Edgar Filing: FINX GROUP INC

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB/A
Amendment No.1

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

For the year ended December 31, 2002

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [No Fee Required] For the transition period _________ to _________.

Commission file Number 0-9940

THE FINX GROUP, INC.
(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 Identification Number)
incorporation or organization)

21634 Club Villa Terrace, Boca Raton, Florida 33433
(Address of principal executive offices) (Zip Code)

Issuer's telephone number: (561) 447-6612

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered pursuant to Section 12(g) of the Exchange Act:
Common stock, $.01 par value

Check whether the issuer (1) 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 ___

Check if there is no disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

The issuer's revenues for the year ended December 31, 2002 were $6,000.

The aggregate market value of the common equity held by non-affiliates
of the Registrant as of May 8, 2003 was approximately $1.7 million computed
on the basis of the reported closing price per share ($0.0085) of such stock on
the National Association of Securities Dealers, Inc.'s Over the Counter Bulletin
Board. Shares of common stock held by each officer and director and by each
person who owns 5% or more of the outstanding common stock have been excluded in
that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.

As of May 8, 2003, the Registrant has 330,526,473 shares of its par
value $0.01 common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: None

Transitional Small Business Disclosure Format (check one): Yes ____ No _X_

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

ALL STATEMENTS, OTHER THAN STATEMENTS OF HISTORICAL FACT, INCLUDED IN
THIS ANNUAL REPORT ON FORM 10-KSB, INCLUDING WITHOUT LIMITATION THE STATEMENTS
UNDER "RISK FACTORS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" ARE, OR MAY BE, FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED (THE "EXCHANGE ACT").

WITHOUT LIMITING THE FOREGOING, (I) THE WORDS "BELIEVES,"
"ANTICIPATES," "PLANS," "EXPECTS," "INTENDS," "ESTIMATES" AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS AND (II)
FORWARD-LOOKING STATEMENTS INCLUDE ANY STATEMENTS WITH RESPECT TO THE POSSIBLE
FUTURE RESULTS OF THE COMPANY, INCLUDING ANY PROJECTIONS OR DESCRIPTIONS OF
ANTICIPATED REVENUE ENHANCEMENTS OR COST SAVINGS. SUCH FORWARD-LOOKING
STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS,
WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY,
OR INDUSTRY RESULTS, TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS,
PERFORMANCE, OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS.

SUCH FACTORS INCLUDE, AMONG OTHERS, THE FOLLOWING: WE HAVE A HISTORY OF
LOSSES AND CASH FLOW DEFICITS; THE MARKET FOR OUR COMMON STOCK IS LIMITED;
TRADING IN OUR SECURITIES MAY BE RESTRICTED DUE TO COMPLIANCE WITH APPLICABLE
PENNY STOCK REGULATIONS; OUR COMPANY IS SUBJECT TO CONTROL BY A PRINCIPAL
STOCKHOLDER; A SIGNIFICANT PORTION OF THE NET PROCEEDS OF ANY POTENTIAL
FINANCING MAY BE USED FOR THE PAYMENT OF RELATED PARTY AND OTHER INDEBTEDNESS
AND FOR SALARIES OF EXECUTIVES AND KEY PERSONNEL; WE REQUIRE ADDITIONAL
FINANCING FOR OUR BUSINESS ACTIVITIES; WE HAVE GRANTED SIGNIFICANT BENEFITS
UNDER CERTAIN EXISTING AND PROPOSED EMPLOYMENT AGREEMENTS; RAPID TECHNOLOGICAL
CHANGE COULD RENDER CERTAIN OF OUR PRODUCTS AND PROPOSED PRODUCTS OBSOLETE OR
NON-COMPETITIVE; WE CANNOT PREDICT MARKET ACCEPTANCE FOR OUR PROPOSED PRODUCTS;
THE BUSINESS IN WHICH WE INTEND TO ENGAGE IN IS SUBJECT TO INTENSE COMPETITION;
THE BOARD OF DIRECTORS MAY ISSUE ADDITIONAL PREFERRED STOCK IN THE FUTURE; A
SUBSTANTIAL NUMBER OF OUR SHARES OF COMMON STOCK WILL BE AVAILABLE FOR FUTURE
SALE IN THE PUBLIC MARKET; WE DO NOT INTEND TO PAY ANY DIVIDENDS ON THE COMMON
STOCK IN THE FORESEEABLE FUTURE; THE LIABILITY OF OUR OFFICERS AND DIRECTORS TO
US AND OUR SHAREHOLDERS IS LIMITED; DEPENDENCE ON KEY SUPPLIER; RELIANCE ON
MANAGEMENT, KEY PERSONNEL AND CONSULTANTS; WE COULD BE SUBJECT TO POTENTIAL
UNINSURED LIABILITY, THE RISKS RELATING TO LEGAL PROCEEDINGS AND OTHER FACTORS
BOTH REFERENCED AND NOT REFERENCED IN THIS ANNUAL REPORT ON FORM 10-KSB,
INCLUDING THOSE SET FORTH UNDER "RISK FACTORS." 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
CONTAINED THROUGHOUT THIS ANNUAL REPORT ON FORM 10-KSB.

PART I

Item 1. Description of Business.

Organization

On June 6, 2000 The Finx Group, Inc. was organized as a Delaware
corporation. As of June 30, 2000, Fingermatrix, Inc., our predecessor company
was merged into The Finx Group, Inc. We have controlling interests in FMX Corp.
which was incorporated in Delaware on June 12, 1996, Secured Portal Systems,
Inc., which was incorporated in Delaware on August 11, 1999, and Granite
Technologies Acquisition Corp., which was incorporated in Delaware on May 15,
2001. Throughout this document our Company and its subsidiaries may be
collectively referred to as "We", "Our", "Us", "The Finx Group", the "Company"
or the "Registrant".

Current Developments

Trinity Group-I, Inc. Debt Exchange

On April 28, 1999, The Trinity Group-I, Inc. acquired voting control of
The Finx Group and since that date has been our only significant source of
funding. The Trinity Group-I, Inc. is owned by Lewis S. Schiller, our Chief
Executive Officer and Chairman of the Board. As of May 7, 2001, The Trinity
Group-I, Inc. had advanced to us approximately $3.7 million in order to fund our
operations. On May 7, 2001, The Trinity Group-I, Inc. exchanged $1.5 million of
such related party debt for 7,500,000 shares of common stock, representing $0.20
per share, the fair market value of the common stock on May 7, 2001 and
exchanged an additional $2 million of related party debt into 20,000 shares of
Series B preferred stock whereby each share of Series B preferred stock
represents $100 of exchanged related party debt. Each share of Series B
preferred stock is convertible into shares of common stock as calculated by
dividing $100 by the lowest price that the Company's shares of common stock have
traded during the period that the Series B preferred stock has been outstanding.
The Series B preferred stock is redeemable by us in whole or in part, at the
option of our board of directors, with Lewis S. Schiller, abstaining from any
such vote. The Series B preferred stock votes alongside of common stockholders
on an "if converted" basis as calculated on the date that any such vote occurs.
On October 1, 2002, Trinity Group-I, Inc. converted 2,900 shares of Series B
preferred stock into 10,000,000 shares of common stock and gifted 725 shares of
Series B preferred stock to Grazyna B. Wnuk, our Vice-President and Secretary of
the Board. During April, 2003, Trinity Group-I, Inc. converted 2,000 shares of
Series B preferred stock into 50,000,000 shares of common stock. As of May 8,
2003, 15,100 shares of Series B preferred stock are outstanding which can be
converted into an aggregate of 377,500,000 shares of common stock.

Expansion of Our Exclusive License with Georal International, Ltd.

On September 13, 1999, we obtained an exclusive distribution agreement
from GIL Security Systems, Inc. GIL Security Systems, Inc. is a subsidiary of
Georal International, Ltd. and holds all world-wide rights related to the
intellectual property related to the GIL security systems, including trademarks,
patents and technology, as licensed to it by Alan J. Risi, the controlling owner
of both GIL Security Systems, Inc. and Georal International, Ltd. GIL Security
Systems, Inc. is engaged in the manufacture and sale of security entrance
systems for use as a security device by a variety of customers at airports,
federal buildings, court houses, embassies, correctional facilities, schools,
governmental operations, department stores and other retail outlets (the "Georal
Security Products"). The exclusive distribution agreement gives us distribution
rights for the sale of all of the Georal Security Products, including all models
of the GIL-2001 security door, to specified categories of customers. We refer to
the exclusive distribution agreement as the "Georal License".

Upon the initial execution of the Georal License, the categories of
customers covered by the exclusive distribution agreement include the United
States Treasury Department, the United States Central Intelligence Agency and
all other United States Government intelligence agencies, the United States
National Security Agency, the United States Defense Intelligence Agency, the
United States Department of the Navy, the United States Air Force, the United
States Army, all United States Federal Courts and all United States Embassies,
all department stores and retail stores located in the United States (including
all retail stores located in foreign countries which are part of a retail store
chain which is based in the United States), the Government of Israel, NCR Corp.
and Sun Microsystems, Inc. On February 21, 2002, the Georal License was expanded
to include all financial institutions around the world and gave us an additional
right of first refusal to be the exclusive distributor for sales to any
governmental body in the world which is not currently included in the Georal
License as a protected customer. On May 16, 2002, the Georal License was
expanded to include exclusive world wide sales and marketing rights for all
casinos, malls, stadiums, office buildings and high rises. On September 9, 2002,
the Georal License was expanded

to include World Wide rights to all Airports, Airport Authorities, Schools and
Education Centers. On October 16, 2002, the Georal License was expanded to
provide us with the right to receive forty percent of all maintenance revenues
generated from service contracts obtained from our protected customer base; the
right to share with Georal International, Ltd., all leasing revenues generated
from leasing contracts related to the GIL-2001 security door and the right to
renegotiate the discount received by us from Georal International, Ltd. at such
time as the gross sales generated under the Georal License reaches $5 million.

The Georal License commenced on September 1, 1999 and had an initial
expiration date of August 31, 2004 which was later extended to August 31, 2009
and then again extended to August 31, 2014

In order to obtain the original Georal License and all of the
expansions to the Georal License, we have issued an aggregate of 46,049,874
shares of our common stock valued at approximately $3 million which we are
amortizing over the life of the Georal License. The amortization expense for
2002 approximated $108,000 and as of December 31, 2002, the unamortized value
assigned to the Georal License is $2.872 million. The amortization expense for
years subsequent to December 31, 2002 will aproximate $190,000.

Certification by the U.S. State Department

On December 11, 2001 Georal International, Ltd. received a
certification from the U.S. State Department stating that the GIL-2001 had
passed forced entry and ballistic resistant tests, as witnessed by a technical
representative of the U.S. State Department and that the GIL-2001 was added to
the U.S. Department of State list of certified equipment necessary for its
procurement for use in U.S. embassies, consulates and other governmental
installations both in the U.S. and abroad.

Patent Protection

On October 29, 2002 Georal International, Ltd. received broad patent
approval for its security entrance system from the United States Patent
Trademark Office (Patent 6,472,984). The patent received by Georal
International, Ltd. covers the secured portal which is the subject of the
exclusive license agreement and may provide barriers to entry and should
eliminate competition from other portal manufacturers.

Marketing and Sales Distribution Agreements

On December 13, 2002 we entered into a memorandum of understanding
incorporating a reseller agreement with TRW, Inc., which has been acquired by
Northrop Grumman Corp. and is now operating as Northrop Grumman Mission Systems.
The agreement gives Northrop Grumman Mission Systems the right to market Georal
Security Products to the Federal Government and other significant commercial
opportunities. On March 26, 2003, we entered into a distribution and marketing
agreement with Lockheed Martin. The agreement gives Lockheed Martin worldwide
rights to market the Georal Security Products.

In April 2003, we entered into reciprocal marketing agreements with
Advanced Biometric Security, Inc. ("ABS"). The Marketing Agreements provide both
us and ABS with non-exclusive marketing rights for each others security product
lines. ABS provides enterprise software and services related to identity
management and the security of physical and logical assets.

All of our marketing agreements provide our resellers with discounted
prices for any products that they sell.

Definitive Information Statement to Increase Our Authorized Shares of Common
Stock

On September 4, 2002, we filed a definitive information statement in
order to increase our authorized shares of common stock from 50,000,000 shares
to 750,000,000 shares which was authorized by the written consent of the holders
of a majority of the voting power of the outstanding shares of our common stock.
We required additional shares of common stock in order to (i) continue efforts
to obtain equity financings; (ii) provide compensation in the form of option and
stock grants to our employees and key consultants; (iii) provide sufficient
shares to facilitate the conversion of convertible preferred stock; (iv) reserve
shares for outstanding warrants to purchase common stock; and (v) provide
sufficient shares for other corporate purposes as such needs may arise.

Acquisition of Granite Technologies, Inc.

On September 19, 2001, we purchased 95.87% of Granite Technologies
Inc.'s common stock in exchange for approximately 3,500,000 shares of our common
stock valued at $1.4 million. Grazyna B. Wnuk received 124,031 shares of our
common stock for her ownership interest in Granite Technologies, Inc. and
immediate family members of Lewis S. Schiller, received 397,934 of our common
shares for their ownership interest in Granite Technologies, Inc. In
anticipation of our

acquisition of Granite Technologies, Inc., we entered into a Settlement and
Release Agreement with Rock Partners Ltd., SSMI Corp. and Bruno Kordich, on
September 15, 2001, pursuant to which (i) we received 4.13%, of Granite
Technologies Inc.'s common stock then owned by Rock Partners Ltd. and SSMI
Corp.; (ii) we received a General Release and a Dismissal with Prejudice on any
past disputes by and among Granite Technologies, Inc. and Rock Partners Ltd.,
SSMI Corp. and Bruno Kordich; (iii) all past agreements between Granite
Technologies, Inc. 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 our common stock in consideration for items (i), (ii)
and (iii); (v) we acknowledged Granite Technologies Inc.'s outstanding notes and
liabilities in the aggregate of $77,000; and (vi) we issued 160,000 shares of
our common stock, on behalf of Granite Technologies Inc. in consideration for
all remaining claims aggregating $80,000.

Disposal of Non Security System Business Segments

In September of 2002, our Board of Directors approved a plan whereby it
was determined to be in our best interests to focus all of our resources on our
security systems business and all non security business segments should be sold.
This decision was based on management's evaluation of our capability to support
multiple and diverse business segments. Management's evaluation was confirmed in
a business assessment report received from vFinance Investments, Inc., who was
performing management and investment banking services for us. The business
assessment report, among other things, recommended that we streamline our
operating activities to focus on our security systems business. We investigated
various possible venues to undertake the disposal of the non security system
businesses which included Sequential Electronic Systems, Inc., S-Tech, Inc.,
Defense Manufacturing and Systems, Inc., Granite Technologies, Inc.,
Shopclue.com, Inc., Bizchase, Inc. and Starnet365.com, Inc. We engaged a
consultant, pursuant to a consulting agreement, to assist in developing an exit
strategy for the disposal of these businesses. Through the efforts of the
consultant, on October 18, 2002, Thomas Banks Ltd. acquired Granite
Technologies, Inc., Shopclue.com, Inc., Bizchase, Inc. and Starnet365.com, Inc.
for nominal consideration, subject to the forgiveness of the amounts owed by
such subsidiaries to us and the retention by us of certain rights to the assets
of Granite Technologies.

On October 18, 2002, we sold Sequential Electronic Systems, Inc.,
S-Tech, Inc. and Defense Manufacturing and Systems, Inc. to Trinity Group
Acquisition Corp. for one dollar ($1) and the cancellation of approximately $2.3
million of principal and interest owed to us by such subsidiaries. As of the
date of the transaction, Sequential Electronic Systems, Inc., S-Tech, Inc. and
Defense Manufacturing and Systems, Inc. had aggregate assets of $1.2 million and
not including the $3.1 million they owed to us, had aggregate liabilities of
$2.4 million. These liabilities included $1.1 million of delinquent payroll
taxes for which we have agreed to indemnify Lewis S. Schiller for any claims
made against him regarding such delinquent payroll taxes and in connection
therewith have reserved $550,000 of such payroll taxes against the gain on
disposal of Sequential Electronic Systems, Inc. and S-Tech, Inc. Trinity Group
Acquisition, Corp. is wholly owned by Lewis S. Schiller and the sale of
Sequential Electronic Systems, Inc., S-Tech, Inc. and Defense Manufacturing and
Systems, Inc. was not consummated at arms-length. However, we believe that
because the transaction reduced our liabilities by approximately $1.8 million
that such transaction was in our best interests. As a result of the disposal of
Sequential Electronic Systems, Inc., S-Tech, Inc. and Defense Manufacturing and
Systems, Inc., the net reduction in our liabilities approximated $1.8 million
and our gain on disposal of approximately $458,000 is recorded as an addition to
paid-in capital because such gain was generated pursuant to a related party
transaction.

Our Business

Products

Since September 30, 2002, our business has solely focused on the
marketing and sale of our two primary security products: the GIL 2001 Portal
Control System and the Secured Card Solutions Software Program. During 2002, we
generated revenues of $6,000 from a contract with Virginia Commonwealth
University for one of our Secured Card Solutions.

The GIL 2001 Portal Control System is state of the art for security
processing and human flow management and is built on step-by-step security
processor logic using automated, structural, portal barriers for executing
positive/authorized or negative/unauthorized access commands. This system
includes embedded defensive countermeasures for piggybacked entry, weapons or
credentials pass back, run back breeches and protection against forced entry.
Standard subsystem capabilities include metal detection for weapon and asset
detection, and this system's processing capabilities include execution of access
commands from any access control, detection sensor or digital imaging subsystem.
With the full physical separation and step-by-step logistics provided by GIL
2001 Portal Control Systems, access control at key checkpoints can be configured
in a way to completely secure a facility. The GIL 2001 Portal Control System is
designed to create a Secure Physical Firewall that creates a Safe Work Area for

employees, visitors, and customers who must pass through our firewall into a
secure area. One of the many advantages of this firewall is that it reduces
day-to-day confrontational situations.

The Secured Card Solutions Software Program enables colleges and
universities to link access control of their recreation facilities with the
university ID card, process memberships, issue recreation equipment and obtain
utilization reports for multiple recreation facilities. The system is
cost-effective to implement and is user-friendly for employees and provides
accurate and timely information for recreation administrators. We have provided
Virginia Commonwealth University with two of our Secured Card software solutions
- the "Secured Recreational Sports Solution" and "The Secured Card Solution".
"The Secured Recreational Sports Solution" which currently serves Virginia
Commonwealth University from three locations offering a variety of fitness,
aquatics and intramurals. The activities are offered to all students, faculty,
and university and hospital employees. The Secured Recreational Sports
Solution's database is integrated with the Virginia Commonwealth University card
database for single university identification. The Secured Recreational Sports
Solution handles all check-in of members, locker assignment and equipment
check-in and check-out. It also keeps track of member billing and payroll
deduction and handles member suspensions and automatic emailing of special
events. The Secured Sports Recreation Solution application is written using the
new Microsoft.NET architecture. We have also entered into a services and support
agreement with Florida International University for the installation, support
and use of our Secured Recreational Sports Solution.

