U.S. Securities and Exchange Commission
Washington, DC 20549
Form 10-QSB/A
Amendment No. 1
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For The Quarterly Period Ended June 30, 2001
[ ] TRANSITION REPORT UNDER SECTON 13 OR 15(d) OF THE EXCHANGE ACT for the
transition period from ___________________ to ________________________.
Commission File Number 0-9940
THE FINX GROUP, INC.
(Exact name of small business issuer as specified in its charter)
(Formerly known as Fingermatrix, Inc.
Delaware 13-2854686
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
249 Saw Mill River Road, Elmsford, NY 10523
(Address of principal executive offices) (Zip Code)
(914) 592-5930
(Registrant's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 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 ___
As of February 22, 2001, there were 45,636,090 shares of the par value
$.01 common stock outstanding.
Purpose of Amendment:
The Form 10QSB for the quarterly period ended June 30, 2001 is amended to
include the effects of financial statement adjustments that were made to the
amended Form 10KSB/A for the year ended December 31, 2000, the amended Form
10QSB/A for the quarter ended March 31, 2001 the and to include the independent
accountant's review report.
1
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors and Stockholders of
The Finx Group, Inc.
Elmsford, New York
We have reviewed the accompanying consolidated balance
sheet of The Finx Group, Inc. and its subsidiaries as of June 30, 2001 and
the related consolidated statements of operations and cash flows for the
three and six month periods ended June 30, 2001 and 2000. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards
established by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of persons
responsible for financial and accounting matters. It is substantially less
in scope than an audit conducted in accordance with generally accepted
auditing standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying consolidated
financial statements referred to above for them to be in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have
been prepared assuming that the Company will continue as a going concern.
As discussed in Note 1 to the consolidated financial statements, the
Company has suffered a net loss of $1,841,000 for the six month period
ended June 30, 2001 and has a working capital deficiency of $5,172,000 and
a capital deficiency of $4,882,000 as of June 30, 2001. Management's plans
in regard to these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments which might arise from
the outcome of these uncertainties.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
February 7, 2002
2
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The Finx Group, Inc. and Subsidiaries
Unaudited Consolidated Statements of Operations
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2000
As
Three months ended June 30, 2001 Restated
-----------------------------------------------------------------------------------------------------------
Sales $ 451,000 $ 745,000
Cost of goods sold 195,000 428,000
-----------------------------------------------------------------------------------------------------------
256,000 317,000
Reserve for obsolete and slow moving inventory (125,000) --
-----------------------------------------------------------------------------------------------------------
Gross profit 131,000 317,000
Operating expenses 564,000 626,000
-----------------------------------------------------------------------------------------------------------
Operating loss (433,000) (309,000)
Other income (expense) (17,000) --
Interest expense and financing fees, related parties (123,000) (74,000)
Interest expense and financing fees, other (83,000) (59,000)
-----------------------------------------------------------------------------------------------------------
Net loss $ (656,000) $ (442,000)
-----------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 16,346,983 2,093,493
-----------------------------------------------------------------------------------------------------------
Net loss per common share: Basic and fully diluted $ (0.04) $ (0.21)
-----------------------------------------------------------------------------------------------------------
See Notes to Unaudited Consolidated Interim Financial Statements.
3
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The Finx Group, Inc. and Subsidiaries
Unaudited Consolidated Statements of Operations
-----------------------------------------------------------------------------------------------------------
2000
As
Six months ended June 30, 2001 Restated
-----------------------------------------------------------------------------------------------------------
As
Restated
Sales $ 928,000 $ 1,433,000
Cost of goods sold 483,000 756,000
-----------------------------------------------------------------------------------------------------------
445,000 677,000
Reserve for obsolete and slow moving inventory (250,000) --
-----------------------------------------------------------------------------------------------------------
Gross profit 195,000 677,000
Operating expenses 1,692,000 1,346,000
-----------------------------------------------------------------------------------------------------------
Operating loss (1,497,000) (669,000)
Other income 9,000 --
Interest expense and financing fees, related parties (221,000) (131,000)
Interest expense and financing fees, other (132,000) (98,000)
-----------------------------------------------------------------------------------------------------------
Net loss $ (1,841,000) $ (898,000)
-----------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 14,527,380 2,047,004
-----------------------------------------------------------------------------------------------------------
Net loss per common share: Basic and fully diluted $ (0.13) $ (0.44)
-----------------------------------------------------------------------------------------------------------
See Notes to Unaudited Consolidated Interim Financial Statements.
4
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The Finx Group, Inc. and Subsidiaries
Unaudited Consolidated Balance Sheet
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As of June 30, 2001
-----------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSSETS:
Cash $ 15,000
Accounts receivable, net 143,000
Inventories, net 1,189,000
Prepaid expense and other current assets 21,000
-----------------------------------------------------------------------------------------------------------
Total current assets 1,368,000
-----------------------------------------------------------------------------------------------------------
Property, Plant and Equipment:
Property, plant and equipment, cost 2,537,000
Software costs 285,000
Less accumulated depreciation and amortization (2,562,000)
-----------------------------------------------------------------------------------------------------------
Net property plant and equipment 260,000
-----------------------------------------------------------------------------------------------------------
Other assets:
Security deposits 20,000
Patents, net 10,000
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Total other assets 30,000
-----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,658,000
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LIABILITIES AND CAPITAL DEFICIENCY
-----------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,870,000
Accrued payroll 1,480,000
Accrued payroll taxes 858,000
Notes payable, related parties 1,554,000
Revolving line of credit 578,000
Customer deposits 59,000
Other current liabilities 141,000
-----------------------------------------------------------------------------------------------------------
Total current liabilities 6,540,000
-----------------------------------------------------------------------------------------------------------
CAPITAL DEFICIENCY
-----------------------------------------------------------------------------------------------------------
Preferred stock, $.01 par value; 1,000,000 shares authorized; 21,000
shares issued and outstanding 2,000,000
Common stock, $.01 par value; 50,000,000 shares authorized; 20,437,885
shares issued and outstanding 204,000
Additional paid-in capital 13,804,000
Accumulated deficit (20,890,000)
-----------------------------------------------------------------------------------------------------------
Total capital deficiency (4,882,000)
-----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND CAPITAL DEFICIENCY $ 1,658,000
-----------------------------------------------------------------------------------------------------------
See Notes to Unaudited Consolidated Interim Financial Statements.
