SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934 For the fiscal year ended January 31, 2010
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Commission file number 033-20966
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Finotec Group, Inc.
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(Exact name of registrant as specified in its charter)
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Nevada
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76-0251547
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(State or other jurisdiction of
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(IRS Employer
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Incorporation or Organization)
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Identification No.)
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228 East 45th Street
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Suite 1801
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New York NY 10017
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(Address of principal executive offices)
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Registrant's telephone number, including area code 718-513-3620
Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
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No
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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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
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No
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
(Do not check if a smaller reporting company)
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Smaller reporting company
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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
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No
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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-K or any amendment to this Form 10-K.
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State Issuer's Revenues for its most recent fiscal year. $2,799,764.
Aggregate market value of the voting stock held by non-affiliates of registrant:
Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 121,030,936 Common Series 0.001 par value
Documents incorporated by reference: None.
TABLE OF CONTENTS
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PAGE
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Item 1. Organization and Business
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3
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Item 2. Properties
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21
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Item 3. Legal Proceedings
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21
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PART II
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22
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23
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26
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PART III
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27
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30
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Introduction
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 OTCBB, under the trading symbol "FTGI.OB."
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’s Fiscal year end is 31 January 31 2010. The Board of Directors of the Company has approved a change in the Company's fiscal year from January 31 to December 31. This change will be effective for the current fiscal year ending December 31, 2010. Consequently the Company’s current fiscal year will end on December 31, 2010 instead of January 31, 2011. The month that would otherwise have been included in fiscal year 2010 (i.e., January 1 to January 31 2011) will be included in fiscal year 2011, and the activities for those days will be included in the Company's quarterly and annual reports for fiscal year 2011.
This change in the fiscal year end will have no material effect on the financial position of the Company and its consolidated subsidiaries, and the results of their operations and their cash flows for either fiscal year 2010 or fiscal year 2011.
Business
Finotec Group Inc. is a public company. The company, through its subsidiaries Finotec Trading Inc. and Finotec Trading UK Limited offers financial market trading to professional and retail clients over its web-based live and real-time proprietary trading system. The state of the art web-based live and real-time proprietary trading system was developed for the company by its other subsidiary Finologic Ltd (formerly Forexcash Global Trading Ltd). The group’s website may be accessed on www.finotec.com.
Company Structure
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.
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Finotec Group Inc. is a holding company with no activities other than holding three wholly owned companies:
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Finotec Trading Inc. - marketing, sales, market trading and facilitation
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Finologic Ltd (formerly Forexcash Global Trading Ltd) - financial technology development.Company
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Fino Consulting Ltd - Financial advisory Company
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Finotec Trading Inc. owns three wholly owned subsidiaries:
1. Finotec Trading UK Limited (“FT UK”) , a Company registered in the United Kingdom. FT UK is approved and registered UK Financial Services Authority ("FSA"). for the purpose of to act as a market maker in Foreign Exchange and CFD's in the UK and Europe and provide investment management services. The FSA authorization allows Finotec UK to offer cross-border investment services within their the European Union
FTUK is the market-making arm of the corporation, distributing the live and instantaneously executable trading prices in global currencies, equities, indices, commodities and interest rate products through the group's online trading system. The centralized dealing room services clients, aggregates globally derived risk in real-time and hedges residual market exposure with the underlying markets.
2. Finotec Trading Cyprus Ltd (“FTC”) , a Company registered in Cyprus. FTC engages primarily in sales and marketing of the Company's products.
3. Finotec USA, Inc., a Delaware corporation,. Currently, this corporation has no activities.
Profile
Finotec Group Inc. is a financial services company, which has been operating since 1998 in the retail FX and CFD space. With trading operations based primarily in Europe, and a strong technology base in Israel, Finotec has become a leader in the world of real-time internet FX, equity and commodities trading.
Technology is what differentiates Finotec from its rivals
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Finotec through its Israeli subsidiary Finologic has
developed its own front to back trading system, including modules in sales, marketing, risk management and accounting, catering to OTC financial markets.
These efforts led to an all-purpose, all-environment platform that not only provides customers with state-of-the-art front office GUIs (graphical users interface), but also enables Finotec to fine-tune its marketing campaigns, as well as back office parameters that are not normally followed in rival platforms.
Finotec constantly strives to improve and maintain its technological lead thanks to proprietary licenses and extensive technological development efforts
. To date, Finotec operates one of the best integrated trading system and ERP in the industry and has launched new its leading edge Sky Trader Platforms for PC and mobiles such as Iphone , Blackberry, and 3G Nokia.
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In particular, its proprietary quantitative marketing platform gives Finotec one of its major strengths
. It allows the company to expand steadily and to remain a step-ahead of market expectations.
Finotec recently restructured of operations to have the flexibility to expand on new profit centers in the mid-term. Finotec is thus defined by three main business areas, is being developed under separate Brands:
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Finotec
is the
Brand of the groups
Retail
Fx Activities through Finotec Trading UK based in London and Finotec Trading Cyprus Ltd in Cyprus, spearheads the company’s trading and brokerage activities. The Groups UK Subsidiary, Finotec Trading UK Ltd is authorised under the UK’s Financial Services Authority (“FSA”).
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FINOTRADE
is the Brand of the group’s Institutional Fx and Commodities Activities through Finotec Trading UK Ltd based in London
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FinoLogic
based in Israel, is the brand of the underlying
technology
whose activities includes white labeling the company’s various proprietary technologies.
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Summary of method of Operations
Fx and CFD Activities
The Company also operates an Internet-based brokerage firm for institutional, professional and serious active individual traders in the financial instruments markets, especially foreign currency and CFDs. The Company 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.
Customers can open accounts with Finotec Trading UK Ltd. by several methods;
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Directly with Finotec Trading UK Ltd.
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Via affiliates and Introducing Brokers ("IB's") that sign commission sharing agreement with Finotec Trading UK Ltd.
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As part of its code of conduct, all customer monies are segregated in custodian accounts which have been set up in the United Kingdom and various other countries.
Since its inception Finotec has secured a number of IB contracts, with investment houses, financial institutions and high wealth individuals. Finotec's website and trading system may be accessed on www.finotec.com. The system also provides a `demo' trading system and an e-learning center that may be accessed by registering on the website.
Technology
The Company currently develops, through its subsidiaries, markets and operates a software system delivering foreign exchange, commodities, and futures (CFDs) investment services to the public through the Internet.
Under our business model, we seek recurring revenues mainly by offering, through use of a software system developed by its subsidiary, FinoLogic, online real-time trading in financial instruments. Forexcash is a front and back office market maker application for online real-time trading in financial instruments. We use our capabilities to provide strategy trading tools, and the unique quality and functionality of those tools attracts our target customer base of institutional, professional and serious active individual traders. We market our services primarily through our subsidiaries that operate call centers and Internet sites. The Company also intends to promote white-label systems directly to financial institutions such as commercial banks. We also provide training in online trading
Risk Management
In addition, the Company operates an internal risk management module that guides the Company as to when to hedge positions or not and systems that provide real time management of equity positions and margin requirements. The Company also acts as a market maker in relevant jurisdictions.