Marketing

We are marketing GIL 2001 Portal Control System directly through sales
consultants and through channel marketing relationships that we have recently
secured. We have resale agreements with Northrop Grumman Mission Systems and
Lockheed Martin Mission Systems, which give us significant access and existing
in-roads for the department of defense and other governmental customers. Georal
International, Ltd. has installed the GIL-2001 at the Department of Justice in
Washington, DC, Rikers Island Prison, Citi Corp.'s Data Center and Exodus
Communications Corp.

We are marketing the Secured Card Solutions Software Program directly
to universities across the United States. We have installed our Secured
Recreational Sports Management Solution at Virginia Commonwealth University and
at Florida International University.

Competition

Although there are two direct competitors (Tonali and Secure Access
Portals, Inc.), we believe that our product has the following key advantages:
(1) significantly higher throughput, meaning more people can use the system per
hour than our competitors; (2) U.S. State Department Certification; (3) it is
domestically manufactured; and, (4) we have broad patent protection on the
Georal portal.

Although there are many product offerings for Card Control Access, we
believe that we are developing a niche industry by focusing on the colleges and
universities sports recreation facilities. Our upcoming WEB Based Secured
Recreational Sports Management Solution will mimic the existing program's
capabilities on an internet browser using Microsoft.NET architecture and will
further solidify our leadership role in our market niche.

Employees

The Finx Group, Inc. holding company currently employs two individuals
who are its executive officers. Our remaining functions are provided by
independent consultants.

RISK FACTORS

We Have a History of Losses and Cash Flow Deficits

We have incurred significant operating losses during each of the two
years ended December 2002 and as of December 31, 2002 we have a capital
deficiency of $3.8 million. We expect to incur additional losses during the time
period in which we are developing products and markets for our subsidiaries and
we cannot be assured of when, if ever, our operations will become profitable or
the extent of any future profitability. We also cannot be assured that the
current trends of negative cash flow and increased losses and expenses
(including compensation expense charges that may result from the issuance of our
securities in the future) will not continue or, if so, for how long.

The Market for Our Common Stock is Limited

Currently, our common stock trades on the National Association of
Securities Dealers Automated Quotation System Over-the-Counter Bulletin Board
(the "NASDAQ Bulletin Board"). By its nature, the NASDAQ Bulletin Board is a
limited market and investors may find it more difficult to dispose of our
securities, which are owned by them. Currently, we do not meet the financial and
other requirements for a NASDAQ SmallCap, listing. Apart from specific financial
criteria that we would have to comply with in order to obtain such listing,
there are other corporate governance criteria that must be satisfied in order to
obtain any such listing. Among such corporate governance requirements is the
requirement that there be no disparity in the voting rights of the holders of
the common stock. At the present time, The Trinity Group-I, Inc. owns all of the
outstanding shares of our Series A preferred stock. The holder of our Series A
preferred stock has the right to elect a majority of the Board of Directors. The
NASDAQ may consider the issuance of the Series A preferred stock as a violation
of their voting rights rules and policy. The failure to comply with NASDAQ's
voting rights rules or policy or any of its other applicable regulations
relating to transactions engaged in by us may result in sanctions. Any such
actions by NASDAQ could further limit the market for our common stock.

Trading in Our Securities May Be Restricted Due to Compliance with Applicable
Penny Stock Regulations

Broker-dealer practices in connection with transactions in "penny
stocks" are regulated by certain penny stock rules and regulations adopted by
the SEC. Penny stocks generally are equity securities with a price of less than
$5.00 (other than securities registered on certain national securities exchanges
or quoted on NASDAQ provided that current price and volume information with
respect to transactions in such securities is provided by the exchange or
system). The penny stock rules require a broker-dealer, prior to a transaction
in a penny stock not otherwise exempt from the rules, to deliver a standardized
risk disclosure document that provides information about penny stocks and the
risks in the penny stock market. These rules also impose additional sales
practice requirements on broker-dealers which sell such securities to persons
other than established customers or institutional accredited investors. For
transactions covered by this rule, broker-dealers must also make a special
suitability determination for the purchaser and receive the purchaser's written
consent to the transaction prior to a sale. Consequently, the application of
this rule to the trading of our common stock may affect the ability or
willingness of broker-dealers to sell our securities and adversely affect market
liquidity for such securities.

Our Company is Subject to Control by a Principal Stockholder

Trinity Group-I, Inc. has advanced significant funds to us and our
subsidiaries and owns a controlling interest in our equity. The Trinity Group-I,
Inc. is solely owned by Lewis S. Schiller, our Chairman of the Board and Chief
Executive Officer. All of the shares of The Trinity Group-I, Inc. owned by Lewis
S. Schiller are pledged to an entity controlled by Carol Schiller, the wife of
Lewis S. Schiller. In addition, Douglas Schiller, Linda Schiller and Blake
Schiller, the adult children of Lewis S. and Carol Schiller, own interests in
our outstanding common stock. In addition, The Trinity Group-I, Inc. owns all of
our outstanding Series B preferred stock, which as of May 8, 2003, is
convertible into approximately 377,500,000 shares of our common stock. The
Trinity Group-I, Inc. also owns all of our Series A preferred stock which gives
it the right to elect a majority of our Board of Directors. This concentration
of ownership and voting rights could delay or prevent a change of control. In
addition, Lewis S. Schiller could elect to sell all, or a substantial portion,
of his equity interest in The Trinity Group-I, Inc. to a third party. In the
event of such a sale by Mr. Lewis S. Schiller, such third party may be able to
control our affairs in the same manner that Lewis S. Schiller is able to do so
by virtue of his ownership of The Trinity Group-I, Inc. Any such sale may
adversely affect the market price of our common stock and could adversely affect
our business, financial condition or results of operations.

A Significant Portion of the Net Proceeds of Any Potential Financing May Be Used
for the Payment of Related Party and Other Indebtedness and for Salaries of
Executives and Key Personnel

The Trinity Group-I, Inc. and Lewis S. Schiller have advanced
significant funds to us. Also, Lewis S. Schiller and Grazyna B. Wnuk are owed
accrued salaries as of December 31, 2002 of approximately $2 million. A portion
of the proceeds of any potential financing may be used to repay some or all of
the amounts owed to these related parties. In addition, it is possible that a
substantial portion of the proceeds from any potential financing would be
allocated for general corporate purposes, including working capital, would be
used to pay the salaries of certain of our officers and other key personnel and
consultants.

We Require Additional Financing for Our Business Activities

We currently have limited operating capital and our inability to obtain
a significant financing may adversely affect our business and no assurances are
made that any such financing will occur, or that if any financing is completed,
that additional financing will not be required.

We Have Granted Significant Benefits Under Certain Existing and Proposed
Employment Agreements

Lewis S. Schiller, our Chairman of the Board and Chief Executive
Officer, and Grazyna B. Wnuk, our Vice President, Secretary and a Director have
employment agreements with us. These employment agreements provide significant
benefits to each of them. The terms of these agreements were determined by our
management, who are also parties to these agreements.

Rapid Technological Change Could Render Certain of Our Products and Proposed
Products Obsolete or Non-Competitive

Major technological changes can occur rapidly in the security
industries. It is entirely possible that newer technologies, techniques or
products will be developed with more capabilities and better performance than
our present and proposed products. The development by competitors of new or
improved technologies, techniques or products may make our present or planned
products obsolete or non-competitive.

We Cannot Predict Market Acceptance for Our Proposed Products

All of our security products that we currently offer and may develop in
the future may not gain market acceptance. The degree of acceptance of our
existing security products and any security products that we may develop in the
future will depend upon numerous factors, including demonstration of the
advantages, uniqueness and reliability of such products, their cost
effectiveness, the potential barriers to market entry by alternative products,
marketing and distribution support and the financial ability and credibility of
such entities.

The Business in Which We Are Engage in May Be Subject to Intense Competition

We may face intense competition from numerous companies which are
developing, producing and marketing products for securing access to buildings
and facilities which will directly compete with our products. We intend to
distribute a security access or entrance system to customers which include
government and other institutional purchasers who have been serviced by vendors,
which have established and tested security products and systems that have become
recognized and accepted in this industry. The type of security system that we
will offer to our customers is subject to technological change and compliance
with product specifications established by our intended customers. New entrants
in this industry must establish product reliability through testing and use in
order to gain widespread commercial acceptance of such products. Many of our
potential competitors may have greater financial, technical, personnel and other
resources than we do and that we expect to have in the foreseeable future. We
cannot provide any assurances that we will be able to compete effectively with
any of such competitors.

The Board of Directors May Issue Additional Preferred Stock in the Future

We are authorized to issue up to 1,000,000 shares of preferred stock,
$.01 par value (the "Preferred Stock"). The Preferred Stock may be issued in one
or more series, the terms of which may be determined at the discretion of our
Board of Directors, without further approval of the stockholders. Among the
rights of the holders of any additional Preferred Stock that may be authorized
by the Board of Directors are rates of dividends, voting rights, terms of
redemption, amounts payable upon liquidation, sinking fund provisions and
conversion rights. One of the effects of any such additional Preferred Stock
that may be issued in the future may be to enable the Board of Directors to
render more difficult or to discourage an attempt to obtain control of the
Company by means of a tender offer, proxy contest, merger or otherwise and
thereby protect the continuity of our current management. The terms of any such
additional Preferred Stock that may be issued in the future could adversely
affect the rights of the holders of common stock. Accordingly, the issuance of
any such shares of Preferred Stock may discourage bids for the common stock or
adversely affect the market price of the common stock.

A Substantial Number of Our Shares of Common Stock Will Be Available for Future
Sale in the Public Market

As of May 8, 2003, approximately 124 million shares of our
outstanding common stock are "restricted securities" as that term is defined in
Rule 144 promulgated under the Securities Act and in the future may be sold only
pursuant to an effective Registration Statement under the Securities Act, in
compliance with the exemption provisions of Rule 144 or pursuant to another
exemption under the Securities Act. Furthermore, any shares that are

issued upon the exercise of any outstanding warrants or options will be eligible
for sale, without registration under Rule 144 (subject to the aforementioned
volume restrictions of the Rule) following the expiration of two years from the
date of issuance.

We Do Not Intend to Pay Any Dividends on the Common Stock in the Foreseeable
Future

We currently intend to retain all future earnings, if any, to finance
our current and proposed business operations and we do not anticipate paying any
cash dividends on our common stock in the foreseeable future. The holder of our
Preferred Stock have rights senior to the holders of common stock with respect
to any dividends. We may also incur indebtedness in the future that may prohibit
or effectively restrict the payment of cash dividends on our common stock.

The Liability of Our Officers and Directors to Us and Our Shareholders is
Limited

The applicable provisions of the Delaware Business Corporation Law and
our Certificate of Incorporation limit the liability of our officers and
directors to us or our shareholders for monetary damages for breaches of their
fiduciary duties to us, with certain exceptions, and for other specified acts or
omissions of such persons. In addition, the applicable provisions of the
Delaware Business Corporation Law and of our Certificate of Incorporation and
By-Laws provide for indemnification of such persons under certain circumstances.
As a result of these provisions, shareholders may be unable to recover damages
against our officers and directors for actions taken by them which constitute
negligence, gross negligence or a violation of their fiduciary duties and may
otherwise discourage or deter our shareholders from suing our officers or
directors even though such actions, if successful, might otherwise benefit us
and our shareholders.

Dependence on a Key Supplier

Georal International, Ltd. is the sole supplier of our primary security
product pursuant to a license which expires on August 31, 2014. Should Georal
International, Ltd. experience difficulty in providing product in a timely
manner, this could adversely affect our revenues and reputation in the market.
Additionally, the failure on the part of Georal International, Ltd. to develop
and manufacture or supply new or enhanced products that meet or anticipate
technological changes on a timely and cost-competitive basis could have a
materially adverse effect on our financial condition and results of operations.

Reliance on Management and Key Personnel and Consultants

While investors have voting rights, they will not be able to take a
direct role in the management of our operations. Our success is contingent on
the judgment and expertise of our directors and officers and on our being able
to attract and retain a senior management team, some of who are approaching
retirement age. Our success will also depend to a significant extent upon the
skills of certain key personnel and consultants. Our failure to attract
replacement or additional qualified employees or to retain the services of key
personnel or consultants could adversely affect our business.

We Could Be Subject to Potential Uninsured Liability

We intend to obtain liability, property and business interruption
insurance. We may not have sufficient funds with which to purchase and/or
maintain such insurance. We plan to operate in a professional and prudent manner
to reduce potential liability. Nevertheless, an uninsured claim against us, if
successful and of sufficient magnitude could have a material adverse effect on
us. In addition, the lack of or the inability to obtain insurance of the type
and in the amounts required could impair our ability to enter into certain
contracts, which may be, in certain instances, conditioned upon the availability
of adequate insurance coverage.

Item 2. Description of Properties.

Our executive offices are located in Boca Raton, Florida in space
provided by an executive officer. Our independent consultants perform work for
us out of their own offices located throughout the United States.

Item 3. Legal Proceedings.

Although we are a party to certain legal proceedings that have occurred
in the ordinary course of business, we do not believe such proceedings to be of
a material nature with the exception of the following item. On or about April 8,
2002, a complaint styled "Law Offices of Jerold K. Levien, against The Finx
Group, Inc. f/k/a Fingermatrix, Inc., The Trinity Group-I, Inc." was filed in
the Supreme Court of the State of New York County of New York. The

nature of the action is for breach of contract with regard to the non-payment of
legal invoices for services purported to have been rendered by the plaintiff,
and the relief sought is $334,595, such amount having been accrued on our books.
We believe we have meritorious defenses to the complaint and intend to
vigorously contest this complaint. Due to uncertainties in the legal process, it
is at least reasonably possible that our opinion of the outcome will change in
the near term and there exists the possibility that there could be a material
adverse impact on our operations.

PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

The Company's common stock is traded on the National Association of
Securities Dealers, Inc.'s Over the Counter Bulletin Board ("OTC Bulletin
Board") under the symbol "FXGP". The following table sets forth, for the periods
indicated, the quarterly range of the high and low closing bid prices per share
of our common stock as reported by the OTC Bulletin Board Trading and market
services. Such bid quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.

Bid Prices

Current period from High Low
---- ---
January 1, 2003 to
May 8, 2003 $0.034 $0.004

Quarter ended

March 31, 2002 $0.81 $0.08
June 30, 2002 $0.23 $0.042
September 30, 2002 $0.12 $0.029
December 31, 2002 $0.095 $0.019

Quarter ended

March 31, 2001 $1.95 $0.53
June 30, 2001 $1.00 $0.18
September 30, 2001 $0.87 $0.26
December 31, 2001 $0.72 $0.38

The closing price of common stock on May 8, 2003 was $0.0085.

We have authorized 750,000,000 shares of our $0.01 par value common
stock. As of May 8, 2003, there were approximately 4,000 holders of record of
our common stock. We have not paid dividends on common stock and do not
anticipate paying dividends in the foreseeable future. We intend to retain
future earnings, if any, to finance the expansion of our operations and for
general corporate purposes.

Item 6. 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")
INCLUDE, WITHOUT LIMITATION: WE HAVE A HISTORY OF LOSSES AND CASH FLOW DEFICITS;
THE MARKET FOR OUR COMMON STOCK IS LIMITED; TRADING IN OUR SECURITIES MAY BE
RESTRICTED DUE TO COMPLIANCE WITH APPLICABLE PENNY STOCK REGULATIONS; OUR
COMPANY IS SUBJECT TO CONTROL BY A PRINCIPAL STOCKHOLDER; A SIGNIFICANT PORTION
OF THE NET PROCEEDS OF ANY POTENTIAL FINANCING MAY BE USED FOR THE PAYMENT OF
RELATED PARTY AND OTHER INDEBTEDNESS AND FOR SALARIES OF EXECUTIVES AND KEY
PERSONNEL; WE REQUIRE ADDITIONAL FINANCING FOR OUR BUSINESS ACTIVITIES; WE HAVE
GRANTED SIGNIFICANT BENEFITS UNDER CERTAIN EXISTING AND PROPOSED EMPLOYMENT
AGREEMENTS; RAPID TECHNOLOGICAL CHANGE COULD RENDER CERTAIN OF OUR PRODUCTS AND
PROPOSED PRODUCTS OBSOLETE OR NON-COMPETITIVE; WE CANNOT PREDICT MARKET
ACCEPTANCE FOR OUR PROPOSED PRODUCTS; THE BUSINESS IN WHICH WE INTEND TO ENGAGE
IN IS SUBJECT TO INTENSE COMPETITION; THE BOARD OF DIRECTORS MAY ISSUE
ADDITIONAL PREFERRED STOCK IN THE FUTURE; A SUBSTANTIAL NUMBER OF OUR SHARES OF
COMMON STOCK WILL BE AVAILABLE FOR FUTURE SALE IN THE PUBLIC MARKET; WE DO NOT
INTEND TO PAY ANY DIVIDENDS ON THE COMMON STOCK IN THE FORESEEABLE FUTURE; THE
LIABILITY OF OUR OFFICERS AND DIRECTORS TO US AND OUR SHAREHOLDERS IS LIMITED;
DEPENDENCE ON KEY SUPPLIER; RELIANCE ON MANAGEMENT, KEY PERSONNEL AND
CONSULTANTS; WE COULD BE SUBJECT TO POTENTIAL UNINSURED LIABILITY, THE RISKS
RELATING TO LEGAL PROCEEDINGS AND OTHER FACTORS BOTH REFERENCED AND NOT
REFERENCED IN THIS ANNUAL REPORT ON FORM 10-KSB, INCLUDING THOSE SET FORTH UNDER
"RISK FACTORS." 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.

