows:
Three Months Ended Six Months Ended June 23, 1998
July 31, July 31, (Date of Inc.)
2002 2001 2002 2001 to July 31, 2002
Comprehensive
loss
Net loss ($262,467) ($61,379) ($432,282) ($104,093) ($862,367)
Foreign currency
translation (17,923) 233 (1,380) (176) 15,851
Comprehensive Loss ($280,390) ($61,146) ($433,662) ($104,269) ($846,516)
4. Stock Options
In June, 2002, the Company granted options to an employee and director of
the Company to purchase 200,000 shares of common stock. The Company has
reserved 1,000,000 shares of common stock for issuance under the Employee
Stock Purchase Plan (the "Plan").
In accordance with the Plan the options shall be exercisable over a period
not to exceed ten years from the grant date. The options vest in accordance
with the terms of the agreements entered into by the Company and the
grantee of the options and range over a period of three years.
FINOTEC GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------------------
4. Stock Options (Continued)
The Company has elected the disclosure-only provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock Based
Compensation, for stock options issued to its employees. In accordance with
the provisions of Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees, the Company has not recognized
compensation expense for options granted under the Plan as the exercise
price of all options granted were higher than the fair market value of the
common stock at the grant date. The Company's net loss wouldn't have
changed had compensation expense for options granted to employees been
determined based on the fair value at the grant dates, consistent with the
methodology prescribed under SFAS No. 123.
5. Contingency
During the six months ended July 31, 2002, a customer of the Company
successfully circumvented the Company's foreign currency option trading
software for his own benefit, resulting in a loss to the Company of
approximately $111,000. The Company believes it has made the necessary
adjustments to its system in order to preclude a reoccurrence of such
event.
The same customer has initiated an action against the Company, seeking to
recover damages of approximately $27,000. In the Company's opinion this
matter will not have a material adverse effect on the Company's financial
position or results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion should be read in conjunction with the Consolidated
Financial Statements and the Notes to Consolidated Financial Statements of
Finotec Group and its subsidiaries contained herein. The results of operations
for an interim period are not necessarily indicative of results for the year, or
for any subsequent period.
RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JULY 31, 2002 AND 2001
REVENUES
NET GAINS FROM FOREIGN CURRENCY FUTURE OPERATIONS.
Net gains from foreign currency future operations are comprised primarily
of spread-based brokerage fees earned from our clients' brokerage transactions.
For the three months ended July 31, 2002, net gains from foreign currency option
operations were $71,821 as compared to no revenues for the three months ended
July 31, 2001. This increase of $71,821 is due primarily to the launch of
Forexcash and the start of trading by brokerage clients who use the Forexcash
online trading platform since its inception in February 2002. During the three
months ended July 31, 2002, 100% of total net gains were generated from clients
using the Forexcash online trading platform. For the six months ended July 31,
2002, revenues from foreign currency future operations were $59,488 compared to
no revenue for the same period last year. The increase of $59,488 is due to the
Company beginning the operation of Forexcash during February 2002.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT.
Research and development expenses consist primarily of personnel costs
associated with product development and management of the brokerage products and
services Finotec offers to its clients. Research and development expenses for
the three months ended July 31, 2002 were $22,694, as compared to $23,490 for
the three months ended July 31, 2001, a decrease of $796.
Research and development expenses for the six month period ended July 31,
2002 was $45,658 compared to $37,294 for the six month period last year. This
increase of $8,364 was due primarily to the continuing research and development
conducted by the Company.
SELLING, GENERAL AND ADMINISTRATIVE.
Selling, general and administrative expenses were $225,487 for the three
months ended July 31, 2002, as compared to $36,536 for the three months ended
July 31, 2001. This increase was due primarily to the starting of operations of
Forexcash, the Company's online trading platform.
Selling, general and administrative expenses for the six month period ended
July 31, 2002 was $334,998 compared to $65,716 for the six month period last
year. This increase of $269,282 was also due primarily to the starting of
operations of Forexcash, the Company's online trading platform, and the increase
in administrative and professional costs accompanying the operation of business.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased $134,785 to $331,765 at July 31, 2002,
from $466,550 at January 31, 2002. The decrease is primarily attributable to
$262,418 of cash used in operating activities, partly offset by $126,305
provided by investing activities.
