-----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, KotgAjeiWun0tF77dCb2ndaodxql+uni1dCSt9tgP8C2dE18qEajQMwLjm5b+X8/ cwT0d/SQbcF7LjfSwSPB/w== 0001214659-05-001487.txt : 20060913 0001214659-05-001487.hdr.sgml : 20060913 20051014160828 ACCESSION NUMBER: 0001214659-05-001487 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20050131 FILED AS OF DATE: 20051014 DATE AS OF CHANGE: 20051018 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: 10KSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 033-20966 FILM NUMBER: 051139070 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 10KSB/A 1 d9165110ksb.txt FISCAL YEAR ENDED JANUARY 31, 2005 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB/A AMENDMENT NO. 1 Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the fiscal year ended January 31, 2005 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.) 350 Fifth Avenue, Suite 2712 , New York, NY 10018 - -------------------------------------------------------------------------------- (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 [ ] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B in this form, and no disclosure will be contained, to the best of Registrant's knowledge, in definitive proxy or information statements by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] State Issuer's Revenues for its most recent fiscal year. $1,620,286 Aggregate market value of the voting stock held by non-affiliates of registrant: $0 as of January 31, 2005 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. 1 TABLE OF CONTENTS PART I PAGE Item 1. Organization and Business 3 Item 2. Properties 22 Item 3. Legal Proceedings 22 Item 4. Submission of Matters to a Vote of Security-Holders 23 PART II Item 5. Market for the Registrant's Common Stock and 23 Related Stockholder Matters Item 6. Management's Discussion and Analysis of Financial 24 Condition and Results of Operations Item 7. Financial Statements and Supplementary Data 29 (Included in Item 14) PART III Item 8. Changes in and Disagreements with Accountants on 31 Accounting and Financial Disclosure Item 9. Directors and Executive Officers of the Registrant 31 Item 10. Management Remuneration 32 Item 11. Security Ownership of Certain Beneficial Owners and 33 Management Item 12. Certain Relationships and Related Transactions 35 PART IV Item 13. Exhibits, Financial Statements, Schedules and Reports 36 on Form 8-K 2 Item 1. Organization and Business Finotec Group, Inc. (the "Company" or "Finotec") was formed under the laws of Nevada on October 8, 1987, under the name "Condor West Corporation" for the purpose of implementing an initial distribution of its stock and thereafter to seek operating businesses as potential candidates for acquisition or other forms of combination. The Company had no operations for a period of over three years when it did a share for share merger and became Online International Corporation in September, 1999. As Online International Corporation the Company was in the business of designing, printing, and manufacturing lottery tickets and play slips for automated on-line contractors and on track and off-track betting until May 10, 2000 when the Board of Directors formalized its decision to discontinue operations. On July 17, 2000 the Company sold all of its assets for a combination of cash, notes and the assumption of debts by the purchasers. On August 9, 2001, the Company purchased Finotec, Ltd. (formerly known as Priory Marketing Ltd.) in exchange for 21,500,000 common shares, representing approximately 62% of the Company's issued and outstanding voting shares. The consideration paid by the Holding Company ("Finotec, Ltd.") in exchange for the stock of the Registrant was all of the outstanding capital stock of Finotec, Ltd., an Isle of Man company. Finotec, Ltd. owns 99.7% of the issued and outstanding shares of capital stock of Forexcash Global Trading Ltd. ("Forexcash"), an Israeli company, which is the owner of certain software, equipment, intellectual property and contracts. Via Forexcash, the Company is in the business of developing and marketing software for electronic trading of foreign currency through the Internet. In February, 2002, the Company changed its name to Finotec Group, Inc. to better reflect its current business operations. The Company is fully reporting under The Securities Exchange Act of 1934. As a fully reporting company under The Securities Exchange Act of 1934, the Company is required to file quarterly and annual and certain event triggered reports with the Securities and Exchange Commission. These reporting requirements add to the expense and timeliness of certain business transactions which the Company may endeavor to undertake in the future -- such as a merger or any other material business undertaking. The Company's Common Stock trades on the OTC Pink Sheets (OTC:PINK), under the trading symbol "FTGI." The public may read and copy this document, and any other materials the Company files with the Commission at the Commission's Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549. Information is available on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. Additionally, the Commission maintains an internet site (http://www.sec.gov) that contains all reports, proxy and information statements, and other information regarding companies which file electronically. The Company currently develops, markets and operates a software system delivering foreign exchange investment services to the general public via the internet. The Company has developed and operates an Internet-based brokerage firm for institutional, professional and serious active individual traders in the foreign currency market. The Company's brokerage firm offers an electronic trading platform which seamlessly integrates strategy trading tools, historical and streaming real-time market data, and direct-access order-routing and execution. Direct-access trading means, with respect to transactions in spot foreign exchange transactions, direct Internet connections to Finotec's electronic platform where Finotec acts as a market maker for its customers based on the prices traded in the Interbank market. With respect to forward foreign exchange transactions, it means that Finotec offers non-deliverable futures currency contracts that Finotec usually clears itself using Finotec technology and the futures clearing firm's online execution system which implements an electronic order placement and execution. When there is no compensation inside the system with its customers, Finotec turns to other institutions to clear the 3 contract. The Company offers its customers spot trading through the Internet and is currently exploring the possibility of offering the trading of futures contracts as well as other financial instruments to its customers. Under the Company's business model, the Company seeks recurring revenues by offering, through its financial software product, Forexcash (and its planned enhanced versions), spread-earning based brokerage services with no commission and no cost to its customers. Forexcash is a front and back office market maker application for online real-time trading in foreign currencies. The Company intends to use its capability to provide strategy trading tools, and the unique quality and functionality of those tools, to build a high-quality brokerage customer base of institutional, professional and serious active individual traders. The Company also intends to sell licenses to its trading system directly through financial institutions such as commercial banks. The Company will also provide training in online foreign currency trading as well as offer its customers the option of wireless trading of foreign currencies. THIS REPORT (PARTICULARLY "ITEM 1. BUSINESS" AND "ITEM 5. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS") 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. SEE "ITEM 5. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - FORWARD-LOOKING STATEMENTS; BUSINESS RISKS." INDUSTRY BACKGROUND Over the past decade, the volume of trading in the world's foreign exchange market has grown dramatically. The average daily trading volume is more than $1.5 billion dollars. Recently, even more dramatic than the growth in the foreign exchange markets, has been the explosive growth of direct-access trading through electronic marketplaces. We believe that one of the reasons for this explosive growth is the growing presence of direct-access trading solutions. We believe that technological innovation, including development of sophisticated trading software tools, increased use of and reliance upon the Internet, proliferation of online financial market data and information, and market acceptance of electronic brokerage services, including direct-access brokerage services, will continue to stimulate increased online trading activity. There are, according to JPMorgan H&Q, approximately 20 million online brokerage accounts in the U.S. today, and we believe it to be inevitable that over time almost all trading will be conducted electronically, in one form or another. We believe that direct access is expected to become the industry standard for online trading. The recent acquisitions by virtually every major online brokerage firm of direct-access technology underscores this reality. 4 However, not all accounts are alike. Analysts have estimated that daily online trading volume is highly concentrated in the most actively-traded online accounts. The design of Forexcash has been focused on this "active trader" market, as well as professional and institutional traders, such as small-sized to mid-sized commercial banks. With the proliferation of online brokerage services (and, now, the more powerful and efficient direct-access online brokerage services), the increased accessibility to market data, and the rapidly-growing capabilities of the Internet, we believe that serious, active traders, professional and non-professional, are demanding powerful, Internet-based, real-time strategy trading platforms that are seamlessly integrated with the best-available order execution technology. We believe that these traders desire a complete, institutional-quality, Internet-based, trading platform that includes analytical tools which support the design and testing of custom trading strategies, the automation of those strategies in real-time, and the instantaneous execution of those strategies through state-of-the-art direct-access electronic order execution systems. PRODUCTS AND SERVICES OVERVIEW -- Forexcash Our main product/service offering is the Forexcash trading platform, complete with direct-access order execution services, for institutional, professional and serious, active individual traders. Forexcash enables the user to design, test and automate his own custom trading strategies. SOFTWARE PRODUCTS AND SERVICES Forexcash is our flagship product. It is a front and back office market maker application for online real-time trading in the foreign currency market. Forexcash gives spot and forward transaction prices with real-time execution capabilities for most kinds of currency pairs. Currently we have implemented the most liquid currency pairs. Forexcash's application servers were developed in Java Sun. We believe the Java Sun application is compatible with most operating systems and using it provides us the opportunity to offer numerous advantages such as ready to use software where no installation is necessary. The Java Sun application assists with the security of the data transfers, the offering of real-time information and the technical analysis capabilities. The communication in the system between the client applet and the servers are encrypted with the RSA protocol based on an algorithm that we developed ourselves. 5 BROKERAGE SERVICES Finotec offers online brokerage services, covering foreign currency transactions, through the Forexcash trading platform. Finotec's targeted customer base for foreign exchange brokerage services includes active individual, professional and institutional traders. Finotec rarely charges a commission on its customers' Foreign currency transactions. It earns the spread between the Bid and Ask price when there is some compensation inside the system, or the price difference between the customers transaction price and the bank price. Finotec also runs a small portfolio of uncovered customers transactions. In January 2002, we launched the Forexcash trading platform. The Forexcash service includes our strategy trading features and functions, streaming real-time charts and quotes, streaming news, state-of-the-art analytical charting, time and sales data, quote lists, option chains, market leaders data, profit/loss tracking, and wireless access. SALES AND MARKETING In Israel, Finotec uses the services of the advertising company Linial DDB to reach targeted customers through advertising campaigns. Finotec intends to develop partnerships with other companies to promote foreign exchange trading. We intend to negotiate with financial newspapers to set up news on foreign exchange trading in their newspapers or on their internet site. We also intend to negotiate with business schools to get them to offer foreign exchange and over the counter futures courses in their schools in association with our Company and using our trading platform. MARKET DATA SERVICES. The real-time market data included in Forexcash are licensed from Standard and Poors. TECHNOLOGY DEVELOPMENT We believe that our success depends, in large part, on our ability to offer unique, Internet-based strategy trading technologies with state-of-the-art, intelligent direct-access order execution technologies, and continuously enhance those technologies, as well as develop and implement a well-designed and user-friendly Web site. We intend to consistently improve our system and implement new features and protocols. For instance, we are currently incorporating a new technology into our system that will give our system the benefit of more design capabilities in addition to not requiring downloads of plug-ins. By eliminating plug-ins, the customer will be able to access the trading platform through firewalls on the computer. 