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Recent Developments
In 2010, the Company announced that it is entering into Institutional Fx and Commodities trading under the brand name FINOTRADE (through Finotec Trading UK Ltd based in London). This is further introduced in the website
www.finotrade.com
In addition in 2010, The Company has launched new trading platforms – Sky Trader for PC’s and mobile phones.
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 estimated to be more than $3 trillion 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. 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 underscore this reality.
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The design of Fino 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 and include analytical tools which support the design and testing of custom trading strategies.
The design of Sky Trader has been focused on this "active trader" market, as well as professional and institutional traders, such as small-sized to mid-sized commercial banks. The Sky Trader platform 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
Brokerage Services
The Company, through its subsidiaries, offers online brokerage services, in financial instruments (especially foreign currency and CFDs), using the Forexcash trading platform. Finotec's targeted customer base for brokerage services includes active individual, professional and institutional traders.
Finotec earns the spread between the Bid and Ask price when there is some compensation inside the system, or the price difference between the customer’s transaction price and the bank price. Finotec also runs a small portfolio of uncovered customer transactions.
Sales And Marketing
Offline Marketing
The Company attempts to reach its target customers through advertising campaigns for its products and services in local financial newspapers, articles providing in-depth market commentary on the specific Company products, one-day seminars, events and conventions. Finotec uses the services of various advertising companies to reach targeted customers through advertising campaigns.
Online Marketing
Online marketing includes campaigns in Google, business portals, search engines and other financial websites.
Call Center
Follow-up activities to the Company’s marketing campaigns are performed by the Company’s multi-lingual call center that directly contacts potential customers who have expressed an interest in the Company’s products and services and arranges meetings with account representatives, when appropriate.
Partnerships
The Company’s marketing strategy includes the extension of its customer base through partnerships with relevant players in the financial markets. These partnerships include Franchising Agreements, Introducing Broker Agreements, Affiliate Agreements, White Label Agreements and Licensing Agreements with financial institutions whereby the institutions will refer clients to the Company and receive a commission from the Company for such referrals.
Distribution
In addition to its direct contacts with its customers, the Company actively seeks brokerage firms and other financial institutions to whose customers it can offer the ability to trade with Finotec’s dealing room while sharing the income generated from the trading activity of such customers. The Company aims to further develop this system of forging relationships with Introducing Brokers and Affiliates on an international level. This use of the trading platform would allow Introducing Brokers to provide their customers access to the foreign currency and other financial markets without the cost of running a trading room and developing an electronic trading system themselves.
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Customer Money
All customer money is deposited in the Company’s custodian accounts in banks in the United Kingdom and other countries. All money is managed by the Company back office system in the FinoLogic proprietary Customer Relationship Management system.
In the US, HSBC holds client monies in trust in a segregated account and in the UK, HSBC and Royal bank of Scotland do the same.
Finologic (formerly Forexcash)
In January 2002, Finotec, via its subsidiary, FinoLogic, launched the Forexcash trading platform. The Forexcash service includes 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.
FinoLogic is a front and back office market maker and brokerage application for online real-time trading in the financial instruments markets. Forexcash gives spot and forward transaction prices with real-time execution capabilities for most kinds of currency pairs as well as CFDs, commodities, stocks and indices. Currently we have implemented the most liquid currency pairs.
FinoLogic's application servers were developed in Java Sun and PHP. We believe that these technologies are compatible with most operating systems and using them provides us the opportunity to offer numerous advantages, such as ready-to-use software where no installation is necessary. Using well-accepted Web technologies 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 systems and the servers are encrypted with the RSA protocol based on an algorithm that was developed internally.
Market data services
The real-time market data included in Finologic are licensed from different content suppliers that include Reuters and various stock exchanges around the world.
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 all-in-one platform. 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 have made is adding chat capabilities to our system.
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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 its dealing room as well as call centers. 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 enhance 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.
Competition
The market for 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, but not limited to,: pricing; the timing and market acceptance of new products and services and enhancements developed by us and our competitors; technological developments; product content; our ability to design and support efficient, materially error-free Internet-based systems; market conditions, such as volatility in currency fluctuations, stock prices, inflation and 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 and Europe. Many online brokerage firms currently offer direct-access service.
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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. Furthermore, 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 pricing rates 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.
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.
Despite efforts to protect our proprietary rights, unauthorized parties may 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.
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Government Regulation
In November 2007, Finotec UK received authorization from the FSA to offer certain financial services in the UK. In connection therewith, Finotec has received regulatory approval to offer cross border investment services in various European countries, from its UK office.
In the Unites States, the Commodity Futures Trading Commission ("CFTC") regulates the foreign currency futures market.
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 FSA, 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 $200 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. In addition, since the Company’s activities and customer base are international, regulatory developments in other countries, including those of which the Company is unaware, could have an effect on the Company and its operations.
Employees
As of January 31, 2010, we had 45 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.
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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.
Our business and results of operations could be seriously harmed by any of the following risks.
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 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.
We may have difficulty obtaining future funding sources, if needed, and we might have to accept terms that would adversely affect shareholders.
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.
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The Company is closed during the Jewish Sabbath from Friday evening to Saturday evening and during all Jewish holidays which in certain events may adversely affect our business
The Company is closed on the Jewish Sabbath and during Jewish holidays from on the eve of the Shabbat or eves of holidays, as of two hours before the onset of Shabbat or the holiday, as well as during Shabbat and holidays. During these times there is either a limited amount of employees or no employees in the Company's offices. In the event of a power outage or any disruption of services during these times there would be no employee available to respond to the problem until the end of the Sabbath or Jewish holiday which could have a material adverse affect on the Company's operations. A serious disruption during such a time could disrupt the Company's operations and its business, financial condition and results of operations could be adversely affected.
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.
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.
Our success is dependent upon our receipt and maintenance of regulatory approvals in the major customer markets around the world.
The Company believes that its success, in large part, depends upon its ability to receive and retain regulatory approvals in the major markets around the world. Such approvals both expand the variety of services which the Company can offer and bolster the Company’s reputation among potential customers.
In November 2007, Finotec UK received authorization from the FSA to offer certain financial services in the UK. In connection therewith, Finotec has received regulatory approval to offer cross border investment services in the various European countries, from its UK office. In order to retain its FSA authorization, the Company must comply with numerous requirements, including financial covenants as well as those related to its ongoing operations. The Company’s failure to meet these ongoing obligations could lead to the loss of its FSA authorization which would have a material adverse effect on the Company and its operations.
Fluctuations in our quarterly results may adversely affect our stock price.
Our quarterly operating results will likely vary 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 platform
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actions taken by our competitors, including new product introductions, fee schedules, pricing policies and enhancements;
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cash flow problems that may occur;
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the quality and success of, and potential continuous changes in, sales or marketing strategies (which have undergone significant changes recently and are expected to continue to evolve) and the costs allocated to marketing campaigns and the timing of those campaigns;
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the timing, completion, cost and effect of our development and launch of planned enhancements to the Finotec trading platform;
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the size and frequency of any trading errors for which we ultimately suffer the economic burden, in whole or in part;
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changes in demand for our products and services due to the rapid pace in which new technology is offered to customers in our industry;
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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
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general economic and market factors that affect active trading, including changes in the securities and financial markets.
