-----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, C7yJpRqmFJIFhMqKA1Gx6rpVQN2fAIEDRkU3Stwr/nAAaEROFW0wakcmNfxVMwnk oiRWOkpGe3JDqgcgr3xpAA== 0001214659-05-001006.txt : 20050714 0001214659-05-001006.hdr.sgml : 20050714 20050714171910 ACCESSION NUMBER: 0001214659-05-001006 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20040430 FILED AS OF DATE: 20050714 DATE AS OF CHANGE: 20050714 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: 05955208 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 r7145110qsb.txt FOR THE QUARTER ENDED APRIL 30, 2004 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 April 30, 2004 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.) 18 West 33rd Street, Second Floor NY, NY 10001 - --------------------------------------------------------------------- (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 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 April 30, 2004 and January 31, 2004................... 1 Consolidated Statements of Operations Three months ended April 30, 2004 and 2003............. 2 Consolidated Statements of Cash Flows Three months ended April 30, 2004 and 2003 ............ 3 Notes to Consolidated Financial Statements.............4-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 8 Item 3. Quantitative and Qualitative Disclosures about Market Risk...................................... PART II. OTHER INFORMATION Item 1. Legal Proceedings...................................... 13 Item 2. Changes in Securities and Use of Proceeds.............. 13 Item 3. Submission of Matters to a Vote of Security Holders........................................ 13 Item 4. Exhibits and Reports on Form 8-K...................... 14 Signature.............................................. 14 FINOTEC GROUP, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED APRIL 30, 2004 FINOTEC GROUP, INC. AND SUBSIDIARIES CONTENTS
Consolidated Financial Statements: Balance Sheets - April 30, 2004 (Unaudited) and January 31, 2004 1 Statements of Operations - Three Months Ended April 30, 2004 and 2003 (Unaudited) 2 Statements of Cash Flows - Three Months Ended April 30, 2004 and 2003 (Unaudited) 3 Notes to Consolidated Financial Statements (Unaudited) 4-6
FINOTEC GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
April 30, 2004 (Unaudited) January 31, 2004 ------------------------------------------------------------------------------------------------------------------- A S S E T S Current Assets Cash and cash equivalents $ 1,105,963 $ 673,884 Marketable securities 494,414 413,562 Prepaid and other current assets 43,920 35,315 ------------------------------------------------------------------------------------------------------------------- Total Current Assets 1,644,927 1,122,761 Property and equipment, net 114,588 116,068 Note receivable 50,403 90,403 ------------------------------------------------------------------------------------------------------------------- Total Assets $1,809,288 $1,329,232 ------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Loan payable, related party $ 30,000 $ 30,000 Short term bank credit 594 - Accounts payable and accrued expenses 212,495 222,714 Income taxes payable - 2,932 Due to stockholder 68,432 58,500 Customers' deposits 1,385,940 819,217 Compensation reserve 13,241 13,460 Loan payable, employee 80,000 85,000 ------------------------------------------------------------------------------------------------------------------- Total Liabilities, All Current 1,790,702 1,231,823 ------------------------------------------------------------------------------------------------------------------- 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 Accumulated deficit (1,560,869) (1,465,466) Accumulated other comprehensive (loss) income (908) (17,488) ------------------------------------------------------------------------------------------------------------------- Total Stockholders' Equity 18,586 97,409 ------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $1,809,288 $1,329,232 -------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 1 FINOTEC GROUP, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED APRIL 30, 2004 2003 ----------------------------------------------------------------------------------------------------------------- Net Gain (Loss) from Foreign Currency Future Operations $274,884 $361,719 ----------------------------------------------------------------------------------------------------------------- Operating Expenses Selling, general and administrative 292,364 150,902 Research and development 20,684 29,425 ----------------------------------------------------------------------------------------------------------------- Total Operating Expenses 313,048 180,327 ----------------------------------------------------------------------------------------------------------------- Operating Gain (Loss) (38,164) 181,392 Other Income (Expense) Interest (expense), net 669 2,463 Financing(expense) income (57,908) 19,458 ----------------------------------------------------------------------------------------------------------------- Income (Loss) Before Income Taxes (95,403) 203,313 Income tax refund - 11,168 ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Net Income (Loss) $(95,403) $214,481 Weighted average number of common shares outstanding 34,985,241 34,985,241 ----------------------------------------------------------------------------------------------------------------- Basic and diluted income (loss) per common share * * ----------------------------------------------------------------------------------------------------------------- * Less than $.01 per share.