6 We are also working to improve the style of the trading platform, making it more user-friendly. A further technological development we are exploring is adding chat capabilities to our system. This would allow our customers to communicate amongst themselves as well as with our traders. We are also working to improve our wireless technology which allows our customers to execute their trades directly from their cellular phones. To date, we have relied primarily on internal development of our products and services. We currently perform all quality assurance and develop user education and other training materials internally. In the future, we may continue to develop our technology internally or use outsourcing resources. The market for strategy trading tools, streaming real-time market data and news services, and online order execution services is characterized by: rapidly changing technology; evolving industry standards in computer hardware, programming tools and languages, operating systems, database technology and information delivery systems; changes in customer requirements; and frequent new product and service introductions and enhancements. Our success will depend in part upon our ability to develop and maintain competitive technologies and to develop and introduce new products, services and enhancements in a timely and cost-effective manner that meets changing conditions such as evolving customer needs, existing and new competitive product and service offerings, emerging industry standards and changing technology. There can be no assurance that we will be able to develop and market, on a timely basis, if at all, products, services or enhancements that respond to changing market conditions or that will be accepted by customers. Any failure by us to anticipate or to respond quickly to changing market conditions, or any significant delays in the introduction of new products and services or enhancements could cause customers to delay or decide against the use of our products and services and could have a material adverse effect on our business, financial condition and results of operations. CUSTOMER SUPPORT AND TRAINING We provide client services and support and product-use training in the following ways: CUSTOMER SERVICES AND SUPPORT. Finotec provides telephone customer services to its brokerage customers through a customer services team. Technical support to subscription and brokerage customers who use Forexcash is provided by Finotec's technical support team via telephone, electronic mail and fax. PRODUCT-USE TRAINING. We consider user education important to try to help our customers increase their ability to use our products and services fully and effectively. The majority of our training materials consist of extensive online documentation and technical assistance information on our Web sites so that our customers may learn to use and take full advantage of the sophisticated technology of Forexcash. 7 COMPETITION The market for foreign exchange online brokerage services is intensely competitive and rapidly evolving, and there appears to be substantial consolidation in the industry of online brokerage services, Internet-based real-time market data services, and trading analysis software tools. We believe that due to the current and anticipated rapid growth of the market for integrated trading tools, real-time market data and online brokerage services, competition, as well as consolidation, will substantially increase and intensify in the future. We believe our ability to compete will depend upon many factors both within and outside our control, including: pricing; the timing and market acceptance of new products and services and enhancements developed by us and our competitors; our ability to design and support efficient, materially error-free Internet-based systems; market conditions, such as recession; product and service functionality; data availability; ease of use; reliability; customer service and support; and sales and marketing efforts. We face direct competition from several publicly-traded and privately-held companies, principally online brokerage firms, including providers of direct-access order execution services. Our competitors include many foreign exchange online brokerage firms currently active in the United States. Many online brokerage firms currently offer direct-access service. Many of our existing and potential competitors, which include online discount and traditional brokerage firms, and financial institutions that are focusing more closely on online services, including direct-access services for active traders, have longer operating histories, significantly greater financial, technical and marketing resources, greater name recognition and a larger installed customer base than we do. Further, there is the risk that larger financial institutions which offer online brokerage services as only one of many financial services may decide to use extremely low commission pricing in the foreign currency market to acquire and accumulate customer accounts and assets to derive interest income and income from their other financial services. We do not currently offer other financial services; therefore, such pricing techniques, should they become common in our industry, could have a material, adverse effect on our results of operations, financial condition and business model. Generally, competitors may be able to respond more quickly to new or emerging technologies or changes in customer requirements or to devote greater resources to the development, promotion and sale of their products and services than we do. There can be no assurance that our existing or potential competitors will not develop products and services comparable or superior to those developed and offered by us or adapt more quickly than us to new technologies, evolving industry trends or changing customer requirements, or that we will be able to timely and adequately complete the implementation, and appropriately maintain and enhance the operation, of our business model. Increased competition could result in price reductions, reduced margins, failure to obtain any significant market share, or loss of market share, any of which could materially adversely affect our business, financial condition and results of operations. There can be no assurance that we will be able to compete successfully against current or future competitors, or that competitive pressures faced by us will not have a material adverse effect on our business, financial condition and results of operations. 8 INTELLECTUAL PROPERTY Our success is and will be heavily dependent on proprietary software technology, including certain technology currently in development. We view our software 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 establish and protect our proprietary rights. We have obtained trademark registrations for the Finotec and Forexcash mark. Despite our efforts to protect our proprietary rights, unauthorized parties copy or otherwise may obtain, use or exploit our software or technology independently. Policing unauthorized use of our software technology is difficult, and it is extremely difficult to determine the extent to which piracy of software technology exists. Piracy can be expected to be a persistent problem, particularly in international markets and as a result of the growing use of the Internet. In addition, effective protection of intellectual property rights may be unavailable or limited in certain countries, including some in which we may attempt to expand sales efforts. There can be no assurance that the steps taken by us to protect our proprietary rights will be adequate or that our competitors will not independently develop technologies that are substantially equivalent or superior to ours. There has been substantial litigation in the software industry involving intellectual property rights. We do not believe that we are infringing, or that any technology in development will infringe, the intellectual property rights of others. The risk of infringement by us is heightened with respect to our business model technology, as that technology has not stood any significant test of time. There can be no assurance that infringement claims would not have a material adverse effect on our business, financial condition and results of operations. In addition, to the extent that we acquire or license a portion of the software or data included in our products or services from third parties ( data is licensed from third parties), or market products licensed from others generally, our exposure to infringement actions may increase because we must rely upon such third parties for information as to the origin and ownership of such acquired or licensed software or data technology. In the future, litigation may be necessary to establish, define, enforce and protect trade secrets, copyrights, trademarks and other intellectual property rights. We may also be subject to litigation to defend against claimed infringement of the rights of others or to determine the scope and validity of the intellectual property rights of others. Any such litigation could be costly and divert management's attention, which could have a material adverse effect on our business, financial condition and results of operations. Adverse determinations in such litigation could result in the loss of proprietary rights, subject us to significant liabilities, require us to seek licenses from third parties, which could be expensive, or prevent us from selling our products or services or using our trademarks, any one of which could have a material adverse effect on our business, financial condition and results of operations. 9 DISTRIBUTION The Company is negotiating with brokerage houses to provide the brokerage firm's customers the ability to trade with our dealing room while sharing the income generated from the trading activity of their customers. The Company aims to further develop this system of forging relationships with Introducing Brokers on an international level. This use of the trading platform would allow introducing brokers to provide their customers access to the foreign currency market without the cost of running a trading room and developing an electronic trading system themselves. GOVERNMENT REGULATION The Commodity Futures Trading Commission ("CFTC") regulates the foreign currency futures market in the United States. Currently, the spot foreign currency market in the United States is unregulated and therefore our Company is not under any requirement to register. However, to increase the trustworthiness and respectability of the Company, we intend to have our subsidiary, Finotec Trading, Inc. register with the National Futures Association ("NFA") as a Futures Commission Merchant (FCM). Finotec's mode of operation and profitability may be directly affected by: additional legislation; changes in rules promulgated by the Commodity Futures Trading Commission, the National Futures Association, the Board of Governors of the Federal Reserve System, the various stock and futures exchanges and other self-regulatory organizations; and changes in the interpretation or enforcement of existing rules and laws, particularly any changes focused on online brokerage firms that target an active trader customer base. Governmental concern is focused in two basic areas: that the customer has sufficient trading experience and has sufficient risk capital to engage in active trading. Finotec requires a $5,000 opening balance to open an account with us. We believe Finotec's minimum suitability requirements, as well as the extensive user education documentation and tutorials offered on its Web site, are consistent with the rules and regulations concerning active trading. It is possible that other agencies will attempt to regulate our current and planned online and other electronic service activities with rules that may include compliance requirements relating to record keeping, data processing, other operation methods, privacy, pricing, content and quality of goods and services as the market for online commerce evolves. Because of the growth in the electronic commerce market, Congress had held hearings on whether to regulate providers of services and transactions in the electronic commerce market. As a result, federal or state authorities could enact laws, rules or regulations, not only with respect to online brokerage services, but other online services we provide or may in the future provide. Such laws, rules and regulations, if and when enacted, could have a material adverse effect on our business, financial condition, results of operations and prospects. 10 EMPLOYEES As of January 31, 2005, we had 16 full-time employees. Our employees are not represented by any collective bargaining organization, and we have never experienced a work stoppage and consider our relations with our employees to be good. Our future success depends, in significant part, upon the continued service of our key senior management, technology and sales and marketing personnel. The loss of the services of one or more of these key employees could have a material adverse effect on us. There can be no assurance that we will be able to retain our key personnel. Departures and additions of personnel, to the extent disruptive, could have a material adverse effect on our business, financial condition and results of operations. FORWARD-LOOKING STATEMENTS; BUSINESS RISKS This report contains statements that are forward-looking within the meaning of Section 27A of the Securities Act of 1993, 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," "estimates," "plans," "expects," "intends," "anticipates," "contemplates," "may," "will," "shall," "assuming," "prospect," "should," "could," "would," "looking forward" and similar expressions, 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 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. Risk Factors Our business and results of operations could be seriously harmed by any of the following risks. Risks Related to Finotec We have limited operating history upon which you may evaluate our operations. Our e-commerce marketplaces are in the early stages of their development and have little operating history. Accordingly, we have limited operating history upon which you may evaluate our business and prospects. Because our management team as a unit is relatively new, it also has a very limited track record upon which you can make an evaluation. In addition, our revenue model is evolving and because of our lack of operating history, period-to-period comparisons of our results of operations will not be meaningful in the short term and should not be relied upon as indicators of future performance. Our business and prospects must be considered in light of the risk, expense and difficulties frequently encountered by companies in early stages of development, particularly companies in new and rapidly evolving markets such as e-commerce. Our failure to address these risks successfully could materially and adversely affect our business and operations. 