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our industry is intensely competitive, which makes it difficult to attract and retain customers
The markets for online brokerage services, client software and Internet-based trading tools, and real-time market data services are intensely competitive and rapidly evolving, and there has been substantial consolidation of those three products and services occurring in the industry. We believe that competition from large online brokerage firms and smaller brokerage firms focused on active traders, as well as consolidation, will substantially increase and intensify in the future. Competition may be further intensified by the size of the active trader market,. We believe our ability to compete will depend upon many factors both within and outside our control. These include: price pressure; the timing and market acceptance of new products and services and enhancements developed by us and our competitors; the development and support of efficient, materially error-free Internet-based systems; product and service functionality; data availability and cost; clearing costs; ease of use; reliability; customer service and support; and sales and marketing decisions and efforts.
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.
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.
14
Trademarks and service marks risks.
Proprietary rights are important to our success and our competitive position. 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 names 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.
The nature of our business results in potential liability to customers
Many aspects of the securities brokerage business, including online trading services, involve substantial risks of liability. In recent years there has been an increasing incidence of litigation involving the securities brokerage industry, including class action and other suits that generally seek substantial damages, including in some cases punitive damages. In particular, our proprietary order routing technology is designed to automatically locate, with immediacy, the best available price in completing execution of a trade triggered by programmed market entry and exit rules. There are risks that the electronic communications and other systems upon which these products and services rely, and will continue to rely, or our products and services themselves as a result of flaws or other imperfections in their designs or performance, may operate too slowly, fail or cause confusion or uncertainty to the user. Major failures of this kind may affect all customers who are online simultaneously. Any such litigation could have a material adverse effect on our business, financial condition, results of operations and prospects.
We 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:
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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;
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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;
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we may acquire companies or make strategic alliances in markets in which we have little experience;
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we may not be able successfully to integrate the services, products and personnel of any acquisition or new alliance into our operations;
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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
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our acquisitions and strategic alliances may not be successful, and we may lose our entire investment.
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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 maintain positive brand name awareness.
We believe that establishing and maintaining our 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;
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.
16
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:
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announcements of technological innovations and the creation and failure of B2B marketplaces;
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actual or anticipated variations in quarterly operating results;
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new sales formats or new products or services;
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changes in financial estimates by securities analysts;
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conditions or trends in the Internet, B2B and other industries;
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changes in the market valuations of other Internet companies;
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announcements by us or our competitors of significant acquisitions, strategic partnerships or joint ventures;
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changes in capital commitments;
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additions or departures of key personnel;
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Many of these factors are beyond our control.
Service of process and enforcement of civil liabilities on us and our officers may be difficult to obtain.
We are organized under the laws of the State of Nevada and will be subject to service of process in the United States. However, most of our assets are located outside the United States. In addition, certain of our directors and officers are residents of Israel.
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There is doubt as to the enforceability of civil liabilities under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, in original actions instituted in Israel. As a result, it may not be possible for investors to enforce or effect service of process upon these directors and executive officers or to judgments of U.S. courts predicated upon the civil liability provisions of U.S. laws against our assets, as well as the assets of these directors and executive officers. In addition, awards of punitive damages in actions brought in the U.S. or elsewhere may be unenforceable in Israel.
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 other 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:
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the unwillingness of business to shift from traditional processes to e-commerce processes;
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the necessary network infrastructure for substantial growth in usage of e-commerce may not be adequately developed;
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increased governmental regulation or taxation may adversely affect the viability of e-commerce;
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insufficient availability of telecommunication services or changes in telecommunication services could result in slower response time for users of e-commerce; and
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concern and adverse publicity with respect to, and failure of, security of e-commerce.
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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.
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Our e-commerce capability depends on real-time accurate product information.
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 either due to third-party or internal errors. 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. We are aware of cases in which the data provided to us by third parties has not been consistently accurate and, as a result of which, we have experienced customer dissatisfaction and lawsuits by customers. In addition, our contracts with the third-party data suppliers must be renewed on a regular basis and the costs for such information may increase, with the Company having little or no negotiating influence in such a situation.
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 growth 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.
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In addition, to a large extent, the Company’s profits are dependent upon the operation of its internal risk management system. There is no guarantee that such system will operate successfully in every eventuality.
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. In addition, recently, there have been several instances of entire countries losing Internet access as a result of natural disasters or accidents. 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 or continuing 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.
Changes in the regulatory environment governing the Internet, either in the US or abroad, could have a significant effect on our business.
We cannot predict whether or to what extent any new regulation affecting e-commerce will occur. New regulations could increase our costs or restrict our activities in a materially adverse manner. One or more states or countries may seek to impose sales tax collection obligations on out-of-state/foreign 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.
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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. We are aware of cases in which the data provided to us by third parties has not been consistently accurate and, as a result of which, we have experienced customer dissatisfaction and lawsuits by customers. Costs from these claims could damage our business and limit our financial resources. In addition, there can be no assurance that we will not make internal errors that could result in liability.
The Company's UK subsidiary and dealing room is located at 70 Grace Church 2nd Floor, London EC3, England, UK. There the Company rents 4,640 square feet of office space.
The company Israel’s subsidiary - FinoLogic has offices in Jerusalem at 13 Hartom Street, Jerusalem, 97775, Israel. There the Company rents approximately 490 square meters of office space.
The Company also rents 197 square meters of offices in Limassol, Cyprus at 1 Griva Digheni& Chrysanthou Street.
Rent expense for the fiscal year ended January 31, 2010 was approximately $532,982. This included a penalty for early termination of an office lease.
In the normal course of business, a few Finotec clients have claims for alleged trading profits or losses that these clients are considered to due to them. The current amounts in question are in no more than US$ 200,000. Finotec’s view is that there is in-sufficient basis for these claims
Management does not expect any of these claims to have a material effect on the Company's financial position or results of operations
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None
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Matters
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(a)
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The Company's Common Stock is quoted on the OTC Bulletin Board )OTCBB( under the symbol "FTGI.OB" 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, 2010. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and may not reflect actual transactions.
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2009
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High
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Low
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First Quarter
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0.41
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0.10
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Second Quarter
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0.35
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0.11
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Third Quarter
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0.31
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0.10
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Fourth Quarter
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0.17
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0.07
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2008
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High
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Low
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First Quarter
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1.01
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0.65
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Second Quarter
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0.85
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0.26
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Third Quarter
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0.90
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0.20
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Fourth Quarter
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0.52
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0.15
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As of January 31, 2010, we had approximately 1,100 holders of record of our common stock.
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(b)
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No dividends were paid during the fiscal year ending January 31, 2010. 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.
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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-K. Certain of the statements contained in this Form 10-K 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-K. 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-K.
