Item 1. Business
DescriptionSECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
Annual Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934 For the fiscal year ended January 31, 2009
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)
Nevada 76-0251547
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(State or other jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
228 East 45th Street
Suite 1801
New York NY 10017
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code 718-513-3620
-----------------------------
Securities registered pursuant to Section 12(b) of the Company's Business
Online International Corporation ("Online") is engaged in the
business of printing lottery tickets. The company is a Nevada
corporation whose shares areAct:
None
Securities registered with the U.S. Securities and
Exchange Commission pursuant to Section 12(g) of the Act:
Common stock of $0.001 par value per share
Indicate by, check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934.
THE LOTTERY TICKET AND PARI-MUTUEL PRINTING BUSINESS1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate 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
(ss.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 [_]
No [_]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B in this form, and no disclosure will be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[X]
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
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
[ ] Large accelerated filer [ ] Accelerated filer
[ ]Non-accelerated filer [x]Smaller reporting company
State Issuer's Revenues for its most recent fiscal year. $2,641,116
Aggregate market value of the voting stock held by non-affiliates of registrant:
Indicate the number of shares outstanding of each of the issuers classes of
common equity, as of the latest practicable date: 86,721,825 Common Series 0.001
par value
Documents incorporated by reference: None.
TABLE OF CONTENTS
PART I
PAGE
Item 1. Organization and Business 3
Item 2. Properties 23
Item 3. Legal Proceedings 23
Item 4. Submission of Matters to a Vote of Security-Holders 24
PART II
Item 5. Market for the Registrant's Common Stock and 25
Related Stockholder Matters
Item 6. Management's Discussion and Analysis of Financial 26
Condition and Results of Operations
Item 7. Financial Statements and Supplementary Data 31
(Included in Item 14)
PART III
Item 8. Changes in and Disagreements with Accountants on 32
Accounting and Financial Disclosure
Item 8A. Controls and Procedures 32
Item 9. Directors and Executive Officers of the Registrant 35
Item 10. Management Remuneration 36
Item 11. Security Ownership of Certain Beneficial Owners and 36
Management
Item 12. Certain Relationships and Related Transactions 37
PART IV
Item 13. Exhibits, Financial Statements, Schedules and Reports 38
on Form 8-K
Item 1. Organization and Business
Item 1. Business
Finotec Group, Inc. (the "Company" or "Finotec") was formed under the laws
of Nevada on October 8, 1987, under the name "Condor West Corporation" for the
purpose of implementing an initial distribution of its stock and thereafter to
seek operating businesses as potential candidates for acquisition or other forms
of combination. The Company had no operations for a period of over three years
when it did a share for share merger and became Online through its wholly owned subsidiary, Printing
Associates, Inc. ("Printing Associates"), which it acquired on
January 31, 1997, is engagedInternational 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. Online
acquired Printing Associates from Galaxiworld.com. The acquisition
wasbetting 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
share exchange in which Online issued 250 sharescombination of Series A
convertible preferred stockcash, 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 Printing Associates.
Subsequently, sixteen Series A preferred shares were converted into
common shares andcapital stock of Forexcash Global Trading Ltd.
("Forexcash"), an Israeli company, which is the Series A preferred shares were split on a
33,334-for-1 basis effective July 14, 1998, such that ultimately,
7,800,156 Series A preferred shares are now outstanding.
The transaction was accounted for as a recapitalization of
Printing Associates' equity in accordance with the consensus of the
Emerging Issues Task Force No. 88-16. As a result, Printing
Associates recorded the issuance of common stock for the $1,320,000
of net monetary assets of Online on January 31, 1997. The common stock
formerly owned by Galaxiworld.com was recorded on its books as if it
were converted to preferred stock. Galaxiworld.com retained control
of Printing Associates due to the rights granted to the Series A
Preferred shares. These terms include rights to convert the
preferred shares into common shares, vetoowner of certain boardsoftware,
equipment, intellectual property and contracts. Via Forexcash, the Company is in
the business of directors decisions such as management appointmentsdeveloping and compensation, fixed asset acquisitions and other rights. A detailed
descriptionmarketing software for electronic trading of
foreign currency through the rights associated withInternet. In February, 2002, the Series A Preferred
Shares is set forth below under "DESCRIPTION OF THE SECURITIES TO BE
DISTRIBUTED" at page 19.
ONLINE'S REPORTING STATUS
Prior to September 1999, Online was neither a reporting
company nor were its shares traded in any public market. On
September 22, 1999, Online merged with and into Condor West
Corporation in a share for share exchange in which Condor West was
the surviving company and Online ceased to exist. Contemporaneously
with the merger, CondorCompany changed
its name to Online International
Corporation. Condor West was aFinotec Group, Inc. to better reflect its current business
operations.
The Company is fully reporting company at the timeunder The Securities Exchange Act of
the
merger. Therefore, as a result of the merger, Online is now1934. As a fully reporting company that filesunder 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 ("SEC"). Shareholders may review
these filings by visiting the SEC's web site at www.sec.gov and
accessing Online's filings through the SEC's EDGAR database.
Condor West was formed in Nevada in 1987 with a view towards
combining with a business operation and had no business operations
for the three years priorCommission. These reporting
requirements add to the merger. From Online's inception
until January 31, 1997, when it acquired Printing Associates, Online
wasexpense and timeliness of certain business transactions
which the Company may endeavor to undertake in the lottery management consulting business.
PRINTING ASSOCIATES, INC. ONLINE'S WHOLLY OWNED SUBSIDIARY
Printing Associatesfuture -- 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.
3
Introduction
Finotec Group Inc. is a manufacturer of lotterypublic company. The company, through its
subsidiary, Finotec Trading Inc. (and such entity's subsidiary, Finotec Trading
UK Limited), offers financial market trading to professional and gaming
tickets. Established on December 6, 1983, Printing Associates
attributesretail clients
over its success over the last sixteen years to itsweb-based live and real-time proprietary trading system. The state of
the art manufacturingweb-based live and real-time proprietary trading system was developed
for the company by its other subsidiary ForexCash Global Trading Ltd. The
group's website may be accessed on www.finotec.com.
Company Structure
Finotec Group Inc. is a holding company with no activities other than holding
two wholly owned companies Finotec Trading Inc. and Forexcash Global Trading
Ltd. These companies, directly and through their subsidiaries, deal primarily in
two distinct areas:
1. Finotec Trading Inc. - marketing, sales, market trading and
facilitation; and
2. Forexcash Global Trading Ltd - financial technology development.
Finotec Trading Inc. (New York), or Finotec Trading Inc., was established
in November 2001 with the express intent of providing retail customers access to
the largest financial market for online foreign currency trading. Finotec
Trading Inc. (New York) 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.
In 2005 Finotec Trading Inc. established its dealing room in Cyprus through
a wholly owned subsidiary Finotec Trading Cyprus Ltd. In 2007, the dealing room
was moved to the UK. Currently, the subsidiary in Cyprus engages primarily in
sales and marketing of the Company's products.
During 2007, Finotec Trading Inc. additionally established three wholly
owned subsidiaries:
o In the United Kingdom, Finotec Trading UK Limited, or Finotec UK, for
the purpose of obtaining the necessary authorization to act as a
market maker in Foreign Exchange and CFD's in the UK and Europe. In
November 2007, Finotec UK received such authorization from the UK
Financial Services Authority ("FSA"). Such authorization was
accompanied by approvals from the other European countries allowing
Finotec UK to offer cross-border investment services within their
borders.
o In the United States, Finotec USA, Inc., a Delaware corporation, for
the purpose of obtaining the necessary authorization from the National
Futures Association (NFA) to act as a market maker in Foreign Exchange
in the US.
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o In Poland, Finotec Trading Polska S. A., for the purpose of obtaining
the necessary authorization to act as a market maker in Foreign
Exchange and CFD's in Poland and Eastern Europe. As a result of the
FSA approval received by Finotec UK, and the accompanying approvals in
other European countries, including Poland, the Company decided to
discontinue the authorization process in Poland. In November 2008,
this subsidiary has been sold.
On August 9, 2001 (the "Merger Date"), Finotec Group, Inc., formerly Online
International Corporation ("Finotec Group"), a Nevada corporation without
significant operations, acquired all of the outstanding shares of Finotec Ltd.
("Finotec Ltd.") (formerly Priory Marketing Ltd.), an Isle of Man company. The
transaction was effected by the issuing of 21,500,000 shares of Finotec Group
common stock to the stockholders of Finotec Ltd. This resulted in the former
Finotec Ltd. stockholders owning approximately 61.5% of the outstanding shares
of Finotec Group. For financial reporting purposes, the transaction was recorded
as a recapitalization of Finotec Ltd., with Finotec Ltd. receiving the
$1,320,363 net assets (assets of $1,404,636, less liabilities of $84,273) of
Finotec Group as a capital contribution. Finotec Ltd. is the continuing
surviving entity for accounting purposes, but is adopting the capital structure
of Finotec Group, which is the continuing parent entity for legal purposes. All
references to common stock have been restated to reflect the equivalent number
of Finotec Group shares.
Finotec Ltd. was formed in December 2000, at which time it acquired 99.7%
of the outstanding stock of Forexcash Global Trading Ltd. ("Forexcash"), an
Israeli corporation, which had been incorporated on June 23, 1998. This
transaction is treated as a recapitalization of Forexcash with Forexcash as the
continuing accounting entity and Finotec Ltd. as the continuing parent for legal
purposes.
Finotec Group Inc. is traded on the OTC bulletin board under the symbol
FTGI.OB.
Customers can open accounts with Finotec Trading UK Ltd. by several methods;
1. Directly with Finotec Trading UK Ltd.
2. Via affiliates and Introducing Brokers ("IB's") that sign commission
sharing agreement with Finotec Trading UK Ltd.
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.
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 in relevant jurisdictions.
5
Under our business model, we seek recurring revenues mainly by offering,
through use of a software system developed by its subsidiary, Forexcash, 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.
Recent Developments
In December 2008, the Company announced that it is implementing a new price
quoting method to allow its clients to be directly connected to market prices.
Under the method, instead of having quotes reflecting Finotec prices, clients
may now trade at market prices with the addition of a predefined and fixed
commission. This new method continues the Company's goal of providing its
clients with greater price transparency. Under the new price quoting method,
clients can be directly connected to very competitive market prices through
Finotec's trading platform which are available as a result of Finotec's high
monthly volume of trade - around 5 billion dollars per month - and its
relationship with 18 of the world's largest and most aggressive banks.
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.
However, not all accounts are alike. Analysts have estimated that daily
online trading volume is highly concentrated in the most actively-traded online
accounts. The design of Forexcash has been focused on this "active trader"
market, as well as professional and institutional traders, such as small-sized
to mid-sized commercial banks.
With the proliferation of online brokerage services (and, now, the more
powerful and efficient direct-access online brokerage services), the increased
accessibility to market data, and the rapidly-growing capabilities of the
Internet, we believe that serious, active traders, professional and
non-professional, are demanding powerful, Internet-based, real-time strategy
trading platforms that are seamlessly integrated with the best-available order
execution technology and include analytical tools which support the design and
testing of custom trading strategies.
6
Products And Services
Finotec Group Inc. is a holding company with no activities other than
holding two wholly owned companies Finotec Trading Inc. and ForexCash Global
Trading Ltd. These companies deal in two distinct areas:
1. Finotec Trading Inc. - Market Trading and facilitation (brokerage); and
2. Forexcash Global Trading Ltd. - Financial Technology development
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.
In January 2002, the Company launched the Forexcash trading platform. The
Forexcash 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.
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.
7
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.
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 Forexcash 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. In Cyprus, Finotec uses
Hellenic Bank and BNP Paribas bank as the client trust funds for clients all
over the world.
Forexcash
In January 2002, Finotec, via its subsidiary, Forexcash, 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.
Forexcash 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.
Forexcash'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
lotterycommunication 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 Forexcash are licensed from
different content suppliers that include Reuters and various stock exchanges
around the world.
8
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.
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 experiences unpredictable, increasing lottery jackpots, which resultstandards in an increased consumer demand. Printing Associates has acomputer 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 edge in that it has the capabilitytechnologies and to
satisfy
spontaneous increases in product demand with minimal lead times.
The company has a reputation for producing a secure product
with superior qualitydevelop and delivering itsintroduce new products, services and enhancements in a timely fashion. It manufacturesand
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 excessthe introduction of
2.5 billion lottery tickets,
4 billion pari-mutuel (onnew products and off-track betting) ticketsservices or enhancements could cause customers to delay or
decide against the use of our products and 200
million selection slips annually. The lotteryservices and pari-mutuel
products industry is controlled bycould have a limited numbermaterial
adverse effect on our business, financial condition and results of contractors
thatoperations.
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 state lotteriesits brokerage customers through its dealing room as well as call
centers. Technical support to subscription and gaming concerns. These
contractors, in turn, subcontractbrokerage 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 Printing Associatestry to
manufacture ticket rollshelp our customers enhance their ability to use our products and selection slips. Printing Associates
maintains a stateservices 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 art pre-press department staffedsophisticated
technology of Forexcash.
