History and Organization of the Company

9 Months Ended

Sep. 30, 2011

History And Organization Of Company

History and Organization of the Company

NOTE 1

History and Organization of the Company

Forex International Trading Corp. a development stage company and its subsidiaries and/or variable interests (“Forex”, “FXIT”, or the “Company”), a Nevada corporation, holds a 49.9% interest in Triple 8 Ltd (“Asset”), which is principally engaged in offering foreign currency market trading to non-US residents, professionals and retail clients over its web-based trading systems.

The Company’s shares of common stock currently are quoted on the Over the Counter Bulletin Board under the symbol FXIT. The Company’s headquarters is located in Haifa, Israel. The CUSIP number for the Company is 34631J104 and the ISIN number is – US34631J1043

The Company maintains a corporate website under the domain www.forex-international-trading.com.  

Overview

The Company was incorporated on July 22, 2009 as a development stage company under the laws of the State of Nevada. On September 9, 2009 the Company filed Form S-1 Registration Statement  for registration of securities under the Securities Act of 1933 with the SEC, which became effective on March 5, 2010.

On March 24, 2010 the Company incorporated its wholly-owned subsidiary in the State of Israel (“Forex Sub”). To date, Forex Sub has not commenced operations, and only accepts bank deposits on behalf of investors, as authorized by the Company. Forex Sub is fully consolidated into these financial statements. The Company intends to sell Forex Sub or dissolve it as it is presently not in operation.

On April 23, 2010, the Company entered into an Employment Agreement (the “Agreement”) with Darren Dunckel (“Executive”) whereby the Company will employ Executive as its Chief Executive Officer for a term of two years (the “Term”).  Executive does not have any family relationship with any director, executive officer or person nominated or chosen by the Company to become a director or executive officer In addition, Executive has been appointed as a member of the Board of Directors of the Company.  For his services during the Term as Chief Executive Officer, the Company will pay Executive a salary of $120,000 to be paid on a monthly basis at a rate of $10,000 per month.  Executive will also be granted a signing bonus consisting of 4,000,000 shares of common stock of the Company upon signing the Agreement.  Additionally, if the Company generates net income of at least $1,000,000 during any fiscal year during the Term, the Company will pay the Executive an annual bonus in the amount of $100,000.  Executive will also receive during the Term such medical, health and disability insurance as the Company provides to its executive officers, two weeks of vacation in each calendar year and eligibility to participate in such pension, profit-sharing, retirement and other benefits as are available to executive officers of the Company (See Subsequent Events).

On July 29, 2010, Stewart Reich was elected as a member of the Board of Directors of the Company.   Mr. Reich was initially to receive on an annual basis at the commencement of each term shares of common stock of the Company registered on a Form S-8 Registration Statement equal to $6,000 divided by the Company’s market price discounted by 25%.

On August 5, 2010, Mr. William Glass was elected as members of the Board of Directors of the Company, which such appointment was accepted by Mr. Glass on August 9, 2010.   Mr. Glass was initially to receive, on an annual basis at the commencement of each term, shares of common stock of the Company registered on a Form S-8 Registration Statement equal to $6,000 divided by the Company’s market price discounted by 25%.

On March 4, 2011, the Company amended the Director Agreements by and between the Company and William Glass and Stewart Reich whereby Mr. Glass and Mr. Reich will each receive shares of common stock of the Company equal to $12,000 divided by the Company’s market price discounted by 25% on an annual basis.  The shares of common stock will be restricted as required under the Securities Act of 1933, as amended (See Subsequent Events).