Phase Out of the OTC Bulletin Board

Our common stock currently trades on the OTC Bulletin Board ("OTCBB"),
which is operated by the Nasdaq Stock Market, Inc. ("NSM"). NSM has advised us
that the OTCBB will be phased out in 2004 and will be replaced by the Bulletin
Board Exchange ("BBX"). The BBX will be a listed marketplace, with qualitative
listing standards but with no minimum share price, income, or asset
requirements. BBX Listing Standards includes Public Interest Standards, Public
Float/Shareholder Requirements, and Corporate Governance Standards. The Public
Interest Standard will allow the BBX to deny listing or de-list an issuer to
protect investors. Imposition of this standard will include a review of all
directors, officers, and major shareholders for past regulatory or legal issues.
The BBX listing standards will require issuers to demonstrate the existence of
one hundred round-lot shareholders and two hundred thousand shares in the public
float. Corporate Governance Standards will require us to have an annual
shareholders' meeting to be held within twelve months of the end of the first
fiscal year after we become listed. The BBX will require the appointment of at
least one independent director and the creation of an Audit Committee, a
majority of the members of which must be independent directors. Related party
transactions and potential conflict of interest situations will also be subject
to review by the Audit Committee or a comparable body of the Board of Directors.
The BBX will also prohibit the disenfranchisement of the voting rights of
existing shareholders and require shareholder approval of transactions that
involve: the grant of stock options to officers and directors, below-market
issuances of stock, acquisitions, and changes of control. We will be required to
distribute our annual report on Form 10KSB to our shareholders and engage only
auditors that are subject to peer review consistent with the American Institute
of Certified Public Accountants ("AICPA") procedures. If the BBX accepts a
listing application filed by us, the initial listing fee will be approximately
$10,000 and we will also be subject to an

annual renewal fee of approximately $4,000. If a listing application filed by us
is not accepted by the BBX, our common stock will trade on the Pink Sheets which
will likely provide holders of our common stock with less liquidity than either
the OTCBB or the BBX.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make assumptions, estimates and judgments that affect the amounts
reported in the financial statements, including the notes thereto, and related
disclosures of commitments and contingencies, if any. We consider our critical
accounting policies to be those that require the more significant judgments and
estimates in the preparation of our financial statements, including the
following: impairment of long-lived assets, including the valuation of the
exclusive license agreement; accounting for expenses in connection with stock
options and warrants; and accounting for income taxes. Our management relies on
historical experience and on other assumptions believed to be reasonable under
the circumstances in making its judgment and estimates. Actual results could
differ materially from those estimates. There have been no significant changes
in assumptions, estimates and judgments in the preparation of these financial
statements from the assumptions, estimates and judgments used in the preparation
of our prior year's audited financial statements.

Results of Operations

In September 2002 we made a decision to focus our business exclusively
on our Security Systems business and on October 18, 2002 we disposed of all non
security system segments. Currently, our primary source of future revenues, if
any, will be generated under our Georal License for the sale of Georal Security
Products, including the GIL-2001 security door. Potential revenues may be
generated from the marketing and distribution of the Georal Security Products to
both those customers for which we have exclusive distribution rights and to
others as to which we have non-exclusive rights. In December of 2002 TRW, Inc.,
now operating as Northrop Grumman Mission Systems, agreed to market and
distribute the Georal Security Products. In March of 2003, Lockheed Martin
Missions Systems also agreed to market and distribute the Georal Security
Products. Many of the customers to whom we will seek to market the Georal
Security Systems will be domestic and foreign government purchasers or
commercial users. On December 11, 2001, the GIL-2001 security door received
certification from the U.S. State Department necessary for its possible
procurement for use in U.S. embassies, consulates and other governmental
installations both in the U.S. and abroad. In October 2002, Georal
International, Ltd. received broad patent approval for its security entrance
system from the United States Patent Trademark Office (Patent 6,472,984). The
patent received by Georal International, Ltd. covers the secured portal which is
the subject of the Georal License and may provide barriers to entry and possibly
eliminate competition from other portal manufacturers.

Our original marketing strategy was focused solely on sales of the
GIL-2001 security door to the U.S. State Department. In 2002, we expanded our
marketing efforts to include all customers under the exclusive distribution
agreement and have built a sales team for such purpose. We face competition from
companies which have far greater financial resources, personnel and experience.
Although we believe that we have a unique product and that the GIL-2001 security
door is the only product of its type that is certified by the U.S. State
Department, we give no assurances that we will be able to generate meaningful
revenues using our Georal License.

We also offer Secured Card Solutions from our development and sale of
software programs for Device Management and Smart Card applications. We have
provided Virginia Commonwealth University with two of our Secured Card software
solutions - the "Secured Recreational Sports Solution" and "The Secured Card
Solution". "The Secured Recreational Sports Solution" which currently serves
Virginia Commonwealth University from three locations offering a variety of
fitness, aquatics and intramurals. The activities are offered to all students,
faculty, and university and hospital employees. The Secured Recreational Sports
Solution's database is integrated with the VCU card database for single
university identification. The Secured Recreational Sports Solution handles all
check-in of members, locker assignment and equipment check-in and check-out. It
also keeps track of member billing and payroll deduction. Further, it handles
member suspensions and automatic emailing of special events. The Secured Sports
Recreation Solution application is written using the new Microsoft.NET
architecture. We have also entered into a services and support agreement with
Florida International University for the installation, support and use of our
Secured Recreational Sports Solution. During 2002, we generated revenues of
$6,000 from a contract with Virginia Commonwealth University for our Secured
Card Solutions.

Our operating expenses include executive payroll which is currently
$723,000 per year of which none has been paid. Lewis S. Schiller, our Chief
Executive Officer has agreed to defer payment of his salary until January 1,
2004 and as of December 31, 2002 his cumulative deferred salary approximates
$1.4 million. Additionally, Grazyna B. Wnuk, our Vice-President, is owed
cumulative salaries of $573,000. Expenses associated with our sales and
marketing represent consulting fees to the consultants who perform such
functions and currently approximate $1

million per year. Such sales and marketing costs were not incurred during 2001.
Professional fees for legal and accounting services currently approximate
$250,000 annually for both 2002 and 2001. Depreciation and amortization
approximated $130,000 and $24,000. The value assigned to the Georal License of
approximately $3 million was incurred in 2002 and is being amortized over of the
life of the Georal License resulting in ongoing annual amortization expense of
$190,000 for years after 2002.

Since the third quarter of 2001, we have been compensating our
employees and consultants with stock options and stock grants that have been
registered on Form S-8 and unregistered stock purchase warrants. During 2002, we
issued options and warrants to purchase an aggregate of 93,000,165 shares of
common stock to our employees and consultants. Such options and warrants, using
the Black-Scholes option valuation formula, were valued at $2.3 million of which
$2.264 million was charged to operations as a non cash expense in 2002 and
$39,000 represented fees to a consultant who assisted us in disposing of our
discontinued segments and was charged against the 2002 gain on disposal of such
discontinued operations. During 2001 we issued options to purchase 17,125,000
shares of common stock and using the Black-Scholes option valuation formula,
such options were valued at $4.671 million, which was charged to operations as a
non cash expense in 2001.

We incurred interest expense at an annual rate of 9% on related party
notes payable. For 2002 and 2001, such interest was $119,000 and $274,000,
respectively. The related party notes payable are the result of advances from
Trinity Group-I, Inc., our controlling shareholder, 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, and advances from Blake Schiller
and Carol Schiller, both immediate family members of Lewis Schiller, an officer
of the Company. Total notes payable owed to related parties as of December 31,
2002 approximates $1.098 million on which accrued and unpaid interest
approximates $682,000. All of the related party notes and interest are payable
upon demand, however; Trinity Group-I, Inc., which is wholly owned by Lewis S.
Schiller, has agreed to defer payment of $550,000 of such interest until January
1, 2004.

As a result of our decision to focus our business exclusively on our
Security Systems business we disposed of all non security system segments
resulting in a gain on disposal of $1.4 million. Loss from the operations of
discontinued segments was $456,000 and $5.036 million, respectively, for 2002
and 2001.

Financial Condition - Liquidity and Capital Resources

As a result of the disposal of all non Security System business
segments, our total liabilities were reduced by $1.8 million. As a result of
Lewis S. Schiller's agreement to defer payment of accrued salary, accrued
interest and accrued dividends owed to him our current liabilities were reduced
by $3.931 million. Our working capital deficiency decreased from $7.1 million at
December 31, 2001 to $4.445 million as of December 31, 2002. During 2002 we used
$1.7 million for our continuing operations. Since April 1999, our primary source
of funding has been The Trinity Group-I, Inc. and during 2002 net advances from
related parties were $58,000. Since September of 2001 and during 2002, we have
used stock options to compensate our employees and key consultants. The proceeds
from the exercise of stock options was $1.494 million in 2002.

Pursuant to the terms of the stock purchase agreement to sell
Sequential Electronic Systems, Inc. and S-Tech, Inc., we have agreed to
indemnify Lewis S. Schiller for any claims made against him regarding $1.1
million of delinquent payroll taxes owed by Sequential Electronic Systems, Inc.
and S-Tech, Inc. at the time of their disposal. A reserve of $550,000 has been
recorded by management based upon our best estimate of the ultimate liability.

financing will be consummated. Our continuation as a going concern is dependent
upon our ability to obtain financing, and to use the proceeds from any such
financing to increase our business to achieve profitable operations. The
accompanying consolidated financial statements do not include any adjustments
that would result should we be unable to continue as a going concern.

Item 7. Financial Statements and Supplementary Data.

The information required by Item 7. is included as Exhibit 99.1 to this Form
10-KSB/A.

PART III

Item 9. Directors and Executive Officers of the Registrant.

Directors and Management

Officers are elected by, and serve at the pleasure of, the board of
directors. Set forth below is information concerning the directors and executive
officers of the registrant as of the date hereof.

Name Age Position with the Company
-------------------- ----------- -------------------------
Lewis S. Schiller 72 Chief Executive Officer,
President and Chairman of the Board
Grazyna B. Wnuk 39 Secretary, Vice-President and Director

Lewis S. Schiller was appointed our Chairman of the Board, Chief
Executive Officer and President of The Finx Group and its subsidiaries on April
28, 1999. Mr. Schiller is also Chairman of the Board and a director of The
Trinity Group-I, Inc. For more than five years prior to his resignation on April
2, 1998, Lewis S. Schiller served as Chairman of the Board, Chief Executive
Officer and a director of The Sagemark Companies, Ltd., a public company, and as
Chairman of the Board, Chief Executive Officer and a director of The Sagemark
Companies, Ltd.'s public and privately held subsidiaries.

Grazyna B. Wnuk ("Ms. Wnuk") was appointed Vice-President and Secretary of the
Company on April 28, 1999. Ms. Wnuk was appointed a Director of the Company on
November 19, 1999. For more than five years prior to her resignation on April 2,
1998, Ms. Wnuk served as Secretary and a director of The Sagemark Companies,
Ltd. and all of its public and privately held subsidiaries.

Item 10. Executive Compensation

Set forth below is information concerning the Company's Chief Executive
Officer and other executive officers who received or accrued compensation from
the Company and its subsidiaries in excess of $100,000 (on an annualized basis)
during 2002 and 2001.

Long-term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ------ -------
Securities
Name and Restricted Underlying LTIP
Principal Other Annual Stock Options/SARs Payouts All Other
Position Year Salary Bonus Compensation Awards (#) ($) Compensation
-------------- ------ -------------- --------- ---------------- ----------- ---------------- --------- ----------------

Lewis S.
Schiller,
CEO and 2002 $500,000(1) -- -- -- 24,500,000 -- --
Chairman 2001 $500,000(1) -- -- -- 750,000 -- --

Grazyna B.
Wnuk, VP and 2002 $197,500(2) -- -- -- 12,500,000 -- --
Secretary 2001 $150,000(2) -- -- -- 375,000 -- --

(1) Mr. Lewis S. Schiller's salary for 2002 and 2001 is pursuant to his
employment agreement which was executed in 2001. His annual salary for years
prior to 2001 was accrued at $250,000 which was approved by the Board of
Directors effective July 1, 1999. None of Lewis S. Schiller's salary has been
paid to him since April of 1999 and all such unpaid amounts are accrued as an
expense in our consolidated financial statements.

(2) Ms. Wnuk's salary for 2002 is pursuant to her employment agreement which was
executed in 2002. Her annual salary for years prior to 2002 was accrued at
$150,000 which was approved by the Board of Directors effective July 1, 1999.
None of Ms. Wnuk's salary has been paid to her since April of 1999 and all such
unpaid amounts are accrued as an expense in our consolidated financial
statements.

Option/SAR Grants in 2002

The following table presents information regarding the options to
purchase shares of our common stock issued to our executive officers who are
included in the preceding summary compensation table for 2002.

------------------------------------ ---------------- --------------------- --------------- ---------------------
Number of
Securities % of Total
Underlying Options/SARs Exercise
Options/ Granted to or Base
SARs Employees in Price Expiration
Name Granted (#) 2002 ($/Share) Date
------------------------------------ ---------------- --------------------- --------------- ---------------------

Lewis S. Schiller, CEO and Chairman 20,000,000 54% $0.043 April 15, 2007
1,500,000 5% $0.040 May 7, 2005
3,000,000 8% $0.040 October 30, 2005
------------------------------------ ---------------- --------------------- --------------- ---------------------
24,500,000
------------------------------------ ---------------- --------------------- --------------- ---------------------

Grazyna B. Wnuk, VP and Secretary 10,000,000 27% $0.043 April 15, 2007
2,500,000 7% $0.040 October 30, 2005
------------------------------------ ---------------- --------------------- --------------- ---------------------
12,500,000
------------------------------------ ---------------- --------------------- --------------- ---------------------

Aggregated Option/SAR Exercises in Last Year and Year-end Option/SAR Values

The following table presents information regarding the unexercised
options to purchase shares of our common stock held by our executive officers
who are included in the preceding summary compensation table as of December 31,
2002.

-------------------- --------------- ------------ ------------------------------ --------------------------------
Number of Securities Value of Unexercised In-the-
Underlying Unexercised Money Options/SARs at Year
Options/SARs at Year End End ($)
Shares Value (#)
Acquired on Realized
Name Exercise (#) ($) Exercisable Unexer-cisable Exercisable Unexercisable
-------------------- --------------- ------------ -------------- --------------- -------------- -----------------

Lewis S. Schiller,
CEO and Chairman 4,750,000 $255,000 20,000,000 - - -

Grazyna B. Wnuk, 2,750,000 $170,000 10,000,000 - - -
VP and Secretary
-------------------- --------------- ------------ -------------- --------------- -------------- -----------------

Employment Agreements

Lewis S. Schiller has an employment agreement with us whereby he is
employed as our Chief Executive Officer. Mr. Schiller's contract is for an
initial term commencing April 29, 1999 through April 28, 2009 and provides for
annual compensation of $500,000. Mr. Schiller's contract may be extended an
additional five years and also provides for an annual increase as calculated as
the greater of 5% or the increase in the cost of living index. Mr. Schiller's
contract provides him with a bonus for each year of the term equal to 10% of the
amount by which the greater of consolidated net income before income taxes or
consolidated net cash flow exceeds $600,000. Mr. Schiller's contract entitles
him to 20% of the gross profit on the sale of any of the Company's, or its
subsidiaries, investments securities. Mr. Schiller's contract provides him the
opportunity to participate in the future expansion of the Company whereby he is
entitled, at his option, to purchase up to 25% of the authorized securities of
any

subsidiary which is organized for any purpose. Mr. Schiller's contract provides
him with certain fringe benefits including a vehicle, health insurance and life
insurance. In the event of a change of control, Mr. Schiller's contract provides
him with severance equal to all amounts owed to him for the full term of the
employment agreement.

Grazyna B. Wnuk has an employment agreement with us whereby she is
employed as our Vice-President. Ms. Wnuk's contract was executed in 2002 and was
negotiated pursuant to a board authorization dated April 29, 1999. Ms, Wnuk's
contract's initial expiration is April 28, 2009 and provides for annual
compensation of $200,000 per year. Ms. Wnuk's contract may be extended an
additional five years and for an annual increase as calculated as the greater of
5% or the increase in the cost of living index. Ms. Wnuk's contract provides her
with a bonus for each year of the term equal to 1% of the amount by which the
greater of consolidated net income before income taxes or consolidated net cash
flow exceeds $600,000. Ms. Wnuk's contract entitles her to 1% of the gross
profit on the sale of any of the Company's, or its subsidiaries, investments
securities. Ms. Wnuk's contract provides her the opportunity to participate in
the future expansion of the Company whereby she is entitled, at her option, to
purchase up to1% of the authorized securities of any subsidiary which is
organized for any purpose. Ms. Wnuk's contract provides her with certain fringe
benefits including a vehicle, health insurance and life insurance. In the event
of a change of control, Ms. Wnuk's contract provides her with severance equal to
all amounts owed to her for the full term of the employment agreement.

Item 11. Security Ownership of Certain Beneficial Owners and Management.

The following table sets forth certain information regarding the
beneficial ownership of our common stock as of December 31, 2002 by: (i) each of
our executive officers and directors; (ii) each person whom we know to be the
beneficial owner of more than 5% of our outstanding common stock; and (iii) all
of our officers and directors as a group.

Unless otherwise indicated, to our knowledge, all persons listed below
have sole voting and investment power with respect to their shares of common
stock, except to the extent applicable law gives spouses shared authority. Any
shares of common stock that an individual or group has the right to acquire
within sixty (60) days after December 31, 2002 pursuant to the exercise of
warrants or options are deemed to be outstanding for the purpose of computing
the percentage ownership of such person or group, but are not deemed outstanding
for the purpose of calculating the percentage owned by any other person listed
below.

Amount and
Nature of Common
Beneficial Stock
Name and address of Beneficial Owner Ownership Outstanding(1)
------------------------------------------------------------------------- --------------------- -----------------

Officers and Directors
----------------------
Lewis S. Schiller
21634 Club Villa Circle
Boca Raton, FL 33433 432,192,630 74%(2)

Grazyna B. Wnuk
21634 Club Villa Circle
Boca Raton, FL 33433 31,766,081 18%(3)

Officer and directors as a group (2 persons) 463,958,711 76%(2)(3)

Other Beneficial Owners
-----------------------
The Trinity Group I, Inc.
21634 Club Villa Circle
Boca Raton, FL 33433 409,388,510 73%(4)

Alan Risi
150-38 12th Avenue
Whitestone, NY 11357 50,049,874 33%

(1) The "Percent of Common Stock Outstanding" is based on the 153,915,330 shares
of common stock outstanding as of December 31, 2002 and the assumption that the
related beneficial owner had converted or exercised all potential common stock
related to that beneficial owner if such beneficial owner had a right to do so
within 60 days after December 31, 2002.

(2) Includes 2,804,120 shares directly owned by Lewis S. Schiller, 20,000,000
shares underlying warrants to purchase shares and 409,388,510 shares
beneficially owned by The Trinity Group-I, Inc. The Trinity Group-I, Inc. is
wholly owned by Lewis S. Schiller and accordingly, Mr. Schiller is the natural
person considered to be the beneficial owner of The Trinity Group-I, Inc. As a
result, Mr. Schiller's beneficial ownership includes 1,000 shares of Series A
Preferred Stock, 16,375 shares of Series B. Preferred Stock and 409,388,510
shares of Common Stock owned by The Trinity Group-I, Inc. which are the same
shares presented in the table as beneficially owned by The Trinity Group-I, Inc.
None of the shares of Series A Preferred Stock, Series B Preferred Stock or
Common Stock are held jointly by The Trinity Group-I, Inc and Mr. Schiller.