BUSINESS OVERVIEW
The Company currently develops, through its subsidiaries, markets and operates a software system delivering foreign exchange, commodities, and futures (CFDs) investment services to the public through the Internet. The Company also operates an Internet-based brokerage firm for institutional, professional and serious active individual traders in the financial instruments markets, especially foreign currency and CFDs. The Company 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. In addition, the Company operates an internal risk management module that guides the Company as to when to hedge positions or not and systems that provide real time management of equity positions and margin requirements. The Company also acts as a market maker.
Under our business model, we seek recurring revenues mainly by offering, through use of a software system developed by its subsidiary, FinoLogic, online real-time trading in financial instruments. FinoLogic is a front and back office market maker application for online real-time trading in financial instruments. We use our capabilities to provide strategy trading tools, and the unique quality and functionality of those tools attracts our target customer base of institutional, professional and serious active individual traders. We market our services primarily through our subsidiaries that operate call centers and Internet sites. The Company also intends to promote white-label systems directly to financial institutions such as commercial banks. We also provide training in online trading.
With the proliferation of 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 all-in-one trading platforms that are seamlessly integrated with the best-available order execution technology and include analytical tools which support the design and testing of custom trading strategies.
To achieve profitability, the Company has embarked on a policy to diversify its business, capitalizing on its strong technology base via Finologic and the position of its Brokerage Business through Finotec Trading UK Ltd (“FT UK”), who is registered by the UK’s Financial Services Authority. To this extent The Company has entered the Institutional Fx and Commodities Activities. Not only will this enable the Company to reach a broader customer base, it will allow the company’s existing retail clients to obtain better prices and liquidity. The Company is currently recruiting institutional sales representatives to increase the Company’s customers, network of affiliates and IBs. The Company will offer clients to trade through Sky Trader or through the Currenex Trading Platform. The Company may raise financing in the upcoming year in order to finance the expansion of its business lines.
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RESULTS OF OPERATIONS
Our current expense levels are based upon our expectations concerning future revenue. However, such revenue levels cannot be guaranteed. Thus, quarterly revenue and results of operations are difficult to project.
OVERALL
Net gain from foreign currency future operations for the year ended January 31, 2010 was $2,797,619 (Prior Year $ $2,641,116)
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 Company’s subsidiary, FinoLogic Ltd., owns all intellectual property rights relating to our business. Research and development expenses for the year ended January 31, 2010 was $628,429 (Prior Year $ 308,893).This increase is due increased R&D in new products.
GENERAL AND ADMINISTRATIVE. General and administrative expenses include expenses relating to employees cars and travel . General and administrative expenses were for the year ended January 31, 2010 was $422,056 (Prior Year $798,571). This decrease is due cost cutting measures affected.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance increased by $2,600,523 from a cash balance as of January 31, 2009 of $5,108,144 to $7,708,667 as of January 31, 2010. The increase is primarily attributable to a significant increase in cash required for operating activities offset by an increase in cash provided by financing activities.
Net cash used in operating activities amounted to $4,541,836 for the year ended January 31, 2010, while net cash used by operating activities was $7,767,822 for the year ended January 31, 2009, a decrease of $3,322,959. The decrease in net cash used in operating activities primarily resulted from a decrease in operating expenses.
Net cash used in investing activities for the year ended January 31, 20109, was $267,675 while it was $136,7039 used in investing activities for the year ended January 31, 2009, an increase of $130,972 The cash used in investing activities for the year ended January 31, 2010, primarily resulted from the acquisition of property and equipment.
The Company had cash provided in financing activities of $7,399,284 during the year ended January 31, 2010 compared to net cash provided by financing activities of $4,468,123 during the year ended January 31, 2009, an increase of $2,931,161. This increase primarily reflects the purchase by several investors of shares of the Company in a private placement.
24
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 new business lines in Instructional FX and Commodities. The Company has sufficient funds to satisfy its cash requirements until June 2010, assuming monthly expenses of the Company at $500,000 and no revenue generation by the Company. The Company intends to try to obtain additional funds 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, and 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.
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.
25
FINOTEC GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
JANUARY 31, 2010 AND 2009
|
Gvilli & Co. C.P.A. (isr.)
|
7 Haeshel St.
|
|
Caesarea Israel 38900
|
|
|
Phone: 04 - 6372740
|
|
|
Fax: 04 - 6272130
|
|
|
E-mail: ir@gvilicpa.co.il
|
To the Stockholders' and the Board of Directors of Finotec Group Inc.
We have audited the accompanying consolidated balance sheet of Finotec Group, Inc. and its Subsidiaries (collectively, the "Company") as of January 31, 2010 and 2009, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the two years in the period ended January 31, 2010. 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 audit.
We did not audit the financial statements of Finotec Trading UK and Finotec Trading (Cyprus) for the year ended January 31,2010, which statement reflect total revenues constituting 60 percent of consolidated total revenues for the year ended January 31,2010. Such financial statements were audited by other auditors whose report has been furnished to us and our opinion insofar as it relates to the amount included for Finotec Trading UK and Cyprus for the year ended January 31, 2010, is based solely on the report of such other auditors.
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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, such consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company. as of January 31, 2010 and 2009 and the results of its operations and its cash flows for each of the two years in the period ended January 31, 2010, in conformity with accounting principles generally accepted in the United States of America.
|
/S/ Gvilli & Co.
|
|
|
Gvilli &Co.
|
|
|
April 25, 2010
|
|
|
Casarea, Israel
|
26
FINANCIAL STATEMENTS
FOR THE YEAR ENDED JANUARY 31, 2010
|
Page
|
|
|
F-2
|
Consolidated Balance sheet
|
|
F-3
|
Statement of Income
|
|
F-4
|
Statement of Stockholders' equity
|
|
F-5
|
Statement of cash flow operations
|
F-1
FINOTEC GROUP, INC.
CONSOLIDATED BALANCE SHEET
|
U.S Dollars
|
|||||||||
|
January 31 ,
2010
|
January 31 ,
2009
|
||||||||
|
(Unaudited)
|
(Audited)
|
||||||||
|
ASSETS
|
|||||||||
|
Current Assets
|
|||||||||
|
Cash and cash equivalents
|
7,708,667 | 5,108,144 | |||||||
|
Prepaid and other current assets
|
228,311 | 472,662 | |||||||
|
Total Current Assets
|
7,936,978 | 5,580,806 | |||||||
|
Property and Equipment, Net
|
377,717 | 599,879 | |||||||
|
Forward transaction-Hedging
|
- | 441,090 | |||||||
|
Total Assets
|
8,314,695 | 6,621,775 | |||||||
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|||||||||
|
Current Liabilities
|
|||||||||
|
short term bank credit
|
- | 216 | |||||||
|
Accounts payable and accrued expenses
|
1,033,675 | 995,820 | |||||||
|
Customers deposits
|
2,904,900 | 4,924,316 | |||||||
|
Forward transaction-Customers and Hedging
|
17,679 | 27,649 | |||||||
|
Provision for severance
|
291,483 | 261,063 | |||||||
|
Total current Liabilities
|
4,247,737 | 6,209,064 | |||||||
|
Stockholders' Equity
|
|||||||||
|
Common stock, $0.001 par value, 300,000,000 shares authorized,
|
|||||||||
|
121,030,936
shares issued and outstanding
|
121,031 | 92,098 | |||||||
|
Treasury stock
|
|||||||||
|
Additional paid-in capital
|
13,223,250 | 5,858,059 | |||||||
|
Foreign currency translation adjustment
|
(678,876 | ) | (732,344 | ) | |||||
|
Retained earnings
|
(8,598,447 | ) | (4,805,102 | ) | |||||
|
Total Stockholders' Equity
|
4,066,958 | 412,711 | |||||||
|
Total Liabilities and Stockholders' Equity
|
8,314,695 | 6,621,775 | |||||||
|
See accompanying notes to consolidated financial statements.