On November 17, 2010, the Company entered into a Share Exchange Agreement (the “APH Agreement”) with a third party foreign company A.P. Holdings Limited (“APH”) pursuant to which the Company agreed to acquire 17,924 ordinary shares of Triple 8 Ltd, which is a currency trading platform organized under the laws of Cyprus (“Asset”, “Operation Unit”, “Variable Interests” or “VI”).  The securities acquired from APH represent approximately 45% of the issued and outstanding securities of the Operating Unit.   Pursuant to the APH Agreement, in consideration for the securities of VI, the Company agreed to issue 36,000,000 shares of common stock of the Company as well as a 6% Convertible Note in the principal amount of $1,200,000 due February 15, 2011 (the “APH Note”).  On December 30, 2010, the Company and APH entered into an amendment to the APH Agreement whereby the number of shares to be delivered by the Company was reduced from 36,000,000 to 25,000,000.  Further, on December 30, 2010, in order to expedite the transaction and avoid further dilution of the existing shareholders, Medirad Inc. and Rasel Ltd., both shareholders of the Company, have agreed to return an aggregate of 70,000,000 shares of common stock to the Company for cancellation upon closing of the APH Agreement.  The above transaction closed on December 30, 2010. The Company has since defaulted on its note payable to APH in connection with the acquisition of the Operating Unit.  The note was due on February 15, 2011, but by settlement agreement between the companies, was amended and extended to mature on June 30, 2011. As of the date of these financial statements contained herein, the Company is in default on the APH Note for the second time. The Company been notified by APH that it sold its note to third parties. The Company is in negotiations with APH (for the benefit of the Note Holders - third parties) to resolve the default.  There is no guarantee that a settlement will be reached in this matter.

On or about December 31, 2010 and January 5, 2011, the Company closed a private placement memorandum and issued 3,655,631 restricted shares to accredited investors at an aggregate purchase price of $548,345.  The shares of common stock were offered and sold to the investors in a private placement transaction made in reliance upon exemptions from registration pursuant to Section 4(2) under the Securities Act of 1933 (the “Securities Act”) and/or Rule 506 promulgated under the Securities Act. The investors are accredited investors as defined in Rule 501 of Regulation D promulgated under the Securities Act.  Of these shares, 3,466,666 were issued as of December 31, 2010, for an aggregate purchase price of $520,000, and the remaining 188,965 were issued during the first quarter of 2011.

On January 17, 2011 the Company issued to a third party Core Consulting Group (“Core”) 700,000 restricted shares as part of the Company consideration under consulting agreement. Core is serving as the Company Investor relations firm. Core’s efforts to build the Company’s brand in the marketplace and raise awareness about the company were treated as a capitalized expense in these financial statements under Other Assets.

On or about January 18, 2011 the Company issued 324,234 common shares pursuant to the Forex Note to AT Limited (“ATL”) to offset $71,736 of expenses that were paid in cash.  The note payable to ATL was reduced by $71,736 as a result.   The Company did not deliver the shares to ATL (See Subsequent Events).

On January 18, 2011, Mrs. Liat Franco was appointed by the Company to serve as the Secretary of the Company.   On March 4, 2011, the Company entered into an Employment Agreement (the “Employment Agreement”) with Liat Franco whereby the Company will employ Ms. Franco as its Secretary for a term of one year (the “Term”).   For her services during the Term as Secretary, the Company will issue Ms. Franco 15,000 shares of common stock of the Company, which will have a restrictive legend under the Securities Act of 1933, as amended.  In the event that the Term of the Employment Agreement is extended, then the number of shares of common stock will be determined by dividing $6,000 by the market price on the first trading day of the Term (See Subsequent Events).