(3) Includes 3,641,081 shares directly owned by Grazyna B. Wnuk, 10,000,000
shares underlying a warrant to purchase shares and 18,125,000 shares from the
assumed conversion of shares of Series B preferred stock. Each share of Series B
preferred stock is convertible into such shares as calculated by dividing $100
by the lowest price that the Common Stock trades during the period that the
Series B preferred stock is outstanding ($0.0043 as of April 9, 2003). During
2002, The Trinity Group-I, Inc. gifted 725 shares of Series B Preferred Stock to
Grazyna B. Wnuk and as of December 31, 2002, each share could be converted into
25,000 shares of common stock [$100 / $0.004 = 25,000].

(4) Includes 13,500 shares directly owned by The Trinity Group-I, Inc. and
409,375,000 shares from the assumed conversion of the Series B preferred stock.
The Trinity Group-I, Inc. exchanged $2,000,000 of debt for 20,000 shares of
Series B preferred stock as a result of which each share of Series B Preferred
Stock represents $100 of converted debt. Each share of Series B preferred stock
is convertible into such shares as calculated by dividing $100 by the lowest
price that the Common Stock trades during the period that the Series B preferred
stock is outstanding ($0.0043 as of April 9, 2003). During 2002, The Trinity
Group-I, Inc. converted 2,900 shares of Series B Preferred Stock into 10,000,000
shares of common stock and gifted 725 shares of Series B Preferred Stock to
Grazyna B. Wnuk. As of December 31, 2002, The Trinity Group-I, Inc. held 16,375
shares of Series B preferred stock of which each share could be converted into
25,000 shares of common stock [$100 / $0.004 = 25,000]. The Trinity Group-I,
Inc. is wholly owned by Lewis S. Schiller and accordingly, Mr. Schiller is the
natural person considered to be the beneficial owner of The Trinity Group-I,
Inc. As a result, all of the shares of Series A Preferred Stock, Series B
Preferred Stock and Common Stock presented in the table as beneficially owned by
The Trinity Group-I, Inc. are also included in the table as shares beneficially
owned by Mr. Schiller. None of the shares of Series A Preferred Stock, Series B
Preferred Stock or Common Stock are held jointly by The Trinity Group-I, Inc and
Mr. Schiller.

Item 12. Certain Relationships and Related Transactions.

We and our subsidiaries incur interest expense on advances from Lewis
S. Schiller advances from The Trinity Group-I, Inc., advances from Universal
International, Inc., a company owned by Grazyna B. Wnuk, advances from Grazyna
B. Wnuk, a loan from E. Gerald Kay, a former director, and advances from Carol
Schiller, the wife of Lewis S. Schiller. Total unpaid and outstanding advances
from such related parties as of December 31, 2002 aggregated approximately
$1.098 million. Interest accrued on such notes is generally calculated at 9%
(which is the weighted average interest rate at the balance sheet date) and as
of December 31, 2002 $682,000 of such interest remains unpaid. Interest expense
on related party notes was $119,000 for 2002 and $313,000 for 2001 of which
$39,000 for 2001 related to entities which were discontinued and are included in
the loss from operations of discontinued segments.

On April 28, 1999, The Trinity Group-I, Inc. acquired voting control of
The Finx Group and since that date has been our only significant source of
funding. The Trinity Group-I, Inc. is owned by Lewis S. Schiller, our Chief
Executive Officer and Chairman of the Board. As of May 7, 2001, The Trinity
Group-I, Inc. had advanced to us approximately $3.7 million in order to fund our
operations. On May 7, 2001, The Trinity Group-I, Inc. exchanged $1.5 million of
such related party debt for 7,500,000 shares of common stock, representing $0.20
per share, the fair market value of the common stock on May 7, 2001 and
exchanged an additional $2 million of related party debt into 20,000 shares of
Series B preferred stock whereby each share of Series B preferred stock
represents $100 of exchanged related party debt. Each share of Series B
preferred stock is convertible into shares of common stock as calculated by
dividing $100 by the lowest price that the Company's shares of common stock have
traded during the period that the Series B preferred stock has been outstanding.
The Series B preferred stock is redeemable by us in whole or in part, at the
option of our board of directors, with Lewis S. Schiller, abstaining from any
such vote. The Series B preferred stock votes alongside of common stockholders
on an "if converted" basis as calculated on the date that any such vote occurs.
On October 1, 2002, Trinity Group-I, Inc. converted 2,900 shares of Series B
preferred stock into 10,000,000 shares of common stock and gifted 725 shares of
Series B preferred stock to Grazyna B. Wnuk, our Vice-President and Secretary of
the Board. In April 2003, Trinity Group-I, Inc. converted 2,000 shares of Series
B preferred stock into 50,000,000 shares of common stock. As of May 8, 2003,
15,100 shares of Series B preferred stock are outstanding which can be converted
into an aggregate of 377,500,000 shares of common stock.

On September 19, 2001 we acquired 95.87% of Granite Technologies,
Inc.'s common stock upon the issuance of approximately 3,500,000 shares of our
common stock. Grazyna B. Wnuk received 124,031 shares of our common stock for
her ownership interest in Granite Technologies, Inc.; and immediate family
members of Lewis S. Schiller, received 397,934 of our common shares for their
ownership interest in Granite Technologies, Inc. In accordance with the terms of
the Stock Purchase Agreement, the selling shareholders hold certain demand and
"piggyback" registration rights with respect to the shares received by them in
connection with the acquisition on terms specified in the Stock Purchase
Agreement.

In November 2001,one of our discontinued business segments, Sequential
Electronic Systems, Inc. was notified that its line-of-credit would not be
extended beyond November 30, 2001. Subsequent to November 30, 2001, we utilized
a $522,500 cash collateral deposit provided by The Trinity Group-I, Inc. to
satisfy all but $7,000 of the balance owed under the line-of-credit and such
funds became an obligation owed to The Trinity Group-I, Inc.

On November 11, 2001, we entered into an agreement to acquire 5,000,000
shares of Trans Global Services, Inc.'s common stock in exchange for 2,500,000
shares of our common stock. We also had committed to obtain funding of $1
million for Trans Global Services, Inc. for which it would have received
preferred stock that would convert into a maximum of 3,000,000 shares of Trans
Global Services, Inc.'s common stock. As of December 31, 2001, we had provided
Trans Global Services, Inc. with $250,000 of funding. Subsequent to December 31,
2001, we had not obtained additional funding and determined that it was not in
its best interest to expend additional time and resources pursuing the funding
of Trans Global Services, Inc. On March 7, 2002, we entered into a mutual
termination agreement with Trans Global Services, Inc. whereby all 2,500,000
shares of our common stock was returned by Trans Global Services, Inc. to us and
we returned 4,000,000 of the 5,000,000 shares of Trans Global Services, Inc.'s
common stock to them. In consideration of the $250,000 funding that we provided
to Trans Global Services, Inc., the remaining 1,000,000 shares of Trans Global
Services, Inc. common stock were retained by our designee's, who were Lewis S.
Schiller, members of his immediate family, and Grazyna B. Wnuk. Such designation
was for the payment of $250,000 of related party debt we owed to The Trinity
Group-I, Inc.

On November 30, 2001, we executed an agreement with Orion Telecom
Operating Corporation, pursuant to which The Trinity Group-I, Inc. provided
Orion Telecom with 1,875,000 of its shares of our common stock as a collateral
escrow deposit to enable Orion Telecom Operating Corporation to obtain a
$250,000 working capital loan. As consideration for providing the collateral for
its loan, Orion Telecom Operating Corporation agrees to pay us and The Trinity
Group-I, Inc. a sum equal to $0.00125 per each minute of certain
telecommunication services intended to be provided by Orion Telecom Operating
Corporation. We and The Trinity Group-I, Inc. will receive 50% each of any
monies generated and earned pursuant to this agreement with Orion Telecom
Operating Corporation. Upon repayment of the loan, 875,000 shares will be
returned to The Trinity Group-I, Inc. and the remaining 1,000,000 shares will be
turned over to Orion Telecom in exchange for 1% of Orion Holdings, Inc.'s common
stock. The Trinity Group-I, Inc. will also receive 1% of Orion Holdings, Inc.'s
common stock. As of May 8, 2003, no revenues have been generated pursuant to
the agreement with Orion Telecom Operating Corporation.

On October 31, 2002, Carol Schiller, the wife of Lewis S. Schiller,
agreed to convert $400,000 of related party debt owed to her into 10,000,000
shares of our common stock at the rate of $.04 per share, the fair value of the
common stock on the date of the conversion.

On October 18, 2002, pursuant to the terms of a stock purchase
agreement among The Finx Group, Starnet365.com, Inc., Lewis S. Schiller, our
Chief Executive Officer and Chairman of the Board, Grazyna B. Wnuk, our
Vice-President and Secretary, members of Lewis S. Schiller's immediate family
(collectively, the "Starnet Sellers") and Thomas Banks Ltd., (the "Starnet Stock
Purchase Agreement"), Thomas Banks Ltd. agreed to purchase 98.05% of the issued
and outstanding capital stock of Starnet365.com, Inc. from the Starnet Sellers
for one dollar ($1) and we agreed to cancel approximately $1.3 million of
principal and interest owed by Starnet365.com, Inc. to us. As of the date of the
Starnet Stock Purchase Agreement, Starnet365.com, Inc. had an excess of
liabilities over assets of approximately $1.7 million, including the $1.3
million owed to us, resulting in remaining liabilities of approximately
$444,000. We believe that we may be required to pay approximately $132,000 of
such remaining liabilities based on the existence of corporate guarantees
previously made on such amounts by us. As a result of the disposal of
Starnet365.com, Inc., the net reduction in our liabilities approximated $268,000
and our gain on disposal approximated $312,000.

On October 18, 2002, pursuant to the terms of a stock purchase
agreement among The Finx Group, Shopclue.com, Inc., Lewis S. Schiller, our Chief
Executive Officer and Chairman of the Board, Grazyna B. Wnuk, our Vice-President
and Secretary, members of Lewis S. Schiller's immediate family (collectively,
the "Shopclue Sellers") and Thomas Banks Ltd. dated as of September 30, 2002,
(the "Shopclue Stock Purchase Agreement"), Thomas Banks agreed to purchase 100%
of the issued and outstanding capital stock of Shopclue.com, Inc. from the

Shopclue Sellers for one dollar ($1) and we agreed to cancel approximately
$8,000 of principal and interest owed by Shopclue.com, Inc. to us. As of the
date of the Shopclue Stock Purchase Agreement, Shopclue.com, Inc. had an excess
of liabilities over assets of approximately $340,000, including the $8,000 owed
to us, resulting in remaining liabilities of approximately $332,000. We believe
that we may be required to pay approximately $169,000 of such remaining
liabilities which represent delinquent payroll taxes. As a result of the
disposal of Shopclue.com, Inc., the net reduction in our liabilities and the
corresponding gain on disposal approximated $160,000.

On October 18, 2002, pursuant to the terms of a stock purchase
agreement among The Finx Group, Bizchase, Inc., Lewis S. Schiller, our Chief
Executive Officer and Chairman of the Board, Grazyna B. Wnuk, our Vice-President
and Secretary, members of Lewis S. Schiller's immediate family (collectively,
the "Bizchase Sellers") and Thomas Banks Ltd. dated as of September 30, 2002,
(the "Bizchase Stock Purchase Agreement"), Thomas Banks Ltd. agreed to purchase
100% of the issued and outstanding capital stock of Bizchase, Inc. from the
Bizchase Sellers for one dollar ($1) and we agreed to cancel approximately $2
million of principal and interest owed by Bizchase, Inc. to us. As of the date
of the Bizchase Stock Purchase Agreement, Bizchase, Inc. had an excess of
liabilities over assets of approximately $2.3 million, including the $2 million
owed to us, resulting in remaining liabilities of approximately $296,000. We
believe that we may be required pay approximately $136,000 of such remaining
liabilities of which $99,000 relates to delinquent payroll taxes and $37,000
relates to corporate guarantees. As a result of the disposal of Bizchase, Inc.,
the net reduction in our liabilities and the corresponding gain on disposal
approximated $163,000.

On October 18, 2002, pursuant to the terms of a stock purchase
agreement among The Finx Group, Sequential Electronic Systems, Inc., S-Tech,
Inc., Defense Manufacturing and Systems, Inc. and Trinity Group Acquisition
Corp. dated as of September 30, 2002 (the "Sequential and S-Tech Stock Purchase
Agreement"), Trinity Group Acquisition Corp. agreed to purchase 100% of the
issued and outstanding capital of Sequential Electronic Systems, Inc., S-Tech,
Inc., Defense Manufacturing and Systems, Inc. from The Finx Group for one dollar
($1) and The Finx Group agreed to cancel approximately $2.3 million of principal
and interest owed by Sequential Electronic Systems, Inc. and S-Tech, Inc. to The
Finx Group. Defense Manufacturing Systems, Inc. was wholly owned by The Finx
Group but had no operating activities since its organization. Trinity Group
Acquisition Corp. is wholly owned by Lewis S. Schiller, our Chief Executive
Officer and Chairman of the Board. As of the date of the Sequential and S-Tech
Stock Purchase Agreement, Sequential Electronic Systems, Inc. and S-Tech, Inc.
had aggregate assets of $1.2 million and aggregate liabilities of $2.4 million,
excluding the $3.1 million owed to us. The aggregate liabilities included $1.1
million of delinquent payroll taxes and we have agreed to indemnify Lewis S.
Schiller for any claims made against him regarding such delinquent payroll taxes
and in connection therewith have reseved $550,000 of such payroll taxes against
the gain on disposal of Sequential Electronic Systems, Inc. and S-Tech, Inc. The
Trinity Group-I, Inc. is our controlling shareholder and both The Trinity
Group-I, Inc. and Trinity Group Acquisition Corp. are wholly owned by Lewis S.
Schiller, and the Sequential and S-Tech Stock Purchase Agreement was not
consummated at arms-length. However, we believe that because the transaction
will reduce our liabilities by approximately $1.8 million that such transaction
is in our best interests. As a result of the disposal of Sequential Electronic
Systems, Inc., S-Tech, Inc., Defense Manufacturing and Systems, Inc., the net
reduction in our liabilities approximated $1.8 million and our gain on disposal
of approximately $458,000 is recorded as an addition to paid-in capital because
such gain was generated pursuant to a related party transaction.

Item 13. Exhibits and Reports on Form 8-K.

(a) Exhibits - See Exhibit Index for the Exhibits filed as part of or
incorporated by reference into this Report.

(b) Reports on Form 8-K

(i) On October 24, 2002, the Company filed an 8-K reporting under Item 2 the
sale of its discontinued businesses.

SIGNATURES

In accordance with Section 13 or 15(d) 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/ Lewis S. Schiller,
Chief Executive Officer
May 9, 2003

In accordance with the Exchange Act, this report has been signed below by the
following person on behalf of the registrant and in the capacities and on the
dates indicated.

/s/ Lewis S. Schiller,
Chief Executive Officer,
Chairman of the Board,
President,
Director and
Chief Accounting Officer

May 9, 2003

/s/ Grazyna B. Wnuk,
Secretary, Vice-President and Director
May 9, 2003

Index to Exhibits

Exhibit No. Description of Document

(3)(i) Amended and Restated Certificate of Incorporation (1)
(3)(ii) By-laws (1)
(21) Subsidiaries of the registrant
(99.1) Certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(99.2) Chief Executive Officer and Chief Accounting Officer
Certification.
(99.3) Financial Statements

(1) Incorporated by reference to Form 8-K dated April 28, 1999.

Exhibit (21)
Subsidiaries of the Registrant

1. FMX Corp., a Delaware company organized in 1996.
2. Secured Portal Systems, Inc., a Delaware company organized in 1999.
3. Granite Technologies Acquisition Corp., a Delaware company organized
in 2001.
4. Secured Systems Group, Inc., a Delaware company organized in 2001 and
currently inactive.

Exhibit 99.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of The Finx Group, Inc., (the
"Company") on Form 10-KSB for the year ending December 31, 2002, as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), the
undersigned Chief Executive Officer and Chief Accounting Officer of the Company
hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 that (based on their knowledge):
1) the Report fully complies with the requirements of Section 13(a) or 15 (d) of
the Securities Exchange Act of 1934, and 2) the information contained in the
Report fairly presents, in all material respects, the financial condition and
results of operations of the Company as of and for the periods covered in the
Report.

/s/ Lewis S. Schiller,
Chief Executive Officer and Chief Accounting Officer
May 9, 2003

Exhibit 99.2

CHIEF EXECUTIVE OFFICER AND CHIEF ACCOUNTING OFFICER CERTIFICATION

I, Lewis S. Schiller, certify that:

1. I have reviewed this annual report on Form 10-KSB of The Finx Group, Inc.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual repot;
4. I am responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant, and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of this registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the
registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. I have indicated in this annual report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

/s/ Lewis S. Schiller,
Chief Executive Officer and Chief Accounting Officer
May 9, 2003

Exhibit (99.3)

Financial Statements and Supplementary Data

The following exhibit comprises the Financial Statements and Supplementary Data
as specified by Item 7 of Part II of Form 10-KSB.

The Finx Group, Inc. and Subsidiaries
Consolidated Financial Statements
December 31, 2002

F-1

INDEPENDENT AUDITORS' REPORT

--------------------------------------------------------------------------------

To the Board of Directors and Stockholders of
The Finx Group, Inc.
Boca Raton, Florida

We have audited the accompanying consolidated balance sheet of The Finx
Group, Inc., and its subsidiaries, as of December 31, 2002, and the related
consolidated statements of operations, changes in capital deficiency, and cash
flows for each of the two years in the period ended December 31, 2002. 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 auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
The Finx Group, Inc and its subsidiaries as of December 31, 2002, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.