5
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The Finx Group, Inc. and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
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2000
As
Six Months ended June 30, 2001 Reststed
-----------------------------------------------------------------------------------------------------------
CASH FLOWS - OPERATING ACTIVITIES:
-----------------------------------------------------------------------------------------------------------
Net loss $ (1,841,000) $ (898,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Reserve for obsolete and slow moving inventory 250,000 --
Non cash expense from the issuance of common stock to settle -- 28,000
Depreciation and amortization 99,000 17,000
Bad debt expense 27,000 7,000
Other operating activities -- 2,000
Changes in assets and liabilities:
Inventories (319,000) (281,000)
Accounts receivable, net 93,000 143,000
Prepaid expense and other current assets (1,000) 20,000
Other assets 10,000 (17,000)
Accounts payable 347,000 146,000
Accrued payroll 484,000 209,000
Accrued payroll taxes 313,000 75,000
Accrued interest expense, related parties 221,000 92,000
Customer deposits (12,000) (17,000)
Other current liabilities (82,000) 7,000
-----------------------------------------------------------------------------------------------------------
Net cash used for operating activities (411,000) (467,000)
-----------------------------------------------------------------------------------------------------------
CASH FLOWS - INVESTING ACTIVITIES:
Software development costs -- (42,000)
Other investing activities 1,000 (1,000)
-----------------------------------------------------------------------------------------------------------
Net cash used in investing activities 1,000 (43,000)
-----------------------------------------------------------------------------------------------------------
CASH FLOWS - FINANCING ACTIVITIES:
Loans from related parties 598,000 747,000
Repayments on related party loans (108,000) (58,000)
Proceeds from the exercise of stock options 33,000 --
Net payments under revolving lines of credit (100,000) (75,000)
Deferred offering costs -- (148,000)
Other financing activities -- (20,000)
-----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 423,000 446,000
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 13,000 (64,000)
Cash - Beginning of period 2,000 80,000
-----------------------------------------------------------------------------------------------------------
Cash - End of period $ 15,000 $ 16,000
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
-----------------------------------------------------------------------------------------------------------
Cash paid during the year for:
Interest $ 102,000 $ 98,000
Income Taxes -- --
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See Notes to Unaudited Consolidated Interim Financial Statements.
6
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The Finx Group, Inc. and Subsidiaries
Footnotes to Unaudited Consolidated Interim Financial Statements
Three and Six Months Ended June 30, 2001 and 2000
--------------------------------------------------------------------------------
1. Basis of Presentation
The accompanying unaudited consolidated financial statements of The
Finx Group, Inc. ("The Finx Group" or, the "Company") have been prepared in
accordance with Regulation S-B promulgated by the Securities and Exchange
Commission and do not include all of the information and footnotes required by
generally accepted accounting principles in the United States for complete
financial statements. In the opinion of management, these interim financial
statements include all adjustments necessary in order to make the financial
statements not misleading. The results of operations for such interim periods
are not necessarily indicative of results of operations for a full year. The
unaudited consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto of the Company
and management's discussion and analysis of financial condition and results of
operations included in the Annual Report on Form 10-KSB/A for the year ended
December 31, 2000. Certain reclassifications were made to prior year amounts to
conform to the current year presentation.
The accompanying unaudited interim financial statements have been
prepared on a going concern basis, which contemplates the realization of assets
and the liquidation of liabilities in the normal course of business. However,
the Company has a history of net losses and as of June 30, 2001 has a working
capital deficiency of $5.2 million and capital deficiency of $4.9 million. Since
April of 1999 the Company has relied on financial support from its controlling
stockholder, The Trinity Group-I, Inc. ("Trinity"), and other related parties.
Management is currently seeking additional financing; however no assurances can
be made that such financing will be consummated. The continuation of the Company
as a going concern is dependent upon its ability to obtain financing, and to use
the proceeds from any such financing to increase its business to achieve
profitable operations. The accompanying financial statements do not include any
adjustments that would result should the Company be unable to continue as a
going concern.
2. Significant Accounting Policies
The accounting policies followed by the Company are set forth in Note 1
to the Company's financial statements in the December 31, 2000 Form 10-KSB/A.
3. Basic and Diluted Earnings (Loss) Per Share
Basic earnings (loss) per share reflect the amount of earnings or loss
for the period available to each share of common stock outstanding during the
reporting period. Diluted earnings (loss) per share reflects basic earnings
(loss) per share, while giving effect to all dilutive potential common shares
that were outstanding during the period, such as common shares that could be
issued upon the exercise or conversion of outstanding securities into common
stock. The computation of diluted earnings per share does not assume conversion,
exercise, or contingent issuance of securities that would have an anti-dilutive
effect on earnings per share (i.e. increasing earnings per share or reducing
loss per share).
The dilutive effect of outstanding options and warrants and their
equivalents are reflected in dilutive earnings (loss) per share by the
application of the treasury stock method which recognizes the use of proceeds
that could be obtained upon the exercise of options and warrants in computing
diluted earnings (loss) per share. It assumes that any proceeds would be used to
purchase common stock at the average market price of the common stock during the
period. For the three and six months ended June 31, 2001 and 2000, all of the
Company's potential common shares were anti-dilutive and a dual presentation of
earnings (loss) per share is not presented. As of June 30, 2001, the Company had
outstanding, stock purchase warrants which entitle the holders to purchase an
aggregate of 13,500 shares of the Company's Common Stock. Such items may dilute
earnings per share in the future.
7
4. Related Party Debt Conversion
On May 7, 2001, Trinity converted $1.5 million of related party debt
into 7,500,000 shares of Common Stock, representing $0.20 per share, the fair
market value of the Common Stock on May 7, 2001. On May 7, 2001, Trinity
converted an additional $2 million of related party debt into shares of a newly
created series of preferred stock, the "Series "B" Preferred Stock. The Series
"B" Preferred Stock is redeemable by the Company in whole or in part, at the
option of the board of directors with Lewis S. Schiller, Trinity's owner,
abstaining, and votes alongside of common stock. The Series "B" Preferred Stock
is convertible in whole or in part, at the option of the holder or its
designees, over a two year period beginning May 7, 2002, into common stock at a
rate representing the lowest price that the common stock has traded at over the
period for which the preferred stock has been outstanding. Such conversion may
require an increase in the number of authorized common shares. Dividends on the
Series "B" Preferred stock are payable semi-annually at a rate of 8%.