9
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 technicians who workus
and our competitors; technological developments; product content; our ability to
insuredesign 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.
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.
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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
product presentedsteps 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 manufacturing departmentextent that
we acquire or license a portion of the software or data included in our products
or services from third parties (data is perfect.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.
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. Our subsidiary, Finotec USA, Inc.
has applied for registration with the National Futures Association ("NFA") as a
Futures Commission Merchant (FCM).
Finotec's mode of operation and profitability may be directly
affected by: additional legislation; changes in rules promulgated by the
Commodity Futures Trading Commission, the National Futures Association, the
Board of Governors of the Federal Reserve System, the 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.
11
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, 2000,
Printing Associates2009, we had forty-five64 full-time employees. PRINTING ASSOCIATES' PRODUCT LINE
Printing AssociatesOur 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.
Item 1A. Risk Factors
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.
12
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 manufacturervery limited track record upon which you can make an
evaluation. In addition, our revenue model is evolving and because of printed productsour 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 selection slipse-commerce. Our failure to address these risks
successfully could materially and ticket rolls. Lottery products require
precisionadversely 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 manufacturing. Selection slips mustthe 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 accurate within
.005adversely affected by
hostilities involving Israel, the interruption or curtailment of an inch tolerancetrade between
Israel and its trading partners, or a significant downturn in orderthe 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.
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.
13
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 lottery terminal to
correctly read the data, transmit the data to a centralized
database, and, in turn, generate a receipt, such as a lottery
ticket. If a ticket turns out to be a winning ticket, itdevelopment of
our services. Their experience is considered a "financial instrument" dueimportant to the features that mustestablishment 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
read by an electronic device to generate thenegatively affected.
Our success is dependent upon our receipt and maintenance of regulatory
approvals in the ticket
holder's rightmajor customer markets around the world.
The Company believes that its success, in large part, depends upon its
ability to cash.
Printing Associates isreceive 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 pioneer in diverse printing
capabilities mixing offset, flexographicmaterial adverse effect on the Company
and letter-press printing
technologies in a single process. This makes the company's tickets
virtually impossible to duplicate. Features vital to product
security are incorporated into Printing Associate's manufacturing
process.its operations.
In addition, the company is capable of individually
identifying each ticket with a unique serial number. Printing
Associates has the technology to track these serial numbers a
feature that is a component of the overall validation process
performed by a state lottery.
LOTTERY AND PARI-MUTUEL TICKETS
Thirty-six states comprise the U.S. market for lottery
tickets of which Printing Associates provides lottery tickets to
six. A state, usually through a bidding process, awards a contract
to a qualified vendor to manage or operate the lottery for a
specified period of time, usually three to five years. The vendor
then subcontracts the printing components to Printing Associates.
Many states require printing to be performed by in-state
minority enterprises. Printing Associates has been instrumental in
helping form new minority companies in which it held an interest for
a period of time. The company currently receives a 3.5% share of
the revenues of Wintex Corporation, printer for the Texas state
lottery.
The pari-mutuel industry consists of on and off-track betting
and is regulated by state regulatory authorities. Individual
racetrack owners operate privately-owned racetracks in any manner
they choose, so long as they follow state regulations. Typically,
the racetracks contract with vendors to provide the technical
expertise required to comply with such regulations. The primary
corporations that service the pari-mutuel industry subcontract the
printing of ticket stock. Printing Associates has approximately 95%
of the U.S. pari-mutuel (on track and off-track betting) market share.
Although the relevant market outside the U.S. is unknown,
Printing Associates is making strides to increase its international
market share. For example, in 1999, Printing Associates entered
into an agreement with Sisal, an Italian lottery, to print thermal
roll stock.
COMPETITION
The large capital investment necessary to compete within the
lottery ticket and pari-mutuel industries poses significant barriers
to entry for competitors. Less than ten companies in the United States, serveFinotec USA Inc. has applied for
registration with the major lottery suppliers. OfNational Futures Association ("NFA") as a Futures
Commission Merchant (FCM). Such application is currently pending. Failure to
receive such authorization could have a material adverse effect on the Company's
ability to expand its operations. In addition, if such authorization is
received, in order to retain its NFA authorization, the Company must comply with
numerous requirements, including financial covenants as well as those related to
its ongoing 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 approximately
three competeexpectations would likely adversely affect the market price of our common
stock.
14
Our quarterly operating results may vary depending on a scalenumber of
factors, including:
o demand of buyers and sellers to use and transact business on our
platform
o actions taken by our competitors, including new product
introductions, fee schedules, pricing policies and enhancements;
o cash flow problems that may occur;
o the quality and success of, and potential continuous changes in, sales
or marketing strategies (which have undergone significant changes
recently and are expected to continue to evolve) and the costs
allocated to marketing campaigns and the timing of those campaigns;
o the timing, completion, cost and effect of our development and launch
of planned enhancements to the Finotec trading platform;
o the size and frequency of any trading errors for which we ultimately
suffer the economic burden, in whole or in part;
o changes in demand for our products and services due to the rapid pace
in which new technology is offered to customers in our industry;
o costs or adverse financial consequences that may occur with respect to
regulatory compliance or other regulatory issues, particularly
relating to laws, rules or regulations that may be enacted with a
focus on the active trader market; and
o general economic and market factors that affect active trading,
including changes in the securities and financial markets.
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.
15
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.
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,
16
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:
o we may not be able to agree on the terms of the acquisition or
alliance, such as the amount or price of our acquired interest;
o acquisitions and alliances may cause a disruption in our ongoing
business, distract our relatively new management team and make it
difficult to implement or maintain our systems, controls and
procedures;
o we may acquire companies or make strategic alliances in markets
in which we have little experience;
o we may not be able successfully to integrate the services,
products and personnel of any acquisition or new alliance into
our operations;
o we may be required to incur debt or issue equity securities to
pay for acquisitions, which may be dilutive to existing
shareholders, or we may not be able to finance the acquisitions
at all; and
o our acquisitions and strategic alliances may not be successful,
and we may lose our entire investment.
In addition, we face competition from other parties, including
large public and private companies, venture capital firms, and other companies,
in our search for suitable acquisitions and alliances. Many of the companies we
compete with for acquisitions have substantially greater name recognition and
financial resources than we have, which may limit our opportunity to acquire
interests in new companies, technologies and assets or create strategic
alliances. Even if we are able to find suitable acquisition candidates or
develop acceptable strategic alliances, doing so may require more time and
expense than we expect because of intense competition.
We must 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
Printing Associates.
Printing Associates maintains an edgeour competition, the value of our brand name may suffer.
17
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 its field by keeping
upinternational
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 new technology, intelligently using financial resourcesenforcing contractual obligations
and wisely using its personnel. An additional factor in Printing
Associates' ability to maintain its competitive edge is its
capability to satisfy spontaneous increases in product demandintellectual 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 minimal lead times. The company's entire converting section is
completely automated.
CUSTOMER BASE
Printing Associates performs virtually allour
interests and the interests of its work
pursuant to purchase ordersour 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 contracts. The company distributes
its products as necessary under the direction of its customers. It
markets its products primarily through public bidding, word of mouth
and reputation within the industries it serves. Promoting superior
customer service and products is its major marketing tool. Printing
Associates has maintained superb relationships with its customers
and an impeccable collection policy. In the last ten years, about
$12,000 was written off as bad debt of which the company eventually
collected approximately $9,000 in subsequent years.
Printing Associates is largely dependent on business from a
few key customers. Its sales to its three significant contractors
accounted for 80% of its sales in 2000, and 86% of its sales in
1999 and 83% in 1998. During the 2000 fiscal year it lost onemore of
these customersshareholders may be in a position to affect significantly our corporate
actions, including, for example, mergers or takeover attempts, in a manner that
could conflict with the interests of our public shareholders.
Anti-takeover provisions and sales dwindled by approximately 17% asour right to issue preferred stock could
make a result.
However,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 company has made up foreffect of delaying, deferring or preventing
a change of control. Preventing a change of control could adversely affect the
lost contract through
additional sales, mainly in the emerging international market.
Printing Associates' major customers and its percentagemarket price of each
customers' business are set forth below.
CUSTOMERS PERCENTAGE
AUTOMATED WAGERING INTERNATIONAL
Minnesota State Lottery 100%
Delaware State Lottery 100%
South Dakota 100%
UNITED TOTE
Race Track and Off Track Betting Facilities 85%
throughout the United States, Canada, Mexico, and
South America
AUTOTOTE LOTTERY
Connecticut State Lottery 100%
Montana State Lottery 100%
AUTOTOTE INTERNATIONAL
Race Track and Off Track Betting Facilities 100%
throughout the United States, Canada, Mexico, and
South America
AMTOTE INTERNATIONAL
Race Track and Off Track Betting Facilities 100%
throughout the United States and Canada
SISAL
Italian Lottery thermal roll stock 50%
Each product has its own unique specifications that are
documented and adhered to throughout the entire manufacturing
process. The manufacturing process is broken down into the
following steps:
Pre-press: Involves processing customer approved artwork into
negatives and press plates.
Press: Includes the set up of the press to meet all product
specifications and the actual printing of the product.
Rewind/Slitting: Involves converting large printed paper mill rolls
from the press area into the appropriate size for
the customer. This is achieved by simultaneous
slitting the paper and rewinding it onto a roll core.
Packing: Involves packaging the finished product according to
the customers'specifications for shipping and
distribution.
A "Quality Control" staff oversees and verifies that the
product is within the proper specifications throughout the
manufacturing process.
Primarily, Printing Associates purchases its major
manufacturing material (paper) for the lottery products from two
vendors in order to obtain favorable pricing. However, the paper
used is considered a commodity item and could easily be obtained
from other suppliers with similar terms.
The company depends on a single supplier for paper used for
the pari-mutuel ticketFinotec common stock and the papervoting and other rights of holders
of Finotec common stock.
Our common stock price is suppliedlikely to be highly volatile.
The market price of our common stock is likely to be highly
volatile, as the stock market in general, and the market for Internet-related
and technology companies in particular, has been highly volatile. Our
shareholders may not be able to resell their shares of our common stock
following periods of volatility because of the market's adverse reaction to this
volatility.
Factors that could cause this volatility may include, among other
things:
o announcements of technological innovations and the creation and
failure of B2B marketplaces;
o actual or anticipated variations in quarterly operating results;
o new sales formats or new products or services;
18
o changes in financial estimates by securities analysts;
o conditions or trends in the Internet, B2B and other industries;
o changes in the market valuations of other Internet companies;
o announcements by us or our competitors of significant
acquisitions, strategic partnerships or joint ventures;
o changes in capital commitments;
o additions or departures of key personnel;
o sales of our common stock; and
o general market conditions.
Many of these factors are beyond our control.
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.
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:
o the unwillingness of business to shift from traditional
processes to e-commerce processes;
o the necessary network infrastructure for substantial growth in
usage of e-commerce may not be adequately developed;
o increased governmental regulation or taxation may adversely
affect the viability of e-commerce;
o insufficient availability of telecommunication services or
changes in telecommunication services could result in slower
response time for users of e-commerce; and
o concern and adverse publicity with respect to, and failure of,
security of e-commerce.
19
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 customers'
requests. Should this supplierrelatively 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 supplyattract 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 companyInternet may adversely affect our e-commerce
business.
We believe that concern regarding the security of confidential
information transmitted over the Internet, including, for example, business
requirements, credit card numbers and other forms of payment methods, prevents
many potential customers from engaging in online trading. If we do not add
sufficient security features to future product releases, our services may not
gain market acceptance or we may face additional legal exposure.
Despite the measures we have taken in the areas of encryption and
password or other authentication software devices, our infrastructure, like
others, is potentially vulnerable to physical or electronic break-ins, computer
viruses, hackers or similar problems caused by employees, customers or other
Internet users. If a person circumvents our security measures, that person could
misappropriate proprietary information or cause interruptions in our operations.
Security breaches that result in access to confidential information could damage
our reputation and expose us to a risk of loss or liability. These risks may
require us to make significant investments and efforts to protect against or
remedy security breaches, which would increase the costs of maintaining our
websites.
Our e-commerce capability depends on real-time accurate product
information.
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 paperaccurate, 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
woulddissatisfaction 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.
20
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 select another paper
supplierrewrite 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.
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
21
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.
22
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 particular ticket stock.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.
Item 2. Properties
Online InternationalThe Company's UK subsidiary and Printing Associates both operate fromdealing room is located at 68 Great Eastern
Street, 3rd Floor, London EC2A 3JT, England, UK. There the Company rents 800
square feet of office space.
The company also has marketing and technology offices in Jerusalem at the Malha
Technology Park, Building 8, Jerusalem 96951, Israel. There, via an agreement by
Forexcash Global Trading Ltd. (which is a leased facility. A 21,000 square-foot plant is the principal
location at 150 Laser Court, Hauppauge, New York. The lease is
effective through December 2000. The printing facilities are highly
secure and are inspected and approved by all Printing Associates'
customers.