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; (1) the Company has a history of net
losses for the two years ended December 31, 2002, (2) as of December 31, 2002
the Company has a working capital deficiency of $4.4 million and a capital
deficiency of $3.8 million and (3) the Company has relied on continuing
financial support from its controlling stockholder. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans regarding these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

Moore Stephens, PC
Certified Public Accountants

Cranford, New Jersey
May 8, 2003

F-2

-----------------------------------------------------------------------------------------------------------
The Finx Group, Inc. and Subsidiaries
Consolidated Balance Sheet
-----------------------------------------------------------------------------------------------------------

As of December 31, 2002
-----------------------------------------------------------------------------------------------------------

ASSETS
-----------------------------------------------------------------------------------------------------------
Furniture, Fixtures and Equipment:
Furniture, fixtures and equipment, cost $ 90,000
Less accumulated depreciation (90,000)
-----------------------------------------------------------------------------------------------------------
Net furniture, fixtures and equipment -
-----------------------------------------------------------------------------------------------------------
Other assets:
Exclusive license agreement, net (see Note 2) 2,872,000
Patents, net 9,000
-----------------------------------------------------------------------------------------------------------
Total other assets 2,881,000
-----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 2,881,000
-----------------------------------------------------------------------------------------------------------

LIABILITIES AND CAPITAL DEFICIENCY
-----------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,341,000
Accrued payroll and payroll taxes, executive officers 634,000
Current portion of notes payable executive officers, including interest 893,000
Notes payable, related parties, including accrued interest 338,000
Other current liabilities 53,000
Current liabilities of discontinued segments 1,186,000
-----------------------------------------------------------------------------------------------------------
Total current liabilities 4,445,000
-----------------------------------------------------------------------------------------------------------

LONG-TERM LIABILITIES:
Deferred executive compensation 1,400,000
Accrued dividends on Series B Preferred stock, executive officer 323,000
Accrued interest, executive officer 550,000
-----------------------------------------------------------------------------------------------------------
Total long-term liabilities 2,273,000
-----------------------------------------------------------------------------------------------------------

Commitments and contingencies (see Note 10)
-----------------------------------------------------------------------------------------------------------

CAPITAL DEFICIENCY
-----------------------------------------------------------------------------------------------------------
Preferred stock, $.01 par value; 1,000,000 shares authorized; 1,000
Series A preferred shares issued and outstanding; 17,100 Series B
preferred shares issued and outstanding as of December 31, 2002 (see
Note 6) 1,710,000
Common stock, $.01 par value; 750,000,000 shares authorized;
153,915,329 shares issued and outstanding as of December 31, 2002
(see Note 6 and 7) 1,539,000
Additional paid-in capital, common stock 29,186,000
Accumulated deficit (35,497,000)
-----------------------------------------------------------------------------------------------------------
(3,062,000)
Subscriptions receivable (775,000)
-----------------------------------------------------------------------------------------------------------
Capital deficiency (3,837,000)
-----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND CAPITAL DEFICIENCY $ 2,881,000
-----------------------------------------------------------------------------------------------------------

See Notes to Consolidated Financial Statements.

F-3

------------------------------------------------------------------------------------------------------------
The Finx Group, Inc. and Subsidiaries
Consolidated Statements of Operations
------------------------------------------------------------------------------------------------------------

Year Ended December 31, 2002 2001
------------------------------------------------------------------------------------------------------------

Revenues $ 6,000 $ -
------------------------------------------------------------------------------------------------------------

General and administrative expenses 3,024,000 1,843,000
Compensation expense from issuance of stock options 2,264,000 4,671,000
------------------------------------------------------------------------------------------------------------
Total operating expenses 5,288,000 6,514,000
------------------------------------------------------------------------------------------------------------
Operating loss (5,282,000) (6,514,000)
Interest expense, related parties (119,000) (274,000)
------------------------------------------------------------------------------------------------------------
Loss from continuing operations (5,220,000) (6,788,000)
Discontinued Operations:(See Note11)
Gain on disposal of discontinued segments 1,369,000 -
Loss from operations of discontinued segments (456,000) (5,036,000)
------------------------------------------------------------------------------------------------------------
Net loss $ (4,307,000) $ (11,824,000)
------------------------------------------------------------------------------------------------------------

Loss per share computation- basic and diluted:
Loss from continuing operations $ (5,220,000) $ (6,788,000)
Less dividends on preferred shares (157,000) (160,000)
------------------------------------------------------------------------------------------------------------
Loss from continuing operations attributable to common
stockholders (5,377,000) (6,948,000)
Gain on disposal of discontinued segments 1,369,000 -
Loss from operations of discontinued segments (456,000) (5,036,000)
------------------------------------------------------------------------------------------------------------
Net loss available to common stockholders $ (4,464,000) $ (11,984,000)
------------------------------------------------------------------------------------------------------------

Weighted average shares outstanding 63,528,683 21,838,625
------------------------------------------------------------------------------------------------------------

Loss per common share - basic and diluted:
Loss from continuing operations ($0.08) ($0.32)
Gain on disposal of discontinued segments 0.02 -
Loss from operations of discontinued segments (0.01) (0.23)
------------------------------------------------------------------------------------------------------------
Net loss ($0.07) ($0.55)
------------------------------------------------------------------------------------------------------------

See Notes to Consolidated Financial Statements.

F-4

-----------------------------------------------------------------------------------------------------------
The Finx Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
-----------------------------------------------------------------------------------------------------------

Year Ended December 31, 2002 2001
-----------------------------------------------------------------------------------------------------------

CASH FLOWS - OPERATING ACTIVITIES:
Loss from continuing operations $ (5,220,000) $ (6,788,000)
Gain on disposal of discontinued segments 1,369,000 -
-----------------------------------------------------------------------------------------------------------
(3,851,000) (6,788,000)
Adjustments to reconcile loss from continuing operations to net cash -
continuing operations:
Gain on disposal of segments (1,369,000) -
Depreciation and amortization 130,000 24,000
Non cash expense from issuance of stock options and
stock purchase warrants 2,264,000 4,671,000
Other adjustments 120,000 39,000
Changes in assets and liabilities:
Other assets - -
Accounts payable 412,000 205,000
Accrued payroll 612,000 761,000
Accrued interest expense, related parties (22,000) 313,000
Other current liabilities (7,000) 50,000
-----------------------------------------------------------------------------------------------------------
Net cash-continuing operations (1,711,000) (725,000)
-----------------------------------------------------------------------------------------------------------
Loss from discontinued operations (456,000) (5,036,000)
Adjustments to reconcile loss from operations of discontinued
segments to net cash - discontinued operations:
Changes in the reserve for obsolete and slow moving
inventory 117,000 442,000
Depreciation and amortization 15,000 156,000
Non cash expense from issuance of stock options 39,000 263,000
Acquired in-process research and development costs - 2,371,000
Impairment charge 191,000 47,000
Bad debt expense 14,000 35,000
Net change in other assets and liabilities 281,000 476,000
-----------------------------------------------------------------------------------------------------------
Net cash-discontinued operations 201,000 (1,246,000)
-----------------------------------------------------------------------------------------------------------
Net cash - operating activities (1,510,000) (1,971,000)
-----------------------------------------------------------------------------------------------------------

CASH FLOWS - INVESTING ACTIVITIES:
Other investing activities (43,000) (76,000)
-----------------------------------------------------------------------------------------------------------
Net cash - investing activities (43,000) (76,000)
-----------------------------------------------------------------------------------------------------------

CASH FLOWS - FINANCING ACTIVITIES:
Loans from related parties 500,000 2,020,000
Repayments on related party loans (442,000) (1,492,000)
Proceeds from exercise of stock options 1,494,000 1,504,000
Other financing activities 1,000 14,000
-----------------------------------------------------------------------------------------------------------
Net cash - financing activities 1,553,000 2,046,000
-----------------------------------------------------------------------------------------------------------

Net change in cash - (1,000)
Cash - Beginning of period - 1,000
-----------------------------------------------------------------------------------------------------------
Cash - End of period $ - $ -
-----------------------------------------------------------------------------------------------------------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
-----------------------------------------------------------------------------------------------------------
Cash paid during the year for:
Interest $ 141,000 $ 227,000
Income Taxes $ - $ -
-----------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------

See Notes to Consolidated Financial Statements.

continued

F-5

--------------------------------------------------------------------------------
The Finx Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------
Year Ended December 31, 2002 and 2001
--------------------------------------------------------------------------------

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the year ended December 31, 2002
---------------------------------------

During 2002, the Company obtained four separate expansions to its
exclusive license agreement with GIL Security Systems, Inc. for which it issued
preferred stock convertible into an aggregate of 45,000,000 shares of common
stock, par value $.01 (the "Common Stock"). Using the Black-Scholes option
valuation formula, the convertible preferred stock was valued at $2.98 million,
the amount included in other assets as "Exclusive License Agreement" All such
preferred stock was converted into Common Stock during 2002.

On May 17, 2002, the Company settled its $17,000 note payable
obligations upon the issuance of 353,844 shares of Common Stock. The value of
the shares remitted to the creditor approximated $17,000.

On various dates during 2002, the Company issued options and warrants
to purchase an aggregate of 93,000,165 shares of Common Stock to its employees
and consultants. Such options and warrants, using the Black-Scholes option
valuation formula, were valued at $2.3 million of which $2.264 million was
charged to operations as a non cash expense in 2002 and $39,000 represented fees
to a consultant who assisted the Company in disposing of its discontinued
segments and was charged against the 2002 gain on disposal of such discontinued
operations.

On October 31, 2002, Carol Schiller, the wife of Lewis S. Schiller, the
Company's Chief Executive Officer and Chairman of the Board, agreed to convert
$400,000 of related party debt owed to her into 10,000,000 Common Shares at the
rate of $.04 per share, the fair value of the Common Stock on the date of the
conversion.

See Note 11 for non-cash activity in relation to discontinued
operations.

During the year ended December 31, 2001
---------------------------------------

On May 7, 2001, Trinity Group-I, Inc., a company owned by Lewis S.
Schiller, the Company's Chief Executive Officer and Chairman of the Board,
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
and on May 7, 2001 converted an additional $2 million of related party debt into
20,000 shares of convertible preferred stock.

During 2001, the Company issued warrants and options to purchase
17,125,000 shares of Common Stock and using the Black-Scholes option valuation
formula, such warrants and options were valued at $4.671 million, which was
charged to operations as a non cash expense.

On July 13, 2001, Carol Schiller agreed to convert $100,000 of related
party debt owed to her into 1,000,000 Common Shares at the rate of $.50 per
share, the fair value of the Common Stock on the date of the conversion.

On September 19, 2001, the Company issued 3,542,636 shares of Common
Stock, par value $.01 valued at $1.435 million to acquire Granite Technologies,
Inc. and as of the date of the acquisition, Granite Technologies, Inc. had an
excess of liabilities over assets of $936,000, resulting in a purchase price
that was in excess of net assets by $2.371 million. This $2.371 million
approximates the value assigned to in process research and development costs
which was charged to expense at the date of the acquisition. In addition, the
Company issued 526,024 shares of Common Stock to settle $263,000 of obligations
of the Company issued 526,024 shares of Common Stock to settle $263,000 of
obligations of Granite and issued 75,000 shares of Common Stock valued at
$43,000 to settle obligations owed to a former consultant. During 2002, the
Company disposed of Granite Technologies, Inc. and accordingly, all such
expensed amounts are included in the loss of discontinued operations in the
period in which such expenses were incurred.

--------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.

F-6

------------------------------------------------------------------------------------------------------------------------------------
The Finx Group, Inc. and Subsidiaries
Consolidated Statement of Changes in Capital Deficiency
For the Years Ended December 31, 2002
------------------------------------------------------------------------------------------------------------------------------------
Preferred
Preferred Common Preferred Stock in Common
Shares Shares Par Excess of par Par
------------------------------------------------------------------------------------------------------------------------------------

Balance at December
31, 2001 21,000 40,356,545 - (*) $2,000,000 $ 405,000
Issuance of stock options - - - - -
Stock issued for repayment
of a loan from Carol
Schiller - 10,000,000 - - 100,000
Stock issued for repayment
of notes payable - 353,844 - - 3,000
Fractional share exchange - 64,775 - - 1,000
Exercise of stock purchase
warrants - 148,500 - - 1,000
Exercise of stock options - 47,991,665 - - 479,000
Issuance of series C and D
preferred stock for
exclusive license 450,000 - 4,000 2,976,000 -
Conversion of series B
preferred stock (2,900) 10,000,000 - (*) (290,000) 100,000
Conversion of series C and
D preferred stock (450,000) 45,000,000 (4,000) (2,976,000) 450,000
Accrued dividends on
preferred stock - - - - -
Gain on disposal of
discontinued business
segment to a related party - - - - -
Net loss for the year
ended December 31, 2002 - - - - -
------------------------------------------------------------------------------------------------------------------------------------
Balance at December
31, 2002 18,100 153,915,329 $ - (*) $1,710,000 $1,539,000
------------------------------------------------------------------------------------------------------------------------------------

(*) - Less than $1,000

------------------------------------------------------------------------------------------------------------------------------------
The Finx Group, Inc. and Subsidiaries
Consolidated Statement of Changes in Capital Deficiency
For the Years Ended December 31, 2002
------------------------------------------------------------------------------------------------------------------------------------
Additional
Paid-in Accumulated Subscriptions
Capital Deficit sub-total Receivable Total
------------------------------------------------------------------------------------------------------------------------------------

Balance at December
31, 2001 $21,862,000 ($31,033,000) ($6,766,000) ($262,000) ($7,028,000)
Issuance of stock options 2,303,000 - 2,303,000 - 2,303,000
Stock issued for repayment
of a loan from Carol
Schiller 300,000 - 400,000 - 400,000
Stock issued for repayment
of notes payable 14,000 - 17,000 - 17,000
Fractional share exchange (1,000) - - - -
Exercise of stock purchase
warrants - - 1,000 - 1,000
Exercise of stock options 1,528,000 - 2,007,000 ($513,000) 1,494,000
Issuance of series C and D
preferred stock for
exclusive license - - 2,980,000 - 2,980,000
Conversion of series B
preferred stock 190,000 - - - -
Conversion of series C and
D preferred stock 2,530,000 - - - -
Accrued dividends on
preferred stock - (157,000) (157,000) - (157,000)
Gain on disposal of
discontinued business
segment to a related party 460,000 - 460,000 - 460,000
Net loss for the year
ended December 31, 2002 - (4,307,000) (4,307,000) - (4,307,000)
------------------------------------------------------------------------------------------------------------------------------------
Balance at December
31, 2002 $29,186,000 ($35,497,000) ($3,062,000) ($775,000) ($3,837,000)
------------------------------------------------------------------------------------------------------------------------------------

* - Less than $1,000
See notes to consolidated financial statements.

F-7

------------------------------------------------------------------------------------------------------------------------------------
The Finx Group, Inc. and Subsidiaries
Consolidated Statement of Changes in Capital Deficiency
For the Year Ended December 31, 2001
------------------------------------------------------------------------------------------------------------------------------------
Preferred
Preferred Common Preferred Stock in Common
Shares Shares Par Excess of par Par
------------------------------------------------------------------------------------------------------------------------------------

Balance at December
31, 2000 1,000 11,507,885 - (*) - $115,000
Issuance of stock options - - - - -
Stock issued for repayment
of a loan from Carol
Schiller - 1,000,000 - - 10,000
Stock issued for payment of
Granite Technologies, Inc.
obligations - 526,024 - - 5,000
Stock issued to acquire
Granite Technologies, Inc. - 3,542,636 - - 36,000
Exercise of stock purchase
warrants - 1,430,000 - - 14,000
Exercise of stock options - 14,775,000 - - 149,000
Stock issued for a
settlement with a former
consultant - 75,000 - - 1,000
Conversion of related
party debt into
preferred stock 20,000 - - (*) 2,000,000 -
Conversion of related
party debt into
common stock - 7,500,000 - - 75,000
Accrued dividends on
preferred stock - - - - -
Net loss for the year
ended December 31, 2001 - - - - -
------------------------------------------------------------------------------------------------------------------------------------
Balance at December
31, 2001 21,000 40,356,545 $ - (*) $2,000,000 $405,000
------------------------------------------------------------------------------------------------------------------------------------

* - Less than $1,000

------------------------------------------------------------------------------------------------------------------------------------
The Finx Group, Inc. and Subsidiaries
Consolidated Statement of Changes in Capital Deficiency
For the Year Ended December 31, 2001
------------------------------------------------------------------------------------------------------------------------------------
Additional
Paid-in Accumulated Subscriptions
Capital Deficit sub-total Receivable Total
------------------------------------------------------------------------------------------------------------------------------------

Balance at December
31, 2000 $12,360,000 ($19,049,000) ($6,574,000) - ($6,574,000)
Issuance of stock options 4,671,000 - 4,671,000 - 4,671,000
Stock issued for repayment
of a loan from Carol
Schiller 90,000 - 100,000 - 100,000
Stock issued for payment of
Granite Technologies, Inc.
obligations 258,000 - 263,000 - 263,000
Stock issued to acquire
Granite Technologies, Inc. 1,399,000 - 1,435,000 - 1,435,000
Exercise of stock purchase
warrants - - 14,000 - 14,000
Exercise of stock options 1,617,000 - 1,766,000 ($262,000) 1,504,000
Stock issued for a
settlement with a former
consultant 42,000 - 43,000 - 43,000
Conversion of related
party debt into
preferred stock - - 2,000,000 - 2,000,000
Conversion of related
party debt into
common stock 1,425,000 - 1,500,000 - 1,500,000
Accrued dividends on
preferred stock - (160,000) (160,000) - (160,000)
Net loss for the year
ended December 31, 2001 - (11,824,000) (11,824,000) - (11,824,000)
------------------------------------------------------------------------------------------------------------------------------------
Balance at December
31, 2001 $21,862,000 ($31,033,000) ($6,766,000) ($262,000) ($7,028,000)
------------------------------------------------------------------------------------------------------------------------------------

* - Less than $1,000
See notes to consolidated financial statements.

F-8

--------------------------------------------------------------------------------
The Finx Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
--------------------------------------------------------------------------------

1. Summary of Significant Accounting Policies

Organization

On June 6, 2000 The Finx Group, Inc. was organized as a Delaware
corporation. As of June 30, 2000, Fingermatrix, Inc., our predecessor company
was merged into The Finx Group, Inc. The Finx Group, Inc. has controlling
interests in FMX Corp. which was incorporated in Delaware on June 12, 1996,
Secured Portal Systems, Inc., which was incorporated in Delaware on August 11,
1999, and Granite Technologies Acquisition Corp., which was incorporated in
Delaware on May 15, 2001. Throughout this document The Finx Group, Inc. and its
subsidiaries may be collectively referred to as "The Finx Group", the "Company"
or the "Registrant".

Nature of Operations

In September 2002, the Company's Board of Directors approved a plan to
focus the Company's business exclusively on its security systems business and on
October 18, 2002 the Company disposed of all non security system business
segments. The Company's primary source of future revenues, if any, is expected
to be generated under its exclusive license agreement (the "Georal License")
with GIL Security Systems, Inc. ("GIL"). GIL is a subsidiary of Georal
International, Ltd. ("Georal") and holds all world-wide rights related to the
intellectual property related to the GIL security systems, including trademarks,
patents and technology, as licensed to it by Alan J. Risi, the controlling owner
of both GIL and Georal. GIL is engaged in the manufacture and sale of security
entrance systems for use as a security device by a variety of customers at
airports, federal buildings, court houses, embassies, correctional facilities,
schools, governmental operations, department stores and other retail outlets
(the "Georal Security Products"). The Georal License gives us distribution
rights for the sale of all of the Georal Security Products, including all models
of the GIL-2001 security door, to specified categories of customers. The Company
may market and distribute the Georal Security Products to both those customers
for which it has exclusive distribution rights and to others as to which it has
non-exclusive rights.