5. Segment Information
Statement of Financial Accounting Standards No. 131, "Disclosure about Segments
of an Enterprise and Related Information" established standards for the
reporting of information about operating segments and defines operating segments
as components of an enterprise for which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. The Company's
chief operating decision maker is Lewis S. Schiller, the Company's Chief
Executive Officer, who evaluates the Company's businesses based upon the
separate financial statements and information of the underlying subsidiaries of
the Company. Based on the above evaluation, the Company has identified seven
reportable business segments as follows: (1) Electro-Mechanical and
Electro-Optical Products, which is an operating business segment reflecting the
activities of Sequential Electronic Systems, Inc. ("Sequential"); (2)
Specialized Vending Machines and Avionics Equipment, which is an operating
business segment reflecting the activities of S-Tech, Inc. ("S-Tech"); (3)
Fingerprint Identification Technologies, which is a development stage business
segment reflecting the activities of FMX Corp. ("FMX"); (4) Secured Entrance
Systems, which is a development stage business segment reflecting the activities
of Secured Portal Systems, Inc. ("SPS"), (5) Internet Marketing, which is a
development stage business reflecting the activities of Starnet365.com, Inc.
("Starnet365.com"), (6) Web Based Development Solutions, which is a development
stage business reflecting the activities of Biz Chase, Inc. and (7) Application
Service Provider, which is an operating business segment reflecting the
operations of Shopclue.com. The accounting policies of the reportable segments
are the same as those described in the summary of significant accounting
policies.
There are intersegment consulting fees and intersegment advances and
related interest charges, all of which are eliminated in the consolidated
financial statements.
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2000
As
Three Months Ended June 30, 2001 Restated
-------------------------------------------------------------------------------------------------------------
Revenues:
Electro-Mechanical and Electro- Optical Products $ 309,000 $ 608,000
Specialized Vending Machines and Avionics Equipment 45,000 137,000
Internet Marketing 88,000 --
Application Service Provider 9,000 --
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451,000 745,000
Corporate consulting fees 225,000 --
Intersegment consulting fees (225,000) --
-------------------------------------------------------------------------------------------------------------
Total revenues $ 451,000 $ 745,000
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8
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2000
As
Three Months Ended June 30, 2001 Restated
-------------------------------------------------------------------------------------------------------------
Operating loss:
Electro-Mechanical and Electro- Optical Products $ (40,000) $ 238,000
Specialized Vending Machines and Avionics Equipment 9,000 (41,000)
Fingerprint Identification Technologies (91,000) (55,000)
Secured Entrance Systems (100,000) (22,000)
Internet Marketing (162,000) (80,000)
Web Based Development Solutions (135,000) --
Application Service Provider (2,000) --
-------------------------------------------------------------------------------------------------------------
(521,000) 40,000
Corporate costs and expenses 88,000 (349,000)
-------------------------------------------------------------------------------------------------------------
Total operating loss $ (433,000) $ (309,000)
-------------------------------------------------------------------------------------------------------------
Interest expense:
Electro-Mechanical and Electro- Optical Products $ 134,000 $ 86,000
Specialized Vending Machines and Avionics Equipment 34,000 30,000
Fingerprint Identification Technologies 10,000 6,000
Secured Entrance Systems 3,000 3,000
Internet Marketing 18,000 2,000
Web Based Development Solutions 35,000 --
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234,000 127,000
Corporate costs and expenses 23,000 15,000
Intersegment charges (51,000) (9,000)
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Total interest expense $ 206,000 $ 133,000
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Net income (loss):
Electro-Mechanical and Electro- Optical Products $ (182,000) $ 160,000
Specialized Vending Machines and Avionics Equipment (24,000) (70,000)
Fingerprint Identification Technologies (102,000) (61,000)
Secured Entrance Systems (103,000) (25,000)
Internet Marketing (175,000) (82,000)
Web Based Development Solutions (169,000) --
Application Service Provider 1,000 --
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(754,000) (78,000)
Corporate costs and expenses 129,000 (364,000)
-------------------------------------------------------------------------------------------------------------
Total net loss $ (656,000) $ (442,000)
-------------------------------------------------------------------------------------------------------------
Depreciation and amortization:
Electro-Mechanical and Electro- Optical Products $ 1,000 $ 1,000
Internet Marketing 13,000 --
Web Based Development Solutions 35,000 --
Application Service Provider 2,000 --
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51,000 1,000
Corporate 6,000 6,000
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Total depreciation and amortization $ 57,000 $ 7,000
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9
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2000
As
Six Months Ended June 30, 2001 Restated
-------------------------------------------------------------------------------------------------------------
Revenues:
Electro-Mechanical and Electro- Optical Products $ 634,000 $ 1,252,000
Specialized Vending Machines and Avionics Equipment 130,000 181,000
Internet Marketing 146,000 --
Application Service Provider 18,000 --
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928,000 1,433,000
Corporate consulting fees 450,000 --
Intersegment consulting fees (450,000) --
-------------------------------------------------------------------------------------------------------------
Total revenues $ 928,000 $ 1,433,000
-------------------------------------------------------------------------------------------------------------
Operating loss:
Electro-Mechanical and Electro- Optical Products $ (223,000) $ 383,000
Specialized Vending Machines and Avionics Equipment 19,000 (94,000)
Fingerprint Identification Technologies (201,000) (106,000)
Secured Entrance Systems (171,000) (88,000)
Internet Marketing (628,000) (80,000)
Web Based Development Solutions (466,000) --
Application Service Provider (3,000) --
-------------------------------------------------------------------------------------------------------------
(1,673,000 15,000
Corporate costs and expenses 176,000 (684,000)
-------------------------------------------------------------------------------------------------------------
Total operating loss $ (1,497,000) $ (669,000)
-------------------------------------------------------------------------------------------------------------
Interest expense:
Electro-Mechanical and Electro- Optical Products $ 204,000 $ 157,000
Specialized Vending Machines and Avionics Equipment 45,000 43,000
Fingerprint Identification Technologies 20,000 11,000
Secured Entrance Systems 8,000 5,000
Internet Marketing 34,000 2,000
Web Based Development Solutions 66,000 --
-------------------------------------------------------------------------------------------------------------
377,000 218,000
Corporate costs and expenses 43,000 27,000
Intersegment charges (67,000) (16,000)
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Total interest expense $ 353,000 $ 229,000
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Net income (loss):
Electro-Mechanical and Electro- Optical Products $ (405,000) $ 242,000
Specialized Vending Machines and Avionics Equipment (23,000) (137,000)
Fingerprint Identification Technologies (222,000) (118,000)
Secured Entrance Systems (180,000) (93,000)
Internet Marketing (648,000) (82,000)
Web Based Development Solutions (533,000) --
Application Service Provider 4,000 --
-------------------------------------------------------------------------------------------------------------
(2,007,000) (188,000)
Corporate costs and expenses 166,000 (710,000)
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Total net loss $ (1,841,000) $ (898,000)
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10
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2000
As
Six Months Ended June 30, 2001 Restated
-------------------------------------------------------------------------------------------------------------
Depreciation and amortization:
Electro-Mechanical and Electro- Optical Products $ 2,000 $ 5,000
Internet Marketing 26,000 --
Web Based Development Solutions 54,000 --
Application Service Provider 4,000 --
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86,000 5,000
Corporate 13,000 12,000
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Total depreciation and amortization $ 99,000 $ 17,000
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June 30, December 31,
2001 2000
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Assets:
Electro-Mechanical and Electro- Optical Products $ 1,882,000 $ 1,828,000
Specialized Vending Machines and Avionics Equipment 351,000 372,000
Fingerprint Identification Technologies 10,000 10,000
Secured Entrance Systems -- --
Internet Marketing 228,000 274,000
Web Based Development Solutions 1,028,000 1,080,000
Application Service Provider 166,000 207,000
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3,665,000 3,771,000
Corporate 15,348,000 12,505,000
Intersegment investments (12,906,000) (12,906,000)
Intersegment advances (4,449,000) (1,565,000)
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Total assets $ 1,658,000 $ 1,805,000
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6. New Authoritative Pronouncements
The Financial Accounting Standards Board ("FASB") has issued Statement
No. 141, "Business Combinations" and Statement No. 142, "Goodwill and Other
Intangible Assets" in July 2001. Those statements will change the accounting for
business combinations and goodwill in two significant ways. First, Statement 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. Use of the pooling-of-interest
method will be prohibited. Second, Statement 142 changes the accounting for
goodwill from an amortization method to an impairment only approach. Thus
amortization of goodwill, including goodwill recorded in past business
combinations, will cease upon adoption of that Statement, which for companies
with calendar year ends, will be January 1, 2002.
The Company expects that the adoption of the new statements will not
have a significant impact on its financial statements. It is not possible to
quantify the impact until the newly issued statement has been studied.
7. Subsequent Events
Related Party Loan and Stock Issuance
Subsequent to June 30, 2001, Carol Schiller, the wife of Lewis S.
Schiller, loaned the Company $100,000. In payment of the loan, the Company
issued to Ms. Schiller, 1,000,000 shares of restricted common stock.
11
Acquisition of Granite Technologies, Inc.
On September 19, 2001, the Company consummated its acquisition (the
"Acquisition") of Granite Technologies, Inc. ("Granite") through its newly
created and wholly owned subsidiary, Granite Technology Acquisition Corp.
pursuant to the terms of a Stock Purchase Agreement dated as of September 19,
2001, as amended, the Company purchased 95.87% of Granite's common stock from
such holders of the Granite's common stock (the "Selling Shareholders") upon the
issuance of 3,000,000 shares of its unregistered Common Stock (the "Acquisition
Shares"). Granite has two significant proprietary software packages which have
wide application in the retail and financial markets. Granite's principal
products are the SmartCAT application Framework and the SmartCAT IO Subsystem.
SmartCAT is a set of JAVA middleware that provides both the client (kiosk) and
server (central system mainframe) platform for rapid development of self-service
applications over the Internet. SmartCAT IO Subsystem, also a set of JAVA
applications, provides powerful but simple-to-use interfaces to serial devices
found in kiosks and in various retail delivery applications, such as
point-of-sale and bank branch automation. It may be used together with the
SmartCAT Application Framework or with other applications such as Eontec's
BankFrame to deliver complete client specific solutions.
Of the Selling Shareholders, Grazyna B. Wnuk, the Company's Corporate
Secretary, a Director and Vice-President, received 124,031 Acquisition Shares
for her ownership interest in Granite; and immediate family members of Lewis S.
Schiller, the Company's Chairman of the Board, a Director and Chief Executive
Officer, received 397,934 Acquisition Shares for their ownership interest in
Granite. In accordance with the terms of the Stock Purchase Agreement, the
Selling Shareholders hold certain demand and "piggyback" registration rights
with respect to the Acquisition Shares received by them in connection with the
Acquisition on terms specified in the Stock Purchase Agreement
On September 15, 2001 the Company and Granite Technology Acquisition
Corp. entered into a Settlement and Release Agreement with Rock Partners Ltd.,
SSMI Corp. and Bruno Kordich. Pursuant to the Settlement and Release Agreement
(i) the Company received 250,000 shares, or 4.13%, of Granite's common stock
then owned by Rock Partners Ltd. and SSMI Corp.; (ii) the Company and Granite
received a General Release and a Dismissal with Prejudice on any past disputes
by and among Granite and Rock Partners Ltd., SSMI Corp. and Bruno Kordich; (iii)
all past agreements between Granite and Rock Partners Ltd., SSMI Corp. and Bruno
Kordich became void and cancelled; (iv) Rock Partners Ltd., SSMI Corp. and Bruno
Kordich received 542,636 shares of the Company's Common Stock in consideration
for (i), (ii) and (iii); (v) the Company and Granite acknowledged outstanding
notes and liabilities in the aggregate of $77,000 for which payments will begin
in January of 2002 at $10,000 per month; and (vi) the Company issued 160,000
shares of the Company's Common Stock in consideration for all remaining claims
aggregating $80,000.