On February 23, 2011, the Company entered into a Securities Purchase Agreement with a third party, LLC organized under the jurisdiction of New York (“Wheatley”), pursuant to which the Company to acquire fifty percent (50%) of the issued and outstanding   membership interest of Wheatley (the “Wheatley Interest”) on a fully diluted basis. In consideration for the Wheatley Interest, the Company agreed to issue and sell to Wheatley 1,125,000 shares of common stock of the Company. Wheatley is a limited liability company organized under the laws of the State of New York with headquarters located at One Grand Central Place. Wheatley is an NFA Registered Introducing Broker (IB), Forex Firm and Commodity Trading Adviser (CTA).  Prior to that, on December 18, 2010, the Company entered into a Securities Purchase Agreement with affiliated corporation to Wheatley (“Forex NYC”) pursuant to which the Company acquired twenty percent (20%) of the issued and outstanding equity of Forex NYC (the “FNYC Interest”) on a fully diluted basis.  In consideration for the FNYC Interest, the Company issued and sold to Forex NYC 1,000,000 shares of common stock of the Company. On February 23, 2011, the Company entered into additional Securities Purchase Agreement with Forex NYC, pursuant to which the Company agreed to acquire an additional thirty percent (30%) of the issued and outstanding membership interest of Forex NYC (the “FNYC Interest”) on a fully diluted basis. In consideration for the additional FNYC Interest, the Company agreed to issue and sell to Forex NYC 675,000 shares of common stock of the Company.

A dispute has arisen between the Company and Wheatley and Forex NYC.  Due to the failures of Wheatley and Forex NYC to deliver the required conditions under the agreement and especially failure to provide audited financial statements prepared in accordance with US GAAP, it is the Company’s position that the agreements entered February 23, 2011 are void and, as a result, the closings of such interest in Wheatley and Forex NYC did not occur. On or about May 4, 2011, Mr. Michael Weissman notified the Company on potential defaults associated with the agreements the Company entered with Wheatley and/or Forex NYC. The Company’s position is that Mr. Weissman, Forex NYC and Wheatley are in default with the agreements it entered with the Company. On May 9, 2011, Mr. Weissman resigned as vice president from the Company effective immediately. Mr. Weissman verbally notified the Company that he sold certificate number 213 representing 1,000,000 shares issued to Forex NYC.  The Company does not believe this sale is valid as this certificate is an asset of Forex NYC, and cannot be sold without the consent of Forex NYC. The Company and Mr. Weissman have entered negotiations to try and resolve the issues.  As a result of said negotiations, on July 2011, the Company and the Forex NYC and Wheatley parties unwound the above transactions. Forex NYC returned their 1,000,000 shares to the Company for cancellation. Due to the fact that the Company knew that there the shares would be surrendered, the shares have been treated as returned to Treasury Stock at June 30, 2011.

As part of finalizing the Wheatley and Forex NYC acquisitions, on February 24, 2011 the Company entered into a consulting agreement for M&A activities with Cross Point Capital Advisors (“Cross Point”).  The Company agreed to pay Cross Point a consulting fee of $150,000 in cash plus retainer of $9,500 per month for the next 18 months commencing on April 1, 2011 for bringing the Company M&A-related opportunities, and for structuring and advising the Company on those opportunities, pending the closing of the Wheatley and FOREX NYC transactions.  Due to the fact that the Wheatley and FOREX NYC transactions did not close, the Company has not commenced paying the agreed-upon monthly fees to Cross Point. The Company recorded the $150,000 fee, which was paid by the Company as prepaid expenses.

On March 28, 2011 the Company approved issuing to an individual third party William Jordan ("WJ") 10,000 restricted shares as part of the Company consideration under consulting agreement. WJ served as consultant to the Company.

On April 5, 2011, the Company entered into a Share Exchange Agreement with a third party foreign company H.A.M. Group Limited (“HAM”) pursuant to which it acquired 1,996 ordinary shares of VI  from HAM representing 5% of the issued and outstanding ordinary shares of VI.  After taking into account the effect of this Agreement with HAM, the Company presently owns approximately 49.9% of VI.  In consideration of the shares, the Company issued HAM 12,000 shares of Series A Preferred Stock and a 6% Convertible Debenture due June 30, 2011 for the amount of $600,000 (the “HAM Note”).  The Series A Preferred Stock has a stated value of $100 per share and is convertible into our common stock at a conversion price of $0.30 per share representing 4,000,000 shares of common stock.  Further, the Series A Preferred Stock votes on an as-converted basis multiplied by three and carries standard anti-dilution rights.  The Series A Preferred Stock does not carry preferential liquidation rights.  The Company been notified by HAM that it has sold its note to third parties.  The Company is in negotiations with HAM (for the benefit of the third parties) to resolve the default.  There is no guarantee that a settlement will be reached in this matter.