On December 13, 2002 the Company entered into a memorandum of
understanding incorporating a reseller agreement with TRW, Inc., which has been
acquired by Northrop Grumman Corp. and is now operating as Northrop Grumman
Mission Systems. The agreement gives Northrop Grumman Mission Systems the right
to market Georal Security Products to the Federal Government and other
significant commercial opportunities. On March 26, 2003, the Company entered
into a distribution and marketing agreement with Lockheed Martin. The agreement
gives Lockheed Martin worldwide rights to market the Georal Security Products.
In April 2003, the Company entered into reciprocal marketing agreements with
Advanced Biometric Security, Inc. ("ABS") which provide both the Company and ABS
with non-exclusive marketing rights for each others security product lines. ABS
provides enterprise software and services related to identity management and the
security of physical and logical assets. Many of the customers to whom the
Company will seek to market the Georal Security Systems will be domestic and
foreign government purchasers as well as commercial users. On December 11, 2001,
the GIL-2001 security door received certification from the U.S. State Department
necessary for its possible procurement for use in U.S. embassies, consulates and
other governmental installations both in the U.S. and abroad. In October 2002,
Georal received broad patent approval for its security entrance system from the
United States Patent Trademark Office (Patent 6,472,984). The patent received by
Georal covers the secured portal which is the subject of the Georal License.

The Company also sells from its sale of software programs for device
management and smart card applications ("Secured Card Solutions"). The Company
has provided Virginia Commonwealth University with two of its Secured Card
Solutions - the "Secured Recreational Sports Solution" and "The Secured Card
Solution". The Secured Recreational Sports Solution, which currently serves
Virginia Commonwealth University ("VCU") from three locations offering a variety
of fitness, aquatics and intramurals. The activities are offered to all
students, faculty, and university and hospital employees. The Secured
Recreational Sports Solution's database is integrated with the VCU card database
for single university identification. The Secured Recreational Sports Solution
handles all check-in of members, locker assignment and equipment check-in and
check-out. It also keeps track of member billing and payroll deduction. Further,
it handles member suspensions and automatic emailing of special events. The
Secured Sports Recreation Solution application is written using the new
Microsoft.NET architecture. The Company has also entered into a services and
support agreement with Florida International University ("FIU") for the
installation, support and use of our Secured Recreational Sports Solution.
During 2002, the Company generated revenues of $6,000 from its sales of Secured
Card Solutions.

F-9

Basis of Presentation

The accompanying consolidated 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 for the two years ended December 31, 2002
and as of December 31, 2002 has a working capital deficiency of $4.445 million
and a capital deficiency of $3.837 million. During 2002 and 2001 the Company has
relied on financial support from its controlling stockholder, Trinity Group-I,
Inc. ("Trinity") and other related parties and since September 25, 2001 has
compensated its employees and key consultants with stock options of which some
were registered on Form S-8. 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 consolidated financial statements do not include any adjustments
that would result should the Company be unable to continue as a going concern.

Principles of Consolidation

The consolidated financial statements include the accounts of The Finx
Group, Inc. and its subsidiaries for which it has direct voting control or
effective control. All material intercompany balances and transactions are
eliminated in consolidation.

Use of Estimates

In preparing the consolidated financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amount of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates. Some of the more significant estimates include the carrying value of
the Company's exclusive license, and patents and their amortization.

Cash

The Company considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents. The Company
has no such investment at December 31, 2002.

Furniture, Fixtures and Equipment

Furniture, fixtures and equipment are recorded at cost. Depreciation is
provided on the straight-line basis over the useful lives of the assets, which
range from three to seven years. Improvements that extend the useful lives of
the assets are capitalized while costs of repairs and maintenance are charged to
expense as incurred. As of December 31, 2002, the Company's furniture, fixtures
and equipment, having a cost basis of $90,000 are fully depreciated.
Depreciation expense during 2002 and 2001 was $22,000 and $24,000, respectively.

Patents

Patents are carried at cost less accumulated amortization, which is
calculated on a straight-line basis over the assets estimated useful life of 17
years. The Company's patent costs are related to a new broad based electronic
optical fingerprint patent , issued in 2001 and amortization expense related
such patents was $612 and $459 for 2002 and 2001, respectively.

Impairment

Certain long-term assets of the Company are reviewed when changes in
circumstances require as to whether their carrying value has become impaired,
pursuant to guidance established in Statement of Financial Accounting Standards
("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." Management considers assets to be impaired if the carrying value
exceeds the future projected cash flows from related operations [undiscounted
and without interest charges]. If impairment is deemed to exist, the asset will
be written down to fair value. Management also reevaluates the period of
amortization to determine whether subsequent events and circumstances warrant
revised estimates of useful lives. As of December 31, 2002, management expects
those assets related to its continuing operations to be fully recoverable.

F-10

Revenue Recognition

The Company recognizes revenues when a product is shipped, and from
services when performed.

Income Taxes

The Company accounts for income taxes using the asset and liability
approach. The measurement of deferred tax assets is reduced, if necessary, by
the amount of any tax benefits that, based on available evidence, management
does not expect to be realized.

Basic and Diluted Loss Per Share

Basic and diluted per share results for all periods presented were
computed based on the net earnings or loss for the respective periods. The
weighted average number of common shares outstanding during the period was used
in the calculation of basic earnings (loss) per share. In accordance with FAS
128, "Earnings Per Share," the weighted average number of common shares used in
the calculation of diluted per share amounts is adjusted for the dilutive
effects of stock options based on the treasury stock method and the assumed
conversion of convertible preferred stock only if an entity records earnings
from continuing operations (i.e., before discontinued operations), as such
adjustments would otherwise be anti-dilutive to earnings per share from
continuing operations. As a result of the Company recording a loss from
continuing operations, the average number of common shares used in the
calculation of diluted loss per share have not been adjusted for the effects of
44,861,500 potential common shares from unexercised stock options and warrants
and 427,513,510 potential common shares from unconverted preferred shares. Such
warrants, options and shares of convertible preferred stock may dilute earnings
per share in the future.

Fair Value of Financial Instruments

SFAS No. 107, "Disclosure About Fair value of Financial Instruments,"
requires certain disclosures regarding the fair value of financial instruments.
In assessing the fair value of these financial instruments, the Company has used
a variety of methods and assumptions, which were based on estimates of market
considerations and risks existing at the time. All instruments, including
accounts payable and accrued liabilities and amounts due to related parties are
reflected at fair value in the financial statements because of the short term
maturity of these instruments. The fair value of long-term liabilities also
approximate their carrying value.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist of cash. The Company places
its cash with high quality financial institutions and as of December 2002 does
not have any deposits with financial institutions in excess of federally insured
limits.

2. Exclusive License Agreement

On September 13, 1999, the Company obtained the Georal License which
gives the Company distribution rights for the sale of Georal Security Products
to certain categories of customers. The Georal Security Products covered by the
Georal License includes all of GIL's products that existed on September 13, 1999
and all products developed during the term of the Georal License including all
models of the GIL-2001 security door. The categories of customers covered by the
Georal License includes the United States Treasury Department, the United States
Central Intelligence Agency and all other United States Government intelligence
agencies, the United States National Security Agency, the United States Defense
Intelligence Agency, the United States Department of the Navy, the United States
Air Force, the United States Army, all United States Federal Courts and all
United States Embassies, all department stores and retail stores located in the
United States (including all retail stores located in foreign countries which
are part of a retail store chain which is based in the United States), the
Government of Israel, NCR Corp. and Sun Microsystems, Inc. The Georal License
commenced on September 1, 1999 and had an initial expiration date of August 31,
2004 which was later extended to August 31, 2009 and on October 16, 2002 was
further extended to August 31, 2014.

As an inducement to obtain the Georal License and in exchange for
1,000,000 common stock shares of GIL, the Company issued to Alan J. Risi
preferred shares which were exchanged for 1,049,874 shares of the Company's
Common Stock in July of 2002. On the initial date that the Georal License was
entered into, the GIL 2001 security door had not been certified by the U.S.
State Department and no sales channel pipeline had been developed and the
underlying costs of the shares issued were not capitalized.

F-11

On December 11, 2001, the GIL 2001 security door received certification
by the U.S. State Department. On February 21, 2002, the Georal License was
amended whereby the categories of customers was expanded to include all
financial institutions around the world and whereby the Company received a right
of first refusal to be the exclusive distributor for sales to any governmental
body in the world which is not currently included in the Georal License as a
protected customer. As consideration for the amendment entered into on February
21, 2002, the Company issued to Alan Risi 40,000 shares of a newly created
Series D 2% Convertible Preferred Stock (the "Series D Preferred Stock") that is
convertible into 4,000,000 million shares of the Company's Common Stock. On May
16, 2002, the Georal License for the Georal security systems was further amended
whereby the exclusive distribution agreement was expanded to give the Company
exclusive world wide sales and marketing rights, for the term of the agreement
extending to all casinos, malls, stadiums, office buildings and high rises. As
consideration for the amendment entered into on May 16, 2002, the Company issued
to Alan Risi 60,000 shares of its Series C 2% Convertible Preferred Stock (the
"Series C Preferred Stock") which are convertible into 6,000,000 shares of the
Company's Common Stock. On September 9, 2002, the Georal License was expanded to
include World Wide rights to all Airports, Airport Authorities, Schools and
Education Centers. As consideration for the amendment entered into on September
9, 2002, the Company issued to Alan Risi 100,000 shares of its Series C
Preferred Stock which are convertible into 10,000,000 shares of the Company's
Common Stock. On October 16, 2002, the Company issued to Alan Risi 250,000
shares of its Series C Preferred Stock for an amendment to the Georal License
which provided the Company with the following: (i) the right to receive forty
percent of all maintenance revenues generated from service contracts obtained
from the Company's protected customer base; (ii) the right to share with Georal,
any leasing revenues generated from leasing contracts related to the GIL-2001
security door; (iii) the right to renegotiate the discount received by the
Company from its licensor at such time as the gross sales generated under the
licensing agreement reaches $5 million; and (iv) extended the term of the
agreement an additional five years, to September 18, 2014. Using the
Black-Scholes option valuation formula, the convertible preferred stock was
valued at $2.98 million, the amount included in other assets as "Exclusive
License Agreement". Starting in 2002, the Georal License is being amortized on
the straight-line method over the remaining life of the exclusive license and
during 2002 such amortization expense was $108,000 (See Note 6).

3. Executive Debt Deferrals

Effective September 30, 2002, Lewis S. Schiller, the Company's Chief
Executive Officer and Chairman of the Board, agreed to defer payment of his
salary until January 1, 2004, payment of accrued interest on notes payable to
Trinity, which is wholly owned by him until January 1, 2004 and payment of
accrued dividends on preferred stock held by Trinity him until January 1, 2004.
Such amounts are presented as long-term liabilities as of December 31, 2002.

4 Notes Payable, Related Party

On April 28, 1999, Trinity acquired voting control of the Company and
since that date has been the Company's only significant source of funding.
Trinity is owned by Lewis S. Schiller, The Finx Group's Chief Executive Officer
and Chairman of the Board. Other related parties who have advanced funds to the
Company are Lewis S. Schiller, Grazyna B. Wnuk, The Finx Group's Vice President
and Board Secretary, Universal International, Inc., a company owned by Grazyna
B. Wnuk, E. Gerald Kay, a former director, and Carol Schiller, the wife of Lewis
S. Schiller.

As of May 7, 2001, Trinity had advanced the Company approximately $3.7
million in order to fund its operations. On May 7, 2001, Trinity exchanged $1.5
million of such related party debt for 7,500,000 shares of Common Stock,
representing $0.20 per share, the fair market value of the Common Stock on May
7, 2001 and exchanged an additional $2 million of related party debt into 20,000
shares of Series B 8% Voting Redeemable Convertible Preferred Stock (the "Series
B Preferred Stock") whereby each share of Series B Preferred Stock represents
$100 of exchanged related party debt and each share of Series B Preferred Stock
is convertible into shares of Common Stock as calculated by dividing $100 by the
lowest price that the Company's shares of Common Stock have traded during the
period that the Series B Preferred Stock has been outstanding.

On July 13, 2001, Carol Schiller agreed to exchange $100,000 of related
party debt for 1,000,000 shares of Common Stock at the rate of $.50 per share,
the fair value of the shares on the date of the exchange and on October 31,
2002, she agreed to exchange $400,000 of related party debt owed to her into
10,000,000 shares of Common Stock at the rate of $.04 per share, the fair value
of the Common Stock on the date of the exchange.

Total unpaid and outstanding advances from such related parties as of
December 31, 2002 aggregated $1.098 million. Interest accrued on all such notes
is calculated at 9% (which is the weighted average interest rate at the balance
sheet date) and as of December 31, 2002 $682,000 of such interest remains
unpaid. Effective September

F-12

30, 2002, Trinity agreed to defer payment of $550,000 of such accrued interest
until January 1, 2004. Interest expense on related party notes was $119,000 and
$274,000 for 2002 and 2001, respectively.

5. Notes Payable, Other

On April 8, 2002, the Company entered into a settlement agreement to
repay its $17,000 note payable obligations. On April 8, 2002 the Company placed
500,000 shares of its Common Stock into escrow and on May 17, 2002, in final
settlement, 353,844 shares of Common Stock held in escrow were remitted to the
creditor and 146,156 shares of Common Stock were returned to the Company. The
value of the shares remitted to the creditor approximated $17,000.

6. Capital Stock

The Company has authorized 750,000,000 shares of $.01 par value Common
Stock. As of December 31, 2002, the Company has 153,915,329 shares issued and
outstanding. The Company has not declared dividends on its Common Stock. On
September 4, 2002, the Company filed a definitive information statement in order
to increase its authorized shares of Common Stock from 50,000,000 shares to
750,000,000 shares which was authorized by the written consent of the holders of
a majority of the voting power of the outstanding shares of the Common Stock.

The Company has authorized 1,000,000 of preferred stock. Dividends
accrued on the Company's preferred stock aggregated $336,000 as of December 31,
2002 of which $157,000 was accrued during 2002 and $160,000 was accrued during
2001.

Series A 4% Preferred Stock

In 1999, the Company issued to Trinity 1,000 shares of Series A 4%
Preferred Stock (the Series A Preferred Stock"). Each share of the Series A
Preferred Stock entitles the holder to annual dividends at the rate of 4%. All
of the Series A Preferred Stock is owned by Trinity and such shares give Trinity
the right to elect a majority of the Company's Board of Directors. Each share of
the Series A Preferred Stock entitles the holder to annual dividends at the rate
of 4% per share and votes alongside of Common Stock holders.

Series B 8% Voting Redeemable Convertible Preferred Stock

On April 28, 1999, Trinity acquired voting control of the Company and
since that date has been the Company's only significant source of funding. As of
May 7, 2001, Trinity had advanced the Company approximately $3.7 million in
order to fund its operations. On May 7, 2001, Trinity exchanged $1.5 million of
such related party debt for 7,500,000 shares of Common Stock, representing $0.20
per share, the fair market value of the Common Stock on May 7, 2001 and
exchanged an additional $2 million of related party debt into 20,000 shares of
Series B Preferred Stock whereby each share of Series B Preferred Stock
represents $100 of exchanged related party debt and each share of Series B
preferred stock is convertible into shares of Common Stock as calculated by
dividing $100 by the lowest price that the Company's shares of Common Stock have
traded during the period that the Series B preferred stock has been outstanding.
The Series B preferred stock is redeemable by us in whole or in part, at the
option of our board of directors, with Lewis S. Schiller, abstaining from any
such vote. The Series B preferred stock votes alongside of common stockholders
on an "if converted" basis as calculated on the date that any such vote occurs.
On October 1, 2002, Trinity Group-I, Inc. converted 2,900 shares of Series B
preferred stock into 10,000,000 shares of common stock and gifted 725 shares of
Series B preferred stock to Grazyna B. Wnuk, our Vice-President and Secretary of
the Board. In April 2003, Trinity Group-I, Inc. converted 2,000 shares of Series
B preferred stock into 50,000,000 shares of common stock. As of May 8, 2003,
15,100 shares of Series B preferred stock are outstanding which can be converted
into an aggregate of 377,500,000 shares of common stock. Each share of Series B
Preferred Stock entitles the holder to annual dividends at the rate of 8% of
$100 per share.

Series C 2% Convertible Preferred Stock

During 2002, the Company issued 410,000 shares of Series C Preferred
Stock in order to obtain expansions to the Georal License. Each share of Series
C Preferred Stock is convertible into 100 shares of Common Stock entitles the
holder to annual dividends at the rate of 2% per share. During 2002 all of the
Series C Preferred Stock was converted into 41,000,000 shares of Common Stock
(See Note 2).

F-13

Series D 2% Convertible Preferred Stock

During 2002, the Company issued 40,000 shares of Series D Preferred
Stock in order to obtain an expansion to the Georal License. Each share of
Series D Preferred Stock is convertible into 100 shares of Common Stock entitles
the holder to annual dividends at the rate of 2% per share. During 2002, all of
the Series D Preferred Stock was converted into 4,000,000 shares of Common
Stock (See Note 2).

7. Stock Options and Warrants

Stock Purchase Warrants

As of the beginning of 2001 the Company had outstanding warrants to
purchase 1,430,000 shares of Common Stock for $0.01 per share and a warrant to
purchase 135,000 shares of Common Stock for $10 per share. On March 30, 2001,
warrants to purchase 1,280,000 shares of Common Stock were exercised for $0.01
per share. On May 4, 2001, a warrant to purchase 150,000 shares of Common Stock
was exercised for $0.01. In July 2001, the warrant to purchase 135,000 shares of
Common Stock for $10 per share expired and was not exercised.

On April 16, 2002, the Company issued to Lewis S. Schiller, its Chief
Executive Officer and Chairman of the Board, a warrant to purchase 20,000,000
shares of Common Stock at $0.043 per share, the fair market value at date of
issuance and issued to Grazyna B. Wnuk, its Vice-President and director, a
warrant to purchase 10,000,000 shares of Common Stock at $0.043 per share, the
fair market value at date of issuance. Originally, the warrants issued to Lewis
S. Schiller provided for an exercise price of $0.001 per share with regards to
10,000,000 shares and the exercise price was subsequently increased to $0.043
per share. These warrants issued to Lewis S. Schiller and Grazyna B. Wnuk
originally provided for cashless exercise provisions which required the Company
to calculate compensation expense on the underlying shares for each reporting
period that the warrants or any portion thereof are outstanding. In October of
2002, these warrants were modified whereby they no longer provide for cashless
exercise provisions. None of these warrants were exercised.

On January 15, 2002, the Company entered into a Management and
Investment Banking Agreement with vFinance Investments Inc. to perform financial
advisory and investment banking services to the Company. Pursuant to the
agreement, in September of 2002, the Company issued warrants to purchase
7,500,000 shares of Common Stock for $0.04 per share, resulting in stock
compensation expense of $576,723, and warrants to purchase 5,000,000 shares of
Common Stock for $0.15 per share, resulting in $369,000 of stock compensation
expense. None of these warrants were exercised in 2002.