Net cash used in operating activities amounted to $262,418 for the six
months ended July 31, 2002, compared to $104,373 for the six months ended July
31, 2001. The cash used in operating activities for the six months ended July
31, 2002, primarily resulted from the net loss of $432,282 offset by an increase
in customer deposits of $141,470, while cash used during the six months ended
July 31, 2002, primarily resulted from the net loss of $104,093.
Net cash provided by investing activities for the six months ended July 31,
2002, was $126,305 as compared to net cash used in investing activities of
$2,618 for the six months ended July 31, 2001. The change was primarily
attributable to an increase in the collection of the note receivable, during the
six months ended July 31, 2002.
The Company had no cash flows from financing activities during the six
months ended July 31, 2002, compared to net cash provided by financing
activities of $272,175 for the six months ended July 31, 2001. The cash provided
during the six months ended July 31, 2001, resulted from the proceeds of related
party loans of $250,000 and stock issuance of $180,000, partially offset by the
repayment of related party loans of $157, 825.
As of July 31, 2002, the Company owes approximately $59,000 in state
franchise taxes, as compared to $72,000 at January 31, 2002. The Company is
paying the amount due in 36 monthly installments.
Future capital requirements and the adequacy of available funds will depend
on numerous factors, including the successful commercialization of our products,
competing technological and market developments, and the development of
strategic alliances for the development and marketing of our products. Assuming
Printing Associates pays its obligations to the Company in a timely fashion, the
Company has sufficient funds to satisfy their cash requirements until July 2003
assuming the monthly expenses of the Company at $67,000. Of our $67,000 monthly
expense, we foresee $17,000 covering the management and administration of the
Company with $50,000 covering the activity and operation of the Company. The
Company intends to try to obtain additional funds at that time through equity or
debt financing, strategic alliances with corporate partners and others, or
through other sources. In the event Finotec's plans change or its assumptions
change or prove to be inaccurate or the funds available prove to be insufficient
to fund operations at the planned level (due to further unanticipated expenses,
delays, problems or otherwise), Finotec could be required to obtain additional
funds earlier than expected. Finotec does not have any committed sources of
additional financing, and there can be no assurance that additional funding, if
necessary, will be available on acceptable terms, if at all. If adequate funds
are not available, we may be required to further delay, scale-back, or eliminate
certain aspects of our operations or attempt to obtain funds through
arrangements with collaborative partners or others that may require us to
relinquish rights to certain of our technologies, product candidates, products,
or potential markets. If adequate funds are not available, Finotec's business,
financial condition, and results of operations will be materially and adversely
affected.
CUSTOMER CLAIM.
In the six months ending July 31, 2002, a customer has initiated an action
against the Company, seeking to recover damages of approximately $27,000. The
Company believes this claim will not have a material adverse effect on the
Company
We have no off balance sheet assets or liabilities.
We anticipate that our available cash resources and cash flows from
operations will be sufficient to meet our presently anticipated working capital
and capital expenditure requirements through the second quarter of 2003.
ISSUES, UNCERTAINTIES AND RISK FACTORS
The Consolidated Financial Statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations in this report should
be read and evaluated together with the issues, uncertainties and risk factors
relating to our business described below. While we have been and continue to be
confident in our business and business prospects, we believe it is very
important that anyone who reads this report consider the issues, uncertainties
and risk factors described below, which include business risks relevant both to
our industry and to us in particular. These issues, uncertainties and risk
factors are not intended to be exclusive. This report also contains statements
that are forward-looking 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 forward-looking statements are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. When used in
this report, the words "believes," "plans," "estimates," "expects," "intends,"
"designed," "anticipates," "may," "will," "should," "could," "become,"
"upcoming," "potential," "pending," and similar expressions, if and to the
extent used, are intended to identify the forward-looking statements. All
forward-looking statements are based on current expectations and beliefs
concerning future events that are subject to risks and uncertainties. Actual
results may differ materially from the results suggested in this report. Factors
that may cause or contribute to such differences, and our business risks and
uncertainties generally, include, but are not limited to, the items described
below, as well as in other sections of this report and in our other public
filings and our press releases.