Winning lottery tickets are a form of financial instrument in
that a winning ticket is payable on demand. Therefore, Printing
Associates maintains a state99.7% owned subsidiary of the art security system to protect
its printing facility from unauthorized intrusions, theft, and fire.Company)
the Company rents approximately 1186 square meters of office space.
The printing facility utilizes a closed circuit television
surveillance system. A Wells Fargo central station intrusion and
fire alarm system protectsCompany also rents 197 square meters of offices in Limassol, Cyprus at 1
Griva Digheni& Chrysanthou Street.
Rent expense for the site from theft and fire, and the
entire building is protected by a fire suppression system.
Access to the offices and plant is strictly controlled. Prior
to entering the facility, all visitorsmust identify themselves, wear badges
and be escorted at all times while on the premises.
Printing Associates employs a 40' x 40' locked security cage
to store finished goods. The security cage has a capacity in excess
of 250 million finished tickets. The entire exterior of the premises
is patrolled 24 hoursa day.
The facility's printing machines are capable of producing over
3,000,000 tickets per hour. The printing facility includes a
six-color, 32-inch wide, state of the art offset printing press with
an ultraviolet ink curing system complemented with a video
inspection station capable of freezing motion at one thousand feet
per minute. The press department is equipped with a six-color,
45-inch wide flexographic printing press capable of producing
continuous tickets with numbering.
The rewinding department has printing capabilities with a 52-inch
slitter rewinder complemented with a 52-inch, two-color flexographic
press. This Slitter/Press is completely automated with a roll
finishing system. Printing Associates' rewinding capabilities are
further enhanced with a fully automated single-ply slitter rewinder.
The machine rewinds tickets at over 1,800 feet per minute.fiscal year ended January 31, 2009 was approximately
$255,054.
Item 3. Legal Proceedings
Neither Online nor Printing Associates1. In May, 2004, the Tel-Aviv Stock Exchange Ltd. (the "Stock Exchange")
submitted a claim against the Company for a permanent and temporary restraining
order to prevent the Company from using the Tel-Aviv 25 Index and/or any other
index owned by the Stock Exchange as part of the Company's online trading at its
website. The Company claimed that the Stock Exchange does not have copyrights
regarding the indexes and that it did not mislead the public in any way.
The Company answered the claim for a temporary restraining order, and in June,
2004, the Court accepted the Company's claim. In August, 2005, the Stock
Exchange appealed to the Supreme Court, and thereafter the Company submitted its
response to the appeal. The Supreme Court accepted the Company's claim. The case
is currentlyscheduled for a partypre-trial meeting on June 22, 2008.
2. In February 2008, a shareholder of the Company filed a claim against the
Company in the District Court of Clark County, Nevada, relating to the
requirement by the Company's transfer agent, Standard Register and Transfer
Company that such shareholder provide collateral in order to replace a stock
certificate that shareholder claims to have lost. The shareholder claims that
the Company has instructed its transfer agent to require a high amount of
collateral. The Company and shareholder have entered into a ettlement Agreement.
23
3. Customer v. Finotec Trading UK Limited (in arbitration; previously before the
Tel Aviv Magistrates Court): This is a case in which a former customer of
Finotec Trading UK Limited ("Finotec UK"), has sued for $41,973.00. The customer
asserts that Finotec UK's cancelation of certain trades in April and June 2008
was unlawful and that he is entitled to lost profits. In February 2009, at the
suggestion of the court, the parties agreed to submit the dispute to
arbitration. Two arbitration hearings were held in March 2009, and customer's
attorney has filed his written summations. We expect to file our written
summations within approximately three weeks. In connection with the agreement to
arbitrate, in the spring of 2009, Finotec deposited, in an attorney escrow
account, the amount claimed in the Action. Finotec UK intends to defend the
matter vigorously.
4. Customer v. Finotec Trading Ltd. (Tel Aviv Magistrates Court): This is a case
in which a customer of Finotec Trading Ltd. ("Finotec Israel"), has sued Finotec
Israel for NIS 154,000. The customer alleges that Finotec Israel acted
negligently in (a) recommending that he execute trades through a third-party,
and (b) failing to oversee such third party. Finotec Israel filed its statement
of defense in December 2008, and it intends to defend the case vigorously.
Customer's questionnaire and document demand were received on May 4, 2009.
5. Potential Claim of Customer: On or about Nov. 16, 2008, Finotec Israel
received a letter from counsel to a customer, concerning an alleged claim of
customer, who has been a customer of Finotec Israel. The essence of the claim in
the letter is that Finotec Israel unlawful cancelled certain trades of customer
in October 2007. The letter is not clear as to the amount of damages allegedly
owed to customer. The letter refers to customer's right to reinstate a
transaction in the amount of $5,000, and it also asserts that customer is
entitled to damages of NIS 2,000 To the best of our knowledge, no lawsuit has
been filed by customer (or on his behalf) against any Finotec entity.
Management does not expect these claims to have a material legal proceedings.effect on the
Company's financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No mattersOn June 16, 2008, the Company entered into definitive agreements for the sale of
4,347,824 shares of Common Stock at a price of $0.23 per share. As a part of the
transaction, the Company agreed to issue accompanying warrants to purchase an
aggregate of 10,000,000 shares of Common Stock at an exercise price of $0.50 per
share. Four investors subscribed to the investment. The shares of Common Stock
sold in the private placement offering have not been submittedregistered 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 in mid-June 2008. 2,487,500 treasury
shares were issued as part of the 4,347,824 shares issued thereunder.
24
On July 29, 2008, the Company entered into a definitive agreement for the sale
of 3,333,333 shares of Common Stock at a price of $0.30 per share for a votetotal of
$1 million. As a part of the transaction, the Company agreed to security holders
duringissue
accompanying warrants to purchase an aggregate of 1,428,571 shares of Common
Stock at an exercise price of $0.70 per share. The shares of Common Stock sold
in the reporting period.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 transaction closed on July 31, 2008.
On October 31, 2008, the Company entered into definitive agreements and received
funds for the sale of 12,724,444 shares of Common Stock at a price of $0.18 per
share and 800,000 shares of Common Stock at a price of $0.25 per share. As a
part of the transaction, the Company agreed to issue accompanying warrants to
purchase 5,777,776 shares of Common Stock at an exercise price of $0.45 per
share and warrants to purchase 400,000 shares of Common Stock at an exercise
price of $0.50. Five new investors subscribed to the investment. The shares of
Common Stock sold in the private placement offering were not registered under
the Securities Act of 1933, as amended, 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 November 2, 2008.
PART II
Item 5. Market for the Registrant's Common EquityStock and Related Stockholder
Matters
Online's shares have not traded(a) The Company's Common Stock is quoted on any exchange or any other
public trading market. Approximately 700,000 shares are subject to
outstanding options to purchase common equity of Online over the next ten years though only 1/3 of the outstanding options may be
exercised in each of the years 2000 through 2002. To the extent options that
can be exercised in a given year are not exercised in that year, the
holder may exercise those options in subsequent years without regard
to the 1/3 limit. 7,800,156 Series A Preferred shares are currently
outstanding and each share is convertible into one share of common
stock. Approximately 224,680 shares may be sold pursuant to Rule 144OTC 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 Act,Dealers
(NASD) for the periods ending January 31, 2009. These quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commissions, and
as of the date of the Stock Dividend, approximately
8,358,280 common shares can be sold by existing shareholders. Online has
neither publicly offered nor has it proposed to publicly offer any shares
that could materially effect the market price of the company's common equity
although it may offer public shares at some future point in order to raise
money.not reflect actual transactions.
High Low
---- ---
2008
-----
First Quarter 1.01 .65
Second Quarter .85 .26
Third Quarter .20 .90
Fourth Quarter .15 .52
2007
-----
First Quarter n/a n/a
Second Quarter n/a n/a
Third Quarter n/a n/a
Fourth Quarter 1.54 .05
25
As of January 31, 2000, Online's common equity is held by
approximately 5602009, we had 1,102 holders of record. It has not declared orrecord of our common
stock.
(b) No dividends were paid any cash dividends on any class of common equity induring the last two
fiscal years. Online has approximately 1,207 shareholders of record.year ending January 31, 2009. The
Articles of Merger restrict Online'sthe Company's ability to pay dividends. It may not pay any dividends on common equity shares
until full cumulative dividends on all outstanding preferred stock
have been paid. OnlineThe
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.
Common
equity may not receive dividends if paying dividends would result in
the consolidated surplus being less than two years' dividend
requirements on preferred shares. Dividends may not be paid on
common equity if doing so would result in net tangible assets being
less than 200% of the sum of an amount equal to $3.00 per share on
outstanding preferred stock and the amount received as consideration
upon the issuance of any outstanding shares ranking equally with or
prior to the preferred stock and of any outstanding preferred stocks of
subsidiaries, owned by others than Online and its subsidiaries.
Finally, Online may not pay dividends on common equity if doing so
would reduce the company's consolidated net tangible assets plus
consolidated long-term debt to less than 175% of the sum of the
consolidated long-term debt and an amount equal to $5.00
per share on outstanding preferred stock and the amount of received
as consideration upon the issuance of any outstanding shares ranking
equally with or prior to the preferred stock and of any outstanding
preferred stocks of subsidiaries, owned by others than the
Corporation and its subsidiaries. The Series A Preferred shares are not
traded in any public market.
Recent Sales Of Unregistered Securities
In the past three years, Online sold securities, as set forth
below in a transaction that was exempt from the registration
requirements of Section 5 of the Securities Act of 1933.
In December 1996, Online sold 1,236,950 common shares in an
exempt transaction at a price of $1.00 per share for a total of
$1,236,950. Online acted as its own underwriter and no commissions
were paid. These shares were later split 2-for-1 resulting in
2,486,950 shares outstanding at the time of the split. Presently, 5,617,089
common shares are outstanding.
On January 31, 1997, Online issued 250 Series A pre-split
preferred Shares to Galaxiworld.com in exchange for all of
Galaxiworld.com's shares in Printing Associates. A portion of the
Series A preferred shares were converted into common stock and the
preferred shares were eventually split on a 33,334-for-1 basis.
Presently, 7,800,156 Series A preferred shares are outstanding.
Item 6.
Selected Financial Data
Description 1/31/00 1/31/99 1/31/98 1/31/97 1/31/96
Net Sales $7,733,829 $8,118,659 $10,056,262 $10,420,341 $15,863,610
Income (loss)
from continuing
operations $(278,605) $297,529 $734,311 $295,667 $175,570
Income (loss)
from continuing
operations
per share of
common stock
Basic $(0.05) $0.05 $0.14 $0.04 $0.02
Diluted $(0.05) $0.02 $0.06 $0.04 $0.02
Total assets $4,116,221 $3,660,697 $4,361,951 $5,078,841 $5,468,149
Long-term
obligations $938,042 $153,689 $199,567 $196,190 $481,519
Cash dividends
declared per share
of common stock $- $- $- $- $-
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
(For the Fiscal Years Ended January 31, 1999 and 1998. The 1999
Period refers to the fiscal year ended January 31, 1999 and the 1998
Period refers to the period ended January 31, 1998)FINOTEC GROUP, INC. AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Fiscal Year EndedCAUTIONS 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
Finotec Group Inc. is a holding company with no activities other than holding
two wholly owned companies Finotec Trading Inc. and Forexcash Global Trading
Ltd. These companies, directly and through their subsidiaries, deal primarily in
two distinct areas:
1. Finotec Trading Inc - marketing, sales, market trading and
facilitation; and
2. Forexcash Global Trading Ltd - financial technology development
Finotec Group Inc. has a fiscal year end of January 31, 199931st and its stock symbol is
FTGI.OB.
Finotec Trading Inc. (New York) was established in November 2001 with the
express intent of providing retail customers access to Fiscal Year Ended January 31,the largest financial
market for online foreign currency trading. Finotec Trading Inc. (New York) 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 centralised dealing room services clients, aggregates
globally derived risk in real-time and hedges residual market exposure with the
underlying markets.
26
In 2005 Finotec Trading Inc. established its dealing room in Cyprus through a
wholly owned subsidiary Finotec Trading Cyprus Ltd. In 2007, the dealing room
was moved to the UK. Currently, the subsidiary in Cyprus engages primarily in
sales and marketing of the Company's products.
During 2006, Finotec Trading Inc. additionally established three wholly owned
subsidiaries: In the United Kingdom, Finotec Trading UK Limited, for the purpose
of obtaining the necessary authorization to act as a market maker in Foreign
Exchange and CFD's in the UK and Europe. In November 2007, Finotec UK received
such authorization from the UK Financial Services Authority ("FSA"). Such
authorization was accompanied by approvals from the other European countries
allowing Finotec UK to offer cross-border investment services within their
borders.