11 We may have difficulty obtaining future funding sources, if needed, and we might have to accept terms that would adversely affect shareholders. Expenses are expected to exceed revenue in 2005. We anticipate that we will need to raise funds from additional financings in the future. Any financings may result in dilution to our existing shareholders. The terms of any future financings may impose restrictions on the manner in which we conduct our business, such as controlling future decisions by us to make capital expenditures, acquisitions or significant asset sales. If we cannot raise funds on acceptable terms, if and when needed, we may not be able to develop or enhance our services to customers, take advantage of future opportunities for strategic alliances, grow our business, support our increasing operating expenses or respond to competitive pressures or unanticipated requirements, which would materially and adversely affect our business and operations. Instability in the middle east region may adversely affect our business. Political, economic and military conditions in Israel directly affect the Company's operations. 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 success is dependent on retaining our current key personnel and attracting additional key and other personnel, particularly in the areas of management, technical services and customer support. We believe that our success will depend on continued employment of our senior management team and key technical personnel for the development of our services. Their experience is important to the establishment of our business. The loss of any one of our key personnel could disrupt and negatively affect our business and operations. Our success also depends on having highly trained technical and customer support personnel. 12 We have had and may continue to have difficulty attracting and employing additional members to our senior management team and sufficient technical and customer support personnel to keep up with our growth needs. This shortage could limit our ability to increase sales and to sell services. Competition for personnel is intense. If we cannot hire and retain suitable personnel to meet our growth needs, our business and operations will be negatively affected. Fluctuations in our quarterly results may adversely affect our stock price. Our quarterly operating results will likely vary significantly in the future. Our operating results will likely fall below the expectations of securities analysts or investors in some future quarter or quarters. Our failure to meet these expectations would likely adversely affect the market price of our common stock. Our quarterly operating results may vary depending on a number of factors, including: o demand of buyers and sellers to use and transact business on our software o actions taken by our competitors, including new product introductions, fee schedules, pricing policies and enhancements; o size and timing of sales of our services; o future acquisitions and our ability to control costs; and o general economic factors. o We may not be able to protect our proprietary rights, and we may infringe on the proprietary rights of others. Copyright and patent risks; software license risks. While we seek to protect our technology, it is not possible for us to detect all possible infringements of our software, text, designs and other works of authorship. Also, copyright protection does not extend to functional features of software and will not be effective to prevent third parties from duplicating our software's capabilities through engineering research and development. In addition, our technology and intellectual property may receive limited or no protection in some countries, and the global nature of the Internet makes it impossible to control the ultimate destination of our work. We have not conducted searches to determine if our software infringes on any patents of third parties. If our software is found to infringe on the copyrights or patents of a third party, the third party or a court or other administrative body could require us to pay royalties for past use and for continued use, or to modify or replace the software to avoid infringement. We cannot assure you that we would be able to modify or replace the software. 13 Any of these claims, with or without merit, could subject us to costly litigation, divert our technical and management personnel and materially and adversely affect our business and operations. Trademarks and service marks risks. Proprietary rights are important to our success and our competitive position. Although we seek to protect our proprietary rights both in the United States and abroad, our actions may be inadequate to protect any trademarks and other proprietary rights or to prevent others from claiming violations of their trademarks and other proprietary rights. We may not be able to protect our domain names for our websites as trademarks because those names may be too generic or perceived as describing a product or service or its attributes rather than serving a trademark function. If we are unable to protect our proprietary rights in trademarks, service marks and other indications of origin, competitors will be able to use names and marks that are identical to ours or sufficiently similar to ours to cause confusion among potential customers. This confusion may result in the diversion of business to our competitors, the loss of customers and the degradation of our reputation. Litigation against those who infringe upon our service marks, trademarks and similar rights may be expensive. Because of the difficulty in proving damages in trademark litigation, it may be very difficult to recover damages. Except for a search for the name Finotec Group and Finotec Trading we have not conducted searches to determine whether our service marks, trademarks and similar items may infringe on the rights of third parties. Despite having searched a mark, there may be a successful assertion of claims of trademark or service mark infringement. If a third party successfully asserts claims of trademark, service mark or other infringement, the third party or a court or other administrative body may require us to change our service marks, trademarks, company names, the design of our sites and materials and our Internet domain name (web address), as well as to pay damages for any infringement. A change in service marks, trademarks, company names, the design of our sites and materials and Internet domain names may cause difficulties for our customers in locating us or cause them to fail to connect our new names and marks with our prior names and marks, resulting in loss of business. We may not be able to make future acquisitions and new strategic alliances, and, even if we do, such acquisitions and alliances may disrupt or otherwise negatively affect our business. Our business plan contemplates that we may make investments in complementary companies, technologies and assets. Future acquisitions are subject to the following risks: o we may not be able to agree on the terms of the acquisition or alliance, such as the amount or price of our acquired interest; 14 o acquisitions and alliances may cause a disruption in our ongoing business, distract our relatively new management team and make it difficult to implement or maintain our systems, controls and procedures; o we may acquire companies or make strategic alliances in markets in which we have little experience; o we may not be able successfully to integrate the services, products and personnel of any acquisition or new alliance into our operations; o we may be required to incur debt or issue equity securities to pay for acquisitions, which may be dilutive to existing shareholders, or we may not be able to finance the acquisitions at all; and o our acquisitions and strategic alliances may not be successful, and we may lose our entire investment. In addition, we face competition from other parties, including large public and private companies, venture capital firms, and other companies, in our search for suitable acquisitions and alliances. Many of the companies we compete with for acquisitions have substantially greater name recognition and financial resources than we have, which may limit our opportunity to acquire interests in new companies, technologies and assets or create strategic alliances. Even if we are able to find suitable acquisition candidates or develop acceptable strategic alliances, doing so may require more time and expense than we expect because of intense competition. We must develop and maintain positive brand name awareness. We believe that establishing and maintaining our brand name and the brand names is essential to expanding business. We also believe that the importance of brand name recognition will increase in the future because of the growing number of online companies that will need to differentiate themselves. Promotion and enhancement of our brand names will depend largely on our ability to provide consistently high quality software and related technology. If we are unable to provide software and technology of comparable or superior quality to those of our competition, the value of our brand name may suffer. The international nature of our business adds additional complexity and risks to our business. The nature of the foreign currency business brings us into contact with different countries and markets. We hope to expand further in international markets. Our international business may be subject to a variety of risks, including: o market risk or loss of uncovered transactions; 15 o governmental regulation and political instability; o collecting international accounts receivable and income; o the imposition of barriers to trade and taxes; and o difficulties associated with enforcing contractual obligations and intellectual property rights. These factors may have a negative effect on any future international operations and may adversely affect our business and operations. The interests of our significant shareholders may conflict with our interests and the interests of our other shareholders. Directors, officers and holders of more than 5% of the outstanding shares of Finotec common stock collectively own a significant share of the outstanding common stock. As a result of their stock ownership, one or more of these shareholders may be in a position to affect significantly our corporate actions, including, for example, mergers or takeover attempts, in a manner that could conflict with the interests of our public shareholders. Anti-takeover provisions and our right to issue preferred stock could make a third party acquisition of us difficult. Finotec is a Nevada corporation. Anti-takeover provisions of Nevada law may make it difficult for a third party to acquire control of us, even if a change in control would be beneficial to our shareholders. In addition, our board of directors may issue preferred stock with voting or conversion rights that may have the effect of delaying, deferring or preventing a change of control. Preventing a change of control could adversely affect the market price of Finotec common stock and the voting and other rights of holders of Finotec common stock. Our common stock price is likely to be highly volatile. The market price of our common stock is likely to be highly volatile, as the stock market in general, and the market for Internet-related and technology companies in particular, has been highly volatile. Our shareholders may not be able to resell their shares of our common stock following periods of volatility because of the market's adverse reaction to this volatility. Factors that could cause this volatility may include, among other things: o announcements of technological innovations and the creation and failure of B2B marketplaces; 16 o actual or anticipated variations in quarterly operating results; o new sales formats or new products or services; o changes in financial estimates by securities analysts; o conditions or trends in the Internet, B2B and other industries; o changes in the market valuations of other Internet companies; o announcements by us or our competitors of significant acquisitions, strategic partnerships or joint ventures; o changes in capital commitments; o additions or departures of key personnel; o sales of our common stock; and o general market conditions. Many of these factors are beyond our control. Risks Relating to Our E-Commerce Marketplaces Our success depends on the development of the e-commerce market, which is uncertain. We rely on the Internet for the success of our businesses, as do our e-commerce marketplaces. The development of the e-commerce market is in its early stages. Our long-term success depends on widespread market acceptance of B2B e-commerce. A number of factors could prevent such acceptance, including the following: o the unwillingness of business to shift from traditional processes to e-commerce processes; o the necessary network infrastructure for substantial growth in usage of e-commerce may not be adequately developed; o increased governmental regulation or taxation may adversely affect the viability of e-commerce; o insufficient availability of telecommunication services or changes in telecommunication services could result in slower response time for the users of e-commerce; and 17 o concern and adverse publicity with respect to, and failure of, security of e-commerce. We may not be able to compete effectively with other providers of e-commerce services. Competition for Internet products and services and e-commerce business is intense. If the market for e-commerce grows, we expect that competition will intensify, and Finotec will continue to compete with other technology companies and traditional service providers that seek to integrate on-line business technologies with their traditional service mix. Barriers to entry into the e-commerce environment are minimal, and competitors can launch websites and offer products and services at relatively low costs. The companies with which Finotec competes often have significantly greater name recognition and financial, marketing and other resources than Finotec which may place our e-commerce marketplaces at a disadvantage in responding to competitors' pricing strategies, technological advances, advertising campaigns, strategic partnerships and other initiative. If Finotec fails to differentiate itself from other Internet industry participants, the value of its brand name could decline, it may be unable to attract a critical mass of buyers and sellers, and its prospects for future growth would diminish, which could materially and adversely affect our business and operations. Concerns regarding security of transactions and transmitting confidential information over the Internet may adversely affect our e-commerce business. We believe that concern regarding the security of confidential information transmitted over the Internet, including, for example, business requirements, credit card numbers and other forms of payment methods, prevents many potential customers from engaging in online trading. If we do not add sufficient security features to future product releases, our services may not gain market acceptance or we may face additional legal exposure. Despite the measures we have taken in the areas of encryption and password or other authentication software devices, our infrastructure, like others, is potentially vulnerable to physical or electronic break-ins, computer viruses, hackers or similar problems caused by employees, customers or other Internet users. If a person circumvents our security measures, that person could misappropriate proprietary information or cause interruptions in our operations. Security breaches that result in access to confidential information could damage our reputation and expose us to a risk of loss or liability. These risks may require us to make significant investments and efforts to protect against or remedy security breaches, which would increase the costs of maintaining our websites. Our e-commerce capability depends on real-time accurate product information. 