On April 5, 2011, the Company and an individual Mr. Poropat (”MP”), a shareholder of the Company, entered into an agreement whereby the parties agreed to convert a $200,000 6% Convertible Debenture, which was in defaultand was assigned by APH to MP, into 2,500,000 shares of common stock. MP transferred his shares to a third party.

On April 5, 2011, the Company and APH, which owned 33,000,000 shares of common stock and a 6% Convertible Debenture in the amount of $1,000,000, entered into an agreement whereby APH agreed to extend the maturity date of the APH Note from February 15, 2011 to June 30, 2011.  Furthermore, APH agreed that its right to return 16,000,000 shares of common stock to the Company in the issued and outstanding securities of VI  is of no force and effect.  In consideration of the above, the Company agreed to return the 33,000,000 shares of common stock held by APH to treasury and issue APH 100,000 shares of Series A Preferred Stock.  The Series A Preferred Stock has a stated value of $100 per share and is convertible into our common stock at a conversion price of $0.30 per share representing 33,333,333 shares of common stock.  Further, the Series A Preferred Stock votes on an as-converted basis multiplied by three and carries standard anti-dilution rights.  The Series A Preferred Stock does not carry preferential liquidation rights.

As previously disclosed in the Company’s Quarterly Report for the quarter ended June 30, 2011, the HAM Note and the APH Note were in default and the parties were negotiating a further extension of the maturity date of the HAM Note and the APH Note.  The APH Note was assigned to a third party. On September 29, 2011, the Company received a formal notice of default from the holders of the HAM Note and the APH Note demanding payment of the notes and advising that they intend to take immediate legal action against the Company.  As a result of the default, the holder of the APH Note is entitled to demand the delivery of shares of VI held by the Company as consideration for the cancellation of the APH Note and the return of shares of common and preferred shares, which the Company used to pay for the acquisition, to Treasury. This matter is being negotiated in connection with the settlement talks of the APH and HAM Notes, which are currently in default.

Risk Management

Overview

The Company has exposure to credit risk, liquidity risk and market price risk. The company's Management has overall responsibility for the oversight of the Company's risk management within parameters established by the board of Directors. Triple activities, given the above mentioned risks, are monitored and managed as follows:

Credit risk

Credit risk is the risk of financial loss to the Company if a client fails to meet its margin requirements due to a loss of funds. Clients are required to deposit cleared funds as margin before they can trade. If the clients' margin falls below the minimum margin requirement to maintain a position, they will be issued a margin call.

The clients either have to increase the margin that they have deposited by providing additional funds or to reduce and/or close out their position. At any point the clients' account is in a status of margin call, the company may, at its discretion, liquidate some or all of that client's positions in order to bring them back into line with their margin requirements. The company also has potential credit risk exposure to market counterparties with which it hedges and with banks that hold company's funds and customers' funds. The Company manages a number of accounts with leading international banks and brokers and does not expect such counterparties to fail to meet their obligations.

Liquidity risk

The liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company's reputation. The company continuously monitors its working capital adequacy, including forecast and actual gross profit and cash flows from operations.

Market price risk

Market risk arises from open contracts with customers and counterparties. Exposure to market risk is closely monitored in accordance with limits, and reduced through hedging with other institutions. (i.e. clearing the contracts and recognize a loss or revenue from actions in derivative financial instruments). The company is exposed to currency risk for its financial assets and liabilities which are denominated predominantly in US dollars. The gains and losses arising from the company's exposure are recognized in the profit and loss account.

