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 October 31, 2006
Commission file number 033-20966
--------------------------------
Finotec Group, Inc.
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(Exact name of registrant as specified in Its charter)
Nevada 76-0251547
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(State or other jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
350 Fifth Avenue, Suite 2712, New York, NY 10118
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(Address of principal executive offices)
Registrant's telephone number, including area code 866-243-0771
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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [_] No [X]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuers classes of
common equity, as of the latest practicable date: 32,297,741 Common Series 0.001
par value
Documents incorporated by reference: None.
FINOTEC GROUP, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets
October 31, 2006 and January 31, 2006 ..........................F-1
Consolidated Statements of Operations
Three months and nine months ended
October 31, 2006 and 2005 ......................................F-2
Consolidated Statements of Cash Flows
Nine months ended October 31, 2006 and 2005 ....................F-3
Notes to Consolidated Financial Statements ...................F-4-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................................1
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ....................................................7
Item 2. Changes in Securities and Use of Proceeds ............................8
Item 3. Submission of Matters to a Vote of Security Holders ..................8
Item 4. Exhibits and Reports on Form 8-K .....................................8
Signature ...............................................................8
FINOTEC GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE
MONTHS ENDED OCTOBER 31, 2006
FINOTEC GROUP, INC.
CONTENTS
- --------------------------------------------------------------------------------
Consolidated Financial Statements:
Balance Sheets - October 31, 2006 (Unaudited) and January 31, 2006 1
Statements of Operations - Three Months and Nine Months Ended
October 31, 2006 and 2005 (Unaudited) 2
Statements of Cash Flows - Nine Months Ended October 31, 2006
and 2005 (Unaudited) 3
Notes to Consolidated Financial Statements (Unaudited) 4 - 7
FINOTEC GROUP, INC.
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
October 31, 2006
(Unaudited) January 31, 2006
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A S S E T S
Current Assets
Cash and cash equivalents $ 4,278,913 $ 3,163,221
Marketable securities 2,250,076 560,498
Prepaid and other current assets 105,566 268,494
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Total Current Assets 6,634,555 3,992,213
Property and equipment, net 339,675 266,608
Forward transaction Hedging 440,903 -
----------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 7,415,133 $ 4,258,821
==================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short term bank credit 19,616 --
Loan payable, related party -- $ 20,000
Accounts payable and accrued expenses 364,051 311,969
Due to stockholder -- 52,131
Customers' deposits 3,260,832 2,724,446
Compensation reserve 167,285 127,286
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Total Liabilities, All Current 3,811,784 3,235,832
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Stockholders' Equity
Common stock, $.001 par value, 100,000,000 shares
Authorized, 34,985,241 shares issued,
And outstanding 32,297,741 34,985 34,985
Treasury shares, at cost - 2,687,500 shares (169,813) --
Additional paid-in-capital 1,545,378 1,545,378
Accumulated other comprehensive income (loss) 261,362 (532,949)
Accumulated income (loss) 1,931,437 (24,425)
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Total Stockholders' Equity 3,603,349 1,022,989
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Total Liabilities and Stockholders' Equity $ 7,415,133 $ 4,258,821
==================================================================================================================================
See accompanying notes to consolidated financial statements.
F-1
FINOTEC GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
October 31, October 31,
2006 2005 2006 2005
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Revenues
Net gains from foreign
currency future operations $ 3,606,668 $ 872,906 $ 6,335,914 $ 2,325,452
Consulting 3,071 - 7,330 -
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Total Revenues 3,609,739 872,906 6,343,244 2,325,452
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Operating Expenses
Selling, general and administrative 1,889,303 602,949 4,042,808 1,787,264
Research and development 27,563 19,435 82,688 61,206
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Total Operating Expenses 1,916,866 622,384 4,125,496 1,848,470
----------------------------------------------------------------------------------------------------------------------------------
Operating Income 1,692,873 250,522 2,217,748 476,982
Other Income (Expense)
Interest income (expense), net 277,588 (77,473) 344,307 (65,588)
Financing (expense) (27,756) - (97,668) -
----------------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 1,942,705 173,049 2,464,387 411,394
Income tax refund - - - -
----------------------------------------------------------------------------------------------------------------------------------
Net Income $ 1,942,705 $ 173,049 $ 2,464,387 $ 411,394
==================================================================================================================================
Weighted average number of
common shares outstanding 32,297,741 34,985,241 32,297,741 34,985,241
==================================================================================================================================
Basic and diluted loss per common share * * * *
==================================================================================================================================
* Less than $.01 per share
See accompanying notes to consolidated financial statements.