18 We may be responsible for loading information into our database and categorizing the information for trading purposes. This process entails a number of risks, including dependence on our suppliers both to provide us in a timely manner with accurate, complete and current information and to update this information promptly when it changes. If our suppliers do not provide us in a timely manner with accurate, complete and current information, our database may be less useful to our customers and users and may expose us to liability. We cannot guarantee that the information available in our database will always be accurate, complete and current or comply with governmental regulations. This could expose us to liability or result in decreased acceptance of our products and services, which could have a material and adverse affect on our business and operations. Our market is characterized by rapid technological change, and we may not be able to keep up with such change in a cost-effective way. The e-commerce market is characterized by rapid technological change and frequent new product announcements. Significant technological changes could render our existing technology obsolete. If we are unable to respond successfully to these developments or do not respond in a cost-effective way, our business and operations will suffer. To be successful, we must adapt to our rapidly changing market by continually improving the responsiveness, services and features of our products and services, by developing or acquiring new features to meet customer needs and by successfully developing and introducing new versions of our Internet-based e-commerce business software on a timely basis. The life cycles of the software used to support our e-commerce services are difficult to predict because the market for our e-commerce is new and emerging and is characterized by changing customer needs and industry standards. The introduction of on-line products employing new technologies and industry standards could render our existing system obsolete and unmarketable. If a new software language becomes the industry standard, we may need to rewrite our software to remain competitive, which we may not successfully accomplish in a timely and cost-effective manner. In addition, as traffic in our e-commerce business increases, we may need to expand and upgrade our technology, transaction processing systems and network hardware and software. We may not be able to project accurately the rate of increase in our on-line businesses. We also may not be able to expand and upgrade our systems and network hardware and software capabilities to accommodate increased use of our on-line businesses, which would have a material and adverse affect on our business and operations. An unexpected event, such as a power or telecommunications failure, fire or flood, or physical or electronic break-in at any of our facilities or those of any third parties on which we rely, could cause a loss of critical data and prevent us from offering services. If our hosting and information technology services were interrupted, including from failure of other parties' software that we integrate into our technology, our business and the businesses of our e-commerce marketplaces using these services would be disrupted, which could result in decreased revenues, lost customers and impaired business reputation for us and them. As a result, we could experience greater difficulty attracting new customers. A failure by us or any third parties on which we rely to provide these services satisfactorily would impair our ability to support the operations of our services and could subject us to legal claims. 19 Limited Internet infrastructure may affect service. The accelerated growth and increasing volume of Internet traffic may cause performance problems, slowing the adoption of our Internet-based services. The growth of Internet traffic due to very high volumes of use over a relatively short period of time has caused frequent periods of decreased Internet performance, delays and, in some cases, system outages. This decreased performance is caused by limitations inherent in the technology infrastructure supporting the Internet and the internal networks of Internet users. If Internet usage continues to grow rapidly, the infrastructure of the Internet and its users may be unable to support the demands of growing e-commerce usage, and the Internet's performance and reliability may decline. If our existing or potential customers experience frequent outages or delays on the Internet, the adoption or use of our Internet-based products and services may grow more slowly than we expect or even decline. Our ability to increase the speed and reliability of our Internet-based business model is limited by and depends upon the reliability of both the Internet and the internal networks of our existing and potential customers. As a result, if improvements in the infrastructure supporting both the Internet and the internal networks of our customers and suppliers are not made in a timely fashion, we may have difficulty obtaining new customers, or maintaining our existing customers, either of which could reduce our potential revenues and have a negative impact on our business and operations. Internet governance, regulation and administration are uncertain and may adversely affect our business. The future success of our business is dependent on our ability to use the Internet to implement our e-commerce growth strategy. Because the original role of the Internet was to link the government's computers with academic institutions' computers, the Internet was historically administered by organizations that were involved in sponsoring research. Over time, private parties have assumed larger roles in the enhancement and maintenance of the Internet infrastructure. Therefore, it is unclear what organization, if any, will govern the administration of the Internet in the future, including the authorization of domain names. The lack of an appropriate organization to govern the administration of the Internet infrastructure and the legal uncertainties that may follow pose risks to the commercial Internet industry and our specific website business. In addition, the effective operation of the Internet and our business is also dependent on the continued mutual cooperation among several organizations that have widely divergent interests, including the government, Internet service providers and developers of system software and software language. These organizations may find that achieving a consensus may become difficult, impossible, time-consuming and costly. Although we are not subject to direct regulation in the United States other than federal and state business regulations generally, changes in the regulatory environment could result in the Federal Communications Commission or other United States regulatory agencies directly regulating our business. Additionally, as Internet use becomes more widespread internationally, there is an increased likelihood of international regulation. 20 We cannot predict whether or to what extent any new regulation affecting e-commerce will occur. New regulation could increase our costs. One or more states may seek to impose sales tax collection obligations on out-of-state companies like ours that engage in or facilitate e-commerce. A successful assertion by one or more states or any foreign country that we should collect sales and other taxes on our system could increase costs that we could have difficulty recovering from users of our websites. Governmental agencies and their designees regulate the acquisition and maintenance of web addresses generally. For example, in the United States, the National Science Foundation had appointed Network Solutions, Inc. as the exclusive registrar for the ".com," ".net" and ".org" generic top-level addresses. Although Network Solutions no longer has exclusivity, it remains the dominant registrar. The regulation of web addresses in the United States and in foreign countries is subject to change. As a result, we may not be able to acquire or maintain relevant web addresses in all countries where we conduct business that are consistent with our brand names and marketing strategy. Furthermore, the relationship between regulations governing website addresses and laws protecting trademarks is unclear. We may be subject to legal liability for publishing or distributing content over the Internet. Our e-commerce businesses may be subject to legal claims relating to the content of our on-line websites, or the distribution of content. Providers of Internet products and services have been sued in the past, sometimes successfully, based on the content of material. The representations as to the origin and ownership of licensed content that we generally obtain may not adequately protect us. In addition, we draw some of the content provided in our on-line business communities from data compiled by other parties. This data may have errors. If our content is improperly used or if we supply incorrect information, it could result in unexpected liability. Our insurance may not cover claims of this type or may not provide sufficient coverage. Costs from these claims would damage our business and limit our financial resources. 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; 21 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. Item 2. Properties The Company's main business operations are located at Industry Building, Hamered 29 P.O. Box 50219 61501 Tel Aviv, Israel. There, via an agreement by Forexcash Global Trading Ltd. (which is a 99.7% owned subsidiary of Finotec Ltd. a wholly owned subsidiary of the Company) the Company rents 130 square meters of office space. Rent expense for the fiscal year ended January 31, 2005 was $7,342. Item 3. Legal Proceedings In May, 2004, the Tel-Aviv Stock Exchange Ltd. ("the Stock Exchange") submitted a claim against the Company for a permanent and temporary restraining order to prevent the Company from using the Tel-Aviv 25 Index and/or any other index owned by the Stock Exchange as part of the Company's online trading at its website. The Company claimed that the Stock Exchange does not have copyrights regarding the indexes and that it did not mislead the public in any way. The Company answered the claim for a temporary restraining order, and in June, 2004, the Court accepted the Company's claim. In August, 2005, the Stock Exchange appealed to the Supreme Court, and thereafter the Company submitted its response to the appeal. The Supreme Court has yet to make a determination with regard to the appeal and has not set a date for a hearing. Management does not expect this claim to have a material effect on the Company's financial position or results of operations. 22 In June 2005, a client submitted a claim against the Company for approximately $48,400 for preventing him from making a profit from his transactions as a client of the Company. The Company claimed that the customer had circumvented the Company's foreign currency option trading software and made illegal profits by ignoring contracts he signed when opening the account defining customer's transaction limits. In August 2005 The Company submitted its response to the complaint. The Court has yet to make a determination with regard to the claim and has not set a date for a hearing. Management does not expect this claim to have a material effect on the Company's financial position or results of operations. Item 4. 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. The exercise price on the options was $.001 per share and the exercise period was from the date of the grant until ten years subsequent to that date. 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 to 40,000,000. This motion was also approved. PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters (a) The Company's Common Stock is quoted on the pink sheets under the symbol "FTGI" The following table sets forth the high and low bid prices as reported by the National Association of Securities Dealers (NASD) for the periods ending January 31, 2005. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and may not reflect actual transactions. 