Based on the fair value of the consideration paid, the Company recorded
a purchase price in excess of net assets acquired of approximately $2 million
which will be expensed as part of acquired in-process research and development
expense on the date of acquisition (see Note 8).
2001 Employee Stock Option Plan
The Company's Board of Directors approved the 2001 Employee Stock
Option Plan. The purpose of the 2001 Employee Stock Option Plan is to secure
long-term relationships for the Company and its stockholders, from the benefits
arising from capital stock ownership by the Company's Consultants, Advisors,
Employees and Directors, who can help in the company's growth and success and to
provide an effective means of compensation for such persons and entities
providing services to the Company in lieu of cash payments therefor. The 2001
Employee Stock Option Plan, as amended provides for the issuance of up to
17,000,000 shares of the Company's Common Stock. During 2001, the Company
registered all 17,000,000 shares of Common Stock which are the subject of the
2001 Employee Stock Option Plan on Form S-8's. The Company has received
approximately $1.5 million of proceeds from the exercise of such options and
holds notes receivable on approximately $268,000 for exercise proceeds owed to
the Company. Such funds have been used primarily to fund the Trans Global
Acquisition.
12
Letter of Intent for Acquisition of Trans Global Services, Inc.
On November 11, 2001, the Company entered into a binding letter of
intent to acquire an equity interest in Trans Global Services, Inc. ("Trans
Global"). Pursuant to the letter of intent, the Company would receive 5,000,000
shares of Trans Global's common stock in exchange for 2,500,000 shares of the
Company's common stock. In addition, the Company would purchase preferred
equity, convertible into a maximum of 3,000,000 shares of Trans Global's common
stock, for $1 million. Further, the letter of intent requires immediate election
of the Company's appointees to the Trans Global board of directors including the
appointment of Lewis S. Schiller as Trans Global's Chairman of the Board, after
which, the Company's appointees would represent a majority of the Trans Global
board of directors. Lewis S. Schiller is the Chief Executive Officer and
Chairman of the Board of the Company (See Note 8).
8. Pro Forma Financial Information
The following pro forma unaudited results assume the acquisitions of
Granite and Trans Global had occurred at the beginning of the three month
periods ended march 31, 2001 and 2000.
Three Months Ended June 30, Six Months Ended June 30,
2001 2000 2001 2000
---- ---- ---- ----
Sales $ 7,779,000 $ 6,267,000 $ 14,942,000 $ 13,462,000
Net Loss $ (943,000) $ (913,000) $ (2,656,000) $ (1,757,000)
Net Loss per Share $ (0.04) $ (0.09) $ (0.12) $ (0.17)
The pro forma information is not necessarily indicative of either the
results of operations that would have occurred had the acquisition been
effective at the beginning of the indicated periods or of the future results of
operations.
9. Restatement of Prior Period
During June 2000, the Company had plans to issue non employee stock
options to purchase 737,500 shares of common stock. Using the Black-Scholes
option valuation formula, the options had a value of $1.766 million, and such
value was recorded as an operating expense for the six months ended June 30,
2000. The Company did not issue these options and as such, the statements of
operations for the three and six months ended June 30, 2000 have been restated
herein as follows:
Statement of Operations for the Three As Originally
Months Ended June 30, 2000 Reported Restatement As Restated
---------------------------------------- ------------------ ------------------ --------------------
Non cash stock option expense $ 1,766,000 $ (1,766,000) --
Operating expenses $ 2,392,000 $ (1,766,000) 626,000
Operating Loss $ (2,075,000) $ 1,766,000 (309,000)
Net loss $ (2,208,000) $ 1,766,000 (442,000)
Loss per share ($1.05) $0.84 ($.21)
Statement of Operations for the Six As Originally
Months Ended June 30, 2000 Reported Restatement As Restated
---------------------------------------- ------------------ ----------------- --------------------
Non cash stock option expense $ 1,766,000 $ (1,766,000) --
Operating expenses $ 3,112,000 $ (1,766,000) 1,346,000
Operating Loss $ (2,435,000) $ 1,766,000 (669,000)
Net loss $ (2,664,000) $ 1,766,000 (898,000)
Loss per share ($1.30) $0.86 ($.44)
The statement of cash flows for the six months ended June 30, 2000 was
restated whereby it includes the restated net loss and no longer includes the
$1,766,000 non cash stock option expense as an item to reconcile net loss to net
cash used in operations.
13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This Management's Discussion and Analysis of Financial Condition and Results of
Operations may be deemed to include forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, that involve risk and
uncertainty. Although management believes that its expectations are based on
reasonable assumptions, it can give no assurance that its expectations will be
achieved.
The important factors that could cause actual results to differ from
those in the forward-looking statements herein (the "Cautionary Statements") are
more fully described in the Company's December 31, 2000 Form 10-KSB and include,
without limitation: the Company's history of losses and cash flow deficits; need
for additional financing to fund our present and proposed business activities;
dependence on present executive officers and key personnel to manage our present
and proposed business operations and our ability to integrate new officers and
key personnel; dependence upon an exclusive distribution agreement for the
future operations of SPS; dependence upon patent protection for the proposed
activities of FMX; threat that technological change could render certain of our
products and proposed products obsolete or non-competitive; inability to predict
market acceptance for our proposed products; intense competition of the business
in which we intend to engage; threat that E-commerce products and services may
become subject to government regulation; the risks relating to legal
proceedings, as well as other risks referenced from time to time in the
Company's filings with the SEC. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the Cautionary Statements. The Company
does not undertake any obligation to release publicly any revisions to such
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
Results of Operations
As more fully disclosed in the footnotes to the unaudited interim
financial statements, The Finx Group has seven identifiable business segments.