In the US, Finotec USA, Inc., incorporated under the laws of Delaware, for the
purpose of obtaining the necessary authorization from the National Futures
Association (NFA)to act as a market maker in Foreign Exchange in the US.
In Poland, Finotec Trading Polska S. A., for the purpose of obtaining the
necessary authorization to act as a market maker in Foreign Exchange and CFD's
in Poland and Eastern Europe. As a result of the FSA approval received by
Finotec UK, and the accompanying approvals in other European countries,
including Poland, the Company decided to discontinue the authorization process
in Poland. In November, 2008, this subsidiary has been sold.
Customers can open accounts with Finotec Trading UK Ltd. by several methods;
1.Directly with Finotec Trading UK Ltd.
2.Via affiliates and Introducing Brokers ("IB's") that sign commission
sharing agreement Finotec Trading UK Ltd.
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.
27
On August 9, 2001 (the "Merger Date"), Finotec Group, Inc., formerly Online
International Corporation ("Finotec Group"), a Nevada corporation without
significant operations, acquired all of the outstanding shares of Finotec Ltd.
("Finotec Ltd.") (formerly Priory Marketing Ltd.), an Isle of Man company. The
transaction was effected by the issuing of 21,500,000 shares of Finotec Group
common stock to the stockholders of Finotec Ltd. This resulted in the former
Finotec Ltd. stockholders owning approximately 61.5% of the outstanding shares
of Finotec Group. For financial reporting purposes, the transaction was recorded
as a recapitalization of Finotec Ltd., with Finotec Ltd. receiving the
$1,320,363 net assets (assets of $1,404,636, less liabilities of $84,273) of
Finotec Group as a capital contribution. Finotec Ltd. is the continuing
surviving entity for accounting purposes, but is adopting the capital structure
of Finotec Group, which is the continuing parent entity for legal purposes. All
references to common stock have been restated to reflect the equivalent number
of Finotec Group shares.
Finotec Ltd. was formed in December 2000, Salesat which time it acquired 99.7%
of the outstanding stock of Forexcash Global Trading Ltd. ("Forexcash"), an
Israeli corporation, which had been incorporated on June 23, 1998. This
transaction is treated as a recapitalization of Forexcash with Forexcash as the
continuing accounting entity and Finotec Ltd. as the continuing parent for legal
purposes.
The Company currently 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,
Forexcash, 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
who 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.
28
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 needs to aggressively market its
services. Included in its marketing strategy is the targeting of
introducing brokers ("IBs") and affiliates to develop a distribution network
with the Company as well as advertising campaigns by affiliates. The Company
also aims to reach a broader customer base and intends to offer a wider array of
financial products. We also intend to consistently improve our system and
implement new features and protocols. The Company is currently recruiting
institutional sales representatives to increase the Company's network of
affiliates and IBs.
The Company currently has subsidiaries in Cyprus, the U.K. and Israel that are
engaged in the marketing of Finotec products in these territories. The business
model for the Company envisions the opening of additional subsidiaries in other
countries. The Company intends for these subsidiaries to provide the Company's
services in the respective countries in which they are located. The Company may
raise financing in the upcoming year in order to finance the opening of new
subsidiaries in additional countries.
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 was $2,641,116, for the
year ended January 31, 20002009. There were $7,736,546,net gains of $6,984,671 from foreign
currency future operations for the year ended January 31, 2008. This decrease of
$4,345,555 is attributable primarily to decreased spreads (commissions) on many
transactions.
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, Forexcash Global Trading,
Ltd., owns all intellectual property rights relating to our business. Research
and development expenses were $308,935 for the year ended January 31, 2009, and
$387,620 for the year ended January 31, 2008, a $384,830 decrease of $78,685. This
decrease was due to a decrease in research expenses.
29
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of employee-related costs for administrative personnel such as
executive, human resources, information technology employees;
telecommunications; rent; marketing; other facility expenses; and insurance.
General and administrative expenses were $1,053,625 for the year ended January
31, 2009, and $708,008 for the year ended January 31, 2008, an increase of
$345,617 due primarily to the Company's continuing development of its business,
and the acquisition of new computers, office furniture and equipment.
Liquidity and Capital Resources
The Company's cash balance decreased by $4,027,447 from restated salesa cash balance at
January 31, 2008 of $8,118,659 in fiscal year
1999. This 5%$9,135,591 to $5,108,144 at January 31, 2009. The decrease
is primarily attributable to thea significant decrease in sales to two customers. The decrease in sales is due to competitive
price reductions, coupled withcash provided by
operating activities offset by an increase in footage (ticket yield)
per rollcash provided by financing
activities.
Net cash used in operating activities amounted to $7,767,822 for the major customers. The Company has maintained its market
share of these customers in the fiscal year
ended January 31, 2000.
The gross profit percentage2009, while net cash provided by operating activities was
9 % in fiscal$4,328,866 for the year ended January 31, 2000 compared to 15%2008, an increase of $12,096,688. The
increase in fiscalnet cash used in operating activities primarily resulted from a
decrease in net income and a decrease in customers deposits.
Net cash used in investing activities for the year ended January 31, 1999 (restated). This 6 % decrease is primarily attributable to the
additional labor and manufacturing costs incurred2009, was
$136,703 while it was $564,929 used in the start up
phase of its newly obtained three-year contract. The initial
production run of this contract resulted in unforeseen technical and
mechanical difficulties. The Company believes the costs incurred
will have a positive impact on the profitability of the contract in
the long term.
The consolidated loss from operationsinvesting activities for the fiscal year ended
January 31, 2000 was ($419,899) compared to income form
operations2008, a decrease of $526,948$428,226. The cash used in fiscalinvesting activities
for the year ended January 31, 1999 (restated).
This change is attributable to2009, primarily resulted from the changeacquisition of
property and equipment.
The Company had cash provided in gross profit percentage as
discussed above and increased selling general and administrative costs.
Additionally,financing activities of $4,468,123 during the
year ended January 31, 2000, the Company
merged as discussed in the footnotes2009 compared to the financial statements at a costnet cash provided by financing
activities of $355,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position at January 31, 2000 was $40,956 a
decrease of $564,155 from January 31, 1999. This decrease is
attributable to the use of funds to support the operations of the
lottery management segment of the Company. During the first two
fiscal quarters of the year the lottery management segment of the
Company continued to support its existing contract in Cambodia as
well as pursue lottery management opportunities in Liberia and other
areas. Approximately $80,000 was used to purchase instant lottery
tickets for the games in Cambodia; $51,000 was used to pursue the
Liberian contract; $67,000 was paid to various consultants working
on these projects. ON may 10, 2000 the Board of Directors
formalized its decision to discontinue the lottery management
segment of the business which had substantially ceased activity in
June 1999. The Company also incurred merger expenses of $355,000 as
discussed in the notes to the financial statements.
Inventories on hand increased approximately $169,000 because
the manufacturing segment of the Company increased raw material
inventories at the end of January 2000 to prepare for its upcoming
production of roll stock for a new contract obtained$14,686 during the
year. The Company anticipates that the financial impact of the new contract
will not be recognized until the fiscal year ending January 2001, as
shipments in this fiscal year were not significant, however costs
were incurred during the year to modify its equipment to meet the
specifications of the product.
The short-term cash flows of the Company are sufficient to
fund day to day operations, however the ability to obtain capital
funding for the long-term capital needs of the Company is uncertain.
Accounts receivable at January 31, 2000 were $914,588. The
lottery and parimutuel products industry is controlled by a limited
number of contractors. During the year ended January 31, 2000,
approximately 72%2008, an increase of
$4,453,437. This increase primarily reflects the purchase by several investors
of shares of the Company's sales were to two contractors.
In addition, approximately 75%Company in a private placement.
Our future capital requirements and the adequacy of available funds will
depend on numerous factors, including the accounts receivable balance at
January 31, 2000 are due from these contractors.successful commercialization of our
products, competing technological and market developments, and the development
of strategic alliances for the development and marketing of our products. The
Company has sufficient funds to satisfy its cash requirements until early June
2009, assuming monthly expenses of the Company at $750,000 and no revenue
generation by the Company. In April 2008, due to lower-than-expected revenues,
the Company laid off approximately 15% of its employees and engaged in other
cost-cutting measures. Such action may have a material adverse effect on the
Company's operations and results. 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, problems or otherwise), Finotec could
be required to obtain additional funds earlier than expected. Finotec does not
experiencedhave any collection difficulties.
Working capitalcommitted sources of additional financing, and there can be no
assurance that additional funding, if necessary, will be available on acceptable
terms, if at January 31, 2000 was $529,544 a decreaseall. If adequate funds are not available, we may be required to
further delay, scale-back, or eliminate certain aspects of $414,030our operations or
attempt to obtain funds through arrangements with collaborative partners or
30
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.
Until required for operations, Finotec's policy is to invest its cash
reserves in bank deposits.
Finotec expects that its operating results will fluctuate significantly from
the working capital of $943,574 at January 31, 1999.
This decrease in working capital is primarily attributablequarter to an
increase in accounts payable, an increasequarter in the current potionfuture and will depend on a number of capital lease obligations coupled with the decrease in cash balances
at January 31, 2000.
The Company converted its bank linefactors, most of
credit to a term loan in
January 2000, however the note was in default under the terms of the
loan agreement at January 31, 2000. As disclosed in the notes to
the financial statements, the creditor has issued a waiver as of
January 31, 2000 and amended the terms of the loan which is now due
on May 31, 2001.
The ratio of current assets to current liabilities is 1.4 to 1
at January 31, 2000 compared to 1.8 to 1 at January 31, 1999. This
change is mainly attributable to the increase in accounts payable
and a decrease in cash balances.
The Company is committed to providing high quality products and
service into the year 2000 and beyond. The Company has prepared its
systems and operations to be year 2000 compliant. Costs to the
Company included capital purchases and operating expenses.
Additionally, the Company has received confirmation from its primary
vendors and customers of Y2K compliance. To date, the Company has
not experienced any problems associated with the year 2000
compliance in its operations.are outside Finotec's control.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
This Item is inapplicable.
Item 8.7. Financial Statements and Supplementary Data
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARYFINOTEC GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
WITH INDEPENDENT AUDITORS' REPORTFOR THE YEARS ENDED
JANUARY 31, 2000
C O N T E N T S Page2009 AND 2009
31
Gvilli & Co. C.P.A. (isr.) 7 Haeshel St.
Cesarea Israel 38900
Phone: 04 - 6372740
Fax: 04 - 6272130
E-mail: ir@gvilicpa.co.il
REPORT OF INDEPENDENT AUDITORS' REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS BALANCE SHEET 2-3
STATEMENT OF OPERATIONS 4
STATEMENT OF STOCKHOLDERS' EQUITY 5
STATEMENT OF CASH FLOWS 6
NOTES TO FINANCIAL STATEMENTS 7-18
INDEPENDENT AUDITORS' REPORTREGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Online International Corporationand Stockholders
Finotec Group, Inc.
We have audited the accompanying consolidated balance sheet of Online International Corporation and Subsidiary,Finotec Group,
Inc. as of January 31, 20002009 and 1999,2008, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the two years in the
period ended January 31, 2000 and 1999.2009. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards.the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the auditsaudit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provideaudit provides a
reasonable basis for our opinion.opinion
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Online International Corporation and Subsidiarythe company as of
January 31, 2000,2009, and the consolidated results of their operations and their cash flows for
each of the two years in the period ended January 31, 2000 and 1999,2009, in conformity with
accounting principles generally accepted accounting principles.
New York, NY
March 16, 2000 (except for Note 3, as to whichin the date is May 10,
2000United States.
/s/ Gvilli and Note 10 as to which the date is MayCo.
Gvilli & Co.
April 30, 2000)
ONLINE INTERNATIONAL CORPORATION2009
Caesarea, Israel
1
------------
Gvilli & Co.