23 High Low ----- ---- 2004 ----- First Quarter n/a n/a Second Quarter n/a n/a Third Quarter n/a n/a Fourth Quarter n/a n/a 2003 ----- First Quarter n/a n/a Second Quarter n/a n/a Third Quarter n/a n/a Fourth Quarter n/a n/a (b) No dividends were paid during the fiscal year ending January 31, 2005. The Articles of Merger restrict the Company's ability to pay dividends. The Company may not pay dividends if doing so would result in a consolidated current ratio of less than two, that is, current assets equaling less than twice current liabilities. Item 6. FINOTEC GROUP, INC. AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAUTIONS ABOUT FORWARD-LOOKING STATEMENTS The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the Consolidated Financial Statements and Notes thereto included elsewhere in this Form 10-KSB. Certain of the statements contained in this Form 10-KSB which are not statements of historical fact are forward-looking statements that involve risks and uncertainties. Such forward-looking statements are made only as of the date of this Form 10-KSB. The Company's actual results could differ materially from those contained in the forward-looking statements. Factors that may cause such differences include, but are not limited to, those discussed under "Risk Factors" as well as those discussed elsewhere in this Form 10-KSB. 24 Overview BUSINESS OVERVIEW On August 9, 2001 (the "Merger Date") Finotec Group, Inc., formerly Online International Corporation ("Finotec Group"), a Nevada corporation without significant operations, acquired all of the outstanding shares of Finotec Ltd. ("Finotec Ltd.") (formerly Priory Marketing Ltd.), an Isle of Man company. The transaction was effected by the issuing of 21,500,000 shares of Finotec Group common stock to the stockholders of Finotec Ltd. This resulted in the former Finotec Ltd. stockholders owning approximately 61.5% of the outstanding shares of Finotec Group. For financial reporting purposes, the transaction was recorded as a recapitalization of Finotec Ltd., with Finotec Ltd. receiving the $1,320,363 net assets (assets of $1,404,636, less liabilities of $84,273) of Finotec Group as a capital contribution. Finotec Ltd. is the continuing surviving entity for accounting purposes, but is adopting the capital structure of Finotec Group, which is the continuing parent entity for legal purposes. All references to common stock have been restated to reflect the equivalent number of Finotec Group shares. Finotec Ltd. was formed in December 2000, at which time it acquired 99.7% of the outstanding stock of Forexcash Global Trading Ltd. ("Forexcash"), an Israeli corporation, which had been incorporated on June 23, 1998. This transaction is treated as a recapitalization of Forexcash with Forexcash as the continuing accounting entity and Finotec Ltd. as the continuing parent for legal purposes. The Company currently operates, develops and markets a software system delivering foreign exchange investment services to the general public via the internet. The Company has developed and currently operates an Internet-based brokerage firm for institutional, professional and serious active individual traders in the foreign currency market. The Company's brokerage firm offers an electronic trading platform which seamlessly integrates strategy trading tools, historical and streaming real-time market data, and direct-access order-routing and execution. Direct-access trading means, with respect to transactions in spot foreign exchange transactions direct Internet connections to Finotec's electronic platform where Finotec Trading acts as a Market maker for its customers based on the prices traded in the Interbank market. With respect to forward foreign exchange transactions, it means that Finotec offers futures dates non-deliverible currencies contracts that are cleared by Finotec. Finotec turns to other institutions in the market when there is no compensation inside the system with its customers. The Company offers its customers spot trading through the Internet and is currently exploring the possibility of offering the trading of futures contracts as well as other financial instruments to its customers. Under our business model, we seek recurring revenues mainly by offering, through our financial software product Forexcash (and its planned enhanced versions), Spread earning-based brokerage services with no commission charged to the customers. Forexcash is a front and back office market maker application for online real-time trading in foreign currencies. We intend to use our capability to provide strategy trading tools, and the unique quality and functionality of those tools, to build a high-quality brokerage customer base of institutional, professional and serious active individual traders. The Company also intends to sell licenses to its trading system directly to financial institutions such as commercial banks. We will also provide training in online foreign currency trading as well as offer our customers the option of wireless trading of foreign currencies. 25 With the proliferation of online brokerage services (and, now, the more powerful and efficient direct-access online brokerage services), the increased accessibility to market data, and the rapidly-growing capabilities of the Internet, we believe that serious, active traders, professional and non-professional, are demanding powerful, Internet-based, real-time strategy trading platforms that are seamlessly integrated with the best-available order execution technology. We believe that these traders desire a complete, institutional-quality, Internet-based, trading platform that includes analytical tools which support the design and testing of custom trading strategies, the automation of those strategies in real-time, and the instantaneous execution of those strategies through state-of-the-art direct-access electronic order execution systems. To achieve profitability, the Company needs to aggressively market its services. Included in its marketing strategy is advertising campaigns and the targeting of introducing brokers to develop a distribution network with the Company. The Company also aims to reach a broader customer base and intends to offer a wider array of financial products such as futures contracts and is exploring the possibility of entering the commodities market. We intend to consistently improve our system and implement new features and protocols. For instance, we are currently incorporating a new technology into our system that will give our system the benefit of more design capabilities in addition to not requiring downloads of plug-ins. By eliminating plug-ins, the customer will be able to access the trading platform through firewalls on the computer. We are also working to improve the style of the trading platform, making it more user-friendly. A further technological development we are exploring is adding chat capabilities to our system. This would allow our customers to communicate amongst themselves as well as with our traders. We are also working to improve our wireless technology which allows our customers to execute their trades directly from their cellular phones. RESULTS OF OPERATIONS We believe that we will start generating larger amounts of revenue in the coming fiscal year due to the sales and products infrastructure which we have been attempting to create over the past year. Our expense levels are based upon our expectations concerning future revenue. Thus, quarterly revenue and results of operation are difficult to project. OVERALL Net gain from foreign currency future operations was $1,620,286 for the year ended January 31, 2005. There was net gains of $947,521 from foreign currency future operations for the year ended January 31, 2004. This increase of $672,765 is due to the Company developing and growing the foreign currency trading on their software. 26 OPERATING EXPENSES RESEARCH AND DEVELOPMENT. Research and development expenses include expenses associated with the development of new products, services and technology; enhancements to existing products, services and technology; testing of products and services; and the creation of documentation and other training and educational materials. The Forexcash Global Trading, Ltd. Subsidiary owns all intellectual property rights relating to our business. Research and development expenses were $83,171 for the year ended January 31, 2005, and $95,919 for the year ended January 31, 2004, a decrease of $12,748. GENERAL AND ADMINISTRATIVE. General and administrative expenses consist primarily of employee-related costs for administrative personnel such as executive, human resources, information technology employees; telecommunications; rent; other facility expenses; and insurance. General and administrative expenses were $1,621,071 for the year ended January 31, 2005, and $919,720 for the year ended January 31,2004, an increase of $701,351 due primarily to the Company's continuing development of its business and the acquisition of new computers, software, office furniture and equipment. Liquidity and Capital Resources The Company's cash balance increased by $893,650 from a cash balance at January 31, 2004 of $673,884 to $1,567,534 at January 31, 2005. The increase is primarily attributable to cash provided by operating activities offset by cash used in financing activities and cash used in investing activities. Net cash provided by operating activities amounted to $998,291 for the year ended January 31, 2005, while the Company used $45,204 for the year ended January 31, 2004, an increase of $1,043,495. The cash provided by operating activities, for the year ended January 31, 2004, primarily resulted an increase in customers deposits of $945,056. Net cash used in investing activities for the year ended January 31, 2005, was $69,199 while it was $94,489 provided by investing activities for the year ended January 31, 2004, a decrease of $163,688. The cash used in investing activities for the year ended January 31, 2005, primarily resulted from a decrease in the collection of note receivable, offset by acquisition of property and equipment. The Company had cash used by financing activities of $17,009 during the year ended January 31, 2005 compared to net cash used in financing activities of $15,000 during the year ended January 31, 2004, a decrease of $2,009. 27 Our 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 February, 2006 assuming the monthly expenses of the Company at $76,000. Of our $76,000 monthly expense, we foresee $17,000 covering the 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. The Company has no plans to increase the number of employees it employs at this time, and plans to continue to utilize its current employees for at least the duration of 2005. The Company does not believe that it will be making major plant and equipment purchases during this year. Until required for operations, Finotec's policy is to invest its cash reserves in bank deposits. There can be no assurance that profitability will ever be achieved. Finotec expects that its operating results will fluctuate significantly from quarter to quarter in the future and will depend on a number of factors, most of which are outside Finotec's control. 28 Item 7. Financial Statements and Supplementary Data FINOTEC GROUP, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS FOR THE YEARS ENDED JANUARY 31, 2005 AND 2004 29 FINOTEC GROUP, INC. AND SUBSIDIARIES CONTENTS ================================================================================ Report of Independent Registered Public Accounting Firm F-1 Consolidated Financial Statements: Balance Sheet F-2 Statements of Operations F-3 Statements of Stockholders' Equity F-4 Statements of Cash Flows F-5 Notes to Consolidated Financial Statements F-6 - 12 30 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders Finotec Group, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheet of Finotec Group, Inc. and Subsidiaries as of January 31, 2005, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the two years in the period ended January 31, 2005. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Finotec Group Inc. and Subsidiaries as of January 31, 2005, and the results of their operations and their cash flows for each of the two years in the period ended January 31, 2005, in conformity with accounting principles generally accepted in the United States. Gvili & Co. c.p.a August 30, 2005 Caesarea, Israel F-1 FINOTEC GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET ================================================================================
AS OF JANUARY 31, 2005 ------------------------------------------------------------------------------------------------------------------- A S S E T S Current Assets Cash and cash equivalents $ 1,567,534 Marketable securities 804,354 Prepaid and other current assets 73,467 ------------------------------------------------------------------------------------------------------------------- Total Current Assets 2,445,355 Property and equipment, net 227,824 ------------------------------------------------------------------------------------------------------------------- Total Assets $2,673,179 =================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Short term bank credit $ 7,991 Loan payable, related party 30,000 Accounts payable and accrued expenses 371,977 Customers' accounts 1,958,547 Due to stockholder 97,500 Loan payable 60,000 ------------------------------------------------------------------------------------------------------------------- Total Current Liabilities 2,562,015 Accrued severance payable 22,558 ------------------------------------------------------------------------------------------------------------------- Total Liabilities 2,548,573 ------------------------------------------------------------------------------------------------------------------- Commitments and Contingencies Stockholders' Equity Common stock, $.001 par value, 100,000,000 shares authorized, 34,985,241 shares issued and outstanding 34,985 Additional paid-in-capital 1,545,378 Accumulated deficit (1,421,411) Accumulated other comprehensive loss (34,346) ------------------------------------------------------------------------------------------------------------------- Total Stockholders' Equity 124,606 ------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $2,673,179 =================================================================================================================== Didier Essemini - Chairman of the Board of Directors ------------------------- See accompanying notes to consolidated financial statements.