THERE ARE SEVERAL FACTORS THAT MAY CAUSE FLUCTUATIONS IN OUR QUARTERLY
OPERATING RESULTS, WHICH WOULD LIKELY RESULT IN SIGNIFICANT VOLATILITY IN OUR
STOCK PRICE
Causes of such significant fluctuations may include, but are not limited to:
o cash flow problems that may occur;
o the quality and success of, and potential continuous changes in, sales
or marketing strategies (which have undergone significant change
recently and are expected to continue to evolve) and the costs
allocated to marketing campaigns and the timing of those campaigns;
o the timing, completion, cost and effect of our development and launch
of planned enhancements to the Finotec trading platform;
o the size and frequency of any trading errors for which we ultimately
suffer the economic burden, in whole or in part;
o changes in demand for our products and services due to the rapid pace
in which new technology is offered to customers in our industry;
o costs or adverse financial consequences that may occur with respect to
regulatory compliance or other regulatory issues, particularly
relating to laws, rules or regulations that may be enacted with a
focus on the active trader market; and
o general economic and market factors that affect active trading,
including changes in the securities and financial markets.
CONDITIONS IN THE SECURITIES AND FINANCIAL MARKETS MAY AFFECT OUR RATES OF
CUSTOMER ACQUISITION, RETENTION AND TRADING ACTIVITY
Our products and services are, and will continue to be, for customers who
trade actively in the securities and financial markets. There has been for the
past 2 1/2 years, and continues to be, unfavorable conditions in the securities
and financial markets. To the extent that interest in active trading has
decreased or in the future decreases due to low trading volumes, lack of
volatility, or significant downward movement in the securities or financial
markets, such as has recently occurred, or future tax law changes, recessions,
depressions, wars, terrorism (including "cyberterrorism"), or otherwise, our
business, financial condition, results of operations and prospects could be
materially adversely affected. Also, unfavorable market conditions may result in
more losses for our clients, which could result in increases in quantity and
size of errors or omissions claims that may be made against us by frustrated
clients. We do not currently carry any errors or omissions insurance that might
cover, in part, some of those kinds of potential claims.
Instability in the middle east region may adversely affect our business.
Political, economic and military conditions in Israel directly affect the
Company's operations. Since the establishment of the State of Israel in 1948, a
number of armed conflicts have taken place between Israel and its Arab
neighbors, and the continued state of hostility, varying in degree and
intensity, has led to security and economic problems for Israel. Since October
2000, there has been a significant increase in violence, primarily in the West
Bank and Gaza Strip, and more recently Israel has experienced terrorist
incidents within its borders. As a result, negotiations between Israel and
representatives of the Palestinian Authority have been sporadic and have failed
to result in peace. The Company could be adversely affected by hostilities
involving Israel, the interruption or curtailment of trade between Israel and
its trading partners, or a significant downturn in the economic or financial
condition of Israel. These conditions could disrupt the Company's operations in
Israel and its business, financial condition and results of operations could be
adversely affected.
The Company's costs of operations have at times been affected by changes in
the cost of its operations in Israel, resulting from changes in the value of the
Israeli shekel relative to the United States dollar, and from difficulties in
attracting and retaining qualified scientific, engineering and technical
personnel in Israel, where the availability of such personnel has at times been
severely limited. Changes in these cost factors have from time to time been
significant and difficult to predict, and could in the future have a material
adverse effect on the Company's results of operations.
OUR INDUSTRY IS INTENSELY COMPETITIVE, WHICH MAKES IT DIFFICULT TO ATTRACT
AND RETAIN CUSTOMERS
The markets for online brokerage services, client software and
Internet-based trading tools, and real-time market data services are intensely
competitive and rapidly evolving, and there has been substantial consolidation
of those three products and services occurring in the industry. We believe that
competition from large online brokerage firms and smaller brokerage firms
focused on active traders, as well as consolidation, will substantially increase
and intensify in the future. Competition may be further intensified by the size
of the active trader market, which is generally thought to be comprised of less
than 10% of all online brokerage accounts. We believe our ability to compete
will depend upon many factors both within and outside our control. These
include: price pressure; the timing and market acceptance of new products and
services and enhancements developed by us and our competitors; the development
and support of efficient, materially error-free Internet-based systems; product
and service functionality; data availability and cost; clearing costs; ease of
use; reliability; customer service and support; and sales and marketing
decisions and efforts.
WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OR PRESERVE OUR RIGHTS IN
INTELLECTUAL PROPERTY
Our success is and will continue to be heavily dependent on proprietary
technology, including existing trading-tool, Internet, Web-site and
order-execution technology, and those types of technology currently in
development. We view our technology as proprietary, and rely, and will be
relying, on a combination of trade secret and trademark laws, nondisclosure
agreements and other contractual provisions and technical measures to protect
our proprietary rights. Policing unauthorized use of our products and services
is difficult, however, and we may be unable to prevent, or unsuccessful in
attempts to prevent, theft, copying or other unauthorized use or exploitation of
our product and service technologies. There can be no assurance that the steps
taken by us to protect (or defend) our proprietary rights will be adequate or
that our competitors will not independently develop technologies that are
substantially equivalent or superior to our technologies or products and
services.