------------
FINOTEC GROUP INC.,
AND SUBSIDIARYSUBSIDIARIES
FINANCIAL STATEMENTS
FOR THE YEAR ENDED JANUARY 31, 2009
Page
F-2 Consolidated Balance sheet
- --------------------------------------------------------------------
F-3 Statement of Income
- --------------------------------------------------------------------
F-4 Statement of Stockholders' equity
- --------------------------------------------------------------------
F-5 Statement of cash flow operations
- --------------------------------------------------------------------
FINOTEC GROUP INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS===========================================================================================================
U.S Dollars
----------------------------------
January 31 January 31
----------------------------------
2009 2008
----------------------------------
ASSETS
2000 1999
CURRENT ASSETSCurrent Assets
Cash $ 40,956 $ 605,111
Accounts receivable, less allowance
for doubtful accounts of $-0- in
2000 and $55,630 in 1999 914,588 687,673
Inventories 779,422 610,846
Note receivablecash equivalents 5,108,144 9,135,591
Securities - 5,000486,151
Prepaid expenses 89,874 100,936
Prepaid income taxes 54,447 33,804
Due from employeeand other current assets 472,662 293,562
- 33,296
Loan receivable-officer 5,200 49,000-----------------------------------------------------------------------------------------------------------
Total Current Assets 1,884,487 2,125,666
PROPERTY AND EQUIPMENT, at cost, less 1,064,813 867,913
accumulated depreciation
OTHER ASSETS
Investment in foreign lottery
operation5,580,806 9,915,304
Property and Equipment, Net 599,879 729,532
Forward transaction-Hedging 441,090 354,100
- 100,000
Loan receivable-officer 53,800 -
Due from former subsidiary 149,117 206,673
Deferred income taxes 823,000 174,600
Deferred compensation trusts 117,384 128,083
Note receivable, less current
portion - 30,000
Deposits 23,620 27,762-----------------------------------------------------------------------------------------------------------
Total Other Assets 1,166,921 667,118
$ 4,116,221 $ 3,660,697
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET6,621,775 10,998,936
===========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
January 31,
2000 1999
CURRENT LIABILITIES
Bank line-of-credit $ - $ 530,000
Current maturities of long-term
debt 196,060 -
Current portion of obligations
under capital leases 109,464 45,878Liabilities
short term bank credit 216 22,493
Accounts payable 886,352 429,851
Accruedand accrued expenses 995,820 945,151
Customers deposits 4,924,316 6,151,755
Forward transaction-Customers and otherHedging 27,649 546,578
Provision for severance 261,063 188,158
- -----------------------------------------------------------------------------------------------------------
Total current liabilities 163,067 176,363
Total Current Liabilities 1,354,943 1,182,092
LONG-TERM DEBT, less current portion 558,6726,209,064 7,854,135
- OBLIGATIONS UNDER CAPITAL LEASES, 379,370 153,689
less current portion
DEFERRED COMPENSATION 117,384 128,083
Total Liabilities 2,410,369 1,463,864
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
5% preferred-----------------------------------------------------------------------------------------------------------
Stockholders' Equity
Common stock, no$0.001 par value, ; 20,000,000100,000,000 shares authorized,
7,800,15686,721,825 shares issued and outstanding in 2000 and 7,800,156
shares authorized, issued and
outstanding in 1999($39,000,780
liquidation preference) 1,584,855 1,584,855
Common92,098 70,892
Treasury stock $.001 par value;
100,000,000 shares authorized,
5,818,547 shares issued,
5,617,089 outstanding in 2000
and 5,507,244 issued and
outstanding in 1999 5,818 5,507-- (156,513)
Additional paid-in capital 1,436,559 1,436,870
Accumulated deficit (1,321,380) (830,399)
Treasury stock, at cost, 201,458,
shares in 20005,858,059 1,545,378
Foreign currency translation adjustment (732,344) (159,916)
Retained earnings (4,805,102) 1,844,960
- ------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 1,705,852 2,196,833
$ 4,116,221 $ 3,660,697412,711 3,144,801
- -----------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity 6,621,775 10,998,936
===========================================================================================================
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARYSee accompanying notes to consolidated financial statements.
F-2
FINOTEC GROUP INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended=========================================================================
===========================================
U.S Dollars
-------------------------------------------
January 31 January 31
2009 2008
-------------------------------------------
Revenues
Net (losses) gain from foreign currency future operations 2,641,116 6,984,671
Consulting 5,746 1,985
- ------------------------------------------------------------------- -------------- -----------
Total Revenues 2,646,862 6,986,656
- ------------------------------------------------------------------- -------------- -----------
Operating Expenses
Selling, General and Administrative 1,053,625 708,008
Salaries 2,948,013 2,146,560
Research and Development 308,935 387,620
Technology and computer 859,896 722,561
Commissions Brokers 0 (147,691)
Bonuses & cash back-Witholding 132,941 492,729
Marketing 1,608,866 1,097,674
Professional fees 710,772 543,388
Financial datas 232,754 192,871
Depreciation 265,378 213,744
Exceptional 224,323 7,513
Other expense 570,106 530,339
- ------------------------------------------------------------------- -------------- -----------
Total Operating Expenses 8,915,609 6,895,317
- ------------------------------------------------------------------- -------------- -----------
Operating P&L (6,268,748) 91,340
Financing Expenses
Interest (expense) income 79,300 452,940
Finance Charges (460,615) (645,241)
- ------------------------------------------------------------------- -------------- -----------
Financing P&L (381,315) (192,301)
Exceptional Expenses
Exceptional (expense) - Previous years
Exceptional P&L
Profit&Loss before income taxes (6,650,062) (100,961)
Income tax expense 0 0
- ------------------------------------------------------------------- -------------- -----------
Net Income (Loss) (6,650,062) (100,961)
=================================================================== ============== ===========
Weighted average number of shares outstanding
Basic 86,721,825 65,516,224
Net Income per common share- Basic -$0.1 -$0.0
=================================================================== ============== ===========
See accompanying notes to consolidated financial statements.
F-3
FINOTEC GROUP INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
=======================================================================================
U.S Dollars
-------------------------------------------
January 31 January 31
---------- ----------
2009 2008
---- ----
2000 1999
(Restated)
NET SALES $ 7,733,829 $ 8,118,659
COST OF GOODS SOLD 7,055,502 6,925,092
GROSS PROFIT 678,327 1,193,567
SALARIES AND RELATED COSTS (404,897) (456,837)
OTHER SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (300,069) (219,381)
MERGER EXPENSES (355,000)
Cash Flows from Operating Activities
Net Income ( Loss) (6,650,062) (100,961)
Adjustment to reconcile Net Loss to
Net cash Used in Operating Activities
Depreciation 265,378 276,498
Loss on sold assets 19,593 -
INCOME (LOSS) FROM OPERATIONS (381,639) 517,349
OTHER INCOME (EXPENSE)
Miscellaneous income 3,459 10,321
Interest expense (31,020) (23,805)
Gain (loss) on investmentChanges in deferred compensation trusts (10,699) 23,083
Gain on saleOperating Assets and Liabilities
Decrease in prepaid and other current assets (179,098) (191,903)
Increase in accrued expenses 424 202,265
Decrease in other current liabilities 50,246 262,940
Increase in accrued severance payable 72,905 83,882
Increase (decrease) in receivable forward Clients Trs (86,990) 541,296
Increase (decrease) in payable forward Hedging Trs/option (518,929) -
Increase in marketable securities 486,151 1,171,250
Increase (decrease) in customers Deposits (1,227,439) 2,083,599
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) Operating Activities (7,767,822) 4,328,866
- -----------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Purchase of assetsfixed Assets (170,660) (605,866)
Selling of fixed Assets 33,957 40,937
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by Investing Activities (136,703) (564,929)
- -----------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Short term bank credit (22,277) 1,185
Proceeds from treasury shares - 13,501
Stock issuance 4,490,400 -
- Gain on sale-----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) Financing Activities 4,468,123 14,686
- -----------------------------------------------------------------------------------------------------------------------
Effect of subsidiaryForeign Currency Translation (591,045) (137,976)
- -----------------------------------------------------------------------------------------------------------------------
Net increase in Cash and Cash Equivalent (4,027,447) 3,640,647
Cash and Cash Equivalents- beginning of year 9,135,591 5,494,944
- Total Other Income (Expense) (38,260) 9,599
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (419,899) 526,948
INCOME TAX EXPENSE (BENEFIT) (141,294) 229,419
INCOME (LOSS) FROM CONTINUING
OPERATIONS (278,605) 297,529
DISCONTINUED OPERATIONS
Loss from operations-----------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents- Ending 5,108,144 9,135,591
=======================================================================================================================
Supplemental disclosure of discontinued
business segment(less applicable tax
benefits of $501,240,$356,260 and
$343,240, respectively) (212,376) (1,452,194)
NET INCOME (LOSS) $ (490,981) $ (1,154,665)cash flow information:
Cash paid during the year for interest, net 2,996 40,873
=======================================================================================================================
See accompanying notes to consolidated financial statements.
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARYF-4
FINOTEC GROUP INC AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
====================================================================================================================================
Common Stock
------------------
Accumulated
Additional Other Stock
Paid Deficit Comprehensive Treasury Subscription
Shares Amount in capital Accumulated income Stock Receivable Total
- ------------------------------------------------------------------------------------------------------------------------------
Preferred Number Par Number Par
Balance at january 31, 2006 34,985,241 34,985 1,545,378 (532,949) (24,426) 0 1,022,988
==============================================================================================================================
Net Income (Loss) 2,478,870 2,478,870
Purchase of Shares Valueshares (2,687,500) 2,689 (169,813) (167,125)
Exercise of Shares Value
Options 33,018,483 33,018 33,018
Foreign currency translation 2,486 2,486
- ------------------------------------------------------------------------------------------------------------------------------
Balance Januaryat january 31, 1998 5,507,244 $2,754 7,800,156 $1,584,855
Change in par
value resulting
from July 14,
1998 stock split - 2,753 - -2007 65,316,224 70,692 1,545,378 1,945,921 (21,940) (169,813) 0 3,370,238
==============================================================================================================================
Net Loss for Year
Ended January 31,
1999 - - - -
Balance January
31,1999 5,507,244 5,507 7,800,156 1,584,855
Additional stockIncome (Loss) (100,961) (100,961)
Shares issued from merger
on September 9,
1999 311,303 311Treasury stock 200,000 200 13,300 13,500
Purchase of shares 0
Exercise of Options 0
Foreign currency translation (137,976) (137,976)
- -
Net Loss for Year
Ended January
31, 2000 - - - -
Total Stockholder's
Equity------------------------------------------------------------------------------------------------------------------------------
Balance at January 31, 2000 5,818,547 $ 5,818 7,800,156 $1,584,855
Additional Treasury Stock
Paid-in Retained Number
Capital Earnings2008 65,516,224 70,892 1,545,378 1,844,960 (159,916) (156,513) 0 3,144,801
==============================================================================================================================
Net Income (Loss) (6,650,062) (6,650,062)
Shares issued 2,487,500 2,488 413,124 156,513 572,125
New shares issuing 1,860,324 1,860 426,015 427,876
New shares issuing 3,333,333 3,333 996,667 1,000,000
New shares issuing 2,793,889 2,794 500,106 502,900
New shares issuing 7,222,222 7,222 1,292,778 1,300,000
New shares issuing 2,708,333 2,708 484,792 487,500
New shares issuing 600,000 600 149,400 150,000
New shares issuing 200,000 200 49,800 50,000
Total issued : 21,205,601
Exercise of Shares Value Total
Options 0
Foreign currency translation (572,428) (572,428)
- ------------------------------------------------------------------------------------------------------------------------------
Balance January
31, 1998 $1,439,623 $324,266 - $- $3,351,498
Change in par
resulting from
July 14, 1998
stock split (2,753) - - - -
Net Loss for
Year Ended
January 31,
1999 - (1,154,665) - - (1,154,665)
Balance January
31, 1999 1,436,870 (830,399) - - 2,196,833
Additional
stock issued
from merger
on September
9, 1999 (311) - - - (490,981)
Net loss
for Year Ended
January 31, 2000
Total Stockholder's
Equity at January 31, 2000 1,436,559 (1,321,380) 201,458 - 1,705,8522009 86,721,825 92,098 5,858,059 (4,805,103) (732,344) 0 0 412,710
==============================================================================================================================
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended January 31,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (490,981) $ (1,154,665)
Adjustments to reconcile net income
loss) to net cash provided by (used
in) operating activities:
(Gain) loss on sale/retirement of
fixed assets 3,020 -
Depreciation and amortization 293,373 272,029
Gain on sale of subsidiaries - -
Bad debts 65,000 -
Loss on investment in foreign
lottery operation 214,925 705,000
Deferred taxes (648,400) (135,800)
Change in:
Accounts receivable (226,915) 405,047
Inventories (168,576) (22,402)
Prepaid expenses and other
current assets 11,062 95,244
Prepaid income taxes (20,643) (33,804)
Deferred compensation trust 10,699 (98,333)
Accounts payable 456,501 (134,373)
Accrued expenses and other current
liabilities (13,296) 70,310
Deposits 4,142 -
Deferred compensation (10,699) 98,333
Net Cash Provided by (Used in)
Operating Activities (520,788) 66,566
CASH FLOWS FROM INVESTING ACTIVITIES
Collection of (additions to) notes
receivable (6,704) 13,750
Investment in foreign lottery operation (114,925) (805,000)
Acquisitions of property and equipment (493,293) (70,388)
Proceeds from sale of equipment - -
Proceeds from sale of unconsolidated
subsidiary 57,556 69,408
Net Cash Provided by (Used in)
Investing Activities (557,366) (792,230)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank line-of-credit 330,000 530,000
Proceeds from capital lease obligations 348,940 -
Payments of long-term debt (105,268) -
Payments of obligations under capital leases (59,673) (41,359)
Net Cash Provided by (Used in)
Financing Activities 513,999 488,641
NET DECREASE IN CASH (564,155) (237,023)
CASH
Beginning of year 605,111 842,134
End of year $ 40,956 $ 605,111
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Income taxes $ 48,332 $ 50,827
Interest $ 86,362 $ 34,352
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARYF-5
FINOTEC GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000================================================================================
1. DESCRIPTION OF BUSINESS AND ORGANIZATION Description of
Business The Company's operations consist ofFinotec 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 design and
manufacture of lottery tickets and play slips for automated on-line
contractors and parimutuels (on track and off track betting)Over the
Counter Bulletin Board listings. (OTCBB: FTGI).