F-2
FINOTEC GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
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FOR THE NINE MONTHS ENDED OCTOBER 2006 2005
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net income $ 2,464,387 $ 411,394
Adjustment to Reconcile Net Income to
Net Cash Provided by (Used in) Operating Activities
Depreciation 89,762 64,544
Changes in Operating Assets and Liabilities
(Increase) Decrease in prepaid and other current assets 162,928 (133,993)
(Increase) Decrease in accrued expenses 181,432 (64,292)
Increase in customers' deposits 536,386 618,125
(Increase) in marketable securities (1,689,578) (156,016)
(Decrease) in other current liabilities (129,350) (41,080)
Increase in compensation reserve 39,999 -
Forward transaction (440,903) -
(Decrease) in due to stockholder (52,131) (27,256)
- ---------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 1,162,932 671,426
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Acquisition of property and equipment (162,832) (28,065)
- ---------------------------------------------------------------------------------------------------------------------------
Net Cash Used in by Investing Activities (162,832) (28,065)
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Short term bank Credit 19,616 (7,991)
Payment of loan payable, employee (20,000) (70,000)
Purchases of treasury shares (169,813) -
- ---------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (170,197) (77,991)
- ---------------------------------------------------------------------------------------------------------------------------
Effect of Foreign Currency Translation 285,788 21,534
- ---------------------------------------------------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents 1,115,691 586,904
Cash and Cash Equivalents - Beginning 3,163,221 1,567,534
- ---------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents - Ending $4,278,912 $2,154,438
===========================================================================================================================
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Period
Income taxes - -
===========================================================================================================================
See accompanying notes to consolidated financial statements.
F-3
FINOTEC GROUP, INC.
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, 2006. 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 October 31,
2006, and the results of their operations and
their cash flows for the three and Nine months
ended October 31, 2006 and October 31, 2005. The
results of interim periods are not necessarily
indicative of the results that may be expected
for the year ending January 31, 2007.
Principles of
Consolidation The consolidated financial statements include
the accounts of Finotec Inc. and its wholly
owned subsidiaries, Finotec Trading, Inc.
("Finotec Trading") and its owned subsidiary
Finotec Trading Cyprus Ltd. Finotec Ltd., and
Finotec Ltd.'s 99.7% owned subsidiary, Forexcash
Global Trading Ltd. ("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.
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.
F-4
Shareholders' Equity
In April 2006, the Company's board of directors
approved a stock repurchase under which the
Company may repurchase up to 2,687,500 million
of the Company's ordinary shares. Purchases will
be made based on an agreement conditions at the
discretion of management in open market
purchases or privately negotiated transactions.
Through July 31, 2006, the Company repurchased
an aggregate of 2,687,500 ordinary shares at an
aggregate cost of $172,500.
F-5
FINOTEC GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies
(Continued)
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 assumed for the
three and nine month periods ended October 31,
2006 and 2005, because the effect of these
securities is antidilutive.
Marketable Securities Marketable securities consist principally of
corporate stocks. Management has classified the
Company's marketable securities as available for
sale securities in the accompanying consolidated
financial statements. Available-for-sale
securities are carried at fair value, with
unrealized gains and losses reported as a
separate component of stockholders' equity.
Realized gains and losses on available-for-sale
securities are included in interest income.
Gains and losses, both realized and unrealized,
are measured using the specific identification
method. Market value is determined by the most
recently traded price of the security at the
balance sheet date. As of October 31, 2006 the
market value of the security equals its cost
2. Property and
Equipment Property and equipment consist of the following:
Estimated October 31,
Useful 2006 January 31,
Lives (Years) (Unaudited) 2006
--------------------------------------------------------------------------------
Computer equipment 3 $ 319,696 230,522
Purchased software 3 171,303 153,781
Office furniture and
equipment 7 119,004 77,335
Leasehold improvements 10 76,484 71,305
Vehicles 15 28,710 -
--------------------------------------------------------------------------------
Total Property and
Equipment at Cost 715,197 532,943
Less accumulated depreciation
and amortization 375,522 266,335
--------------------------------------------------------------------------------
Property and Equipment - Net $ 339,675 $ 266,608
================================================================================
F-6
FINOTEC GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
3. Comprehensive
Income The Company's comprehensive income (loss) is
comprised of net income (loss) and foreign
currency translation adjustments. Comprehensive
income (loss) for the three and nine month
periods ended October 31, 2006 and 2005 was as
follows:
Three Months Ended Nine Months Ended
October 31, October 31,
2006 2005 2006 2005
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Comprehensive
Net income $1,942,705 $173,049 2,464,387 411,394
Foreign currency
translation 246,743 (2,256) 275,867 21,534
----------------------------------------------------------------------------------------
Comprehensive
Income $2,189,448 $170,793 2,740,254 432,928
========================================================================================
4. Subsequent Events On November 2006, the Company incorporated a
wholly owned joint stock company in Poland,
Finotec Trading Polska S.A., under the laws of
Poland, for the purpose of marketing in Poland.
