CORNICHE GROUP INC /DE
10-K, 1998-07-14
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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                              --------------------

                                    FORM 10-K
        (Mark One)

    [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934 [NO FEE REQUIRED]

                    For the fiscal year ended March 31, 1998

                                       OR

    [ ] TRANSITION REPORT  PURSUANT TO  SECTION  13  OR  15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

       For the transition period from ________________ to ________________

                         Commission file number: 0-10909

                           CORNICHE GROUP INCORPORATED
             (Exact name of registrant as specified in its charter)

           Delaware                                          22-2343568
 (State or other jurisdiction of                          (I.R.S. employer
  incorporation or organization)                           Identification No.)

       610 South Industrial Boulevard
       Suite 220 
       Euless, Texas                                              76040
       (Address of principal executive offices)                (Zip Code)

       Registrant's telephone number, including area code: (817) 358-1121

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, $.001 par value
                                (title of class)

          Indicate by check mark  whether  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934 during the preceding 12 months (or for such shorter period that  registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days Yes ___X____ No _________.

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not 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-K or any
amendment to this Form 10-K.

                                  ___________

                         $12,604,462 as of June 1, 1998
                   (Aggregate market value of the voting stock
                      held by non-affiliates of registrant)

                      6,355,231 shares, $.001 par value, as
                 of June 1, 1998 (Indicate the number of shares
                     outstanding of each of the registrant's
           classes of common stock, as of the latest practicable date)




<PAGE>

                                     PART I

ITEM 1.       BUSINESS

New Business Operations

          At the 1998 Annual Meeting of  Stockholders  held on May 18, 1998 (the
"Annual   Meeting"),   stockholders   of  Corniche   Group   Incorporated   (the
"Corporation" or the "Registrant")  approved,  among other things, a transaction
(the  "Transaction")  whereby 825,000 shares of Series B Convertible  Redeemable
Preferred  Stock,  a newly  created  series of  preferred  stock with each share
having ten votes per share, were issued to certain  individuals,  including Joel
San Antonio, for the aggregate cash consideration of $76,500. As a result of the
Transaction,   Mr.  San  Antonio  obtained  control  of  the  Corporation.   The
Corporation's   initial  goal  will  be  to  complete  the   development   of  a
comprehensive strategic and operational business plan for the Corporation and to
secure the services of a quality  management  team to assist Robert H. Hutchins,
the newly elected  President of the  Corporation,  in implementing  the business
plan.

          The Corporation plans to enter into insurance and/or insurance-related
businesses. The thrust of the Corporation will be to optimize spread of risk and
seek "niche" business opportunities that do not fit what is often referred to in
the  industry  as  "mainstream"  business.  The  Corporation  may  also  explore
opportunities  for "fronting"  insurance for service contract business and other
property and casualty insurance  business,  whereby all or a portion of the risk
of such policies  written by the Corporation  would be ceded to a reinsurer.  As
part of any such  strategy the  Corporation  anticipates  that it will  reinsure
heavily on a "quote share" or "pro-rata"  basis with other  operators  with whom
proposed new management has achieved  successful  business  relationships in the
past. In "quote share" or "pro-rata"  reinsurance,  one or more reinsurers bears
an agreed upon  proportion  of the  specified  risk,  rather than a fixed dollar
amount of risk or the excess above a fixed dollar amount of risk.

          In connection  with the  implementation  of these  strategies,  it may
become necessary for the Corporation to become licensed in one or more states in
order to enable it to conduct  operations or to acquire a company that maintains
appropriate licenses. To further such goal, the Corporation recently has entered
into a  non-binding  letter of intent to acquire all of the stock of an existing
insurance  company  which has had limited  operations  and revenues for the past
several years.  The  acquisition is subject to due diligence by the  Corporation
and  subject  to  material   conditions,   including  but  not  limited  to  the
satisfaction of capital  requirements of regulatory  authorities.  No assurances
can be given that the  Corporation  will be able to obtain  such  licenses or to
consummate  any  such  acquisitions.   The  acquisition,  if  consummated,  will
represent the Corporation's entry into the United States insurance market.

          The Corporation  presently  anticipates that its marketing  efforts in
the  property  and  casualty  sectors  of the  insurance  market  will  focus on
operating on a conservative  basis using both facultative and treaty reinsurance
support to minimize its exposure.  Facultative  reinsurance generally involves a
reinsurer agreeing to bear the risk of loss over a specified dollar amount for a
specified risk. Treaty  reinsurance  generally  involves a reinsurer agreeing to
bear a portion of the risk  associated  with a  specified  category or "book" of
business,  and may be done on an excess or quote  share  basis.  As part of this
strategy,  the Corporation  may consider  direct  selling,  brokerage and agency
produced business and may evaluate potential opportunities to participate in the
reinsurance  sector of  commercial  property  and  casualty  insurance on both a
"quote share" and "excess" basis.