As discussed in Note 3,Finotec Group's United Kingdom subsidiary,
Finotec Trading UK, Limited, has been authorized
by the Company discontinued its
lottery management consultation segment of the business.
Recapitalization
On January 31, 1997, Online International, Inc. (Online)
issued 250 shares of Series A convertible preferred stock in exchange for
all issued and outstanding shares of Printing Associates, Inc. (PAI). A
change in control of PAIUK's Financial Services Authority (FSA)
to Online shareholders did not occuract as a result of
this transaction, due to the rights retainedMarket Maker, as defined by the former common
shareholder through its ownershipFSA,
in the United Kingdom. As of November 9, 2007,
Finotec Trading UK, Limited, is approved by the
preferred stock.
This transaction was accounted forFSA as a recapitalization
(similarMarket 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 reverse acquisition)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 Company's equitybalance 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
the consensus of the Emerging Issues Task Force No. 88-16. The
application of the consensus under 88-16 requires that the historic basis of
PAI's assetslimits and liabilities be used, since there was no change in control
to Online's shareholders. As a result, PAI has recorded the issuance of
Common stock for the $1,320,000 of net monetary assets of Online at January
31, 1997. The common stock owned by the former common shareholder is
recorded as if it was converted to preferred stock.
During the year ended January 31, 1999, Online common stock
split on a two for one basis and Online preferred stock split on a 33,334
for one basis. Such stock split has been reflected in the financial
statements. All per share amounts have been restated to reflect the stock
split.
Merger Transaction
On September 9, 1999 ("the merger date") the corporation
previously known as Online International Inc. ("old Online") merged with
Condor West Corporation ("Condor") an SEC registered Nevada corporation with
no material assets, liabilities or operations. Prior to the merger, Condor
effected a 48-for-1 reverse stock split. Condor was the surviving legal
entity and old Online ceased to exist. Condor, however, changed its name to
Online International Corporation ("new Online").
Each common shareholder of old Online (5,507,244 issued and
outstanding on the merger date) received one share of new Online common for
each share of old Online common. Each holder of old Online Series A
Preferred shares (7,800,156 issued and outstanding on the merger date)
received one share of new Online Series A Preferred for each share of old
Online Series A Preferred. Each common shareholder of Condor (311,303
issued and outstanding on the merger date) received one share of new Online
common for each share of Condor common. The Condor shareholders', as part
of this merger, surrendered 201,458 shares which were recorded as Online's
treasury stock.
Although Condor (now with the legal name of Online International
Corporation) is legally the surviving corporation, old Online is the
continuing, surviving entity for accounting purposes. The accounting for
the transaction is similar to a reverse takeover wherein old Online was
merged into Condor. For financial reporting purposes the transaction is
being recorded as if old Online issued 311,303 new shares of common stock of
which 201,458 were recorded as treasury shares with no cost. The $275,000
paid for the Condor shares, along with $80,000 of professional fees
incurred, has been recorded as merger expense in the statement of operations.
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARYreduced through hedging.
F-6
FINOTEC GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
JANUARY 31, 2000
1. DESCRIPTION OF BUSINESS AND ORGANIZATION (Continued)
The Series A Preferred shares================================================================================
2. Summary of new Online have rights that
exceed those of the series A preferred shares of old Online. Each new
Series A preferred share has the same voting rights of a share of common
stock except that in the case of certain defaults the Series A Preferred
acquires additional rights. Also, the old limitation, under which holders
of Series A Preferred could only convert enough shares to common to give
them 20% of the outstanding common shares has been eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Sales are recorded on the date of shipment of the
merchandise.Significant Accounting Policies
Principles of
Consolidation The consolidated financial statements include
the accounts of Online International CorporationFinotec Inc. and its wholly-ownedwholly
owned subsidiaries, Finotec Trading, Inc.
("Finotec Trading") and its owned subsidiaries
Finotec Trading Cyprus Ltd. Finotec USA Inc.,
Finotec Trading Polska S.A., Finotec Trading UK
Ltd, and Finotec Ltd.'s 99.7% owned subsidiary,
Printing Associates, Inc. for the years ended January 31, 2000, 1999 and
1998 collectivelyForexcash Global Trading Ltd. ("Forexcash")
(collectively referred to as "The Company"the "Company",
unless otherwise indicated). All material
intercompany transactions and balances have been
eliminated in consolidation.
Unconsolidated Subsidiaries
During 1998,Since the Company sold twoliabilities of Forexcash exceed its
subsidiaries, PAP
Security Printing, Inc. (PAP), which is located in Pennsylvania,assets, and Wintex
International, Inc., which is located in Texas, in which it owned 49% and
60%, respectively. The sale of PAP was for $268,608, all of which was
collected by the Company in 1998. The sale of Wintex International, Inc.
includes an agreement in which the former subsidiary is required to pay the
Company 3.5% of gross sales for eachowner of the next five years, as well as
other charges such as consideration of stock, debt, and unpaid dividends.
The Company0.3% minority
interest has estimated the total as $493,000. The five-year receivable
was discountedno obligation to present value to total $461,065 as the sale price of the
subsidiary. As of January 31, 2000, the Companysupply additional
capital, no minority interest has a receivable of
$149,117. Due to the inherent uncertainties in estimating the future gross
sales of Wintex International, Inc., it is at least reasonably possible that
the estimate of the amount to be collected, and therefore, the fair value of
the receivable, will changebeen recorded
in the near term. The January 31, 1999 fair
values that are reasonably possible range from $100,000 to $200,000.
Inventories
Inventories are stated at the lower of cost or market with cost
determined by the first-in, first-out method.
Property and Equipment
Property and equipmentconsolidated financial statements.
Fixed Assets Fixed assets are stated at cost, less
accumulated depreciation. Depreciation is computed by bothOffice furniture and
equipment are depreciated using the
straight-line method over seven years. Computer
equipment and declining balance methodssoftware are depreciated using the
straight-line method over the estimated useful lives
of the assets indicated in Note 7.three years. Leasehold
improvements are amortized on a straight-line
basis over the lesser of the useful life or the
life of the lease. MaintenanceRepairs and repairsmaintenance costs
are charged to incomeexpensed as incurred. RenewalsCosts of software
acquired along with payroll costs and replacementsconsulting
fees relating to the development of a routine nature are chargedinternal use
software, including that used to income, while
those which significantly improve or extend the life of existing propertyprovide
internet solutions, are capitalized. ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARYOnce 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 interbank
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.
F-7
FINOTEC GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
2. Summary of Significant Accounting Policies
(Continued)
JANUARY 31, 2000
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Upon saleIncome 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 retirementall of, property and equipment, the cost and related accumulated depreciation are eliminated from the respective
accounts and the related gain or loss isdeferred tax assets
will not be realized.
Advertising Expense The Company expenses advertising costs as
incurred. Advertising expenses included in current income.the
profit and losses in the total amount of
Marketing for the years ended January 31, 2009
and 2008 amounted to $1,084,562 and $742,599,
respectively.
Use of Estimates The preparation of financial statements in
conformity with accounting principles generally
accepted in the United States of America
requires management to make estimates and
assumptions that affect certain reported amounts
and disclosures. Actual results could differ
from those estimates.
Shareholders' Equity
On June 16, 2008, the Company entered into
definitive agreements for the sale of 4,347,824
shares of Common Stock Optionsat a price of $0.23 per
share. As a part of the transaction, the Company
agreed to issue accompanying warrants to
purchase an aggregate of 10,000,000 shares of
Common Stock based compensation is recognizedat an exercise price of $0.50 per
share. Four investors subscribed to the
investment. 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 transaction closed in mid-June
2008. 2,487,500 treasury shares were issued as
part of the 4,347,824 shares issued thereunder.
On July 29, 2008, the Company entered into a
definitive agreement for the sale of 3,333,333
shares of Common Stock at a price of $0.30 per
share for a total of $1 million. As a part of
the transaction, the Company agreed to issue
accompanying warrants to purchase an aggregate
of 1,428,571 shares of Common Stock at an
exercise price of $0.70 per share. 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
transaction closed on July 31, 2008
F-8
FINOTEC GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Shareholders' Equity
(Continued)
On October 31, 2008, the Company entered into
definitive agreements and received funds for the
sale of 12,724,444 shares of Common Stock at a
price of $0.18 per share and 800,000 shares of
Common Stock at a price of $0.25 per share. As a
part of the transaction, the Company agreed to
issue accompanying warrants to purchase
5,777,776 shares of Common Stock at an exercise
price of $0.45 per share and warrants to
purchase 400,000 shares of Common Stock at an
exercise price of $0.50. Five new investors
subscribed to the investment. The shares of
Common Stock sold in the private placement
offering were not registered under the
Securities Act of 1933, as amended, 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 November 2, 2008.
Translation of Foreign
Currencies Forexcash Ltd and Finotec Trading Cyprus Ltd,
Finotec Trading UK Ltd and Finotec Trading
Polska SA Ltd 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 Forexcash Ltd and FinotecTrading
Cyprus Ltd Finotec Trading UK Ltd and Finotec
Trading Polska SA Ltd were translated into U.S.
dollars using the intrinsicexchange 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 method underof certain financial instruments.
The carrying value of financial instruments,
which compensation cost for stock options is measured asinclude cash and cash equivalents, loans
payable, customer deposits and accrued expenses,
approximate their fair values due to the
excess, if any,short-term nature of marketthese financial
instruments. The carrying value of the Company's
stock atnote 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
measurement date over the exercise price. For disclosure purposes,
pro-formaweighted 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 providedcalculated 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, 2009 and 2008, because
the effect of these securities is antidilutive.
F-9
FINOTEC GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Comprehensive
Income SFAS No. 130, Reporting Comprehensive Income,
requires a full set of general-purpose financial
statements to be expanded to include the
reporting of comprehensive income. Comprehensive
income is comprised of two components, net
income and other comprehensive income.
Comprehensive income is defined as if the change in
equity of a business enterprise during a period
from transactions and other events and
circumstances from nonowner sources. As of
January 31, 2008 foreign currency translation
adjustments were the only items of other
comprehensive income for the Company.
Derivative Financial
Instruments The Company follows SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities,
and its related amendments to account for its
derivative transactions. The Company accounts
for its forward foreign currency exchange
contracts as derivative financial instruments.
The Company uses derivative instruments as part
of its asset/liability management activities to
meet the risk management needs of its clients as
part of its trading activity for its own
account. These derivative financial instruments
are carried at fair value, method had been applied.
Reclassifications
Certain 1999with realized and
1998 amounts have been reclassifiedunrealized gains and losses included in net gain
from foreign currency future operations.
Critical accounting policies
A summary of significant accounting policies is
included in Note 2 to conform with 2000 classifications.
Usethe accompanying financial
statements. We believe that the application of
Estimatesthese 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 certainthe reported amounts of
assets and disclosures.
3. DISCONTINUED OPERATIONS
On May 10, 2000,liabilities and disclosure of
contingent assets and liabilities at the Company's Boarddate of
Directors formalized its
decisionthe 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 discontinue operationsemployees
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
lottery management segment offinancial statements over the businessperiod during
which had substantially ceased activity in June 1999. The results
of operations of the lottery management operations have been classified as
discontinued operations for the year ended January 31, 2000employees are required to provide
services. Share based compensation arrangements
include stock options, restricted share plans,
performance based awards, share appreciation
rights and prior
periods have been restated.
Net sales and income from discontinued operations are as follows:
Years Ended January 31,
2000 1999
Revenue $ 2,717 $ 257,416
Operating loss $ (653,261) $ (1,805,006)
Loss on retirement of assets (3,020) -
Interest expense (57,335) (12,779)
Miscellaneous income - 9,331
Pre-tax loss (713,616) (1,808,454)
Income tax benefit (501,240) (356,260)
Loss from discontinued
operations (212,376) (1,452,194)
At January 31, 2000 there were no remaining material assets
related to the discontinued operation.
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARYemployee share purchase plans.
F-10
FINOTEC GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Critical accounting policies
(Continued)
JANUARYIn 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.
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, 20002009 the market value of the
security equals its cost.
F-11
FINOTEC GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
3. DISCONTINUED OPERATIONS (Continued)Property and
Equipment Consist of the following:
As of January 31, 2009
Computer equipment $ 862,272
Purchased software 222,647
Office furniture and equipment 234,647
Leasehold improvements 117,666
-----------------------------------------------------------
Total Property and Equipment at Cost 1,437,494
Less accumulated depreciation and amortization 837,615
-----------------------------------------------------------
Property and Equipment - Net $ 599,879
===========================================================
4. 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.