THE NATURE OF OUR BUSINESS RESULTS IN POTENTIAL LIABILITY TO CUSTOMERS
Many aspects of the securities brokerage business, including online trading
services, involve substantial risks of liability. In recent years there has been
an increasing incidence of litigation involving the securities brokerage
industry, including class action and other suits that generally seek substantial
damages, including in some cases punitive damages. In particular, our
proprietary order routing technology is designed to automatically locate, with
immediacy, the best available price in completing execution of a trade triggered
by programmed market entry and exit rules. There are risks that the electronic
communications and other systems upon which these products and services rely,
and will continue to rely, or our products and services themselves, as a result
of flaws or other imperfections in their designs or performance, may operate too
slowly, fail or cause confusion or uncertainty to the user. Major failures of
this kind may affect all customers who are online simultaneously. Any such
litigation could have a material adverse effect on our business, financial
condition, results of operations and prospects.
WE DO NOT HAVE A LONG OPERATING HISTORY AS AN ONLINE BROKERAGE FIRM.
We launched the Forexcash direct access online trading platform during the
2002 first quarter. Prior to that, our operations consisted mainly of developing
the software and technology. Accordingly, the online brokerage business, as
currently conducted, has a very short operating history. This lack of operating
history, and our lack of historical profitable results, should be taken into
account when evaluating our financial condition and results of operations.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A customer has initiated an action against the Company, seeking to recover
damages of approximately $27,000. In the Company's opinion this matter will not
have a material adverse effect on the Company's financial position or results of
operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(A) SALES OF UNREGISTERED SECURITIES
During the three months ended July 31, 2002, we issued to a director and
employee an option to purchase an aggregate of 200,000 shares of common stock.
Such options vest over a ten year period and are exercisable at a price of $1.00
per share. All of the options expire, if they remain unexercised, on the tenth
anniversary of the date on which they were granted.
All the foregoing options were issued by us in reliance upon the exemption
from registration available under Section 4(2) of the Securities Act of 1933, as
amended. Other than as described above, we did not issue or sell any
unregistered securities during the first quarter of 2002.
ITEM 3. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters voted on by the security holders of the Company
during this quarter.
ITEM 4. EXHIBITS AND REPORTS ON FORM 8-K
(A) THE FOLLOWING EXHIBITS ARE FILED AS PART OF THIS REPORT:
99.1 Certification of Chief Executive Officer and Chief Financial Officer
Under 18 U.S.C. ss.1350.
(B) The Company filed a Form 8-K with the SEC on August 22, 2002,
reporting that it changed its principal public accountants from Marks,
Paneth & Shron, LLP to Hoberman, Miller, Goldstein & Lesser, P.C.,
C.P.A.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Finotec Group, Inc.
Registrant
July 28, 2003 /s/ Didier Essemini
- - ----------------- --------------------------------------------
Date Didier Essemini
Chief Executive Officer
EXHIBIT INDEX
Exhibit No. Exhibit
- - ----------- -------
99.5 Certification of Chief Executive Officer
and Chief Financial Officer
Under 18 U.S.C.ss.1350.
CERTIFICATION PURSUANT TO THE
SARBANES-OXLEY ACT
I, Didier Essemini, the Chief Executive Officer of Finotec Group, Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Finotec Group,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to me by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report my conclusions about the
effectiveness of the disclosure controls and procedures based on
my evaluation as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the
registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. I have indicated in this quarterly report whether there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of
my most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: July 28, 2003 /s/ Didier Essemini
-----------------------------------------
Didier Essemini
Chief Executive Officer
CERTIFICATION PURSUANT TO THE
SARBANES-OXLEY ACT
I, Didier Essemini, the Principal Financial Officer of Finotec Group, Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Finotec Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to me by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report my conclusions about the effectiveness
of the disclosure controls and procedures based on my evaluation as of the
Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. I have indicated in this quarterly report whether there were significant
changes in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of my most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: July 28, 2003 /s/ Didier Essemini
-----------------------------------------
Didier Essemini
Principal Financial Officer