|
|||||||||
F-2
FINOTEC GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
|
Year ended
|
||||||||
|
Jan 31
|
Jan 31
|
|||||||
|
2010
|
2009
|
|||||||
|
U.S Dollars
|
||||||||
|
Revenues
|
||||||||
|
Net (losses) gain from foreign currency future operations
|
2,797,619 | 2,641,116 | ||||||
|
Consulting
|
2,145 | 5,746 | ||||||
|
Total Revenues
|
2,799,764 | 2,646,862 | ||||||
|
Operating Expenses
|
||||||||
|
General and Administrative
|
422,056 | 798,571 | ||||||
|
Salaries
|
2,275,840 | 2,948,013 | ||||||
|
Rent and office
|
532,982 | 255,054 | ||||||
|
Research and Development
|
628,429 | 308,935 | ||||||
|
Technology and computer
|
336,617 | 859,896 | ||||||
|
Bonuses & cash back-with holding
|
0 | 132,941 | ||||||
|
Marketing
|
670,287 | 1,608,866 | ||||||
|
Professional fees
|
660,925 | 710,772 | ||||||
|
Financial data fees
|
205,256 | 232,754 | ||||||
|
Depreciation
|
310,708 | 265,378 | ||||||
|
Exceptional
|
0 | 224,323 | ||||||
|
Other expense
|
128,499 | 570,106 | ||||||
|
Total Operating Expenses
|
6,171,598 | 5,506,569 | ||||||
|
Operating P&L
|
(3,371,835 | ) | (2,859,707 | ) | ||||
|
Financing Expenses
|
||||||||
|
Interest income
|
1,803 | 79,300 | ||||||
|
Finance Charges
|
(159,840 | ) | (460,615 | ) | ||||
|
Financing P&L
|
(158,037 | ) | 31,366 | |||||
|
Net Income (Loss)
|
(3,529,872 | ) | (5,741,835 | ) | ||||
|
Weighted average number of shares outstanding
|
||||||||
|
Basic
|
103,876,381 | 73,197,381 | ||||||
|
Diluted
|
130,120,823 | 89,941,246 | ||||||
|
Net Income per common share- Basic
|
$ | -0.03 | $ | -0.08 | ||||
|
Net Income per common share - diluted
|
$ | -0.03 | $ | -0.06 | ||||
|
See accompanying notes to consolidated financial statements.
|
||||||||
F-3
FINOTEC GROUP, INC.
CONSOLIDATED STATEMENT OF CASHFLOWS
|
U.S Dollars
|
||||||||
|
For the year ended
|
January 31
|
January 31
|
||||||
|
2010
|
2009
|
|||||||
|
Cash Flows from Operating Activities
|
||||||||
|
Net Income ( Loss)
|
(3,529,872 | ) | (6,650,062 | ) | ||||
|
Adjustment to reconcile Net Loss to
|
||||||||
|
Net cash Used in Operating Activities
|
||||||||
|
Depreciation
|
263,680 | 265,378 | ||||||
|
Loss on sold assets
|
19,593 | |||||||
|
Changes in Operating Assets and Liabilities
|
||||||||
|
Decrease (increase) in prepaid and other current assets
|
244,351 | (179,098 | ) | |||||
|
Increase in accrued expenses
|
37,854 | 424 | ||||||
|
Decrease in other current liabilities
|
50,246 | |||||||
|
Increase in accrued severance payable
|
30,420 | 72,905 | ||||||
|
Increase (decrease) in receivable forward Clients Trs
|
441,090 | (86,990 | ) | |||||
|
Increase (decrease) in payable forward Hedging Trs/option
|
(9,970 | ) | (518,929 | ) | ||||
|
Decrease (increase) in marketable securities
|
0 | 486,151 | ||||||
|
Increase (decrease) in customers Deposits
|
(2,019,416 | ) | (1,227,439 | ) | ||||
|
Net cash provided by (used in) Operating Activities
|
(4,541,863 | ) | (7,767,822 | ) | ||||
|
Cash Flows from Investing Activities
|
||||||||
|
Purchase of fixed Assets
|
(41,519 | ) | (170,660 | ) | ||||
|
Selling of fixed Assets
|
33,957 | |||||||
|
Net cash provided by Investing Activities
|
(41,519 | ) | (136,703 | ) | ||||
|
Cash Flows from Financing Activities
|
||||||||
|
Short term bank credit
|
(216 | ) | (22,277 | ) | ||||
|
Proceeds from treasury shares
|
||||||||
|
Stock issuance
|
7,394,124 | 4,490,400 | ||||||
|
Net cash provided by (used in) Financing Activities
|
7,393,908 | 4,468,123 | ||||||
|
Effect of Foreign Currency Translation
|
(210,006 | ) | (591,045 | ) | ||||
|
Net increase (decrease) in Cash and Cash Equivalent
|
2,600,523 | (4,027,447 | ) | |||||
|
Cash and Cash Equivalents- beginning of year
|
5,108,144 | 9,135,591 | ||||||
|
Cash and Cash Equivalents- Ending
|
7,708,667 | 5,108,144 | ||||||
F-4
FINOTEC GROUP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
|
Common Stock
|
||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Additional
Paid in capital |
Deficit
Accumulated |
Accumulated
Other Comprehensive income |
Treasury
Stock |
Total
|
||||||||||||||||||||||
|
Balance at January 31, 2008
|
65,516,224 | 65,516 | 1,545,378 | 1,844,960 | (159,916 | ) | (156,513 | ) | 3,139,425 | |||||||||||||||||||
|
Net Income (Loss)
|
(6,650,062 | ) | (6,650,062 | ) | ||||||||||||||||||||||||
|
Shares issued from Treasury Stock
|
156,513 | 156,513 | ||||||||||||||||||||||||||
|
New shares issuing
|
21,205,601 | 21,206 | 4,312,681 | 4,333,887 | ||||||||||||||||||||||||
|
Foreign currency translation
|
(572,428 | ) | (572,428 | ) | ||||||||||||||||||||||||
|
Balance at January 31, 2009
|
86,721,825 | 86,722 | 5,858,059 | (4,805,103 | ) | (732,344 | ) | 0 | 407,335 | |||||||||||||||||||
|
Net Income (Loss)
|
(3,529,872 | ) | (3,529,872 | ) | ||||||||||||||||||||||||
|
New shares issuing
|
3,200,000 | 3,200 | 396,800 | 400,000 | ||||||||||||||||||||||||
|
New shares issuing
|
11,111,111 | 11,111 | 1,988,889 | 2,000,000 | ||||||||||||||||||||||||
|
New shares issuing
|
2,780,000 | 2,780 | 692,220 | 695,000 | ||||||||||||||||||||||||
|
New shares issuing
|
8,000,000 | 8,000 | 1,992,000 | 2,000,000 | ||||||||||||||||||||||||
|
New shares issuing
|
9,218,000 | 9,218 | 2,295,282 | 2,304,500 | ||||||||||||||||||||||||
|
Total issued : 34,309,111
|
||||||||||||||||||||||||||||
|
Foreign currency translation
|
(263,473 | ) | 53,468 | (210,005 | ) | |||||||||||||||||||||||
|
Balance at January 31, 2010
|
121,030,936 | 121,031 | 13,223,250 | -8,598,448 | -678,876 | 0 | 4,066,958 | |||||||||||||||||||||
F-5
FINOTEC GROUP, INC.