5. Due to Stockholder The amount due to stockholder consists primarily
of unpaid compensation.
6. Stock Options
and Awards In April of 2003, the Board of Directors of
Finotec Group, Inc. (the "Company") approved a
resolution to provide for the automatic grant to
Didier Essemini, the Chief Executive Officer of
the Company, of a stock option award of
33,018,483 shares of Common Stock. On March 17,
2004, the shareholders of the Company voted to
approve the grant to Didier Essemini, the Chief
Executive Officer of the Company, of stock
options for 33,018,483 shares of Common Stock.
The Registrant awarded Mr. Essemini 33,018,483
options to purchase common stock at an exercise
price of $0.001 per share. On January 27, 2007
Mr. Essemini exercised the options for
33,018,483 shares of Common Stock of the
Company.
During the year 2007, 200,000 shares were issued
to an outside legal advisor as partial payment
for legal services rendered in connection with
the filing of a registration statement by the
Company.
F-12
FINOTEC GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
7. 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.. During the year ended January 31, 1999,2009
the Company recognized gains in an amount of
$182,897 from its forward foreign currency
contracts. As of January 31, 2009, the Company
has entered into an agreement with a companynumber of forward foreign
exchange currency contracts that holdswere hedged in
February, 2009. The Company recognized a license togain of
approximately $50,410 on these contracts, during
the Cambodian Lottery
(partly owned by an entity affiliated withfirst quarter of fiscal 2009..
8. Legal Proceedings
1- Customer v. Finotec Trading UK Limited (in
arbitration; previously before the Tel Aviv
Magistrates Court): This is a case in which a
former directorcustomer of the
Company).Finotec Trading UK Limited
("Finotec UK"), has sued for $41,973.00. The
Company advanced $114,925 and $805,000 during the years ended
January 31, 2000 and 1999, respectively, to this foreign corporation in the
form of a non-interest bearing loan which is payable as cash flow is
available and prior to the paymentcustomer asserts that Finotec UK's cancelation
of certain fees by the foreign
corporation. The agreement also calls for the Company to receive a
management fee for managing the lottery. This management fee is not payable
until the Company first recovers its loan. Despite the legal form of a
loan, the transactiontrades in April and June 2008 was
recorded as an equity investment as the payments
are first to be recouped out of the investee's cash flow. Of the total
investment of $919,925, $705,000 was written off during the year ended
January 31, 1999unlawful and $214,925 was written off during the year ended January
31, 2000.
4. MAJOR CUSTOMERS
The lottery and pari-mutuel products industry is controlled by a
limited number of contractors. The Company's sales to its three significant
contractors were:
Year Ended January 31,
2000 1999
Significant contractor No. 1 53% 59%
Significant contractor No. 2 19% 16%
Significant contractor No. 3 8% 11%
80% 86%
The Company's accounts receivable from one significant
contractor amounted to approximately $406,000 and $343,000 at January 31,
2000 and 1999, respectively.
5. CASH
Included in cash at January 31, 1999 are funds on deposit at two
banks in New York totaling $625,341 (including outstanding checks of
$32,002 against such funds). Of these funds, $200,000 is insured by FDIC.
6. INVENTORIES
Inventories consist of the following:
January 31,
2000 1999
Raw materials $ 349,680 $ 172,111
Work-in-process 83,379 68,192
Finished goods 346,363 370,543
$ 779,422 $ 610,846
7. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
Estimated
Useful
January 31 Life
2000 1999 In
Years
Machinery and equipment $ 2,937,127 $ 2,477,303 7
Furniture and office
equipment 293,626 271,307 5-7
Leasehold improvements 208,112 204,512 7-13
3,438,865 2,953,122
Less: Accumulated
depreciation and
amortization 2,374,052 2,085,209
$ 1,064,813 $ 867,913
8. DEFERRED COMPENSATION
The Company has a deferred compensation plan for key employees
of the Company. Contributions to the Plan are at the discretion of the
Board of Directors. Annual contributions for each beneficiary are placed in
a trust with a third party fiduciary. At a predetermined date, the
beneficiarythat he is entitled to receivelost
profits. In February 2009, at the assetssuggestion of
the trust, including
investment earningscourt, the parties agreed to submit the
dispute to arbitration. Two arbitration hearings
were held in March 2009, and appreciation.customer's attorney
has filed his written summations. We expect to
file our written summations within approximately
three weeks. In connection with the agreement
to arbitrate, in the spring of 2009, Finotec
deposited, in an attorney escrow account, the
amount claimed in the Action. Finotec UK
intends to defend the matter vigorously.
2- Customer v. Finotec Trading Ltd. (Tel Aviv
Magistrates Court): This is a case in which a
customer of Finotec Trading Ltd. ("Finotec
Israel"), has sued Finotec Israel for NIS
154,000. The Companycustomer alleges that Finotec
Israel acted negligently in (a) recommending
that he execute trades through a third-party,
and (b) failing to oversee such third party.
Finotec Israel filed its statement of defense in
December 2008, and it intends to defend the case
vigorously. Customer's questionnaire and
document demand were received on May 4, 2009.
F-13
FINOTEC GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
8. Legal Proceedings
(continued)
3-. Potential Claim of Customer: On or about
Nov. 16, 2008, Finotec Israel received a letter
from counsel to a customer, concerning an
alleged claim of customer, who has accessbeen a
customer of Finotec Israel. The essence of the
claim in the letter is that Finotec Israel
unlawful cancelled certain trades of customer in
October 2007. The letter is not clear as to the
assetsamount of each trustdamages allegedly owed to customer.
The letter refers to customer's right to
reinstate a transaction in certain limited circumstances but should still be liablethe amount of $5,000,
and it also asserts that customer is entitled to
damages of NIS 2,000 To the beneficiary for the assets removed. The investment earningsbest of the
trusts are recorded as incomeour
knowledge, no lawsuit has been filed by customer
(or on his behalf) against any Finotec entity.
Management does not expect either claim to the Company andhave
a material effect on the Company's income is
reduced by deferred compensationfinancial
position or results of operations.
9. Commitments Forexcash Ltd, Finotec Trading (Cyprus) Ltd and
Finotec Trading UK Ltd lease their offices space
facilities on a month-to-month basis. Rent
expense which equalsincluded in the contributions toprofit and losses in the
trust plus the earningstotal amount of the trust. The securities held by the trust
are considered trading securitiesSelling, General and
carried at fair value. Deferred
compensation expense (benefit) amounted to $(10,699) and $98,333Administrative for the years ended January 31,
20002009 and 1999,2008 amounted to $255,054 and $204,340,
respectively.
Following is a summary of marketable securities held in the above
deferred compensation trusts:
2000 1999
Aggregate cost $ 105,000 $ 105,000
Realized and unrealized gains 12,384 23,083
Aggregate Fair Value $ 117,384 $ 128,083
9. BANK LINE-OF-CREDIT
Printing Associates, Inc. had an agreement with a bank that
provided for a $750,000 line-of-credit for short-term loans, of which
$220,000 was unused as of January 31, 1999.
During the year ended January 31, 2000, the Company borrowed an
additional $120,000 and converted the line-of-credit into a note payable.
(See Note 10)
10. LONG-TERM DEBT
January 31,
2000 1999
Note payable in 48 equal monthly
installments of $13,541.66 plus interest at a rate
of 2% above the LIBOR rate (5.885% at January 31,
2000) per annum from February 2000 to January 2004.
The note is secured by the Company's accounts
receivable. At January 31, 2000, the note was in
default under the terms of the loan agreement.
The creditor has issued a waiver as of January 31,
2000 and amended the terms of the loan which is now
due on May 31, 2001. Interest at 1.50% above the
bank's prime rate will be charged from May 30,
2000 until maturity on May 31, 2001. $ 650,000 $ -
Unsecured note payable in 36
equal monthly installments of $3,562.32 including
interest at the rate of 10.25% per annum from
December 1, 1999 to November 1, 2002 (See Note
11). 104,732 -
Sub-Total 754,732 -
Less: current portion of long-term debt 196,060 -
Long-term debt $ 558,672 $ -
In connection with the note payable originally due in 2004, the
Company entered into a interest rate swap agreement with the same lender
that effectively fixed the interest rate at 9%. Payments made and received
on the swaps are netted with interest expense.
Scheduled maturities of long-term debt are as follows:
Year Ended January 31,
2001 $ 196,060
2002 524,667
2003 34,005
$ 754,732
11. RELATED PARTY TRANSACTIONS
As of January 31, 2000 and 1999, the Company has advanced
non-interest bearing loans totaling $59,000 and $49,000, respectively, to
the officerIncome Taxes Realization of the Company's subsidiary.
During the year ended January 31, 2000, the Company borrowed
$110,000 to purchase equipment from a partnership in which two of the
Company's officers are partners. The note carries an interest rate of
10.25% per annum and is to be repaid over 36 months (See Note 10).
12. PREFERRED STOCK
The 5% non-cumulative preferred stock is convertible into 1
share of common stock for each share of preferred. Dividends, when declared,
are payable semi-annually and commence July 31, 2000. The preferred
shareholders are entitled to a liquidation preference, upon which the 5%
non-cumulative preferred dividend is calculated, of $5 per preferred share.
At January 31, 2000, the Company is in default of its
obligations to the Series A Preferred Shareholders because of non-compliance
with various covenants outlined in the Articles of Incorporation. Due to
default, the preferred shareholders are entitled to three votes for each
share of preferred stock held. In addition, the preferred shareholders are
entitled to vote concurrently with common shareholders.
13. STOCK OPTIONS
In July 1998, the Company granted 900,000 options to certain officers and
employees. Each option gave the holder the right to purchase one share of
common stock at $1.10. The options were to expire in July 2008. 20% of the
options became exercisable on each of the first, second, third, fourth and
fifth anniversaries of the grant. Each recipient would have forfeited any
options that were unexercised when employment with the Company ceased.
On September 8, 1999, the Company adopted an incentive stock
option plan ("ISO") which granted 700,000 options to employees and directors
of the Company. The options vest in one year from the grant date. Each
option gives the holder the right to buy one share of common stock for one
dollar ($1.00). The options expire on August 30, 2009. At the same date
the 900,000 options that had been issued in 1998 were cancelled.
As described in Note 2, the Company accounted for the granting
of stock options under the intrinsic value method and accordingly, no
compensation cost has been recognized for stock options in these financial
statements. In 1999, there would not, however, have been any material
effect had the Company determined compensation cost based on fair value at
the date of the grant. This was because under the "minimum value" method of
determining fair value (which is required for privately held companies,
which was the Company's status at that time) the option would have no
material value at the date of grant. In 2000, had the Company determined
compensation cost based on the fair value at the date of grant, there would
have been no compensation cost as the estimated fair value of the cancelled
options exceeded that of the options granted.
14. NON-CASH INVESTING TRANSACTION
The Company issued 311,303 shares of common stock as part of the
merger on September 9, 1999 with a par value of $311 which was transferred
from additional paid-in capital.
15. LEASES
The Company is the lessee of certain equipment under operating
and capital leases as well as lessee of office and warehouse space in New York.
At January 31, 2000, the future minimum lease payments for all
leases are as follows:
Operating Obligations under
Leases Capital Leases
2001 181,500 152,519
2002 - 152,519
2003 - 136,388
2004 - 88,007
2005 - 66,014
$ 181,500 $ 595,447
Less amount representing interest 106,613
Present value of minimum lease
payments 488,834
Less current portion 109,464
Long-term portion $ 379,370
Rent expense for the year ended January 31, 2000 and 1999
amounted to $227,030 and $253,082 respectively.
Equipment held under capitalized leases at January 31, 2000
consists of the following:
Machinery and equipment $ 606,583
Less: Accumulated amortization 116,870
$ 489,713
16. INCOME TAXES
The provision for income taxes consists of the following
components:
Year Ended January 31,
2000 1999
Current
Federal $ - $ (17,698)
State and foreign 5,866 26,657
5,866 8,959
Deferred
Relating to current net operating loss
Federal (621,000) (91,000)
State - (40,000)
(621,000) (131,000)
Relating to change in beginning of year
valuation allowance
State 85,200 -
Other
Federal (86,100) 2,200
State (26,500) (7,000)
(112,600) (4,800)
Total Deferred (648,400) (135,800)
$ (642,534) $ (126,841)
Deferred income taxes consists of the following:
Deferred tax assets $ 1,200,600 $ 233,800
Deferred tax liabilities (31,100) (59,200)
Valuation allowance (346,500) -
$ 823,000 $ 174,600
The 2000 deferred tax asset balances primarily relate to a
consolidated federal net operating loss carry forwards of $2,223,000 for
Online International Corp. The deferred tax asset balance relating to the
New York State net operating loss carryover for Online International Corp.
is completely offset by a valuation allowance. These carry forwards begin
to expire in 2019.
The 1999 deferred tax asset balance primarilybenefits related to a
consolidated federal net operating loss carryover and a New York State net
operating loss carryover for Online International Corp.