          The Corporation  currently  anticipates that business  development and
future market growth will be concentrated on "short tail" casualty  business and
package  product  lines,  primarily  focused  in  the  retail/service   industry
marketplace.  "Short tail" casualty  business  provides for coverage  during the
term of the policy or within a relatively short period,  as  distinguished  from
"long-tail" business, such as occurrence-based policies, in which the insurer is
obligated to make payment, whether or not the policy has expired, as long as the
insurable injury occurred during the term of the policy. Examples of "long tail"
insurance  include  worker's  compensation,  medical  malpractice  and  products
liability  insurance  for 

<PAGE>

products with long lives,  such as automobiles  and airplanes.  The  Corporation
anticipates  that it will seek short  tail  business  because of the  relatively
greater  availability  of  reinsurance  and  lower  reinsurance  costs,  and the
relatively greater  certainty,  predictability and ability to price policies and
reinsurance  policies  associated  with  short  tail  business.  An  example  of
short-tail  business on which the  Corporation  might  concentrate is retail and
wholesale  products  liability for consumer  products  that have limited  useful
lives. In addition the Company  anticipates that it will provide package product
lines, that is, insure service contracts for products that have a limited useful
life on a claims  made  basis for a term of no  greater  than  three  years.  If
successfully  developed,  the customer base  generated by these  segments  could
become a source to seek out  other  property  and  casualty  insurance  business
opportunities.

          As part of its overall business plan, the Corporation may pursue other
and different  business  activities  than those described  above,  but it has no
current plans to do so.

          Since the annual  meeting the  Corporation  has also  entered  into an
investment advisory agreement with AIG Global Investment Corporation under which
it will function as investment  advisor and manager of all of the  Corporation's
investable  assets.  AIG  Global  provides  investment  management  services  to
domestic  insurance  companies  seeking to create an investment  alternative  to
letters  of credit  that,  at the same  time,  meet  state  statutory  insurance
requirements.

          The preceding  description  represents the Corporation's current plans
for the Corporation, which are subject to change as business necessities require
during  the  course  of  implementation.  No  assurances  can be given  that the
Corporation  will be successful in  implementing  his business plan as currently
envisioned.

          The description of the Corporation's  proposed new business operations
and intended strategy after the Transaction are forward-looking statements under
Section 21E of the Securities Exchange Act of 1934, as amended.  Forward-looking
statements  are  inherently  subject to risks and  uncertainties,  many of which
cannot be  predicted  with  accuracy or  anticipated.  Future  events and actual
results,  financial and otherwise,  could differ materially from those set forth
in or contemplated by the forward-looking  statements herein.  Important factors
that could contribute to such differences include changes in economic and market
conditions,   ability  to  successfully   obtain   licenses  and/or   consummate
acquisitions,   ability  to  raise   capital  and  meet   insurance   regulatory
requirements and regulatory  changes in the insurance  business,  as well as the
other factors described herein.

History

          Registrant  was  incorporated  in Delaware on September 18, 1980 under
the name Fidelity Medical Services, Inc. On July 28, 1983 Registrant changed its
name to Fidelity Medical,  Inc. From its inception through March 1995 Registrant
was engaged in the development,  design, assembly, marketing and sale of medical
imaging products through its wholly-owned subsidiary,  Fidelity Medical, Inc., a
New Jersey corporation  ("FMI").  On March 2, 1995 Registrant  acquired Corniche
Distribution Ltd. ("CDL"),  a United Kingdom ("UK")  corporation  established in
1992. At such time,  CDL was a holding  company for two operating  subsidiaries,
Chessbourne  International  Ltd.  ("Chessbourne"),   a  distributor/supplier  of
stationery  products and office  furniture,  and The Stationery  Company Limited
("TLCS"), a stationery  retailer.  The acquisition of CDL resulted in the former
shareholders of CDL, Brian J. Baylis and Susan A.M. Crisp,  owning a majority of
the  outstanding  common  shares of  Registrant  after the  acquisition  and was
treated as a  recapitalization  of CDL with CDL being  treated as the  acquirer.
Accordingly, Registrant changed its fiscal year to the last Saturday in March of
each  year  in  order  to  conform  to the  fiscal  years  of  its UK  operating
subsidiaries and, unless otherwise indicated, the financial information and data
hereafter  contained in Registrant's  financial reports relate to the operations
of CDL  alone  for  periods  prior  to  March  2,  1995.  At the time of the CDL
acquisition,  CDL owned 51% of the common  stock of  Chessbourne,  the other 49%
being owned by an unrelated entity,  Ronatree Limited  ("Ronatree"),  a property
investment company. In connection with the CDL acquisition,  Registrant acquired
the 49% interest of Ronatree in Chessbourne by issuing to Ronatree 25,000 shares
of its common stock.  At such time and in  furtherance  of the CDL  acquisition,
Registrant  also issued 215,150 

<PAGE>

shares of its common  stock to Chester  Holdings,  Ltd  ("Chester"),  a Colorado
corporation,  in order to induce  Chester to agree to  terminate a  pre-existing
agreement  giving Chester the right to acquire CDL and to further induce Chester
to forgive approximately $71,000 of net indebtedness owing to Chester by CDL and
its subsidiaries.