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.
|
|
|
Shares in Finotec began trading on the Over the Counter Bulletin Board listings. (OTCBB: FTGI).
|
||
|
Finotec Group's United Kingdom subsidiary, Finotec Trading UK, Limited, has been authorized by the UK’s Financial Services Authority (FSA) to act as a Market Maker, as defined by the FSA, in the United Kingdom. As of November 9, 2007, Finotec Trading UK, Limited, is approved by the FSA as a Market Maker and Principal, and thus Finotec Trading UK, Limited, may now offer UK clients certain regulated investment instruments such as Commodity Futures, Commodity options and options on commodity futures, Contract for Differences, Futures, Options, Rights to or interests in investments, Rolling spot Forex contracts, and Spread Bets.
|
||
|
Risk Management
|
||
|
These Finotec Group activities give rise to risks which are monitored and managed as follows:
|
||
|
Credit risk
|
||
|
Clients are required to deposit cleared funds as margin before they can trade. If the client margin falls below the minimum required to maintain a position, they will be notified that they are on margin call and can only reduce their positions or provide additional funds. At any time the client is on margin call, the company may, at its discretion, liquidate some or all of that client's positions in order to bring them back into line with their margin requirements.
|
||
|
The company also has potential credit risk exposure to market counterparties with which it hedges and with banks. The company has a defined risk appetite for exposure to each market counterparty and bank to which it has credit exposure.
|
||
|
Liquidity risk
|
||
|
The company has significant net cash balances as at the balance sheet date and continually monitors its capital adequacy.
|
||
|
Foreign currency risk
|
||
|
The company has financial instruments which are denominated predominantly in US dollars. The gains and losses arising from the company's exposure are recognised in the profit and loss account.
|
||
|
Market price risk
|
||
|
Market risk arises from open contracts with customers and counterparties. Exposure to market risk is closely monitored in accordance with limits and reduced through hedging.
|
F-6
FINOTEC GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
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”) and its owned subsidiaries Finotec Trading Cyprus Ltd. Finotec USA Inc., Finotec Trading UK Ltd, and Finotec Group Inc 99.7% owned subsidiary, FinoLogic formerly Forexcash Global Trading Ltd. (“FinoLogic”) (collectively referred to as the “Company”, unless otherwise indicated). All material inter company transactions and balances have been eliminated in consolidation.
|
|
|
Since the liabilities of Finologic 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.
|
||
|
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.
|
||
|
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.
|
|
|
Revenue recognition
|
||
|
Finotec acts as a market maker for its customers based on the prices traded in the inter bank market, and recognizes a loss or revenue both when customers close transactions in foreign currencies and also on the open customer positions showing gain or loss. 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.
|
||
|
Income Taxes
|
Deferred taxes are determined based on the differences between financial reporting and tax basis 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, if it is considered more likely than not that some portion of or all of, the deferred tax assets will not be realized.
|
|
F-7
INOTEC GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.
Summary of Significant Accounting Policies (Continued)
|
Use of Estimates
|
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates.
|
|
Translation of Foreign
|
|
|
Currencies
|
Finologic Ltd. Fino Consulting Ltd and Finotec Trading Cyprus Ltd, Finotec Trading UK Ltd and are operated primarily in local currencies, which represent the functional currencies of those subsidiaries. Forexcash Ltd, Finotec Trading UK Ltd and Finotec Trading Cyprus Ltd encompass substantial part of the Company's operations. All assets and liabilities of Finologic Ltd. Fino Consult Ltd, Finotec Trading Cyprus Ltd and Finotec Trading UK Ltd 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.
|
|
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, 2010 and 2009, because the effect of these securities is anti-dilutive.
|
F-8
FINOTEC GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
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.
|
|
A summary of significant accounting policies is included in Note 2 to the accompanying financial statements. We believe that the application of these policies on a consistent basis enables our company to provide useful and reliable financial information about the company's operating results and financial condition. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.
|
|
|
We account for stock options issued to employees in accordance with the provisions of SFAS No. 123(R), "Share-Based Payment". In December 2004, the FASB issued SFAS No. 123(R) which replaces SFAS No. 123 and supersedes APB Opinion No. 25. Under SFAS No. 123(R), companies are required to measure the compensation costs of share based compensation arrangements based on the grant date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share based compensation arrangements include stock options, restricted share plans, performance based awards, share appreciation rights and employee share purchase plans.
|
|
|
In March 2005 the SEC issued Staff Accounting Bulletin No. 107, or "SAB107". SAB 107 expresses views of the staff regarding the interaction between SFAS No. 123(R) and certain SEC rules and regulations and provides the staff's views regarding the valuation of share based payment arrangements for public companies. SFAS No. 123(R) permits public companies to adopt its requirements using one of two methods. On April 14, 2005, the SEC adopted a new rule amending the compliance dates for SFAS 123R. Companies may elect to apply this statement either prospectively, or on a modified version of retrospective application under which financial statements for prior periods are adjusted on a basis consistent with the pro forma disclosures required for those periods under SFAS123. Effective January 1, 2007, we fully adopted the provisions of SFAS No. 123R and related interpretations as provided by SAB 107. As such, compensation cost is measured on the date of grant as the excess of the current market price of the underlying stock over the exercise price. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant. We apply this statement prospectively. The valuation of such share based payments requires significant judgment. We exercise our judgment in determining the various assumptions associated with the associated share based payments as well as the expected volatility related to their fair value. We base our estimate of the share based payments on our interpretation of the underlying agreements and historical volatility of our stock price.