F-2 FINOTEC GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS ================================================================================
FOR THE YEARS ENDED JANUARY 31, 2005 2004 ------------------------------------------------------------------------------------------------------------------- Revenues Net gain from foreign currency future operations $ 1,620,286 $ 947,521 ----------------------------------------------------------------------------------------------------------------- Total Revenues 1,620,286 947,521 ----------------------------------------------------------------------------------------------------------------- Operating Expenses Selling, general and administrative 1,621,071 919,720 Research and development 83,171 95,919 ----------------------------------------------------------------------------------------------------------------- Total Operating Expenses 1,704,242 1,015,639 ----------------------------------------------------------------------------------------------------------------- Operating Loss (83,956) (68,118) Other Income (Expense) Write-down of note receivable - (271,384) Interest income, net 46,720 9,816 Income (expense) from exchange rate differences - 81,360 Other 75,761 (9,286) ----------------------------------------------------------------------------------------------------------------- Loss Before Income Tax Expense (Benefit) 38,525 (257,612) Income tax benefit (expense) 5,530 11,169 ----------------------------------------------------------------------------------------------------------------- Net Income (Loss) $ 44,055 ($ 246,443) ================================================================================================================= Weighted average number of common shares outstanding 34,985,241 34,985,241 ================================================================================================================= Basic and diluted loss per common share $0.00 ($0.01) ================================================================================================================= See accompanying notes to consolidated financial statements.
F-3 FINOTEC GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY ================================================================================
FOR THE YEARS ENDED JANUARY 31, 2005 AND 2004 - ---------------------------------------------------------------------------------------------------------------------------- Accumulated Additional Other Common Stock Paid in Accumulated Comprehensive Shares Amount Capital Deficit Income (Loss) Total - ---------------------------------------------------------------------------------------------------------------------------- Balance - January 31, 2003 34,985,241 34,985 1,545,378 (1,219,023) 31,342 392,682 Net loss (246,443) (246,443) Foreign currency translation loss (48,830) (48,830) - ---------------------------------------------------------------------------------------------------------------------------- Balance - January 31, 2004 34,985,241 $34,985 $1,545,378 ($1,465,466) ($17,488) $97,409 Net loss 44,055 44,055 Foreign currency translation loss (16,858) (16,858) - ---------------------------------------------------------------------------------------------------------------------------- Balance - January 31, 2005 34,985,241 $34,985 $1,545,378 ($1,421,411) ($34,346) $124,606 ============================================================================================================================ See accompanying notes to consolidated financial statements.
F-4 FINOTEC GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS ================================================================================
FOR THE YEARS ENDED JANUARY 31, 2005 2004 - --------------------------------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities Net Income (Loss) 44,055 ($246,443) Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities Depreciation 49,421 53,690 Write down of note receivable - 271,384 Changes in Operating Assets and Liabilities Increase in marketable securities (390,792) (413,562) (Increase) decrease in prepaid and other current assets (38,152) (5,830) Increase in account payable and accrued expenses 157,810 121,737 Decrease in income taxes payable (2,932) (40,513) Increase in customers' accounts 1,139,331 194,275 (Decrease) increase in other current liabilities (8,548) (29,200) Increase in due to stockholder 39,000 35,798 Increase in accrued severance payable 9,098 13,460 - --------------------------------------------------------------------------------------------------------------------------- Net Cash Used in Operating Activities 998,291 (45,204) - --------------------------------------------------------------------------------------------------------------------------- Cash Flows from Investing Activities Collection of note receivable 90,403 157,023 Acquisition of property and equipment (159,602) (62,534) - --------------------------------------------------------------------------------------------------------------------------- Net Cash Provided by Investing Activities (69,199) 94,489 - --------------------------------------------------------------------------------------------------------------------------- Cash Flows from Financing Activities Short term bank credit 7,991 - Repayment of loan payable (25,000) (15,000) - --------------------------------------------------------------------------------------------------------------------------- Net Cash (Used in) Provided by Financing Activities (17,009) (15,000) - --------------------------------------------------------------------------------------------------------------------------- Effect of Foreign Currency Translation (18,433) (56,260) - --------------------------------------------------------------------------------------------------------------------------- Net (Decrease) Increase in Cash and Cash Equivalents 893,650 (21,975) Cash and Cash Equivalents - Beginning of Year 673,884 695,859 - --------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents - End of Year $1,567,534 $673,884 =========================================================================================================================== Supplemental Disclosure of Cash Flow Information Cash paid during the year for income taxes $2,932 $40,513 =========================================================================================================================== Cash paid during the year for interest $10,221 $1,846 =========================================================================================================================== See accompanying notes to consolidated financial statements.
F-5 FINOTEC GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 1. Description of Business Finotec Group, Inc. ("Finotec, Inc.), a Nevada corporation, is principally engaged, through its wholly-owned subsidiaries, in offering foreign currency market trading to professionals and retail clients over its web-based trading system. 2. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of Finotec Inc. and its wholly-owned subsidiaries, Finotec Trading, Inc. ("Finotec Trading"), Finotec Ltd., and Finotec Ltd.'s 99.7% owned subsidiary, Forexcash Global Trading Ltd. ("Forexcash") (collectively referred to as the "Company", unless otherwise indicated). All material intercompany transactions and balances have been eliminated in consolidation. Since the liabilities of Forexcash exceed its assets, and the owner of the 0.3% minority interest has no obligation to supply additional capital, no minority interest has been recorded in the consolidated financial statements. 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 $1,421,411 at January 31, 2005, 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. Revenue recognition Finotec acts as a market maker for its customers based on the prices traded in the Interbank market, and recognizes a loss or revenue when customers close transactions in foreign currencies. When there is no compensation inside the system with its customers, Finotec turns to other institutions to clear the contracts and recognizes a loss or revenue from actions in derivative financial instruments. Fixed Assets Fixed assets are stated at cost, less accumulated depreciation. Office furniture and equipment are depreciated using the straight-line method over seven years. Computer equipment and software are depreciated using the straight-line method over three years. Leasehold improvements are amortized on a straight-line basis over the lesser of the useful life or the life of the lease. Repairs and maintenance costs are expensed as incurred. Costs of software acquired along with payroll costs and consulting fees relating to the development of internal use software, including that used to provide internet solutions, are capitalized. Once the software is placed in service, the costs are amortized over the estimated useful life. F-6 FINOTEC GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 2. Summary of Significant Accounting Policies (Continued) Cash and Cash Equivalents The Company considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents. . Stock-Based Compensation The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and complies with the disclosure provisions of Statements of Financial Accounting Standards Board ("SFAS") No. 123, Accounting for Stock-Based Compensation ("SFAS 123"). Stock based awards to non-employees are accounted for under the provisions of SFAS 123. Income Taxes Deferred taxes are determined based on the differences between financial reporting and tax base of assets and liabilities, and are estimated using the tax rates and laws in effect when the differences are expected to reverse. A valuation allowance is provided based on the weight of available evidence, s if it is considered more likely than not that some portion of, or all of, the deferred tax assets will not be realized. Advertising Expense The Company expenses advertising costs as incurred. Advertising expenses for the years ended January 31, 2005 and 2004 amounted to $121,614 and $35,809, respectively. 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. Translation of Foreign Currencies Forexcash is operated primarily in Israeli currency, which represents the functional currency of that subsidiary. Forexcash encompasses substantially all of the Company's operations. All assets and liabilities of Forexcash were translated into U.S. dollars using the exchange rate prevailing at the balance sheet date, while income and expense amounts were translated at average exchange rates during the year. Translation adjustments are included in accumulated other comprehensive income (loss), a separate component of stockholders' equity. F-7 FINOTEC GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 2. Summary of Significant Accounting Policies (Continued) Fair Value of Financial Instruments SFAS No. 107, Disclosures About Fair Value of Financial Instruments, requires disclosure of the fair value of certain financial instruments. The carrying value of financial instruments which include cash and cash equivalents, loans payable, customer deposits and accrued expenses, approximate their fair values due to the short-term nature of these financial instruments. The carrying value of the Company's note receivable approximates its fair value based on management's best estimate of future cash collections. 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 years ended January 31, 2005 and 2004, because the effect of these securities is antidilutive. Comprehensive Income SFAS No. 130, Reporting Comprehensive Income, requires a full set of general-purpose financial statements to be expanded to include the reporting of comprehensive income. Comprehensive income is comprised of two components, net income and other comprehensive income. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. As of January 31, 2005 foreign currency translation adjustments were the only items of other comprehensive income for the Company. Derivative Financial Instruments The Company follows SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and its related amendments to account for its derivative transactions. The Company accounts for its forward foreign currency exchange contracts as derivative financial instruments. The Company uses derivative instruments as part of its asset/liability management activities to meet the risk management needs of its clients as part of its trading activity for its own account. These derivative financial instruments are carried at fair value, with realized and unrealized gains and losses included in net gain from foreign currency future operations. F-8 FINOTEC GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 2. Summary of Significant Accounting Policies (Continued) Recent Accounting Pronouncements In December, 2003, the SEC issued Staff Accounting Bulletin ("SAB") No. 104, Revenue Recognition, which supersedes SAB 101, Revenue Recognition in Financial Statements. The adoption of SAB 104 did not have a material impact on the Company's consolidated results of operations or financial position. SAB 104 primarily rescinds the accounting guidance contained in SAB 101 related to multiple-element revenue arrangements that was superseded as a result of the issuance of EITF 00-21. While the wording of SAB 104 has changed to reflect the issuance of EITF 00-21, the revenue recognition principles of SAB 101 remain largely unchanged by the issuance of SAB 104, which was effective upon issuance. 3. Note Receivable In connection with the sale of the assets of its former lottery ticket business, Finotec Inc. acquired a note receivable from the buyer for the contingent payments due, based on projected sales from the business through July 17, 2005. During the year ended January 31, 2004, Finotec Inc. has experienced delays in collecting amounts due from the buyer. Due to the uncertainty in estimating the future debt collection, management decided to write down the note receivable to its estimated fair value based on anticipated future collections. As a result, the Company recorded a loss of approximately $270,000 during the fourth quarter of the year ended January 31, 2004. During the year ended January 31,2005 the Company collected $90,403. 4. Property and Equipment Consist of the following:
As of January 31, 2005 ----------------------------------------------------------------------------- Computer equipment $ 189,287 Purchased software 139,522 Office furniture and equipment 32,057 Leasehold improvements 75,779 ----------------------------------------------------------------------------- Total Property and Equipment at Cost 436,646 Less accumulated depreciation and amortization 208,823 ----------------------------------------------------------------------------- Property and Equipment - Net $227,823 =============================================================================
F-9 FINOTEC GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 5. Related Party Transactions In January, 2003 the Company borrowed $30,000 from a company whose shareholder is also a shareholder in Finotec Inc. The loan bears interest at the rate of 4% and is payable on demand. During the year ended January 31, 2004, the Company paid fees in the amount of approximately $56,650 to a company owned 50% by a director of the Company. 6. Loan Payable Loan Payable Loan payable consists of an originally $100,000 loan from a former employee. The loan is non-interest bearing and has no maturity date. The Company repays the loan as cash flow permits. During the year ended January 31, 2005 the Company paid back $25,000 of the $100,000 outstanding loan payable. 7. Due to Stockholder The amount due to stockholder consists primarily of unpaid compensation. 8. Stock Options 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 at an exercise price of $.001 a share and for an exercise period of ten years from the date of the grant. In a meeting on March 17, 2004, 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 to 40,000,000 shares. This motion was also approved As described in Note 2, the Company accounts for the granting of stock options under the intrinsic value method (per APB 25) and, accordingly, no compensation cost has been recognized for stock options in the financial statements. 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, there would have been no compensation cost as the estimated fair value of the options using the Black-Scholes option pricing model, resulted in a zero value. F-10 FINOTEC GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 9. Derivative Financial Instruments Derivative financial instruments consist of the Company's forward foreign exchange currency contracts, which are agreements to exchange specific amounts of currencies at a future date, at a specific rate of exchange. Foreign exchange contracts are entered into primarily to meet the foreign exchange risk management needs of the Company's clients. The major risk associated with this instrument is that foreign exchange rates could change in an unanticipated manner, resulting in a loss in the underlying value of the instrument. The Company mitigates this risk by using hedging techniques that limit the exchange rate exposure. As the Company accounts for the foreign exchange contracts as fair value hedges (per FASB No. 133), all gains and losses are recognized in earnings and the fair value of the instruments are reported as other assets/liabilities on the consolidated balance sheet - 10. Legal Proceedings In May, 2004, the Tel-Aviv Stock Exchange Ltd. ("the Stock Exchange") submitted a claim against the Company for a permanent and temporary restraining order to prevent the Company from using the Tel-Aviv 25 Index and/or any other index owned by the Stock Exchange as part of the Company's on-line trading at its web-site. The Company claimed that the Stock Exchange does not have copyrights regarding the indexes and that it did not mislead the public in any way whatsoever. The Company answered the claim for a temporary restraining order, and in June, 2004, the Court accepted the Company's claim. In August, 2004, the Stock Exchange appealed to the Supreme Court, and thereafter the Company submitted its response to the appeal. The Supreme Court accepted the Company's claim, therefore the Company Authorized to use the Tel-Aviv 25 Index. Management does not expect this claim to have a material effect on the Company's financial position or results of operations. 11. Commitments Forexcash leases its office space facilities on a month-to-month basis. Rent expense for the years ended January 31, 2005 and 2004 amounted to $29,056and $7,342, respectively. 12. Income Taxes Deferred income taxes consist of the following:
Finotec Inc. NOL carryforward at merger date $ 740,000 NOL carryforward 140,000 Less valuation allowance (880,000) ----------------------------------------------------------------- Net deferred tax asset $ 0
F-11 FINOTEC GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 12. Income Taxes Realization of the future tax benefits related to the (Continued) deferred tax assets is dependent on many factors including the Company's ability to generate taxable income within the net operating loss carryforward period (through 2024). The Company has provided a valuation allowance for the full amount of its net deferred tax assets due to the uncertainty of generating future profits that would allow for the realization of such deferred tax asset. 13. Subsequent Events In June 2005, a client submitted a claim against the Company for approximately $48,400 for preventing him from making a legitimate profit from his transactions as a client of the Company. The Company claimed that the customer had successfully circumvented the Company's foreign currency option trading software for his own benefit and made illegal profits by ignoring contracts he signed when opening the account defining customer's transaction limits. In August 2005 The Company submitted its response to the complaint. The Court has yet to make a determination with regard to the claim and has not set a date for a hearing. Management does not expect this claim to have a material effect on the Company's financial position or results of operations. F-12 PART III Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. There have been no changes in or disagreements with the Company's accountants on accounting and financial disclosure for the year ended January 31, 2005. Item 8A. Controls and procedures (a) Evaluation of Disclosure Controls and Procedures. The Company's Chief Executive Officer and its Chief Financial Officer , after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c) as of a date within 90 days of the filing date of this annual report on Form 10-KSB (the "Evaluation Date")), have concluded that as of the Evaluation Date, the Company's disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company would be made known to them by others within the Company, particularly during the period in which this annual report on Form 10-KSB was being prepared. (b) Changes in Internal Controls. There were no changes in the internal controls over financial reporting that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect the internal controls over financial reporting. Item 9. Directors, Executive Officers, Promoters, and Control Persons. The officers of the Company are as follows: NAME POSITION(S) TERM OF OFFICE Didier Essemini President, Director 1 year Guy Senbel Secretary, Director 1 year Gil Ovadia Director 1 year Didier Essemini Mr. Essemini is the President and a Director for the Company. Mr. Essemini graduated from the Sorbonne University in Paris with an MBA. He worked at Bank Hapoalim in Israel from 1994 to 1998. In 1998 Mr. Essemini started a brokerage company and implemented a front end internet solution for currency trading known as "Forexcash". Today Forexcash is a fully owned subsidiary of the Company. Guy Senbel Mr. Senbel is the Secretary and a Director for the Company. Mr. Senbel was President of the holding company of BS Decoration. Mr. Senbel attended University in France. Gil Ovadia Mr. Ovadia is a director of the Company. Mr. Ovadia graduated with degrees in Law & Economics from Keele University (UK). Mr. Ovadia has worked as a Solicitor in London for the last 12 years. Mr. Ovadia founded Silvergate Management Ltd. a property and financial services company which provides property and corporate management services. 31 ITEM 10. MANAGEMENT REMUNERATION The following table sets forth the compensation paid during the fiscal year ended January 31, 2005, to the Company's Chief Executive Officer and each of the Company's officers and directors. No other person received compensation equal to or exceeding $100,000 in fiscal 2004.
Annual Compensation Awards Payouts ------------------------------ ------------------------- --------- Other All Annual Restricted Securities Other compen- Stock Underlying LTIP Compen- sation Award(s) Options/SAR Payouts sation Name and Principal Position Year Salary ($) Bonus ($) ($) ($) (#) ($) ($) - --------------------------- ---- ---------- --------- ------- ------------ ------------ --------- -------- Didier Essemini President, 2004 $ 53,170 $ 14,000 -0- -33,018,483- -0- -0- -0- Director Guy Senbel Director 2004 -0- -0- -0- -0- -0- -0- -0- Gil Ovadia Director 2004 -0- -0- -0- -0- -0- -0- -0-
32 Item 11. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS The following table sets forth certain information known to the Company regarding the beneficial ownership of Common Stock as of January 31, 2005, by (i) each Director of the Company, (ii) each executive officer of the Company, (iii) all directors and executive officers as a group, and (iv) each person known to the Company to be the beneficial owner of more than 5% of its outstanding shares of Common Stock.
Shares Beneficially Owned ------------------------- Percentage Directors and Executive Officers Shares Held Owned (1) - -------------------------------- ----------- --------- Didier Essemini 3,057,500 8.73% option to purchase 33,118,483 shares Guy Senbel 2,302,650 6.58% Gil Ovadia option to purchase 100,000 shares Directors and Officers as a Group 5,401,510 15.31% (1) Percentage of ownership is based on 34,985,241 shares of Common Stock issued and outstanding as of January 31, 2005.