          Effective  March 25, 1995,  Registrant sold its  wholly-owned  medical
imaging products subsidiary,  FMI, to Chester in exchange for the 215,150 shares
of  Registrant's  common stock  previously  issued to Chester in connection with
Registrant's  acquisition  of CDL  and  Chester's  Promissory  Note  and  Option
Agreement dated as of March 25, 1995 (the "Note and Option Agreement"). The Note
and Option Agreement  contained an 8% promissory note from Chester to Registrant
in the principal  amount of $200,000 due October 1, 1995 (the  "Note").  It also
included  an  option,  in favor of  Registrant,  to apply the  unpaid  principal
balance and accrued  interest  due on the Note to the purchase of shares of FMI,
Chester or any other parent  company to which Chester may have  transferred  the
FMI stock, at the fair market value of such shares. Registrant's medical imaging
products business had been generating  significant  losses for a number of years
resulting in the decision to dispose of the medical  imaging  products  business
and to focus Registrant's  business  operations on the development and expansion
of its stationery operations.  The Note was not paid by Chester on its due date.
However,  during the period May 1996 through  July 1996 Chester paid  Registrant
$125,000  of the  principal  sum due  Registrant  under  the Note.  All  accrued
interest due under the Note and the remaining  principal  balance of $75,000 has
not been paid as of the date hereof.  Registrant does not anticipate any further
cash recoveries  against the Note.  Registrant does expect however,  to exercise
the option  applicable  to the unpaid  balance  on the Note to  purchase  voting
shares  of  Medical  Laser  Technologies,  Inc.,  the  corporate  parent of FMI,
although no assurance can be given that this will prove to be the case.

          Following the sale of FMI,  Registrant's business operations consisted
of the retail stationery operations and brand marketing and stationery wholesale
operations of TSCL and Chessbourne  respectively.  Registrant's  operations were
funded  in large  part from  loans  made by the Bank of  Scotland,  Registrant's
primary lender,  to each of CDL, TSCL and  Chessbourne  over a period of several
years.  In accordance  with  customary UK practice,  the Bank of Scotland,  when
making such loans  obtained  security for these loans by means of mortgages over
fixed assets ("Fixed Assets") and debentures over pools of assets which by their
nature  will  change  from  time  to  time  ("Floating   Changes").   Registrant
experienced  large  operating  losses  and  net  cash  outflows  from  operating
activities during fiscal 1996 resulting in severe liquidity problems. Registrant
was  unable to  secure  badly  needed  interim  financing  either in the form of
additional  loans or the  conversion of bank debt to equity.  Consequently,  the
Bank of Scotland had Chessbourne and TSCL placed into  receivership in the UK on
February 7, 1996 and had CDL placed into  receivership in the UK on February 28,
1996. The receiverships  resulted in the  discontinuation of all of Registrant's
business operations.  Since such time, until the Transaction, the Registrant had
been inactive.

Receivership Proceedings

          It has become effectively  impossible for each of CDL, Chessbourne and
TSCL to be audited  for the year ended  March 31,  1996 and  subsequent  periods
given that the respective  receivers have possession and control over the books,
records  and  documents  of each of the  corporations  and will  not  make  them
available to  Registrant  or any auditor  retained on its behalf.  Consequently,
Registrant  has treated  each of CDL,  Chessbourne  and TSCL as no longer  being
subsidiaries of Registrant for periods subsequent to December 31, 1995.

          Under UK law,  Registrant  is not liable for the  liabilities  of CDL,
TSCL  and  Chessbourne  absent  a  guarantee  or other  enforceable  promise  by
Registrant to pay such liabilities. Registrant gave no such guarantee or promise
and as such has no liability for the payment thereof. Similarly, the appointment
of an  administrative  receiver  in  respect  of the  assets  of CDL.  TSCL  and
Chessbourne  has no effect  on the  assets of  Registrant.  Notwithstanding  the
foregoing, the receivers for CDL made certain claims against Registrant for sums
allegedly owed to CDL by Registrant in connection  with a contested share issue.
To resolve  such  dispute,  a Compromise  Agreement  dated March 4, 1996 between
Registrant.  CDL and the receivers for CDL was entered into which had the effect
of releasing  Registrant

<PAGE>

from  any and  all  liability  to CDL  upon  performance  by  Registrant  of its
obligations  under that agreement In connection  therewith  Registrant  issued a
promissory  note to the Bank of  Scotland,  the secured  creditor of CDL, in the
principal amount of 50,000 pounds sterling ((pound)50,000). On January 30, 1997,
Registrant  paid off the Note in full,  including all interest  accrued  thereon
through  the date of  payment  and  executed a Mutual  Release  with the Bank of
Scotland.