On April 8, 2002, the Company issued a warrant to a consultant to
purchase 150,000 shares of Common Stock for $0.01 per share, resulting in $4,000
of stock compensation expense. All but 1,500 of these warrants were exercised in
2002.

On December 27, 2002, the Company issued warrants to purchase an
aggregate of 2,360,000 shares of Common Stock for $0.04 per share to employees
of Sequential Electronics Systems, Inc. and S-Tech, Inc., both companies owned
by entities under the control of Lewis S. Schiller. The issuance of these
warrants resulted in $55,000 of stock compensation expense. None of these
warrants were exercised in 2002.

Stock Options

On January 2, 2001the Board of Directors adopted The Finx Group, Inc.
2001 Employee Stock Option Plan for the issuance of options to purchase a
maximum of 12,000,000 shares. On July 2, 2001, the Board of Directors adopted an
amendment to the plan increasing the maximum number of shares to 17,000,000 and
on the same date the Company granted to consultants, options to purchase
12,610,000 shares of Common Stock for $0.15 per share to consultants, granted to
Lewis S. Schiller, options to purchase 750,000 shares for $0.15 per share and
granted to Grazyna B. Wnuk options to purchase 375,000 shares of Common Stock
for $0.15 per share. On October 15, 2001 the Company granted to a consultant an
option to purchase 300,000 shares of Common Stock for $0.15 per share. On
November 7, 2001 the Company granted to consultants an option to purchase 90,000
shares of Common Stock for $0.15 per share. On December 12, 2001 the Company
granted to consultants, options to purchase 3,000,000 shares of Common Stock for
$0.30 per share, the exercise price, which was subsequently reduced to $0 per
share. On September 14, 2001, the Company registered 12,000,000 common shares on
Form S-8 and on December 12, 2001 registered an additional 5,000,000 shares on
Form S-8, whereby all of such shares were reserved for the exercise of the
aforementioned options. During 2001, options to purchase 14,775,000 shares of
Common Stock were exercised and as of December 31, 2001 options to purchase
2,350,000 shares of Common Stock at $0.15 per share remained outstanding of
which an option to purchase 50,000 shares of Common Stock was forfeited in 2002
and options to purchase 2,300,000 shares of Common Stock were exercised in 2002.

F-14

On April 11, 2002, the Board of Directors adopted The Finx Group, Inc.
2002 Employee Stock Option Plan for the issuance of options to purchase a
maximum of 6,850,000 shares and concurrently and pursuant to such plan issued to
consultants options to purchase 5,150,000 shares of Common Stock for $0.04 per
share resulting in stock compensation expense of $122,000 and on May 8, 2002,
issued an option to Lewis S. Schiller to purchase 1,500,000 shares of Common
Stock for $0.04 per share resulting in stock compensation expense of $13,000.
All of such options were registered on Form S-8 and were exercised in 2002.

On October 28, 2002 the Board of Directors adopted The Finx Group, Inc.
2002 Employee and Consultants Stock Option Plan for the issuance of options to
purchase a maximum of 60,000,000 shares and pursuant to such plan on October 9,
2002, issued to a consultant who assisted the Company in disposing of certain
business segments an option to purchase 1,000,000 shares of common stock for
$0.04 per share resulting in stock compensation expense of $39,000, and on
October 31, 2002, issued to consultants options to purchase 27,041,665 shares of
Common Stock for $0.04 per share resulting in stock compensation expense of
$923, 000, an option to Lewis S. Schiller to purchase 3,000,000 shares of Common
Stock for $0.04, an option to Grazyna B. Wnuk to purchase 2,500,000 shares of
Common Stock for $0.04, and on December 5, 2002, issued to a consultant an
option to purchase 5,500,000 shares of Common Stock for $0.01 per share
resulting in $201,000 of stock compensation expense. All of such options were
registered on Form S-8 and were exercised in 2002.

The Company measures compensation cost for stock-based compensation
plans to employees using the intrinsic value method of accounting as prescribed
in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. The Company has adopted those
provisions of FAS 123, "Accounting for Stock-Based Compensation" and FAS 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure," which
require disclosure of the pro forma effects on net earnings and earnings per
share as if compensation cost had been recognized based upon the fair
value-based method at the date of grant for options awarded.

For purposes of calculating the pro forma expense under SFAS No. 123,
the fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model. The following assumptions were used during
2002 to estimate the fair value of options granted:

2002 2001
---- ----
Dividend yield 0.0% 0.0%
Expected volatility 144.34% 144.34%
Risk-free interest rate 6.0% 6.0%
Expected life of options 3 years 3 years

Had compensation cost for the Company's stock options issued to
employees been determined consistent with the fair value method outlined in SFAS
No. 123, the impact on the Company's net income and earnings per common share
would have been as follows:

-------------------------------------------------------------------------- --------------------- -------------------
2002 2001
-------------------------------------------------------------------------- --------------------- -------------------

Net loss:
As reported $ (4,307,000) $ (11,824,000)
Deduct: Amount by which stock- based employee compensation as
determined under fair value based method for all awards exceeds the
compensation as determined under the intrinsic value method (1,287,000) (127,000)
-------------------------------------------------------------------------- --------------------- -------------------
Pro forma under SFAS No. 123 $ (5,594,000) $ (11,951,000)
-------------------------------------------------------------------------- --------------------- -------------------
Basic and diluted net loss per common share:

As reported ($0.07) ($0.55)

Pro forma under SFAS No. 123 ($0.09) ($0.56)

F-15

The following table summarizes the Company's fixed stock purchase
warrants and options for 2002 and 2001.

---------------------------------------------------- -------------- ----------------- -------------- -----------------
2002 2001
Weighted Weighted
2002 Average 2001 Average
Shares Exercise Price Shares Exercise Price
---------------------------------------------------- -------------- ----------------- -------------- -----------------

Outstanding at beginning of year 2,350,000 $0.15 1,565,000 $0.87
Granted 90,701,665 $0.05 17,125,000 $0.12
Exercised (48,140,165) $0.04 (16,205,000) $0.12
Forfeited/Expired (50,000) $0.15 (135,000) $10.00
---------------------------------------------------- -------------- ----------------- -------------- -----------------
Outstanding at end of year 44,861,500 $0.05 2,350,000 $0.15
---------------------------------------------------- -------------- ----------------- -------------- -----------------

Options exercisable at year end 44,861,500 $0.05 2,350,000 $0.15
---------------------------------------------------- -------------- ----------------- -------------- -----------------
Weighted-average fair value of options granted
during the year $0.04 $0.28
---------------------------------------------------- -------------- ----------------- -------------- -----------------

As of December 31, 2002, the Company has outstanding warrants to
purchase 44,861,500 shares of Common Stock at prices ranging from $.043 to $0.15
per share having a weighted-average remaining contractual life of 4.26 years.

8. Related Party Transactions

The Company and its subsidiaries incur interest expense on advances
from Lewis S. Schiller advances from The Trinity Group-I, Inc., advances from
Universal International, Inc., a company owned by Grazyna B. Wnuk, advances from
Grazyna B. Wnuk, a loan from E. Gerald Kay, a former director, and advances from
Carol Schiller, the wife of Lewis S. Schiller. Total unpaid and outstanding
advances from such related parties as of December 31, 2002 aggregated
approximately $1.098 million. Interest accrued on such notes is generally
calculated at 9% (which is the weighted average interest rate at the balance
sheet date) and as of December 31, 2002 $682,000 of such interest remains
unpaid. Interest expense on related party notes was $119,000 for 2002 and
$313,000 for 2001 of which $39,000 for 2001 related to entities which were
discontinued and are included in the loss from operations of discontinued
segments.

On April 28, 1999, The Trinity Group-I, Inc. acquired voting control of
The Finx Group and since that date has been the Company's only significant
source of funding. The Trinity Group-I, Inc. is owned by Lewis S. Schiller, its
Chief Executive Officer and Chairman of the Board. As of May 7, 2001, The
Trinity Group-I, Inc. had advanced to the Company approximately $3.7 million in
order to fund its operations. On May 7, 2001, The Trinity Group-I, Inc.
exchanged $1.5 million of such related party debt for 7,500,000 shares of common
stock, representing $0.20 per share, the fair market value of the common stock
on May 7, 2001 and exchanged an additional $2 million of related party debt into
20,000 shares of Series B preferred stock whereby each share of Series B
preferred stock represents $100 of exchanged related party debt. Each share of
Series B preferred stock is convertible into shares of common stock as
calculated by dividing $100 by the lowest price that the Company's shares of
common stock have traded during the period that the Series B preferred stock has
been outstanding. The Series B preferred stock is redeemable by the Company in
whole or in part, at the option of its board of directors, with Lewis S.
Schiller, abstaining from any such vote. The Series B preferred stock votes
alongside of common stockholders on an "if converted" basis as calculated on the
date that any such vote occurs. On October 1, 2002, Trinity Group-I, Inc.
converted 2,900 shares of Series B preferred stock into 10,000,000 shares of
common stock and gifted 725 shares of Series B preferred stock to Grazyna B.
Wnuk, the Company's Vice-President and Secretary of the Board. In April of 2003,
Trinity Group-I, Inc. converted 2,000 shares of Series B preferred stock into
50,000,000 shares of common stock. As of May 8, 2003, 15,100 shares of Series
B preferred stock are outstanding which can be converted into an aggregate of
377,500,000 shares of common stock.

On September 19, 2001 the Company acquired 95.87% of Granite
Technologies, Inc.'s common stock upon the issuance of 3,000,000 shares of our
common stock. Grazyna B. Wnuk received 124,031 shares of the Company's common
stock for her ownership interest in Granite Technologies, Inc.; and immediate
family members of Lewis S. Schiller, received 397,934 of common shares for their
ownership interest in Granite Technologies, Inc. In accordance with the terms of
the Stock Purchase Agreement, the selling shareholders hold certain demand and

F-16

"piggyback" registration rights with respect to the shares received by them in
connection with the acquisition on terms specified in the Stock Purchase
Agreement.

In November 2001, one of the discontinued business segments, Sequential
Electronic Systems, Inc. was notified that its line-of-credit would not be
extended beyond November 30, 2001. Subsequent to November 30, 2001, the Company
utilized a $522,500 cash collateral deposit provided by The Trinity Group-I,
Inc. to satisfy all but $7,000 of the balance owed under the line-of-credit and
such funds became an obligation owed to The Trinity Group-I, Inc.

On November 11, 2001, the Company entered into an agreement to acquire
5,000,000 shares of Trans Global Services, Inc.'s common stock in exchange for
2,500,000 shares of The Finx Group common stock. The Company also had committed
to obtain funding of $1 million for Trans Global Services, Inc. for which it
would have received preferred stock that would convert into a maximum of
3,000,000 shares of Trans Global Services, Inc.'s common stock. As of December
31, 2001, the Company had provided Trans Global Services, Inc. with $250,000 of
funding. Subsequent to December 31, 2001, the Company had not obtained
additional funding and determined that it was not in its best interest to expend
additional time and resources pursuing the funding of Trans Global Services,
Inc. On March 7, 2002, we entered into a mutual termination agreement with Trans
Global Services, Inc. whereby all 2,500,000 shares of The Finx Group common
stock was returned by Trans Global Services, Inc. to The Finx Group and it
returned 4,000,000 of the 5,000,000 shares of Trans Global Services, Inc.'s
common stock to them. In consideration of the $250,000 funding that the Company
provided to Trans Global Services, Inc., the remaining 1,000,000 shares of Trans
Global Services, Inc. common stock were retained by the Company's designee's,
who were Lewis S. Schiller, members of his immediate family, and Grazyna B.
Wnuk. Such designation was for the payment of $250,000 of related party debt the
Company owed to The Trinity Group-I, Inc.

On November 30, 2001, the Company executed an agreement with Orion
Telecom Operating Corporation, pursuant to which The Trinity Group-I, Inc.
provided Orion Telecom with 1,875,000 of its shares of The Finx Group common
stock as a collateral escrow deposit to enable Orion Telecom Operating
Corporation to obtain a $250,000 working capital loan. As consideration for
providing the collateral for its loan, Orion Telecom Operating Corporation
agrees to pay The Finx Group and The Trinity Group-I, Inc. a sum equal to
$0.00125 per each minute of certain telecommunication services intended to be
provided by Orion Telecom Operating Corporation. The Company and The Trinity
Group-I, Inc. will receive 50% each of any monies generated and earned pursuant
to this agreement with Orion Telecom Operating Corporation. Upon repayment of
the loan, 875,000 shares will be returned to The Trinity Group-I, Inc. and the
remaining 1,000,000 shares will be turned over to Orion Telecom in exchange for
1% of Orion Holdings, Inc.'s common stock. The Trinity Group-I, Inc. will also
receive 1% of Orion Holdings, Inc.'s common stock.

On October 31, 2002, Carol Schiller, the wife of Lewis S. Schiller,
agreed to convert $400,000 of related party debt owed to her into 10,000,000
shares of The Finx Group common stock at the rate of $.04 per share, the fair
value of the common stock on the date of the conversion.

On October 18, 2002, pursuant to the terms of a stock purchase
agreement among The Finx Group, Starnet365.com, Inc., Lewis S. Schiller, The
Finx Group Chief Executive Officer and Chairman of the Board, Grazyna B. Wnuk,
The Finx Group Vice-President and Secretary, members of Lewis S. Schiller's
immediate family (collectively, the "Starnet Sellers") and Thomas Banks Ltd.,
(the "Starnet Stock Purchase Agreement"), Thomas Banks Ltd. agreed to purchase
98.05% of the issued and outstanding capital stock of Starnet365.com, Inc. from
the Starnet Sellers for one dollar ($1) and the Company agreed to cancel
approximately $1.3 million of principal and interest owed by Starnet365.com,
Inc. to the Company. As of the date of the Starnet Stock Purchase Agreement,
Starnet365.com, Inc. had an excess of liabilities over assets of approximately
$1.7 million, including the $1.3 million owed to the Company, resulting in
remaining liabilities of approximately $444,000. The Company believes that it
may be required to pay approximately $132,000 of such remaining liabilities
based on the existence of corporate guarantees previously made on such amounts
by the Company. As a result of the disposal of Starnet365.com, Inc., the net
reduction in the Company's liabilities approximated $268,000 and the gain on
disposal approximated $312,000.

On October 18, 2002, pursuant to the terms of a stock purchase
agreement among The Finx Group, Shopclue.com, Inc., Lewis S. Schiller, the
Company's Chief Executive Officer and Chairman of the Board, Grazyna B. Wnuk,
the Company's Vice-President and Secretary, members of Lewis S. Schiller's
immediate family (collectively, the "Shopclue Sellers") and Thomas Banks Ltd.
dated as of September 30, 2002, (the "Shopclue Stock Purchase Agreement"),
Thomas Banks agreed to purchase 100% of the issued and outstanding capital stock
of Shopclue.com, Inc. from the Shopclue Sellers for one dollar ($1) and we
agreed to cancel approximately $8,000 of principal and interest owed by
Shopclue.com, Inc. to the Company. As of the date of the Shopclue Stock Purchase
Agreement, Shopclue.com, Inc. had an excess of liabilities over assets of
approximately $340,000, including the

F-17

$8,000 owed to the Company, resulting in remaining liabilities of approximately
$332,000. The Company believes that it may be required to pay approximately
$169,000 of such remaining liabilities which represent delinquent payroll taxes.
As a result of the disposal of Shopclue.com, Inc., the net reduction in the
Company's liabilities and the corresponding gain on disposal approximated
$163,000.

On October 18, 2002, pursuant to the terms of a stock purchase
agreement among The Finx Group, Bizchase, Inc., Lewis S. Schiller, the Company's
Chief Executive Officer and Chairman of the Board, Grazyna B. Wnuk, the
Company's Vice-President and Secretary, members of Lewis S. Schiller's immediate
family (collectively, the "Bizchase Sellers") and Thomas Banks Ltd. dated as of
September 30, 2002, (the "Bizchase Stock Purchase Agreement"), Thomas Banks Ltd.
agreed to purchase 100% of the issued and outstanding capital stock of Bizchase,
Inc. from the Bizchase Sellers for one dollar ($1) and we agreed to cancel
approximately $2 million of principal and interest owed by Bizchase, Inc. to the
Company. As of the date of the Bizchase Stock Purchase Agreement, Bizchase, Inc.
had an excess of liabilities over assets of approximately $2.3 million,
including the $2 million owed to the Company, resulting in remaining liabilities
of approximately $296,000. The Company believes that it may be required pay
approximately $136,000 of such remaining liabilities of which $99,000 relates to
delinquent payroll taxes and $37,000 relates to corporate guarantees. As a
result of the disposal of Bizchase, Inc., the net reduction in the Company's
liabilities and the corresponding gain on disposal approximated $160,000.

On October 18, 2002, pursuant to the terms of a stock purchase
agreement among The Finx Group, Sequential Electronic Systems, Inc., S-Tech,
Inc., Defense Manufacturing and Systems, Inc. and Trinity Group Acquisition
Corp. dated as of September 30, 2002 (the "Sequential and S-Tech Stock Purchase
Agreement"), Trinity Group Acquisition Corp. agreed to purchase 100% of the
issued and outstanding capital of Sequential Electronic Systems, Inc., S-Tech,
Inc., Defense Manufacturing and Systems, Inc. from The Finx Group for one dollar
($1) and The Finx Group agreed to cancel approximately $2.3 million of principal
and interest owed by Sequential Electronic Systems, Inc. and S-Tech, Inc. to The
Finx Group. Defense Manufacturing Systems, Inc. was wholly owned by The Finx
Group but had no operating activities since its organization. Trinity Group
Acquisition Corp. is wholly owned by Lewis S. Schiller, the Company's Chief
Executive Officer and Chairman of the Board. As of the date of the Sequential
and S-Tech Stock Purchase Agreement, Sequential Electronic Systems, Inc. and
S-Tech, Inc. had aggregate assets of $1.2 million and aggregate liabilities of
$2.4 million, excluding the $3.1 million owed to the Company. The aggregate
liabilities included $1.1 million of delinquent payroll taxes and we have agreed
to indemnify Lewis S. Schiller for any claims made against him regarding such
delinquent payroll taxes and in connection therewith have reserved $550,000 of
such payroll taxes against the gain on disposal of Sequential Electronic
Systems, Inc. and S-Tech, Inc. The Trinity Group-I, Inc. is the Company's
controlling shareholder and both The Trinity Group-I, Inc. and Trinity Group
Acquisition Corp. are wholly owned by Lewis S. Schiller, and the Sequential and
S-Tech Stock Purchase Agreement was not consummated at arms-length. However, we
believe that because the transaction will reduce the Company's liabilities by
approximately $1.8 million that such transaction is in the Company's best
interests. As a result of the disposal of Sequential Electronic Systems, Inc.,
S-Tech, Inc., Defense Manufacturing and Systems, Inc., the net reduction in the
Company's liabilities approximated $1.8 million and the gain on disposal
which approximated $458,000 was recorded as an addition to paid-in capital
because the transaction was consumated with the controlling atockholder of the
Company.