|
F-9
FINOTEC GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Other accounting policies (continued)
|
We account for our investment in equity securities pursuant to Statement of Financial Accounting Standards ("SFAS") No.115. This standard requires such investments in equity securities that have readily determinable fair values be measured at fair value in the balance sheet and that unrealized holding gains and losses for investments in available for sale equity securities and investments in trading equity securities be recorded as a component of stockholders' equity and statement of operations, respectively. Furthermore, it provides that if factors lead us to determine that the fair value of certain financial instruments is impaired, that we should adjust the carrying value of such investments to its fair value. Marketable securities consist principally of corporate stocks. Management has classified the Company’s marketable securities as available for sale securities in the accompanying consolidated financial statements.
|
|
|
Marketable Securities
|
Available-for-sale securities are carried at fair value, with unrealized gains and losses reported as a separate component of stockholders’ equity. Realized gains and losses on available-for-sale securities are included in interest income. Gains and losses, both realized and unrealized, are measured using the specific identification method. Market value is determined by the most recently traded price of the security at the balance sheet date. As of January 31, 2010 the market value of the security equals its cost
.
|
|
4. Advertising Expense
|
The Company expenses advertising costs as incurred. Advertising expenses included in the profit and losses in the total amount of Marketing for the years ended January 31, 2010 and 2009 amounted to $670,387 and $1,608,866, respectively.
|
F-10
FINOTEC GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 5. |
Property and
|
|
|
Equipment
|
Consist of the following:
|
As of January 31, 2010
|
Estimated
Useful Life |
January 31 ,
2010 |
|||||||
|
years
|
(audited)
|
|||||||
|
Computer equipment
|
3 | $ | 771,703 | |||||
|
Purchased software
|
3 | $ | 184,951 | |||||
|
Office furniture and equipment
|
7 | $ | 518,844 | |||||
|
Leasehold improvements
|
10 | $ | 0 | |||||
|
Total Property and Equipment at Cost
|
$ | 1,475,498 | ||||||
|
Less accumulated depreciation and amortization
|
$ | 1,097,781 | ||||||
|
Property and Equipment - Net
|
$ | 377,717 | ||||||
|
6. Related Party
|
|
|
Transactions/Loans
|
Finotec Inc. is a holding Company which operates via its wholly owned subsidiaries and their subsidiaries. Within the Group there are various inter- company agreements setting out the different undertakings of the companies and the commissions paid in such transactions.
|
|
The Company has in place from time to time inter-company loans which are granted at interest rates which the Company believes reflect market conditions at such time.
|
F-11
FINOTEC GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
7.
Stockholders’ Equity
|
|
|
On April 30, 2009 the Company entered into a definitive agreement for the
sale of 3,200,000 shares of Common Stock at a price of
$0.125 per share for a total of $ 400,000. The shares of Common Stock sold in the private placement offering have not been registered and may not be offered or sold absent registration or an applicable exemption from such registration requirements. All such shares are subject as well to a registration rights agreement. The offering closed on April 30, 2009.
|
|
|
On September 2, 2009, the Company entered into definitive agreements for the sale of 17,218,000 Common Shares at a price of $0.25 per share. The shares of Common Stock sold in the private placement offering have not been registered under the Act and may not be offered or sold absent registration or an applicable exemption from such registration requirements. All such shares are subject as well to a registration rights agreement. The summary description of the financing described above does not purport to be complete and is qualified in its entirety by reference to the Stock Purchase Agreement filed as an Exhibit hereto.
The offering closed on September 2, 2009.
|
|
|
On July 31 2009, the Company entered into a definitive agreement for the sale of 11,111,111 Common Shares at a price of $0.18 per share as well as 2,780,000 Common Shares at a price of $0.25 per share. The shares of Common Stock sold in the private placement offering have not been registered under the Act and may not be offered or sold absent registration or an applicable exemption from such registration requirements. All such shares are subject as well to a registration rights agreement. The transaction closed on July 31st 2009.
|
|
|
8.
Stock Options
|
|
|
During the year 2007, the Board of Directors of Finotec Group, Inc. (the "Company") approved a resolution to authorise up 18,000,000 shares of Common Stock to make these option grants under the Company’s Amended and Restated 2007 Equity Incentive Plan (the “Plan”) available to be issued the companies employees , excluding any Shareholder with more than xx% of the company. The Board intends that such options have an exercise price per share not less than the market price per share of the Company’s Common Stock. As of January 31, 2010, no options were issued to the employees
.
During the year 2010, 2,000,000 shares have been approved for issue to the employees.
|
|
|
In summary, the Company has issued Common shares and Warrants as follows (excluding the above plan):
|
|
2010
|
2009
|
||||||
|
Common Shares Issued
|
121,030,936 | 86,721,825 | |||||
|
Warrants Issued
|
27,244,442 | 25,244,442 | |||||
|
Total
|
148,275,378 | 111,966,267 | |||||
|
The warrants are exercisable at an average of 38 cents per share.
|
F-12
FINOTEC GROUP, INC
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 the normal course of business,
a few Finotec clients have claims for alleged trading profits or losses that these clients are considered to due to them. The current amounts in question are in no more than US$ 200,000. Finotec’s view is that there is in-sufficient basis for these claims
|
||
|
Management does not expect any of these claims to have a material effect on the Company's financial position or results of operations.
|
||
|
11.
|
Commitments
|
FinoLogic Ltd, Finotec Trading (Cyprus) Ltd and Finotec Trading UK Ltd lease their offices space facilities with a lease period of two to three years.
|
|
Rent expense included in the profit and losses in the total amount of Selling, General and Administrative for the years ended January 31, 2010 and 2009 amounted to $532,982 and $255,054 respectively.
|
||
|
12.
|
Income Taxes
|
Realization of the future tax benefits related to the deferred tax assets is dependent on many factors including the Company’s ability to generate taxable income within the net operating loss carry forward period. 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
|
See Note 10 regarding legal proceedings.
|
F-13
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, 2010.
(a) Evaluation of Disclosure Controls and Procedures
Management of the Company, with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act), as of January
2010. Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer has concluded that the certain of Company’s disclosure controls and procedures are not effective as of January 31, 2010. There are material weaknesses in internal control over financial reporting as described below.
(b) Management’s Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness represents a significant deficiency (as defined in the Public Company Accounting Oversight Board’s Auditing Standard No. 5), or a combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of January 31, 2010 based on the framework published by the Committee of Sponsoring Organizations of the Tread way Commission,
Internal Control — Integrated Framework.
Management has identified the following material weaknesses in the Company’s internal control over financial reporting as of January 31, 2010.