          In connection with the  receiverships,  Brian J. Baylis and Susan A.M.
Crisp,  Registrant's then chief executive  officer and chief financial  officer,
who collectively  owned  approximately  45% of Registrant's  outstanding  common
stock  entered into pledge  agreements  (the "Pledge  Agreements")  whereby they
pledged  their common shares of Registrant to the Bank of Scotland as collateral
against  the  shortfall  which was to be realized by the Bank of Scotland in the
receivership  proceedings.  Most of the pledged shares were subsequently sold by
the Bank of Scotland to twelve unrelated persons.

ITEM 2.  PROPERTIES

          As of August 1, 1998, the Registrant is leasing offices located at 610
South Industrial Boulevard, Euless, Texas. Such lease expires in July, 2001.

ITEM 3.  LEGAL PROCEEDINGS

          No material legal  proceedings are pending to which  Registrant or any
of its  property is subject,  nor to the  knowledge of  Registrant  are any such
legal proceedings threatened.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          Registrant  submitted  no  matters to a vote of its  security  holders
during the fourth quarter of the fiscal year ended March 31, 1998.

                                     PART II

ITEM 5.   MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

          Since October 11, 1995  Registrant's  common stock has been listed for
trading on the OTC Bulletin Board, under the symbol "CGII" from October 11, 1995
to April 20, 1998 and thereafter  under the symbol  "CNGI." The following  table
sets forth the range of high and low sales prices of  Registrant's  common stock
for each full  quarterly  period within the two most recent fiscal years and the
most recent quarter.

                                                               Sales Prices
                Fiscal 1997                                High             Low

                First Quarter                         $    .44         $    .19
                Second Quarter                             .38              .19
                Third Quarter                              .38              .06
                Fourth Quarter                             .44              .19


                Fiscal 1998                                High             Low

                First Quarter                            $  1.06            $.31
                Second Quarter                              1.00             .63
                Third Quarter                                .88             .69
                Fourth Quarter                              2.44             .69

<PAGE>
                                                                Bid Prices
                Fiscal 1999                                High             Low

                First Quarter                            $ 2.38           $ 1.16


          At June 1, 1998,  there were  approximately  1,187  record  holders of
Registrant's  common  stock.  Holders of common  stock are entitled to dividends
when,  as,  and if  declared  by the  Board of  Directors  out of funds  legally
available  therefor.  Registrant  has not paid any cash  dividends on its common
stock and, for the foreseeable  future,  intends to retain earnings,  if any, to
finance the  operations,  development,  and  expansion of its  business.  Future
dividend policy is subject to the discretion of Registrant's Board of Directors.

Securities Offerings

          In addition to the Series B Preferred  Stock sold in  connection  with
the  Transaction,  during  the  fiscal  year ended  March 31,  1998,  Registrant
conducted a private placement of securities pursuant to Rule 506 of Regulation D
of the  Securities  Act of 1933,  as amended,  which was completed in September,
1997. The purpose of such placement was, in part, to provide Registrant with the
ability  to settle  and pay off  certain of its  outstanding  liabilities.  Such
placement of  3,690,000  shares of common  stock for a total of  $1,845,000  was
conducted on a  "best-efforts"  basis through Robert M. Cohen & Co., Inc., a New
York based broker dealer ("RMCC"). In connection with the placement,  Registrant
paid RMCC a sales  commission  equal to 10% of the  subscription  price for each
unit sold. In March 1998,  250,000 shares of common stock were sold in a private
placement  by the  Company  for a total  consideration  of  $125,000.  No  sales
commission was paid.

ITEM 6.       SELECTED FINANCIAL DATA

          The selected statements of operations and balance sheet data set forth
below are  derived  from the  financial  statements  of  Registrant  which  were
examined by Simontacchi & Co. LLP, independent certified public accountants, for
the years ended March 31, 1998, March 31, 1997 and March 31, 1996 and by Mahoney
Cohen & Company, PC ("Mahoney Cohen"), independent certified public accountants,
for each of the two years in the period ended March 25, 1995.  Mahoney Cohen did
not audit Registrant's UK subsidiaries,  the financial  statements of which were
audited by another  auditor  whose report was  furnished to Mahoney  Cohen.  The
information  set forth  below  should be read in  conjunction  with the  audited
financial statements of Registrant and related notes appearing elsewhere in this
Report (See Item 8. Financial Statements and Supplemental Data).