9. Income Taxes

The Company, as of December 31, 2002, has available approximately
$54.3 million of net operating loss carry forwards to reduce future Federal
and state income taxes, representing a net deferred tax asset of approximately
$19 million. Based upon the level of historical tax losses, the Company has
established a valuation allowance against the entire net deferred tax asset.
This represents a decrease in the valuation allowance of approximately $3.3
million from December 31, 2001. In addition, the Company has available
investment tax credit and research tax credit carry forwards in excess of
$500,000. However, it is not currently probable that the related deferred tax
assets will be realized by reducing future taxable income during the carry
forward period and as such, a valuation allowance has been computed to offset in
its entirety the deferred tax asset attributable to the net operating loss and
tax credits. The net operating loss carry forwards expire as follows:

F-18

------------------------------------- -----------------------------------
Year of expiration Net operating loss carry forward
------------------------------------- -----------------------------------
2003 $5,163,000
2004 5,616,000
2005 2,207,000
2006 3,144,000
2007 3,023,000
2008 2,044,000
2009 1,851,000
2010 2,050,000
2011 3,171,000
2012 194,000
2018 1,080,000
2019 1,319,000
2020 8,261,000
2021 11,176,000
2022 4,177,000
------------------------------------- -----------------------------------
$54,319,000
------------------------------------- -----------------------------------

Pursuant to section 382 of the Internal Revenue Code, the annual utilization of
these loss carry forwards is limited as a result of the changes in stock
ownership, which have occurred during 2002 and 2001, and may be further limited
if substantial changes in the Company ownership were to occur.

10. Commitments and Contingencies

Operating Leases

As of December 31, 2002, the Company does not have any operating leases
with firm commitments extending beyond one year. All of its current premises are
leased on a month to month basis and as of December 31, 2002 such monthly lease
payments approximated $500 per month.

Employment Agreements

Lewis S. Schiller has an employment agreement with the Company whereby
he is employed as the Company's Chief Executive Officer. Mr. Schiller's contract
is for an initial term commencing April 29, 1999 through April 28, 2009 and
provides for annual compensation of $500,000. Mr. Schiller's contract may be
extended an additional five years and also provides for an annual increase as
calculated as the greater of 5% or the increase in the cost of living index. Mr.
Schiller's contract provides him with a bonus for each year of the term equal to
10% of the amount by which the greater of consolidated net income before income
taxes or consolidated net cash flow exceeds $600,000. Mr. Schiller's contract
entitles him to 20% of the gross profit on the sale of any of the Company's, or
its subsidiaries, investments securities. Mr. Schiller's contract provides him
the opportunity to participate in the future expansion of the Company whereby he
is entitled, at his option, to purchase up to 25% of the authorized securities
of any subsidiary which is organized for any purpose. Mr. Schiller's contract
provides him with certain fringe benefits including a vehicle, health insurance
and life insurance. In the event of a change of control, Mr. Schiller's contract
provides him with severance equal to all amounts owed to him for the full term
of the employment agreement.

Grazyna B. Wnuk has an employment agreement with the Company whereby
she is employed as the Company's Vice-President. Ms. Wnuk's contract was
executed in 2002 and was negotiated pursuant to a board authorization dated
April 29, 1999. Ms, Wnuk's contract's initial expiration is April 28, 2009 and
provides for annual compensation of $200,000 per year. Ms. Wnuk's contract may
be extended an additional five years and for an annual increase as calculated as
the greater of 5% or the increase in the cost of living index. Ms. Wnuk's
contract provides her with a bonus for each year of the term equal to 1% of the
amount by which the greater of consolidated net income before income taxes or
consolidated net cash flow exceeds $600,000. Ms. Wnuk's contract entitles her to
1% of the gross profit on the sale of any of the Company's, or its subsidiaries,
investments securities. Ms. Wnuk's contract provides her the opportunity to
participate in the future expansion of the Company whereby she is entitled, at
her option, to purchase up to 1% of the authorized securities of any subsidiary
which is organized for any purpose. Ms. Wnuk's contract provides her with
certain fringe benefits including a vehicle, health insurance and life
insurance. In the event of a change of control, Ms. Wnuk's contract provides her
with severance equal to all amounts owed to her for the full term of the
employment agreement.

F-19

Indemnifications

Pursuant to the terms of the stock purchase agreement to sell
Sequential Electronic Systems, Inc. and S-Tech, Inc., the Company agreed to
indemnify Lewis S. Schiller for any claims made against him regarding $1.1
million of delinquent payroll taxes owed by Sequential Electronic Systems, Inc.
and S-Tech, Inc. at the time of their disposal and as of December 31, 2002, the
Company has reserved $550,000 against such potential claims.

Legal Proceedings

Although the Company is a party to certain legal proceedings that have
occurred in the ordinary course of business, it does not believe such
proceedings to be of a material nature with the exception of the following item.
On or about April 8, 2002, a complaint styled "Law Offices of Jerold K. Levien,
against The Finx Group, Inc. f/k/a Fingermatrix, Inc., The Trinity Group-I,
Inc." was filed in the Supreme Court of the State of New York County of New
York. The nature of the action is for breach of contract with regard to the
non-payment of legal invoices for services purported to have been rendered by
the plaintiff, and the relief sought is $334,595, such amount having been
accrued on our books. The Company believes it has meritorious defenses to the
complaint and intends to vigorously contest this complaint. Due to uncertainties
in the legal process, it is at least reasonably possible that the Company's
opinion of the outcome will change in the near term and there exists the
possibility that there could be a material adverse impact on its operations.

11. Discontinued Operations

On October 18, 2002, the Company consummated a plan to dispose of
certain of its subsidiaries. In September 2002, the Board of Directors of the
Company approved a plan whereby it was determined to be in the best interests of
the Company to focus all of its resources on the Security Systems business
segment, whereby all business segments other than the Security Systems business
segment would be disposed. The decision to dispose of all businesses unrelated
to the Security Systems segment was based on management's evaluation of its
capability to support multiple and diverse business segments. Management's
evaluation was confirmed in a business assessment report received from vFinance
Investments, Inc. ("vFinance"), who is performing management and investment
banking services to the Company. The business assessment report received from
vFinance, among other things, recommended that the Company streamline its
operating activities to focus on its Security Systems business segment. The
Company's management investigated various possible venues to undertake the
disposal of the non Security System segments which include Sequential Electronic
Systems, Inc. ("Sequential"), S-Tech, Inc. ("S-Tech"), Granite Technologies,
Inc. ("Granite Technologies"), Shopclue.com, Inc. ("Shopclue"), Bizchase, Inc.
("Bizchase") and Starnet365.com, Inc. ("Starnet").

The Company engaged a consultant, pursuant to a consulting agreement,
to assist in developing an exit strategy for the disposal of Granite
Technologies, Shopclue, Bizchase and Starnet for which the consultant received
an option to purchase 1,000,000 shares of its Common Stock at an exercise price
of $.04 per share, the fair market value on the date of grant. Through the
efforts of the consultant, the Company found a purchaser who agreed to acquire
Granite Technologies, Shopclue, Bizchase and Starnet for nominal consideration
subject to the forgiveness of the amounts owed by such subsidiaries to the
Company and the retention by the Company of certain rights to the assets of
Granite Technologies. As a result, the Company entered into the following
purchase agreements with Thomas Banks Ltd. ("Thomas Banks").

F-20

Granite Technologies

Granite Technologies Acquisition Corp. ("Granite Acquisition") is
wholly owned by The Company and Granite Technologies is wholly owned by Granite
Acquisition. Pursuant to the terms of a stock purchase agreement among Granite
Acquisition, Granite Technologies and Thomas Banks dated as of September 30,
2002, (the "Granite Stock Purchase Agreement"), Thomas Banks agreed to purchase
all of the issued and outstanding capital stock of Granite Technologies from
Granite Acquisition for one dollar ($1) and the Company agreed to cancel
approximately $600,000 of principal and interest owed by Granite Technologies to
the Company. In addition, pursuant to the Granite Stock Purchase Agreement,
Granite Acquisition retained the rights to all Intellectual Property of Granite
Technologies, Inc. including (i) patents, pending patent applications and patent
applications in process but not yet filed, owned by or assignable to Granite
Technologies (the "Patents"); registered trademarks and service marks and
pending applications therefor and trade names owned Granite Technologies; and
copyright registrations and pending applications therefor owned by Granite
Technologies and used by Granite Technologies in the conduct of its business
(the "Marks"; (ii) written licenses and other agreements relating to the
Patents, Marks and Copyrights, and (iii) manufacturing, process, and other
technology transfer and license agreements which are material to the conduct of
such business and retained all rights and benefits inured from any and all
contracts between Granite Technologies and Virginia Commonwealth University. As
of the date of the Granite Stock Purchase Agreement, Granite Technologies had an
excess of liabilities over assets of approximately $1.45 million, including
$435,000 owed to the Company. The Company believes that it may be required pay
approximately $200,000 of such remaining liabilities which represent delinquent
payroll taxes. As a result of the disposal of Granite Technologies, the net
reduction in the liabilities of the Company and the corresponding gain on
disposal approximated $815,000 and the gain on disposal approximated $815,000.

Starnet

Pursuant to the terms of a stock purchase agreement among the Company,
Starnet, Lewis S. Schiller, the Company's Chief Executive Officer and Chairman
of the Board, Grazyna B. Wnuk, the Company's Vice-President and Secretary,
members of Lewis S. Schiller's immediate family (collectively, the "Starnet
Sellers") and Thomas Banks dated as of September 30, 2002, (the "Starnet Stock
Purchase Agreement"), Thomas Banks agreed to purchase 98.05% of the issued and
outstanding capital stock of Starnet from the Starnet Sellers for one dollar
($1) and the Company agreed to cancel approximately $1.3 million of principal
and interest owed by Starnet to the Company. As of the date of the Starnet Stock
Purchase Agreement, Starnet had an excess of liabilities over assets of
approximately $1.7 million, including the $1.3 million owed to the Company,
resulting in remaining liabilities of approximately $444,000. The Company
believes that it may be required to pay approximately $132,000 of such remaining
liabilities based on the existence of corporate guarantees previously made on
such amounts by the Company. As a result of the disposal of Starnet, the net
reduction in the liabilities of the Company approximated $268,000 and the gain
on disposal approximated $312,000.

Shopclue

Pursuant to the terms of a stock purchase agreement among the Company,
Shopclue, Lewis S. Schiller, the Company's Chief Executive Officer and Chairman
of the Board, Grazyna B. Wnuk, the Company's Vice-President and Secretary,
members of Lewis S. Schiller's immediate family (collectively, the "Shopclue
Sellers") and Thomas Banks dated as of September 30, 2002, (the "Shopclue Stock
Purchase Agreement"), Thomas Banks agreed to purchase 100% of the issued and
outstanding capital stock of Shopclue from the Shopclue Sellers for one dollar
($1) and the Company agreed to cancel approximately $8,000 of principal and
interest owed by Shopclue to the Company. As of the date of the Shopclue Stock
Purchase Agreement, Shopclue had an excess of liabilities over assets of
approximately $340,000, including the $8,000 owed to the Company, resulting in
remaining liabilities of approximately $332,000. The Company believes that it
may be required to pay approximately $169,000 of such remaining liabilities
which represent delinquent payroll taxes. As a result of the disposal of
Shopclue, the net reduction in the liabilities of the Company and the
corresponding gain on disposal approximated $163,000.

F-21

Bizchase

Pursuant to the terms of a stock purchase agreement among the Company,
Bizchase, Lewis S. Schiller, the Company's Chief Executive Officer and Chairman
of the Board, Grazyna B. Wnuk, the Company's Vice-President and Secretary,
members of Lewis S. Schiller's immediate family (collectively, the "Bizchase
Sellers") and Thomas Banks dated as of September 30, 2002, (the "Bizchase Stock
Purchase Agreement"), Thomas Banks agreed to purchase 100% of the issued and
outstanding capital stock of Bizchase from the Bizchase Sellers for one dollar
($1) and the Company agreed to cancel approximately $2 million of principal and
interest owed by Bizchase to the Company. As of the date of the Bizchase Stock
Purchase Agreement, Bizchase had an excess of liabilities over assets of
approximately $2.3 million, including the $2 million owed to the Company,
resulting in remaining liabilities of approximately $296,000. The Company
believes that it may be required pay approximately $136,000 of such remaining
liabilities of which $99,000 relates to delinquent payroll taxes and $37,000
relates to corporate guarantees. As a result of the disposal of Bizchase, the
net reduction in the liabilities of the Company and the corresponding gain on
disposal approximated $160,000.

Sequential and S-Tech

Pursuant to the terms of a stock purchase agreement among the Company,
Sequential, S-Tech, Defense Manufacturing and Systems, Inc. ("Defense
Manufacturing") and Trinity Group Acquisition Corp. ("Trinity Acquisition")
dated as of September 30, 2002 (the "Sequential and S-Tech Stock Purchase
Agreement"), Trinity Acquisition agreed to purchase 100% of the issued and
outstanding capital of Sequential, S-Tech and Defense Manufacturing from the
Company for one dollar ($1) and the Company agreed to cancel approximately $2.3
million of principal and interest owed by Sequential and S-Tech to the Company.
Defense Manufacturing is wholly owned by the Company but has had no operating
activities since its organization. Trinity Acquisition is wholly owned by Lewis
S. Schiller, the Company's Chief Executive Officer and Chairman of the Board. As
of the date of the Sequential and S-Tech Stock Purchase Agreement, Sequential
and S-Tech had aggregate assets of $1.2 million and aggregate liabilities of
$2.4 million, excluding the $3.1 million owed to the Company. The aggregate
liabilities include $1.1 million of delinquent payroll taxes and the Company has
agreed to indemnify Lewis S. Schiller for any claims made against him regarding
such delinquent payroll taxes and in connection therewith have reseved $550,000
of such payroll taxes against the gain on disposal of Sequential Electronic
Systems, Inc. and S-Tech, Inc. The Trinity Group-I, Inc. is the Company's
controlling shareholder and both The Trinity Group-I, Inc. and Trinity
Acquisition are wholly owned by Lewis S. Schiller, and the Sequential and S-Tech
Stock Purchase Agreement was not consummated at arms-length. However, the
Company believes that because the transaction will reduce the Company's
liabilities by approximately $1.8 million that such transaction is in its best
interests. As a result of the disposal of Sequential, S-Tech and Defense
Manufacturing, the net reduction in the liabilities of the Company approximated
$1.8 million and the gain on disposal which approximated $458,000 was recorded
as an addition to paid-in capital because the transaction was consumated with
the controlling stockholder of the Company.

The information regarding the Company's discontinued operations is
summarized as follows:

Gain on Disposal of Segments for the year
ended December 31, 2002
----------------------------------- --------------------------------------------
Bizchase $ 160,000
Shopclue 163,000
Granite Technologies 815,000
Starnet 312,000
Less consulting fee (81,000)
----------------------------------- --------------------------------------------
$ 1,369,000
----------------------------------- --------------------------------------------

F-22

Income (Loss) from Operations of
Discontinued Segments
The Year Ended December 31,
2002 2001
---------------------------------- --------------------- ----------------------
Bizchase $ (46,000) $ (822,000)
Shopclue (26,000) (6,000)
Granite Technologies (223,000) (2,734,000)
Starnet (346,000) (732,000)
S-Tech (15,000) (266,000)
Sequential (200,000) (1,183,000)
Less intercompany transactions 400,000 707,000
---------------------------------- --------------------- ----------------------
$ (456,000) $ (5,036,000)
---------------------------------- --------------------- ----------------------

12. New Authoritative Pronouncements

On April 30, 2002, the Financial Accounting Standards Board ("FASB")
issued Statement No 145, Rescission of FASB Statement No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections. Statement 145
rescinds Statement 4, which required all gains and losses from extinguishment of
debt to be aggregated and, if material, classified as an extraordinary item, net
of related income tax effect. As a result, the criteria in Opinion 30 will now
be used to classify those gains and losses. Statement 64 amended Statement 4,
and is no longer necessary because Statement 4 has been rescinded. Statement 145
amends Statement 13 to require that certain lease modifications that have
economic effects similar to sale-leaseback transactions be accounted for in the
same manner as sale-leaseback transactions. This amendment is consistent with
the FASB's goal of requiring similar accounting treatment for transactions that
have similar economic effects. This Statement also makes technical corrections
to existing pronouncements. While those corrections are not substantive in
nature, in some instances they may change accounting practice.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"), which addresses the
recognition, measurement, and reporting of costs associated with exit or
disposal activities, and supercedes Emerging Issues Task Force Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)"
("EITF 94-3"). The provisions of SFAS 146 are effective for exit or disposal
activities that are initiated after December 31, 2002, with early application
encouraged. The Company expects to adopt SFAS 146, effective January 1, 2003.

In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain
Financial Institutions" ("SFAS 147"). SFAS 147 provides guidance on the
accounting for the acquisition of a financial institution. SFAS 147 applies to
all financial institution acquisitions except those between two or more mutual
enterprises.

In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure" ("SFAS 148"). SFAS 148
amends SFAS no. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. SFAS 148 is effective for fiscal periods
beginning after December 15, 2002.

F-23

In April 2003, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities" ("SFAS 149"), which clarifies
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities
under FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 149 is effective for contracts entered into or modified
after June 30, 2003 and for hedging relationships designated after June 30,
2003.

The Company expects that the adoption of the new Statements will not
have a significant impact on its financial statements.

13. Subsequent Events

On January 2, 2003, a warrant to purchase 5,000,000 shares of Common
Stock for $0.04 per share was issued to a consultant resulting in stock
compensation expense of $99,000. None of such warrants have been exercised as of
May 8, 2003.

On January 17, 2003, options to purchase 17,604,168 shares of Common
Stock for $0.02 per share were granted and exercised resulting in stock
compensation expense of $366,000.

On March 17, 2003 stock grants for 85,000,002 shares of Common Stock
were issued to consultants resulting in stock compensation expense of $425,000
and a stock grant for 14,999,998 shares of Common Stock was issued to Grazyna
Wnuk resulting in stock compensation expense of $75,000.

On March 17, 2003, Grazyna B. Wnuk accepted 9,006,976 shares of Common
Stock in exchange for expenses she paid on behalf of the Company amounting to
$34,000, the approximate value of the shares issued.

On March 26, 2003, the Company entered into a distribution and
marketing agreement with Lockheed Martin. The agreement gives Lockheed Martin
worldwide rights to market the Georal Security Products and a right to purchase
the products that they sell at an agreed upon discount from the sales price.

During April 2003, an aggregate of 2,000 shares of Series B Preferred
Stock was converted by Trinity into 50,000,000 million shares of Common Stock.

F-24