27
Material weaknesses identified in Finotec Group, Inc are as follows:
Audit Committee, Internal Audit and Entity Level Controls:
|
|
·
|
The Audit Committee is not fully active.
|
|
|
·
|
The internal controller /audit function is not fully active.
|
|
|
·
|
Management does perform a periodic check of the access rights of all users to ensure that their access is suitable to their positions and functions. Segregation rights still need be further fine-tuned.
|
Remediation Plan:
|
|
·
|
The Audit Committee will be fully activated.
|
|
|
·
|
The Company has appointed an internal controller / auditor who have commenced a review and enforcement of the required tasks. .
|
|
|
·
|
The CFO will extract from the information system an access list for all employees and ensure that each function, screen and field is suitable to the employee's job description.
|
|
|
·
|
The CFO will ensure that the access rights are adequately segregated.
|
Information Technology:
|
|
·
|
The Company does have adequate permission and access right tables specifying group authorizations. Some employees have more authorizations than their role definition. There is no authorization procedure.
|
|
|
·
|
The Company does have password complexity procedure. User passwords require complexity, and there is a requirement for password change.
|
|
|
·
|
No adequate formal system development, acquisition and program change policies and procedures exist for development/acquisitions of new systems and changes to existing systems.
|
|
|
·
|
The developers have access to the production.
|
Remediation Plan:
|
|
·
|
The Company will continue to examine and minimize user rights and will prepare permissions table and access rights that includes group permissions and prepare access to programs and data procedures.
|
|
|
·
|
The Company will update "Access to Programs and Data" procedure. Passwords to the database will be managed.
|
|
|
·
|
The Company will write a methodology for system development, acquisitions and change management.
|
|
|
·
|
The Company will prevent the developers from accessing the production environment.
|
28
The officers of the Company are as follows:
|
NAME
|
POSITION(S)
|
TERM OF OFFICE
|
|
Didier Essemini (38)
|
President, Director
|
1 year
|
|
Guy Senbel (57)
|
Secretary, Director
|
1 year
|
|
Gil Ovadia (44)
|
Director
|
1 year
|
|
Phillip Laurent Levy (46)
|
Director
|
1 year
|
|
Vacant
|
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.
Philip Laurent Levy
Mr. Levy is a serial entrepreneur who successfully founded and ran eleven companies in the past two decades, in France, Belgium, Monaco, and Turkey. He has extensive experience in finance, business development and IT. He is currently CEO of B-Wide Business, a VC fund and consulting firm that assists young Israeli companies in funding and management to turn them into global players. Mr. Levy holds an MBA from Sorbonne University in Paris, where he completed the curriculum for a Ph.D. in information systems.
Code of Conduct
The Company has adopted a Code of Conduct for its employees which will be made available, without charge, upon written request to
ir@finotec.com
.
29
The following table sets forth the compensation paid during the fiscal year ended January 31, 2010, 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 2010.
|
Annual Compensation
|
Awards
|
Payouts
|
|||||
|
Name
|
Position
|
Salary
|
Bonus
|
Other annual
compensation |
Restricted
Stock Option Awards |
Securities
underlying options/SAR |
LTIP
Payout |
|
$
|
$
|
$
|
$
|
#
|
$
|
||
|
Didier Essemini
|
President , Director
|
307,000
|
0
|
0
|
0
|
0
|
0
|
|
Guy Senbel
|
Director
|
0
|
0
|
0
|
0
|
0
|
0
|
|
Director
|
0
|
0
|
0
|
0
|
0
|
0
|
|
|
Phillip Laurent Levy
|
Director
|
0
|
0
|
0
|
0
|
0
|
0
|
|
Vacant
|
Director
|
0
|
0
|
0
|
0
|
0
|
0
|
The following table sets forth certain information known to the Company regarding the beneficial ownership of Common Stock as of January 31, 2010, 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
(1) Percentage of ownership is based on 121,030,936 shares of Common Stock issued and outstanding as of January 31, 2010. This % does not include Options.
30
|
Directors and Executive Officers
|
Shares
|
Warrant
|
Owned (1)
|
|
|
Didier Essemini
|
34,075,983
|
28.2%
|
||
|
Guy Senbel
|
2,032,650
|
1.7%
|
||
|
Gil Ovadia
|
100,000
|
|||
|
Phillip Laurent Levy
|
4,933,333
|
8,666,666
|
4.1%
|
|
|
Total Directors
|
41,041,966
|
8,766,666
|
33.9%
|
|
BENEFICIAL OWNERS OF OVER 5%
|
Shares
|
Warrants
|
Owned (1)
|
||
|
Miranda Handling Ltd
|
11,111,111
|
0
|
9.2%
|
|
|
Jacob Mizrachi
|
10,780,000
|
0
|
8.9%
|
|
|
Inter Dealer Specialist Risk Arbitrage Markets Inc.
|
9,218,000
|
0
|
7.6%
|
|
|
Tableland
|
7,222,222
|
2,888,888
|
6.0%
|
|
|
Gan Paradis
|
6,115,000
|
0
|
5.1%
|
|
3,057,500 of Didier Essemini 34,075,983 shares consist of his 50% ownership of Gan Paradis Ltd.
.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
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.
31
(a) All required exhibits are incorporated herein by reference from the Company's Form 10K- and Amendments thereto.
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: April 30, 2010
|
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
|
April 30, 2010
|
||
|
/s/ Guy Senbel
|
||||
|
Guy Senbel
|
Secretary and a Director
|
April 30, 2010
|
||
|
/s/ Gil Ovadia
|
||||
|
Gil Ovadia
|
Director
|
April 30, 2010
|
||
|
/s/
|
||||
|
Phillip Laurent Levy
|
Director
|
April 30, 2010
|
32
TABLE OF CONTENTS
Part IItem 1. Organization and Business 3Item 1. Organization and BusinessItem 2. Properties 21Item 2. PropertiesItem 3. Legal Proceedings 21Item 3. Legal ProceedingsItem 4. Submission Of Matters To A Vote Of Security-holders 21Item 4. Submission Of Matters To A Vote Of Security-holdersPart IIItem 5. Market For The Registrant's Common Stock and Related Stockholder Matters 22Item 5. Market For The Registrant's Common Stock and Related Stockholder MattersItem 6. Management's Discussion and Analysis Of Financial Condition and Results Of Operations 23Item 6. Management's Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7. Financial Statements and Supplementary Data(included in Item 14) 26Item 7. Financial Statements and Supplementary Data(included in Item 14)Part IIIItem 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 27Item 8. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 8A. Controls and Procedures ?Item 8A. Controls and ProceduresItem 9. Directors and Executive Officers Of The Registrant 29Item 9. Directors and Executive Officers Of The RegistrantItem 10. Management Remuneration 30Item 10. Management RemunerationItem 11. Security Ownership Of Certain Beneficial Owners and Management 30Item 11. Security Ownership Of Certain Beneficial Owners and ManagementItem 12. Certain Relationships and Related Transactions 31Item 12. Certain Relationships and Related TransactionsPart IVItem 13. Exhibits, Financial Statements, Schedules and Reports on Form 8-k 32Item 13. Exhibits, Financial Statements, Schedules and Reports on Form 8-kItem 1A. Risk FactorsItem 4. Submission Of Matters To A Vote Of Security HoldersItem 5. Market For The Registrant's Common Stock and Related StockholderItem 7. Financial Statements and Supplementary DataItem 8. Changes in and Disagreements with Accountants on Accounting andItem 8A Controls and ProceduresItem 9. Directors, Executive Officers, Promoters, and Control PersonsItem 11. Security Ownership Of Management and Certain Beneficial OwnersItem 13. Exhibits, Financial Statements Schedules and Reports on Form 8-k