The operations of each of the business segments is discussed separately as
follows:
Electro-Mechanical and Electro-Optical Products
The Electro-Mechanical and Electro-Optical Products segment comprises
the activities of Sequential, which is primarily engaged in the design,
manufacture and assembly of precision electro-mechanical and electro-optical
products and devices for sale to commercial and governmental customers
throughout the United States. Among such products and devices are optical
encoders, encoded motors and limit programmers. Sequential's revenues decreased
$299,000, or 49%, from $608,000 for three months ended June 30, 2000 (the "2000
2nd Quarter") to $309,000 for the three months ended June 30, 2001 (the "2001
2nd Quarter"). Sequential's 2001 and 2000 2nd Quarter gross profit was $19,000,
or 6% of sales, and $279,000, or 46% of sales, respectively. Sequential's gross
profit for the 2001 2nd Quarter included a deduction of $125,000, 40% of sales,
for a reserve for obsolete and slow moving inventory. Sequential's revenues
decreased $618,000, or 49%, from $1.252 million for six months ended June 30,
2000 (the "2000 Six Month Period") to $634,000 for the six months ended June 30,
2001 (the "2001 Six Month Period"). Sequential's 2001 and 2000 Six Month Period
gross profit was $20,000, or 3% of sales, and $631,000, or 50% of sales,
respectively. Sequential's gross profit for the 2001 Six Month Period included a
deduction of $250,000, 39% of sales, for a reserve for obsolete and slow moving
inventory. Sequential's decline in revenue is primarily attributed to its
inability to pay for the materials necessary to build the products included in
its backlog. This inability to manufacture product has resulted in excessive
downtime and idle capacity resulting in significantly reduced margins.
Sequential's operating expenses increased $89,000, or 217% from $41,000 for the
2000 2nd Quarter to $130,000 for the 2001 2nd Quarter. Sequential's operating
14
expenses increased $75,000, or 30% from $248,000 for the 2000 Six Month Period
to $323,000 for the 2001 Six Month Period. As a result of the above,
Sequential's operating results decreased by $198,000, or 83%, from operating
income of $238,000 for the 2000 2nd Quarter to an operating loss of $40,000 for
the 2001 2nd Quarter and decreased by $636,000, or 166%, from operating income
of $383,000 for the 2000 Six Month Period to an operating loss of $253,000 for
the 2001 Six Month Period. During the 2001 2nd Quarter and Six Month Period,
Sequential's operating expenses included $45,000 and $90,000, respectively, of
management fees charged by The Finx Group.
Specialized Vending and Avionics Equipment
The Specialized Vending and Avionics Equipment comprises the activities
of S-Tech, which designs and manufactures two specialized product lines
consisting of specialized vending machines and avionics equipment. "Specialized
Vending" is an industry term used to describe a vending product that utilizes
electronic circuitry and/or computer software. Among the vending machines
manufactured by S-Tech are prepaid telephone debit card machines, bill payment
kiosks, information kiosks, and stamp vending machines. S-Tech's revenues for
the 2001 2nd Quarter decreased $92,000, or 67%, from $137,000 for the 2000 2nd
Quarter to $45,000 for the 2001 2nd Quarter. S-Tech's gross profit was $17,000,
or 37% of sales, for the 2001 2nd Quarter and was $38,000, or 28% of sales, for
the 2000 2nd Quarter. S-Tech's revenues for the 2001 Six Month Period decreased
$41,000, or 23%, from $171,000 for the 2000 Six Month Period to $130,000 for the
2001 Six Month Period. S-Tech's gross profit was $45,000, or 34% of sales, for
the 2001 Six Month Period and was $36,000, or 21% of sales, for the 2000 Six
Month Period. S-Tech's gross profits have been negatively impacted as a result
of non-variable overhead costs being allocated to a relatively minimal sales
volume. S-Tech's operating expenses decreased $72,000, or 91%, from $79,000 fo
the 2000 2nd Quarter to $7,000 for the 2001 2nd Quarter. S-Tech's operating
expenses decreased $114,000, or 81% from $140,000 for the 2000 Six Month Period
to $26,000 for the 2001 Six Month Period. As a result of the above, S-Tech's
operating income (loss) improved $50,000, or 122%, from an operating loss of
$41,000 for the 2000 2nd Quarter to operating income of $9,000 for the 2001 2nd
Quarter and improved $113,000, or 120%, from an operating loss of $94,000 for
the 2000 Six Month Period to operating income of $19,000 for the 2001 Six Month
Period.
Fingerprint Identification Technologies
The Fingerprint Identification Technologies segment comprises the
activities of FMX, which was formed in 1996 to continue with the development of
products and systems utilizing a proprietary and patented electronic fingerprint
identification technology originally conceived by Fingermatrix. The fingerprint
identification technology being developed and utilized by FMX is a fingerprint
identification scanning technology utilized for a variety of access control and
law enforcement purposes. Applications for this technology include access
control systems for banks, airports and industrial and government facilities,
voter registration and electoral anti-fraud systems, welfare and social program
identification systems, immigration control, suspect booking, prisoner and
detainee movement and release control systems, and sensitive employment
authorization systems. FMX did not have any revenues or gross profits for the
2001 and 2000 2nd Quarters or Six Month Periods. FMX incurred operating expenses
of $91,000 for the 2001 2nd Quarter and $55,000 for the 2000 2nd Quarter and
therefore its operating losses, increased $36,000. FMX incurred operating
expenses of $201,000 for the 2001 Six Month Period and $106,000 for the 2000 Six
Month Period and therefore its operating losses, increased $95,000. During the
2001 2nd Quarter and Six Month Period, FMX's operating expenses included $45,000
and $90,000, respectively, of management fees charged by The Finx Group.
Secured Entrance Systems
The Secured Entrance Systems segment comprises the activities of
Secured Portals. Secured Portal's proposed activities consist of the marketing
and distribution of the Georal Security Systems to both those customers for
which it has exclusive distribution rights and to others as to which it has
non-exclusive rights to distribute the Georal Security Systems. Many of the
customers to whom Secured Portals will seek to market the Georal Security
Systems will be domestic and foreign government purchasers as well as commercial
users. In March 2001, the Georal Security System passed preliminary U.S. State
Department
15
forced entry ballistics tests. Subsequent to September 30, 2001, the systems
received final certification for possible procurement for use in U.S. embassies,
consulates and other governmental installations both in the U.S. an abroad.