<PAGE>

<TABLE>
<CAPTION>


                                                   March 31,         March 31,       March 31,          March 25,      March 27,
                                                     1998              1997            1996               1995           1994
                                                     ----              ----            ----               ----              ----
Statement of Operations:

<S>                                                   <C>              <C>           <C>            <C>               <C>       
     Net Sales..............................          $-0-             $-0-          $-0-           $21,048,151       $7,585,360

     Cost of Sales..........................           -0-              -0-           -0-            15,531,102        5,121,884

     Gross Profit...........................           -0-              -0-           -0-             5,517,049        2,463,476

     Operating (Loss) Income................     (221,602)        (251,583)     (257,073)            (2,821,339)         207,300

     Net (Loss) Income......................     (263,865)        (332,604)     (323,510)            (3,394,652)           1,804

     Net (Loss) Income per
       Common Share:........................         (.05)            (.14)         (.14)                 (2.05)             -0-

Weighted Average Number
     of Shares Outstanding..................     5,165,272       2,412,278      2,300,289             1,656,903        1,669,784

Dividends per Common Share..................           -0-            -0-             -0-                -0-              -0-


                                                     March 31, 1998      March 31, 1997     March 31, 1996
                                                     --------------      --------------     --------------
Balance Sheet Data:........................


     Working Capital (Deficiency)..........           $   869,567           $(652,456)         $(320,240)

     Total Assets..........................             1,129,602              14,914            136,201

     Current Liabilities...................               259,676             666,623            455,306

     (Accumulated Deficit) Retained Earnings
                                                       (2,713,254)         (2,449,389)        (2,116,785)

     Stockholders' Equity (Deficiency).....               869,926            (651,709)          (319,105)

</TABLE>


<PAGE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

Results of Operations

          The  Corporation  has  not  generated  any  operating  revenues  since
February 1996 when its then operating subsidiaries were placed into receivership
in the UK.

          The  receiverships  resulted  in the loss of all of the  Corporation's
operations and operating assets and eliminated most liabilities. Accordingly the
operating  activities of the UK  subsidiaries  were classified as a discontinued
operation  and the  excess of the UK  subsidiary's  cumulative  losses  over The
Corporation's investment was included in the income statement for the year ended
March 31, 1996. In addition,  the UK subsidiaries  were removed from the balance
sheet for periods subsequent to December 30, 1995.

          At the  1998  Annual  Meeting  of  Stockholders,  stockholders  of the
Corporation approved the Transaction, which was consummated on May 18, 1998.

<PAGE>
          As a result of the  Transaction,  the Corporation  plans to enter into
insurance  and/or  insurance  related  businesses.  To further  such  goal,  the
Corporation  has entered into a  non-binding  letter of intent to acquire all of
the stock of an existing  insurance company which has had limited operations and
revenues for the past several years. The acquisition is subject to due diligence
by the Company and is subject to material conditions. No assurances can be given
that the Corporation  will  consummate such  acquisition.  The  acquisition,  if
consummated, will represent the Company's entry into the United States insurance
market.

          The  Corporation  recorded  losses in the year ended March 31, 1998 of
$221,602, before interest expense and preferred stock dividend accrual ($251,583
in 1997).  Such losses  arose from  general and  administrative  expenses  which
principally  comprise  professional  fees,  travel  expenses and general  office
costs.

Liquidity and Capital Resources

          During the year ended March 31, 1998 the Corporation relied on the net
proceeds of the securities offerings described in Item 5 of this report and cash
received  against a note  receivable and other sundry  receipts to meet its cash
needs.

          The  Corporation  does not expect to generate any  operating  revenues
until,  at the  earliest,  the  licensing  of the  Corporation  to  conduct  the
activities described in Item 1 - New Business Operations or the acquisition of a
company  with  such  licenses.  No  assurance  can be  given  however  that  the
Corporation will successfully  consummate such a business  acquisition or obtain
such  licenses  or that the  Corporation  will derive any  material  revenues or
profits therefrom.

          To enter into the insurance industry,  whether through consummation of
the  acquisition  described  in the above  letter of  intent or  otherwise,  the
Corporation  will  need  to  satisfy   regulatory  capital   requirements.   The
Corporation is currently  discussing with investment  bankers certain  financing
alternatives  for  raising   additional  equity  capital  in  amounts  at  least
sufficient to permit it to have the regulatory  capital needed to consummate the
acquisition.   As  it  becomes   licensed  or  acquires   operations   in  other
jurisdictions,  the  capital  requirements  of  the  Corporation  will  increase
accordingly.  No  assurance  can be given that the  Corporation  will be able to
raise all required regulatory capital or capital needed for its operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Not Applicable.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

          The financial statements of the Corporation, itemized in the subtopic,
"Financial  Statements"  under Item 14 hereof,  are set forth at the end of this
Report.

ITEM 9.   DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

          On July 20,  1995,  the  Corporation  appointed  Mahoney  Cohen as The
Corporation's   independent   auditors   responsible   for  the   audit  of  the
Corporation's   financial  statements.   This  action  was  recommended  by  the
Corporation's  Audit  Committee  and  approved  by its Board of  Directors.  The
Corporation  had  not  consulted  Mahoney  Cohen  regarding  any  accounting  or
financial reporting issues prior to that firm being retained by the Corporation.