The reconciliation between the actual and expected Federal
tax is as follows:
Year Ended January 31,
2000 1999
Income tax provision at 34% $ (142,765) $ 179,162
State and local income taxes net of
Federal income tax effect 3,872 17,132
Change in estimate of prior year Federal
income tax (5,493) 29,950
Effect of nondeductible expenses 3,092 3,175
Actual income tax provision $ (141,294) $ 229,419
17. COMMITMENTS
The Company has entered into employment contracts with the
president of PAI and other key employees that expire at various dates
through October 22, 2001. Future minimum payments, excluding certain fringe
benefits, relating to these agreements are as follows:
2001 $ 240,000
2002 180,000
$ 420,000
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures
about Fair Value of Financial Instruments ("SFAS 107") requires entities to
disclose the fair values of financial instruments except when it is not
practicable to do so. Under SFAS 107, it is not practicable to make this
disclosure when the costs of formulating the estimated values exceed the
benefit when considering how meaningful the information would be to
financial statement users.
The Company's financial instruments, and the related amounts
recorded on the balance sheet, to which SFAS 107 would be applied include
the following:
Carrying Amount
Year Ended January 31,
2000 1999
Assets:
Cash $ 40,956 $ 605,111
Notes receivable - 35,000
Due from employees - 33,296
Due from officer 59,000 49,000
18. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Carrying Amount
Year Ended January 31,
2000 1999
Investment in foreign lottery operation - 100,000
Due from former subsidiary 149,117 206,673
Deferred compensation trusts 117,384 128,083
Liabilities:
Bank line-of-credit - 530,000
Notes payable 754,732 -
Interest rate swap agreement
(included in other current
liabilities) 8,000 -
The fair values of cash, notes receivable, due from officer and
employees, deferred compensation trusts, bank line-of-credit, notes payable
and interest rate swap agreement do not differ materially from their
carrying amounts. See Notes 2 and 3, respectively, for more information
about the balance due from the former subsidiary and the investment in
foreign lottery operation.
None of the above are derivative financial instruments except
the interest rate swap agreement and none, except the deferred compensation
trusts, are held for trading purposes.
19. EARNINGS PER SHARE
Years Ended January 31,
2000 1999
Net income (loss) $ (490,981) $ (1,154,665)
Net Income Per
Common share-basic:
From continuing operations $ (0.05) $ 0.05
From discontinued operations (0.04) (0.26)
$ (0.09) $ (0.21)
Net Income Per
Common share-Diluted:
From continuing operations $ (0.05) $ 0.02
From discontinued operations (0.04) (0.11)
$ (0.09) $ (0.09)
For the year ended January 31, 2000, diluted earnings per share
does not assume the conversion of the preferred stock and the stock options
because the conversion would have an anti-dilutive effect on income from
continuing operations.
20. YEAR-END ADJUSTMENTS
During the fourth quarter the Company determined that a
valuation allowance was not needed in relation
to the deferred tax asset
created byassets is dependent on many
factors including the Company's ability to
generate taxable income within the net operating
loss carryforward period. The Company has
provided a valuation allowance for the year. This resulted in
afull
amount of its net deferred tax benefitassets due to the
uncertainty of $642,534generating future profits that
would allow for the quarter, a substantial portionrealization of which relatessuch deferred
tax asset.
11. Subsequent Events A subsidiary company has submitted an
application for registration in the U.S. with
the National Futures Associations (NFA). If
approved, this registration will make it more
attractive to do business with the net operating losses createdCompany and
increase the potential for the Company to do
business in earlier quarters of the year.U.S. market.
See Note 9 regarding legal proceedings.
F-14
PART III
Item 9.8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The accounting firm of Marks Paneth,& Shron, LLPDisclosure.
There have been no changes in New York, NY
serves as independent accountant to Online. On September 22, 1999, Online's
predecessor, Condor West Corporation, merged with old Online, which was a
private company. After the merger, Condor West changed its name to Online
International Corporation, which was the name of the formerly private
company. As a result of the merger, the accountants for Condor were no
longer required, and the accountants for old Online became the accountants
for new Online. Prior to the change in accountants, the former accountants
for old Online had not rendered any adverse opinion to Condor, nor had they
rendered any disclaimer of opinion, modification or qualification of
opinion. There had been no disagreements with the formerCompany's
accountants on accounting and financial disclosure for the year ended January
31, 2009.
Item 8A. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
Management of the Company, with the participation of the Chief Executive Officer
(who also serves as 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 October 31,
2008. Based upon this evaluation, the Chief Executive Officer (who also serves
as the Chief Financial Officer) has concluded that the Company's disclosure
controls and procedures were not effective as of October 31, 2008 due to the
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.
32
Management conducted an assessment of the effectiveness of the Company's
internal control over financial reporting as of October 31, 2008 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 October 31, 2008.
Material weaknesses identified in Finotec Group, Inc are as follows:
Entity Level Controls:
- ----------------------
o The Audit Committee is inactive.
o There is no internal audit function.
o Management does not perform a periodic check of the access rights of
all users to ensure that their access is suitable to their positions
and functions.
o Remediation Plan: The Audit Committee will be activated.
o The Company will implement an internal audit function.
o 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.
o The CFO will ensure that the access rights are adequately segregated.
Financial Statements:
- ---------------------
o Lack of documentation at the financial statement preparation process
creates the potential of the occurrence of a material error occurring
in the financial statements.
Remediation Plan:
- -----------------
o The Company will retain evidence of all the controls performed in the
financial statement preparation process.
Treasury and Cash Management:
- -----------------------------
o Lack of documentation in the Treasury and Cash Management process
creates the potential of the occurrence of a material error occurring
in the financial statements.
Remediation Plan:
- -----------------
o The Company will retain evidence of all the controls performed in the
process.
Revenue:
- --------
o Lack of documentation in the Order to Cash process creates the
potential of the occurrence of a material error occurring in the
financial statements.
33
Remediation Plan:
- -----------------
o The Company will retain evidence of all the controls performed in the
process.
Human Resources & Payroll:
- --------------------------
o Lack of documentation in the human resources and payroll processes
creates the potential of the occurrence of a material error occurring
in the financial statements.
Remediation Plan:
- -----------------
o The Company will retain evidence of all the controls performed in the
process.
Information Technology:
- -----------------------
o The Company does not have a permission and access right table
specifying group authorizations. Some employees have more
authorizations than their role definition. There is no authorization
procedure.
o The Company does not have password complexity procedure. User
passwords do not require any complexity, and there is no requirement
for password change.
o No Formal system development, acquisition and program change policies
and procedures exist for development/acquisitions of new systems and
changes to existing systems.
o The developers have access to the production.
Remediation Plan:
- -----------------
o The Company will 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.
o The Company will prepare "Access to Programs and Data" procedure.
Passwords to the database will be managed and complex.
o The Company will write a methodology for system development,
acquisitions and change management.
o The Company will prevent the developers from accessing the production
environment.
34
Item 9. Directors, Executive Officers, Promoters, and Control Persons.
The officers of the Company are as follows:
NAME POSITION(S) TERM OF OFFICE
Didier Essemini (37) President, Chief Financial 1 year
Officer, Director
Guy Senbel (56) Secretary, Director 1 year
Gil Ovadia (43) Director 1 year
Victor Essemini (63) Director 1 year
Albert Layani (68) 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.
Victor Essemini
Mr. Essemini has extensive experience in human resources management,
as manager of a medical analysis laboratory for 20 years and management of the
analysis department of the largest laboratory in Paris Laboratoire Deloy. Mr.
Victor Essemini is the father of Mr. Didier Essemini.
Albert Layani
Mr. Layani was the founder of one of the largest textile
distribution store chains in France with 92 stores in France and another 26
stores in Israel under the brand names Fly and Makin. Mr. Layani is the
father-in-law of Mr. Didier Essemini.
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.
35
ITEM 10. MANAGEMENT REMUNERATION
The following table sets forth the compensation paid during the fiscal year
ended January 31, 2009, 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 $100,000 in fiscal 2008.
Annual Compensation Awards Payouts
--------------------------------------------- ------------------------ ---------------------
Other
Annual Restricted Securities Other
compen- Stock Underlying LTIP Compen-
sation Award(s) Options/SAR Payouts sation
Name and Principal Position Year Salary ($) Bonus ($) ($) ($) (#) ($) ($)
- --------------------------- ---- ---------- --------- --- --- --- --- ---
Didier Essemini
President, 2008 $385,126 -0- -0- -0- -0- -0-
Director
Guy Senbel
Director 2008 -0- -0- -0- -0- -$1,000- -0- -0-
Gil Ovadia
Director 2008 -0- -0- -0- -0- -$1,500- -0- -0-
Victor Essemini -0- -0- -0- -0- -$1,000-
Albert Layani -0- -0- -0- -0- -$1,000-
Item 11. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information known to the Company
regarding accounting primciples or practices, financeial statement
disclosures, or auditing scope or procedure.
Item 10.the beneficial ownership of Common Stock as of January 31, 2009, 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.
36
Shares Beneficially Owned
-------------------------
Percentage
Directors and Executive Officers Shares Held Owned (1)
- ---------------------------------- ----------- ---------
Didier Essemini 36,175,983 41%
Guy Senbel 2,302,650 3%
Gil Ovadia option to purchase 100,000 shares
Directors and Officers as a Group 38,478,633 44%
(1) Percentage of ownership is based on 86,721,825 shares of Common Stock issued
and outstanding as of January 31, 2009.
BENEFICIAL OWNERS OF OVER 5%
- ----------------------------
Gan Paradis Ltd. owns 6,115,000 unregistered Shares or 7% of the Registrant
The officers of the Online International are as
follows:
NAME AGE POSITION(S) TERM OF OFFICE
Moses L. Garson 49 President, Secretary, 1 year (August 5, 2000)
Director
Moses J. Hassan 51 Director 1 year (August 5, 2000)
Roy A. Cannon 53 Director 1 year (August 5, 2000)
In the eventCompany.
Registered Office
Kings Court
PO Box N-3944
Bay Street
Nassau, Bahamas
Director
Allistair Matthew Cunningham
3,057,500 of a vacancy, the remaining membersDidier Essemini's 36,175,983 shares consist of his 50% ownership of
Gan Paradis Ltd.
Tableland Ltd owns 7,222,222 registered Shares or 8% of the boardCompany.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT AND OTHERS
There have been no other material transactions, series of directors are empoweredsimilar
transactions, or currently proposed transactions, to fillwhich the vacancy untilCompany was or is
to be a party, in which the next annual meeting.
Moses L. Garson has over 20 yearsamount 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 combined experience in accounting
and management. He is currently the Director of Gray's Managment Services.
Prior to that, Mr. Garson was the director of GLC Ltd. He is a 1980
Accountancy graduaterecord or beneficially more than five percent of the InstituteCompany's
Common Stock, or any member of Chartered Accountantsthe immediate family of Englandany of the foregoing
persons, had a material interest.
37
CERTAIN BUSINESS RELATIONSHIPS
In January, 2003 the Company borrowed $30,000 from Dunleigh Investments
Limited, a company whose shareholder is also a shareholder in Finotec Inc. The
loan bears interest at the rate of 4% and Wales.
Moses J. Hassan is payable on demand. The loan was
repaid by the Company.
There have been no other material transactions, series of similar
transactions, currently self-employed. Forproposed transactions, or series of similar
transactions, to which the last 22 years,
Mr. HassanCompany was or is to be a party, in which the amount
involved exceeds $60,000 and in which any director or executive officer, or any
security holder who is known to the Company to own of record or beneficially
more than five percent of the Company's Common Stock, or any member of the
immediate family of any of the foregoing persons, had a material interest other
than as listed in this Form 10K.
Item 13. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
(a) All required exhibits are incorporated herein by reference from the
Company's Form 10-K and Amendments thereto.
38
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 sole principalundersigned, thereunto duly authorized.
DATE: June 5, 2009 By: /s/ Didier Essemini
-------------------
Didier Essemini
President
39
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 his own business in Gilbraltar. He
is a 1971 civil engineering graduate of Manchester University.
Roy A. Cannon is currently self-employed as a solicitor. From July
1998 to December 1999, Mr. Cannon wascapacities and dates indicated.
Signature Title Date
/s/ Didier Essemini
- --------------------
Didier Essemini President, Chief Financial
June 5, 2009 Officer and a Director
of GLC Ltd. Prior to that,
Mr. Cannon was/s/ Guy Senbel
- ---------------
Guy Senbel Secretary and a principal of Cannon & Co. in which he worked as a lawyer
for approximately seven years. He is a 1969 law graduate of Liverpool
College of Law.Director June 5, 2009
/s/ Gil Ovadia
- ---------------
Gil Ovadia Director June 5, 2009
/s/ Albert Layani
- ---------------
Albert Layani Director June 5, 2009
/s/ Victor Essemini
- ---------------
Victor Essemini Director June 5, 2009
40