Secured Portals did not have any revenues or gross profits during the 2001 and
2000 2nd Quarters or Six Month Periods. Secured Portals operating expenses, and
therefore its net operating loss increased $78,000, or 354%, from $22,000 for
the 2000 2nd Quarter to $100,000 for the 2001 2nd Quarter. Secured Portals
operating expenses, and therefore its net operating loss increased $83,000, or
95%, from $88,000 for the 2000 Six Month Period to $171,000 for the 2001 Six
Month Period. During the 2001 2nd Quarter and Six Month Period, Secured Portal's
operating expenses included $45,000 and $90,000, respectively, of management
fees charged by The Finx Group.
Internet Marketing
Internet Marketing reflects the activities of Starnet365.com.
Starnet365.com is an Internet multi-level marketing company whose most
significant product is the Qode engine, a web based software component
comprising the largest UPC coded data base, which pays commissions and which
enables its users to comparative shop in excess of 7 million products related to
the UPC codes. Starnet365.com also sells a series of on-line training programs
consisting of a series of integrated "Earn While You Learn", on-line training
programs that are intended to teach marketing and recruiting techniques as well
as certain tax and legal aspects of running a home-based business.
Starnet365.com also markets replicated web sites, which Starnet365.com intends
to load with non-branded merchandise, enabling individuals quickly and
inexpensively to own their own on-line E-Commerce website. In addition,
Starnet365.com generates revenues from web site enrollment fees, monthly web
hosting fees, and transaction-processing fees related to the sale of merchandise
on the websites. Starnet365.com was established in April 2000 and therefore did
not have any operating activity during the 2000 1st Quarter.
During the 2001 2nd Quarter, Starnet36.com generated revenues of
$88,000 resulting in gross profits of $87,000, or 98%. Operating expenses of
Starnet 365.com for the 2001 2nd Quarter were $249,000 and included $49,000 of
selling expense, including promotional allowances and commissions on product
sales, $45,000 of management fees charged by The Finx Group, $13,000 of
amortization and deprecation and $142,000 of other operating costs. Starnet
365.com did not generate revenues during the 2000 2nd Quarter and incurred
$80,000 of general and administrative operating expense. As a result of the
above, Starnet365.com incurred operating losses of $162,000 and $80,000,
respectively, for the 2001 and 2000 2nd Quarters.
During the 2001 Six Month Period Starnet365.com generated revenues of
$146,000 resulting in gross profits of $112,000, or 76%. Operating expenses of
Starnet 365.com for the 2001 Six Month Period were $739,000 and included $55,000
of research and development related to web design and development, $226,000 of
selling expense, including commissions on product sales, $90,000 of management
fees charged by The Finx Group, $26,000 of depreciation and amortization and
$342,000 of other operating costs. Operating expenses of Starnet 365.com for the
2001 2nd Quarter were $248,000 and included $59,000 of research and development
related to web design and development, $59,000 of selling expense, primarily
promotional allowances and commissions on product sales, $45,000 of management
fees charged by The Finx Group and $329,000 of other operating costs. Starnet
365.com did not generate revenues during the 2000 Six Month Period and incurred
$80,000 of general and administrative operating expense. Starnet365.com was
established in April 2000 and therefore the 2000 Six Month Period did not have
any operating activity related to the 2000 1st Quarter. As a result of the
above, Starnet365.com incurred operating losses of $628,000 and $80,000,
respectively, for the 2001 and 2000 Six Month Periods.
Application Service Provider
Application Service Provider reflects the activities of Shopclue.com.
Shopclue.com is an Application Service Provider that enables small- and
medium-sized businesses to establish an advanced online presence rapidly and
inexpensively using Shopclue.com's software through its interactive Internet
mall known as Retail Drive. The software used by Shopclue.com allows its
customers to create, edit and maintain advanced, interactive websites without
having any prior knowledge of web-based programming languages. Shopclue.com's
Retail Drive interactive website is presently utilized by more than 350
16
merchants. The consolidated statement of operations for the 2000 2nd Quarter and
Six Month Period does not include Shopclue.com's operating activities, which
were prior to the date of acquisition. During the 2001 2nd Quarter and Six Month
Period, Shopclue.com's total revenues were $9,000 and $18,000, respectively,
resulting in $8,000 and $17,000, respectively, of gross profit. Shopclue.com's
total operating expense for the 2001 2nd Quarter and Six Month Period was
$10,000 and $20,000, respectively, resulting in operating losses of $2,000 and
$3,000, respectively.
Web Based Development Solutions
Web Based Development Solutions reflects the activities of Bizchase.
Bizchase has developed a wholesale web based development solution that provides
a simple, affordable and feature rich online solution for small businesses. In
March 2001, Bizchase granted a license to Starnet365.com giving Starnet365.com
the right to sell software developed by Bizchase to the multi-level marketing
industry. The Bizchase software was developed and also licensed to Retail Drive.
Revenues are generated through activation and hosting fees. Bizchase was
organized and acquired in July 2000 and did not have any revenues or gross
profits during the 2000 2nd Quarter or Six Month Period. Bizchase operating
expenses, and therefore its net operating losses for the 2001 2nd Quarter and
Six Month Period was $135,000 and $466,000, respectively. Bizchase operating
expenses are primarily salaries and consulting fees paid to software developers.
Operating expense for the 2001 2nd Quarter and Six Month Period included $45,000
and $90,000, respectively, of management fees charged by The Finx Group.
Corporate costs and expenses
Corporate costs and expenses comprise the expenses of The Finx Group,
the holding company. During the 2001,2nd Quarter and Six Month Period The Finx
Group recorded $225,000 and $450,000, respectively, of management fees charged
to its subsidiaries. All of such management fees are eliminated in the
consolidated results of operations. The Finx Group's operating expenses
decreased by $212,000, or 61%, from $349,000 for the 2000 2nd Quarter to
$137,000 for the 2001 2nd Quarter and decreased by $440,000, or 64%, from
$684,000 for the 2000 Six Month Period to $244,000 for the 2001 Six Month
Period. As of June 30, 2001, Mr. Lewis S. Schiller and Ms. Grazyna B. Wnuk are
owed an aggregate of $900,000 for unpaid salaries of which $100,000 is included
in both the 2001 and 2000 2nd Quarters operating expenses and $200,000 is
included in both the 2001 and 2000 Six Month Periods. Other significant
corporate costs include consulting fees and legal and accounting fees.