          In connection with its audit of the Corporation's financial statements
for the fiscal year ended March 25, 1995, and in the  subsequent  interim period
through on or about April 17, 1997 when the relationship was formally terminated
and it  resigned  as the  Corporation's  independent  auditors,  there  were  no
disagreements  between  Mahoney  Cohen and the  Corporation  on any  matters  of
accounting

<PAGE>

principles or practices,  financial  statement  disclosure or auditing scope and
procedures  which, if not resolved to the  satisfaction of Mahoney Cohen,  would
have caused  Mahoney  Cohen to make  reference  to such  matters in their report
Mahoney Cohen's report on the Corporation's  financial statements for the fiscal
year ended March 25, 1995  expressed an unqualified  opinion on those  financial
statements based upon their audit but included a paragraph noting a "substantial
doubt about the Corporation's ability to continue as a going concern" based upon
the several matters summarized in such report.

          In February 1997 the Corporation appointed Simontacchi & Company, P.A.
("Simontacchi") as the Corporation's  independent  auditors  responsible for the
audit of the Corporations financial statements.  This action was approved by the
Corporation's board of directors.  The Corporation had not consulted Simontacchi
regarding any accounting or financial  reporting issues prior to that firm being
retained by the Corporation.

          Simontacchi has audited the Corporation's financial statements for the
fiscal years ended March 31, 1996,  1997 and 1998.  Simontacchi's  report on the
Corporation's financial statements for the fiscal years ended March 31, 1996 and
1997 expressed an unqualified  opinion on those financial  statements based upon
their audits,  but included  paragraphs  noting a  "substantial  doubt about the
Corporation's  ability to  continue as a going  concern"  based upon the several
matters summarized in such reports.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

Directors

          The following  sets forth,  as of March 31, 1998,  the director of the
Corporation,  his age,  the year in which he was first  elected or  appointed  a
director,  and any other office in the  Corporation  held by him.  Each director
holds  office  until the next  annual  meeting of  shareholders  and until their
successors have been elected and qualified.

                               Other Offices                          Director
Name                               Held                   Age           Since

James J. Fyfe                Vice President, Chief         43            1995
                             Operating Officer

          At the Annual Meeting,  stockholders  of the Corporation  elected Joel
San Antonio, age 45, as Chairman of the Board of the Corporation and three other
directors, Robert H. Hutchins, age 69, Ronald Glime, age 53, and Glenn Aber, age
49.

Executive Officers

          The following sets forth,  as of March 31, 1998 the executive  officer
of the  Corporation,  his  age,  the year in which  he was  first  appointed  an
executive  officer  of the  Corporation  and all  positions  and  offices in the
Corporation held by such person.

                           Other Offices                              Director
Name                            Held                Age                Since

James J. Fyfe              Vice President            43               May 1995

          Following the Annual Meeting,  Mr. Hutchins was appointed President of
the  Corporation.  Mr.  Aber was  appointed  acting  Treasurer  and Mr. Fyfe was
appointed  acting  Secretary,  until other officers  could be employed.  At that
time, Mr. Fyfe resigned his position as Vice President.

<PAGE>

Family Relationships

          Mr. Aber, a newly elected director,  is the  brother-in-law of Mr. San
Antonio.  No other family  relationship  exists between any director,  executive
officer of the Corporation or any person contemplated to become such.

Business Experience

          The following summarizes the occupation and business experience during
at least the five years  preceding March 31, 1998 of each person who served as a
director and/or executive officer of the Corporation at March 31, 1998.

          James Fyfe.  Mr. Fyfe became a director and Vice  President  and Chief
Operating Officer of the Corporation in May 1995. From January 1991 to May 1995,
he was an  independent  business  consultant.  During the  period  from May 1995
through  February  1996 he was an  employee  of the  Corporation's  U.K  holding
company,  CDL.  In March  1996,  he resumed  his  activities  as an  independent
business  consultant.  From  May  1996  through  August  1997 he was an  outside
director of Medical Laser Technologies, Inc.

          Pursuant to the terms of the Stock Purchase  Agreement relating to the
Transaction  and the issuance of the Series B Convertible  Redeemable  Preferred
Stock, the Initial Purchasers of the Series B Convertible  Redeemable  Preferred
Stock are  required to continue to nominate  Mr. Fyfe or his nominee to serve as
director  through June 30, 2000,  the date when the right to redeem the Series B
Convertible Redeemable Preferred Stock will expire.

          The following summarizes the occupation and business experience during
at least the five years  preceding March 31, 1998 of each person who was elected
at the Annual Meeting as a director and/or executive officer of the Corporation.