BENEFICIAL OWNERS OF OVER 5% - ---------------------------- Gan Paradis Ltd. owns 6,115,000 unregistered Shares or 17.4% of the Company. Registered Office Kings Court PO Box N-3944 Bay Street Nassau, Bahamas Director Allistair Matthew Cunningham 33 Didier Essemini's 3,057,500 shares consist of his 50% ownership of Gan Paradis Ltd. Bee Byte Ltd. owns 5,482,500 unregistered shares or 15.6% of the Company. Registered Office Kings Court PO Box N-3944 Bay Street Nassau, Bahamas Director Jesse Grant Hester Guy Senbel's 2,302,650 shares consist of his 50% ownership of Bee Byte Ltd. Mr. Patrick Chemoul owns 2,687,500 unregistered shares or 7.68% of the Company. Address 80 rue de Rivoli 75004 Paris France Pras Holding Ltd. owns 3,356,151 Registered shares or 9.59% of the Company 5th Floor Steam Paket House 70 Cross Street Manchester England M2 4JU On May 8, 2003, the Company's Board of Directors passed a resolution to issue the Chief Executive Officer an option for 33,018,483 shares of the Company's common stock, and to issue the Chief Operating Officer an option for 2,000,000 shares of the Company's common stock. The options were contingent upon approval of the majority of the stockholders. 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. 34 Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS TRANSACTIONS WITH MANAGEMENT AND OTHERS On August 9, 2001 (the "Merger Date") Finotec Group, Inc., formerly Online International Corporation ("Finotec Group"), a Nevada corporation without significant operations, acquired all of the outstanding shares of Finotec Ltd. ("Finotec Ltd.") (formerly Priory Marketing Ltd.), an Isle of Man company. The transaction was effected by the issuing of 21,500,000 shares of Finotec Group common stock to the stockholders of Finotec Ltd. This resulted in the former Finotec Ltd. stockholders owning approximately 61.5% of the outstanding shares of Finotec Group. For financial reporting purposes, the transaction was recorded as a recapitalization of Finotec Ltd., with Finotec Ltd. receiving the $1,320,363 net assets (assets of $1,404,636 less liabilities of $84,273) of Finotec Group as a capital contribution. Finotec Ltd. is the continuing surviving entity for accounting purposes, but is adopting the capital structure of Finotec Group, which is the continuing parent entity for legal purposes. All references to common stock have been restated to reflect the equivalent number of Finotec Group shares. Finotec Ltd. was formed in December 2000 and it acquired 99.7% of the outstanding stock of Forexcash Global Trading Ltd. ("Forexcash"), an Israeli corporation, which had been incorporated on June 23, 1998. This transaction is treated as a recapitalization of Forexcash with Forexcash as the continuing accounting entity and Finotec as the continuing parent for legal purposes. On May 21, 2004, the Company's board of directors approved the merger of Finotec, Ltd. Into Finotec Group, Inc. canceling all the outstanding shares of Finotec, Ltd. Finotec Group, Inc. was the surviving company. There have been no other material transactions, series of similar transactions, or currently proposed transactions, to which the Company was or is to be a party, in which the amount involved exceeds $60,000 and in which any director or executive officer, or any security holder who is known to the Company to own of record or beneficially more than five percent of the Company's Common Stock, or any member of the immediate family of any of the foregoing persons, had a material interest. CERTAIN BUSINESS RELATIONSHIPS On December 17, 2002, the Company entered into an agreement (the "Agreement") with an employee (the "Employee"). Pursuant to the Agreement, the Employee loaned the Company $100,000 for an undefined period of time. The loan was payable on demand once the Company had achieved net cash reserves, as defined, in an amount exceeding $450,000 for three consecutive months. The loan does not bear any interest. The loan is secured by a promissory note signed by the Company in favor of the Employee and is secured by $100,000 of its note receivable. Subsequent to the year ended January 31, 2003, the Company cancelled the Agreement and the Company intends to repay the loan as cash flow permits. The Company has paid back $15,000 of the $100,000 to the Employee. 35 In January, 2003 the Company borrowed $30,000 from Dunleigh Investments Limited, a company whose shareholder is also a shareholder in Finotec Inc. The loan bears interest at the rate of 4% and is payable on demand. There have been no material transactions, series of similar transactions, currently proposed transactions, or series of similar transactions, to which the Company was or is to be a party, in which the amount involved exceeds $60,000 and in which any director or executive officer, or any security holder who is known to the Company to own of record or beneficially more than five percent of the Company's Common Stock, or any member of the immediate family of any of the foregoing persons, had a material interest other than listed in this Form 10K. Item 13. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K (a) All required exhibits are incorporated herein by reference from the Company's Form 10K-SB and Amendments thereto. 36 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. DATE: October 14, 2005 By: /s/ Didier Essemini ------------------- Didier Essemini President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and dates indicated. Signature Title Date /s/Didier Essemini Didier Essemini President and a Director October 14, 2005 /s/Guy Senbel Guy Senbel Secretary and a Director October 14, 2005 /s/Gil Ovadia Gil Ovadia Director October 14, 2005 37 EX-31.1 3 ex311.txt Exhibit 31.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Didier Essemini, certify that: 1. I have reviewed this annual report on Form 10-KSB/A of South Finotec Group, Inc. (the "Company"); 2. Based on my knowledge, this 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 circumstances under which such statements were made, not misleading with respect to the period covered by this report; and 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report. 4. The Company's other certifying officers and I, are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and 5. The Company's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of Company'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 Company's ability to record, process, summarize and report financial data and have identified for the Company'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 Company's internal controls over financial reporting. /s/ Didier Essemini ------------------------------------------- Didier Essemini, Chief Executive Officer Dated: October 12, 2005 EX-31.2 4 ex312.txt Exhibit 31.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Didier essemini, certify that: 1. I have reviewed this annual report on Form 10-KSB/A of Finotec Group, Inc. (the "Company"); 2. Based on my knowledge, this 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 circumstances under which such statements were made, not misleading with respect to the period covered by this report; and 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report. 4. The Company's other certifying officers and I, are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and 5. The Company's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of Company'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 Company's ability to record, process, summarize and report financial data and have identified for the Company'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 Company's internal controls over financial reporting. /s/ Didier Essemini ------------------------------------------ Didier essemini, Chief Financial Officer Dated: October 12, 2005 EX-32.1 5 ex321.txt Exhibit 32.1 CERTIFICATION OF CEO PURSUANT TO THE SARBANES-OXLEY ACT In connection with the Annual Report of Finotec Group, Inc. (the "Company") on Form 10-KSB for the year ended January 31, 2005 as filed with the Securities and Exchange commission on the date hereof (the "Report), Didier Essemini, as Chief Executive Officer of the Company hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the Best of his knowledge, that: (1) The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: October 12, 2005 Signed: /s/ Didier Essemini ---------------------------- Didier essemini Chief Executive Officer EX-32.1 6 ex322.txt Exhibit 32.2 CERTIFICATION OF CFO PURSUANT TO THE SARBANES-OXLEY ACT In connection with the Annual Report of Finotec Group, Inc. (the "Company") on Form 10-KSB for the year ended January 31, 2005 as filed with the Securities and Exchange commission on the date hereof (the "Report), Didier Essemini, as Chief Financial Officer of the Company hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the Best of his knowledge, that: (1) The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: October 12, 2005 Signed: /s/ Didier Essemini - ------------------- Didier Essemini Chief Financial Officer CORRESP 7 filename7.txt United States Securities and Exchange Commission Division of Corporate Finance Washington, D.C. 20549 Re: Finotec Group, Inc. Form 10-KSB for the fiscal year ended January 31, 2005 File No. 033-20966 The Company would like to respond to the comment letter dated September 26, 2005, by amending the 10-KSB for the period ended January 31, 2005 as detailed below. Form 10-KSB for the fiscal year ended January 31, 2005 - ------------------------------------------------------ Item 7. Financial statements and Supplementary Data - --------------------------------------------------- 2. Summary of Significant Accounting Policies, Page F-6 - ------------------------------------------------------- 1. Please revise to include a detailed description of your revenue recognition policy. The Company would like to amend page the Summary of Significant accounting Policies on page F-6 by adding the following: Revenue recognition Finotec acts as a market maker for its customers based on the prices traded in the Interbank market, and recognizes a loss or revenue when customers close transactions in foreign currencies. When there is no compensation inside the system with its customers, Finotec turns to other institutions to clear the contracts and recognizes a loss or revenue from actions in derivative financial instruments. Item 8A. Changes in and Disagreements with Accountants on Accounting and - ------------------------------------------------------------------------ Financial Disclosure, page 31 - ----------------------------- 2. Please revise to include the information required by Item 307 of Regulation S-B (17 CFR 228.307) and Item 308 of Regulation S-B (17 CFR 228.308). The Company would like to amend Item 8A by adding the following: CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures. The Company's Chief Executive Officer and its Chief Financial Officer , after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c) as of a date within 90 days of the filing date of this annual report on Form 10-KSB (the "Evaluation Date")), have concluded that as of the Evaluation Date, the Company's disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company would be made known to them by others within the Company, particularly during the period in which this annual report on Form 10-KSB was being prepared. (b) Changes in Internal Controls. There were no changes in the internal controls over financial reporting that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect the internal controls over financial reporting. Item 13. Exhibits, page 36 3. Please revise to include Exhibit 32 as required by Item 601 of Regulation S-B. The Company would like to amend Exhibit 32 by adding the following: CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Didier Essemini, certify that: 1. I have reviewed this annual report on Form 10-KSB/A of South Finotec Group, Inc. (the "Company"); 2. Based on my knowledge, this 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 circumstances under which such statements were made, not misleading with respect to the period covered by this report; and 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report. 4. The Company's other certifying officers and I, are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and 5. The Company's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of Company'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 Company's ability to record, process, summarize and report financial data and have identified for the Company'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 Company's internal controls over financial reporting. /s/ Didier Essemini ------------------------------------------- Didier Essemini, Chief Executive Officer Dated: October 12, 2005 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Didier essemini, certify that: 1. I have reviewed this annual report on Form 10-KSB/A of Finotec Group, Inc. (the "Company"); 2. Based on my knowledge, this 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 circumstances under which such statements were made, not misleading with respect to the period covered by this report; and 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report. 4. The Company's other certifying officers and I, are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and 5. The Company's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of Company'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 Company's ability to record, process, summarize and report financial data and have identified for the Company'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 Company's internal controls over financial reporting. /s/ Didier Essemini ------------------------------------------ Didier essemini, Chief Financial Officer Dated: October 12, 2005 Exhibit 32.2 CERTIFICATION OF CEO PURSUANT TO THE SARBANES-OXLEY ACT In connection with the Annual Report of Finotec Group, Inc. (the "Company") on Form 10-KSB for the year ended January 31, 2005 as filed with the Securities and Exchange commission on the date hereof (the "Report), Didier Essemini, as Chief Executive Officer of the Company hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the Best of his knowledge, that: (1) The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: October 12, 2005 Signed: /s/ Didier Essemini ---------------------------- Didier essemini Chief Executive Officer CERTIFICATION OF CFO PURSUANT TO THE SARBANES-OXLEY ACT In connection with the Annual Report of Finotec Group, Inc. (the "Company") on Form 10-KSB for the year ended January 31, 2005 as filed with the Securities and Exchange commission on the date hereof (the "Report), Didier Essemini, as Chief Financial Officer of the Company hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the Best of his knowledge, that: (1) The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: October 12, 2005 Signed: /s/ Didier Essemini - ------------------- Didier Essemini Chief Financial Officer The Company is responsible for the adequacy and accuracy of the disclosure in the filings; Staff comments or changes to disclose in response to staff comments do not foreclose the Commission from taking any action with respect to the filings; and The Company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. -----END PRIVACY-ENHANCED MESSAGE-----