Significant Non-Operating Components of Net Loss
Interest Expense and Financing Fees, Other
Interest expense and financing fees, other than that owed to related
parties, amounted to $83,000 and $60,000, respectively, for the 2001 and 2000
2nd Quarters and amounted to $132,000 and $98,000, respectively, for the 2001
and 2000 Six Month Periods. During the 2001 2nd Quarter and Six Month Period
$27,000 and $53,000, respectively, of such amounts relates to interest owed on
Sequential's delinquent payroll taxes. The remainder for all periods presented
relates to Sequential's revolving line of credit. On July 28, 1997, Sequential
entered into a revolving line of credit from FINOVA Capital Corporation,
formerly United Credit Corporation (the "FINOVA Line of Credit"). The FINOVA
Line of Credit provides for a borrowing base equal to the lesser of 80% of
eligible accounts receivable or $400,000, required payment of a 1% annual
facility fee, a 1% monthly commitment fee, against which monthly interest,
exclusive of interest on any over advances, is applied. The annual monthly
interest rate on the FINOVA Line of Credit is the greater of 18.5% or the prime
rate in effect in New York City plus 10%, and is payable monthly. The FINOVA
Line of Credit is collateralized by all of the assets of Sequential. Subsequent
to December 31, 2000, the Company determined that FINOVA declared bankruptcy and
the Company is attempting to establish a replacement line of credit. The Company
has been notified that the FINOVA line-of-credit will not be extended beyond
November 30, 2001. Subsequent to November 30, 2001, the Company utilized a cash
collateral deposit provided by Trinity to satisfy the balance owed under the
line-of-credit and such funds are now owed by the Company to Trinity.
17
Interest Expense and Factoring Fees, Related Parties
Interest expense and financing fees on related party notes increased
$49,000 from $74,000 for the 2000 2nd Quarter to $123,000 for the 2001 2nd
Quarter and increased $91,000 from $130,000 for the 2000 Six Month Period to
$2221,000 for the 2001 Six Month Period. The Company and its subsidiaries incur
interest expense on advances from Trinity, advances from Universal
International, Inc., a company owned by Grazyna Wnuk, an officer of the Company,
a loan from E. Gerald Kay, a former director, advances and expenses paid by
Lewis S. Schiller and Grazyna B. Wnuk, officers of the company, and advances
from Blake Schiller and Carol Schiller, both immediate family members of Lewis
S. Schiller. In addition S-Tech incurs interest expense and factoring fees
pursuant to a factoring agreement with Trinity Factoring Corp., a financing
company owned by Lewis Schiller. Total outstanding advances from such related
parties as of June 30, 2001, aggregated $1.125 million. On May 7, 2001, the
Company converted $1.5 million of related party notes owed to Trinity in
exchange for 7,500,000 shares of common stock and converted an additional $2
million of notes owed to Trinity into a newly created series of Preferred Stock.
Interest accrued on such notes are generally calculated at 9% and as of June 30,
2001 $462,000 of such interest remains unpaid.
Net Loss
As a result of the above, the Company incurred a consolidated net loss
of $656,000, or $0.04 per common share, for the 2001 2nd Quarter and $442,000,
or $0.21 per common share, for the 2000 2nd Quarter and incurred a consolidated
net loss of $1.841 million, or $0.13 per common share, for the 2001 Six Month
Period and $898,000, or $0.44 per common share, for the 2000 Six Month Period.
Financial Condition - Liquidity and Capital Resources
As of June 30, 2001 the Company had a working capital deficiency of
$5.2 million. Approximately $2.454 million of such deficiency relates to amounts
owed to related parties, including accrued and unpaid salaries of $900,000 owed
to Lewis S. Schiller and Grazyna B. Wnuk and $1.554 million owed to Trinity, its
controlling stockholder, and other related parties, for loans and advances made
to fund the operations of the Company. On May 7, 2001, Trinity converted $1.5
million of related party debt into 7,500,000 shares of Common Stock,
representing $0.20 per share, the fair market value of the Common Stock on May
7, 2001. On May 7, 2001, Trinity converted an additional $2 million of related
party debt into shares of a newly created series of preferred stock, the "Series
"B" Preferred Stock. The Series "B" Preferred Stock is redeemable by the Company
in whole or in part, at the option of the board of directors with Lewis S.
Schiller, Trinity's owner, abstaining, and votes alongside of common stock. The
Series "B" Preferred Stock is convertible in whole or in part, at the option of
the holder or its designees, over a two year period beginning May 7, 2002, into
common stock at a rate representing the lowest price that the common stock has
traded at over the period for which the preferred stock has been outstanding.
Such conversion may require an increase in the number of authorized common
shares. Dividends on the Series "B" Preferred stock are payable semi-annually at
a rate of 8%.
During the 2001 Six Month Period, the Company used $411,000 for
operating activities generated $423,000 from financing activities. As of June
30, 2001 the Company's subsidiaries are delinquent on payment of payroll taxes
approximating $700,000.
The accompanying unaudited interim financial statements have been
prepared on a going concern basis, which contemplates the realization of assets
and the liquidation of liabilities in the normal course of business. However,
the Company has a history of net losses and as of June 30, 2001 has a working
capital deficiency of $5.2 million and capital deficiency of $4.9 million. Since
April of 1999 the Company has relied on financial support from its controlling
stockholder, Trinity and other related parties. Management is currently seeking
additional financing; however no assurances can be made that such financing will
be consummated. The continuation of the Company as a going concern is dependent
upon its ability to obtain financing, and to use the proceeds from any such
financing to increase its business to achieve profitable operations. The
accompanying financial statements do not include any adjustments that would
result should the Company be unable to continue as a going concern.
18
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
The FINX GROUP, INC.
/S/ Chief Executive Officer and Director February 22, 2002
Lewis S. Schiller (Principal Executive and Accounting Officer)
19