          Joel San  Antonio.  Mr. San  Antonio  founded  Warrantech  Corporation
(Nasdaq Symbol: WTEC) in 1983.  Warrantech is a business services company with a
core business in the administration of warranties and service contracts.  He was
a Director, Chief Executive Officer and President of Warrantech Corporation from
incorporation  through  February 1988.  Since February 1988, Mr. San Antonio has
been a Director,  Chief Executive Officer and Chairman of the Board of Directors
of Warrantech.  On February 2, 1998, Mr. San Antonio resumed responsibilities as
President of  Warrantech.  Since October 27, 1989, he has also been Chairman and
Chief Executive Officer of Warrantech's principal operating subsidiaries.

          Robert H. Hutchins.  Mr. Hutchins began his insurance  career with the
Great American Indemnity  Insurance Co. in 1951. He joined the American Casualty
Insurance Co. in 1958. American Casualty Insurance Co. was bought by Continental
Casualty  Insurance Co. in 1964,  and is now known as CNA  Insurance.  At CNA he
served as Branch  Manager,  Regional  Vice  President,  Vice  President of Field
Operations and ultimately  Senior Vice President of the Liability,  Property and
Surety Division. Since 1975, he has served in executive positions with INA, Gulf
Insurance, and American Hardware Mutual Insurance Co. He was a consultant to the
Warranty  Division  of AIG for 18 months and for the past  2-1/2  years has been
employed by Warrantech Automotive, Inc. as National Claims Manager. Mr. Hutchins
has served as President of the Corporation since May 1998.

          Ronald  Glime.   Mr.  Glime  is  currently   President  of  Warrantech
Automotive, Inc., a position he has held since October 1992.

          Glenn Aber. Mr. Aber was president of his own company, GFA Industries,
Inc.  ("GFA"),  a corporation  engaged in the design,  merchandising and sale of
imported  fabrics to  manufacturers  of  

<PAGE>


children's,  ladies'  and  men's  clothing  until  July  1997  when  GFA  ceased
operations.  Since July 1997 Mr. Aber has been managing his personal  investment
portfolio.

          In November 1997, after GFA ceased  operations,  certain  creditors of
GFA,  whose claims against GFA were  disputed,  filed an involuntary  bankruptcy
petition in federal  bankruptcy court against GFA. In March 1998, such creditors
consented  to an order  dismissing  the petition  pursuant to an agreement  they
reached with GFA, for a settlement of $40,000.

ITEM 11.      EXECUTIVE COMPENSATION

Compensation of Officers

          For Mr. Fyfe's service to the Corporation and his role in bringing the
Transaction  to fruition,  the  Corporation  issued to Mr. Fyfe 10,000 shares of
Series  B  Convertible  Redeemable  Preferred  Stock.  The  Corporation  has not
otherwise  paid  salary,  wages or other  compensation  to any of its  executive
officers since February 1996 when the Corporation's then operating  subsidiaries
were placed into receivership in the United Kingdom and all business  operations
ceased.

<TABLE>
<CAPTION>

                                                                Summary Compensation Table
                                                                                   Long-Term Compensation
                                                                                -----------------------------------
                                                Annual Compensation                Awards         Payouts
                                         ----------------------------------     -------------- -------------
                                                                                                   All
Name                                                                                               Other
and                                                                             Options/           Compen-
Principal                                                       Salary           SARs              sation
Position                                      Year             ($)                (#)               ($)
- --------                                    --------           -------            ---               ---

<S>                                          <C>                <C>              <C>               <C>
James J. Fyfe(1)                             1998                 -0-            1,500              -0-
                                             1997                 -0-            1,500              -0-
                                             1996               $76,000           -0-               -0-
</TABLE>

- -----------------
(1)   Mr. Fyfe became sole officer on March 6, 1996  following the  resignations
      of Brian J. Baylis and Susan A.M.  Crisp.  His 1996 salary was paid to Mr.
      Fyfe by the former U.K. subsidiary.

          All officers hold office until the meeting of the Board  following the
next annual meeting of stockholders or until the earlier of their resignation or
removal.

<TABLE>
<CAPTION>
                                       OPTION/SAR Grants in Last Fiscal Year

                                                 Individual Grants
- ------------------------ ------------------ -------------------- ----------------- -----------------------
                             Number of             % of
                             Shares of             Total
                           Common Stock          Options/
                            Underlying             SARs
                             Options/           Granted to           Exercise
                               SARs              Employees           or Base
                              Granted            in Fiscal            Price              Expiration
Name                            (#)                Year               ($/Sh)                Date

<S>                            <C>                 <C>                <C>                     <C> 
James J. Fyfe                  1,500               100%               $.3125              May 2002

</TABLE>



<PAGE>

<TABLE>
<CAPTION>


                                 Aggregated Options/SAR Exercises in Last Fiscal Year
                                            and FY-End Options/SAR /Values

