-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ONbExlbnNpeBLW2nxuq/b+RQq4rkQeuqopyoKVs3syyY9ROxyqnuKhRSMvHJIsD0 OqulCVejNjk8rFedtG2+5A== 0001104038-03-000007.txt : 20030728 0001104038-03-000007.hdr.sgml : 20030728 20030728162202 ACCESSION NUMBER: 0001104038-03-000007 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020731 FILED AS OF DATE: 20030728 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FINOTEC GROUP INC CENTRAL INDEX KEY: 0000831378 STANDARD INDUSTRIAL CLASSIFICATION: INVESTORS, NEC [6799] IRS NUMBER: 760251547 STATE OF INCORPORATION: NV FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 033-20966 FILM NUMBER: 03806324 BUSINESS ADDRESS: STREET 1: 110 WALL STREET SUITE 15C CITY: NEW YORK STATE: NY ZIP: 10005 BUSINESS PHONE: 2127018527 MAIL ADDRESS: STREET 1: 1825 EYE STREET, N.W., SUITE 400 CITY: WASHINGTON STATE: DC ZIP: 20006 FORMER COMPANY: FORMER CONFORMED NAME: ONLINE INTERNATIONAL CORP /NV/ DATE OF NAME CHANGE: 19990923 FORMER COMPANY: FORMER CONFORMED NAME: CONDOR WEST CORP DATE OF NAME CHANGE: 19920703 10QSB 1 main.txt QUARTERLY REPORT 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. 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 -----END PRIVACY-ENHANCED MESSAGE-----