Dodd-Frank Act - Other Risks

The Company is principally engaged via its subsidiaries and/or affiliates in offering foreign currency market trading to non-US residents. As such, the Company has blocked traffic from the US and periodically reviews its client list to make sure that US residents are not trading on its platforms. The Company recently received a notice from the Commodities and Future Trading Commission (“CFTC”) alleging that the Company was offering its services to US residents, in violation of CFTC rules.  As a response to that letter, the Company investigated its operations, and identified about 33 US residents which were able to open accounts during gaps while upgrading the platform, and then closed their accounts and returned their money to them. The platforms were also upgraded to close any loopholes and to block US traffic more tightly.  Due to the fact that the Company has no US-based customers, and has blocked US-based customers, the Company position is that it is not subject to the Dodd-Frank Act. As the Company is having intensive negotiations to potentially acquire an interest in a registered Broker Dealer within the US, it is making the following disclosure:

Under the Dodd-Frank Act, a currency conversion carried out by a Broker Dealer (“BD”) in connection with a securities purchase for a retail customer, could be interpreted as a "financing" due to the settlement risk. As a result, to the extent that the statute was meant to be interpreted in this way, BDs would not be eligible to carry out those conversions for retail customers after July 16, absent Securities and Exchange Commission (“SEC) relief. While a BD could avoid this result by settling the foreign currency conversion T+2 ahead of the T+3 settlement for the security, that approach would impose additional market risk on either the customer or BD, depending upon how the one-day pricing risk was allocated. Although the CEA provides that enumerated regulated entities may act or offer to act as counterparty in retail forex transactions, the Dodd-Frank Act added Section 2(c)(2)(E)[9] to the CEA, which provides that an otherwise regulated entity, such as a bank or BD, for which there is a federal regulator, may not offer or enter into retail forex transactions unless offered pursuant to rules of the applicable federal regulator.[10] The applicable regulator for BDs is the SEC. However, to date, the SEC has not published rules and the staff has informally suggested that the SEC is not likely to do so. As a result, as of July 16, 2011, BDs will no longer be able to effect transactions to purchase or sell currency for their retail customers, unless the currency transaction will be physically settled in two business days or otherwise falls outside the coverage of the CEA (in instances where the transaction is not leveraged, margined, or financed). The CEA does not include exemptions for hedging or de minims transactions. The prohibition on soliciting and transacting in retail forex applies to every type of BD. As a result, clearing firms will not be able to facilitate retail forex trades for customers of their U.S. and foreign correspondents. A correspondent BD would not be allowed to handle execution of retail foreign exchange itself (through its institutional foreign exchange desk) unless the customers are ECPs. BDs that direct retail forex to another entity that is appropriately registered for the business (e.g., Futures commission merchants (“FCM”)) would not be affected. The CFTC's ability to fix this problem is limited. The CFTC is not allowed to regulate or have its rules apply to a BD. The CEA expressly provides that a BD may not qualify to carry out this activity by routing the business through an FCM that is part of the BD. In its forex rules, the CFTC has similarly provided that a BD may not address the problem by dually registering as a Forex Dealer.[11] As a result, unless the SEC acts, retail forex may only be conducted by a regulated entity that is outside of a BD. BDs who currently conduct retail forex transactions for their customers should work with their customers to open separate accounts for the business at an FCM, bank, or Forex Dealer. In terms of legacy transactions, it is not clear whether or not they would continue to be enforceable and legal if carried by the BD. As a result, absent SEC relief, BDs may want to consider novating them to a properly regulated FCM, bank, or Forex Dealer. Investment advisers are also impacted by these rules. Under the CEA and CFTC rules, a person who exercises discretionary authority over a retail forex account carried at an FCM or Forex Dealer must itself register as a CTA.

The CEA excludes from this requirement other regulated entities that are permitted to act as counterparty to retail transactions, but does not exclude registered investment advisers. Since BDs will no longer be a type of authorized entity for such activity, financial advisers and other types of registered investment advisers (RIAs) will no longer be able to advise retail customers on foreign exchange transactions conducted through an FCM or Forex Dealer unless they are licensed as a CTA with the CFTC. To the extent that the retail foreign exchange transactions on which an adviser provides advice are executed through a bank, a discretionary adviser will not be required to register as a CTA.