On November 2006, the Company incorporated a
wholly owned subsidiary under the laws of the
State of Delaware, USA, Finotec USA Inc. for the
purpose of obtaining the necessary authorization
to market the company's products in the US.
F-7
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, Inc. 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 NINE MONTHS ENDEDENDED OCTOBER 31, 2006 AND 2005
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.
Total net gains from foreign currency future operations were $3,606,668 for the
three months ended October 31, 2006, as compared to a net gain from foreign
currency future operations of $872,906 for the three months ended October 31,
2005, an increase of $2,733,762 mostly due to the increase in trading by
brokerage clients. For the nine months ended October 31, 2006, revenues from
foreign currency future operations were $6,335,914 compared to $2,325,452 for
the same period last year. The increase of $4,010,462 is due to the increase in
trading by brokerage clients.
1
The Company had a net gain of $1,942,705 for the three months ended October
31, 2006, as compared to a net income of $173,049 for the three months ended
October 31, 2005, an increase of $1,769,656. This increase related primarily to
an increase in trading by brokerage clients.
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 October 31, 2006 were
$27,563, as compared to $19,435 for the three months ended October 31, 2005, an
increase of $8,128.
Research and development expenses also increased for the nine month period
ended October 31, 2006. Research and development expenses for the nine month
period ended October 31, 2006 was $82,688 and $61,206 for the nine month period
last year, an increase of $21,482.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses were $1,889,303 for the three months ended October 31, 2006, as
compared to $602,949 for the three months ended October 31, 2005. This increase
of $1,286,354 was due to the increased administrative costs and a significant
increase in marketing of Forexcash, the Company's online trading platform.
Selling, general and administrative expenses for the nine month period
ended October 31, 2006 increased by $2,255,544 from the same period last year.
This increase was due primarily to the costs associated with administering and
marketing the operations of Forexcash, the Company's online trading platform.
Selling, general and administrative expenses for the nine month period ended
October 31, 2006 was $4,042,808 and $1,787,264 for the nine month period last
year.
LIQUIDITY AND CAPITAL RESOURCES
The Company increased its cash balance by $1,115,692 from a cash balance at
January 31, 2006 of $3,163,221 to $4,278,913 at October 31, 2006.
Net cash provided by operating activities amounted to $1,162,932 for the
nine months ended October 31, 2006, compared to net cash provided by operating
activities of $671,425 for the nine months ended October 31, 2005, an increase
of $491,507. The increase primarily resulted from a significant increase in net
income offset by an increase in operating liabilities compared to the same
period last year.
Net cash used in investing activities for the nine months ended October 31,
2006, was $162,832 as compared to net cash used in investing activities of
2
$28,065 for the nine months ended October 31, 2005, an increase of $134,767.
This increase primarily resulted from an increase in the acquisition of property
and equipment.
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. The
Company has sufficient funds to satisfy their cash requirements until October
2007 assuming the monthly expenses of the Company at $400,000. Of our $400,000
monthly expense, we foresee $100,000 covering the salaries, management and
administration of the Company with $110,000 covering the activity and operation
of the Company. The Company intends to try to obtain additional funds when
necessary 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.
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 fourth quarter of 2006.
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
3
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.
4
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. In addition, the sale of products manufactured in Israel
may be adversely affected in certain countries by restrictive laws, policies or
practices directed toward Israel or companies having operations in Israel. The
continuation or exacerbation of violent conflicts involving Israel and other
nations may impede the Company's ability to sell its products in certain
countries. In addition, some of the Company's employees in Israel are subject to
being called upon to perform military service in Israel, and their absence may
have an adverse effect upon the Company's operations. Generally, unless exempt,
male adult citizens and permanent residents of Israel under the age of 54 are
5
obligated to perform up to 36 days of military reserve duty annually.
Additionally, all such residents are subject to being called to active duty at
any time under emergency circumstances. 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
6
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
During the three months ended October 31, 2006, there were no legal
proceedings against the Company.
7
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(A) SALES OF UNREGISTERED SECURITIES
There were no sales of unregistered securities in the quarter ended October 31,
2006.
ITEM 3. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the shareholders in the
quarter ended October 31, 2006.
ITEM 4. EXHIBITS AND REPORTS ON FORM 8-K
(A) THE FOLLOWING EXHIBITS ARE FILED AS PART OF THIS REPORT:
31.1 Section 302 certification
32.1 Section 906 certification
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
Date: December 13, 2006 /s/ Didier Essemini
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Didier Essemini
Chief Executive Officer