See accompanying notes to consolidated financial statements. 2 FINOTEC GROUP, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED APRIL 30, 2004 2003 - --------------------------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities Net income (loss) $(95,403) $214,481 Adjustment to Reconcile Net Income (Loss) to Net Cash (Used in) Provided by Operating Activities Depreciation 12,158 11,517 Changes in Operating Assets and Liabilities (increase) in prepaid and other current assets 8,605 11,717 (Decrease) in accrued expenses (28,145) (17,242) Decrease in income taxes payable (2,932) (10,897) Increase in customers' deposits 566,723 82,041 (Decrease) increase in other current liabilities 17,926 (25,232) Compensation reserve (219) - (Increase) in marketable securities (80,852) - Increase in due to stockholder 9,932 5,572 - --------------------------------------------------------------------------------------------------------------------- Net Cash Provided by (Used in) Operating Activities 390,583 271,957 - --------------------------------------------------------------------------------------------------------------------- Cash Flows from Investing Activities Collection of note receivable 40,000 56,617 Acquisition of property and equipment (13,119) (16,026) - --------------------------------------------------------------------------------------------------------------------- Net Cash Provided by Investing Activities 26,881 40,591 - --------------------------------------------------------------------------------------------------------------------- Cash Flows from Financing Activities Proceeds (Repayment) from loan payable, related party (5,000) 30,000 Proceeds from loan payable - 100,000 Short term bank Credit 594 - - --------------------------------------------------------------------------------------------------------------------- Net Cash (Used in) Provided by Financing Activities (4,406) 130,000 Effect of Foreign Currency Translation 19,020 (44,622) - --------------------------------------------------------------------------------------------------------------------- Net Increase in Cash and Cash Equivalents 432,079 267,926 Cash and Cash Equivalents - Beginning 673,884 695,859 - --------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents - Ending $1,105,693 $963,785 - --------------------------------------------------------------------------------------------------------------------- Supplemental Disclosure of Cash Flow Information Cash paid during the period for income taxes $2,932 $15,217 - --------------------------------------------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements.
3 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, 2004. 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 April 30, 2004, and the results of their operations and their cash flows for the three months ended April 30, 2004 and April 30, 2003. The results of interim periods are not necessarily indicative of the results that may be expected for the year ending January 31, 2005. 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, the Company has incurred continuing operating losses, has an accumulated deficit of $1,1,590,869 at April 30, 2004, and has a working capital deficit. Management anticipates that the cash requirements of the Company for the next twelve months will be met by increased revenues, which will result from an increased number of customers using the Company's foreign currency trading system. Reclassification Certain April 30, 2002 account balances have been reclassified to conform with the April 30, 2003 presentation. 4 FINOTEC GROUP, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- 1. Summary of Significant Accounting Policies (Continued) 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 assumed for the three months ended April 30, 2004 and 2003, because the effect of these securities is antidilutive. Recent Accounting Pronouncements In January, 2003, the Securities and Exchange Commission ("SEC") issued a final rule requiring enhanced disclosure of material off-balance sheet transactions, arrangements, and other relationships with unconsolidated entities that may have a material current or future effect on financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses. The rule also requires a tabular disclosure of future payments due under contractual commitments. The disclosure requirements will become effective for the Company's fiscal 2004 annual report on Form 10-K. The Company does not expect this pronouncement to have a material impact on its consolidated results of operations or financial position. 5 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 April 30, 2004 January 31, Lives (Years) (Unaudited) 2004 - --------------------------------------------------------------------------------------------------------------------- Computer equipment 3 $ 72,481 70,077 Purchased software 3 130,355 124,932 Office furniture and equipment 7 18,143 17,720 Leasehold improvements 10 56,805 58,135 --------------------------------------------------------------------------------- Total Property and Equipment at Cost 277,784 270,864 Less accumulated depreciation and amortization 116,196 154,796 --------------------------------------------------------------------------------- Property and Equipment - Net $114,588 $ 116,068 ---------------------------------------------------------------------------------
6 FINOTEC GROUP, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- 3. Comprehensive Income (Loss) The Company's comprehensive income (loss) is comprised of net income (loss) and foreign currency translation adjustments. Comprehensive income (loss) for the three months ended April 30, 2004 and 2003 is as follows:
Three Months Ended April 30, 2004 2003 - --------------------------------------------------------------------------------------------------------------------- Comprehensive income (loss) Net income (loss) $(95,403) $214,481 Foreign currency translation (908) (38,763) Comprehensive Income (Loss) $(96,311) $175,718 - ---------------------------------------------------------------------------------------------------------------------
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 ENDED APRIL 30, 2004 AND 2003 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 $274,884 for the three months ended April 30, 2004, as compared to a net gain from foreign currency future operations of $361,719 for the three months ended April 30, 2003, a decrease of $86,835. The Company had a net loss of $95,403 for the three months ended April 30, 2004, as compared to net income of $214,481 for the three months ended April 30, 2003, a decrease of $309,884. This decrease related primarily to an increase in selling, general and administrative expenses as well as an increase in financing expenses. 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 April 30, 2004 were $20,684, as compared to $29,425 for the three months ended April 30, 2003, a decrease of $8,741. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses were $292,364 for the three months ended April 30, 2004, as compared to $150,902 for the three months ended April 30, 2003. This increase of $141,462 was due to the increased administrative costs and increased marketing of Forexcash, the Company's online trading platform. LIQUIDITY AND CAPITAL RESOURCES The Company increased its cash balance by $432,079 from a cash balance at January 31, 2004 of $673,884 to $1,105,963 at April 30, 2004. This increase came primarily from an increase in customers' deposits. 8 Net cash provided by operating activities amounted to $390,583 for the three months ended April 30, 2004, compared to net cash provided by operating activities of $271,957 for the three months ended April 30, 2003, an increase of $118,626. The increase primarily resulted from a significant increase in customers' deposits offset by a decrease in marketable securities. Net cash provided by investing activities for the three months ended April 30, 2004, was $26,881 as compared to $40,591 for the three months ended April 30, 2003, a decrease of $13,710. This decrease primarily resulted from a decrease in the collection of a note receivable. 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 May 2005 assuming the monthly expenses of the Company at $76,000. Of our $76,000 monthly expense, we foresee $17,000 covering the salaries, management and administration of the Company with $59,000 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 first quarter of 2005. 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 9 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 10 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 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. 11 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 12 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 April 30, 2003, there were no legal proceedings against the Company. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (A) SALES OF UNREGISTERED SECURITIES The Company's Board of Directors approved the issuance of options for 33,018,483 shares of the Company's common stock to its chief executive officer, and approved the issuance of options for 2,000,000 shares of the Company's common stock to its chief operating officer. There was a shareholders meeting on March 17, 2004, and a majority of the shareholders voted in support of issuing the option. In addition, the Company placed before the stockholders a motion to amend the Company's Employee Stock Option Plan to increase the number of options available under the Plan. This motion was also approved. ITEM 3. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Board of Directors approved the issuance of options for 33,018,483 shares of the Company's common stock to its chief executive officer, and approved the issuance of options for 2,000,000 shares of the Company's common stock to its chief operating officer. There was a shareholders meeting on March 17, 2004, and a majority of the shareholders voted in support of issuing the option. In addition, the Company 13 placed before the stockholders a motion to amend the Company's Employee Stock Option Plan to increase the number of options available under the Plan. This motion was also approved. 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 (B) The Company filed a Preliminary Proxy Statement on January 30, 2004 and a Definitive Proxy Statement on February 13, 2004 with the SEC. The filings related to the shareholders meeting and the proposal relating to the amendment of the option plan and the issuance of options as specified above in Item 3. 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: July 14, 2005 /s/ Didier Essemini ---------------------------- Didier Essemini Chief Executive Officer 14 EX-31.1 2 ex311.txt Exhibit 31.1 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 14, 2005 /s/ Didier Essemini --------------------------- Didier Essemini Chief Executive Officer EX-32.1 3 ex321.txt Exhibit 32.1 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 14, 2005 /s/ Didier Essemini ----------------------------- Didier Essemini Principal Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----