                                                                                                     Value of
                                                                              Number of             Unexercised
                                                                             Unexercised           In-the-Money
                                                                            Options/SARs           Options/SARs
                                                                            At FY-End (#)          At FY-End ($)
                           Shares Acquired                                  Exercisable/           Exercisable/
         Name              on Exercise (#)       Value Realized ($)         Unexercisable          Unexercisable
         ----              ---------------       ------------------         -------------          -------------

<S>                               <C>                     <C>                  <C>                      <C>
James J. Fyfe                    -0-                     -0-                   0/3,000                  0/0

</TABLE>

Compensation of Directors

          Each director who is not an officer or employee of the  Corporation is
entitled to receive  compensation of $2,500 per calendar quarter plus 500 shares
of  Common  Stock  per  calendar  quarter  of  board  service,  in  addition  to
reimbursement of travel  expenses..  Outside  directors would be compensated for
committee  service at $500 per calendar  quarter plus 125 shares of  Corporation
stock per calendar  quarter.  Such  directors are also  compensated  for special
assignments from time to time. No compensation for special  assignments was paid
in fiscal  1997 or 1998.  No  directors'  fees are payable to  employees  of the
Corporation who serve as directors.

          All  directors  receive  options  to  purchase  1,500  shares  of  the
Corporation's  common stock each May under the  Corporation's  1992 Stock Option
Plan for Directors.

Section 16 Beneficial Ownership Compliance

          Section  16(a) of the  Securities  Exchange  Act of 1934  requires the
Corporation's  directors,  executive  officers and 10% stockholders to file with
the Securities and Exchange  Commission  ("SEC") certain reports  regarding such
persons'  ownership of the  Corporation's  securities.  Mr. Baylis and Ms. Crisp
were  required to file  reports on Form 4 in  connection  with the  reduction of
their respective ownership interests in the Corporation  resulting from the sale
of  shares  pledged  by them  following  a  default  in the  obligations  of the
Corporation's  former U.K.  subsidiaries  to the Bank of  Scotland in 1996.  Mr.
Baylis and Ms. Crisp,  each of whom resides in the U.K., were not fully aware of
their obligations to file a Form 4 following the sale of pledged shares but have
been notified regarding such obligations. Bruce Paul became a 10% stockholder in
May 1997. By June 1997,  his ownership  interest was below 10% due to additional
stock issuances by the Corporation. To the Corporation's knowledge, Mr. Paul did
not file a Form 3 upon becoming a 10% stockholder.  The Corporation is not aware
of any other late filings of reports under Section 16 this past year.

ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Voting Securities of Certain Beneficial Owners and Management

          The  following  table  sets  forth,  as of June 1,  1998,  information
concerning the beneficial  ownership of (a) Common Stock and (b) voting power of
the Corporation by virtue of holding shares of Common Stock, which have one vote
per share, and shares of Series B Convertible  Redeemable Preferred Stock, which
have ten votes per share  ("Voting  Power") (i) by each person which is known by
the Corporation to own beneficially more than 5% of its outstanding Common Stock
or  Voting  Securities,  (ii) by each  director,  (iii)  by each of the  current
executive officers named in the compensation table and (iv) by all directors and
executive officers as a group.

<PAGE>

<TABLE>
<CAPTION>

                                                   Common Stock   VotingPower(1)
                                                   Amount and
                                                   Nature of
         Name and Address of                       Beneficial      Percentage
         Beneficial Owner(2)                       Ownership       of Class       Amount         Percentage

<S>                                                 <C>            <C>          <C>                <C> 
         James Fyfe...............................    3,000(3)          (4)       103,000            0.7%
         Joel San Antonio(5)......................       -0-         -0-        6,850,000           46.9%
         Robert Hutchins..........................       -0-         -0-          150,000            1.0%
         Ronald Glime.............................   50,000           0.8%        550,000            3.8%
         Glen Aber................................       -0-         -0-          150,000            1.0%
         Bruce H. Paul............................  500,000           7.9%        500,000            3.4%
         Alan Zuckerman...........................       -0-         -0-          500,000            3.4%
         All directors and executive
           officers as a group
           (5 persons)............................   53,000           0.9%      7,803,000           53.4%
</TABLE>

(1)   Includes Common Stock and Class B Preferred Stock at 10 votes per share.
(2)   All addresses are c/o the Corporation except as noted.
(3)   Represents exercisable options.
(4)   Less than 0.1%.
(5)   Includes  110,000 preferred shares  (with 1,100,000  votes) held by family
      members of Mr. San Antonio's. 
(6)   Mr. Paul's address is 1 Hampton Road, Purchase, NY, to  the best knowledge
      of  the  Corporation. 
(7)   Mr. Zuckerman's address is 415 Bull Mill Road, Chester, NY to the best 
      knowledge of the Corporation.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Transactions With Management and Others

          Other than the  consummation of the  Transaction,  and the issuance of
10,000 shares of Series B Preferred  Stock to Mr. Fyfe in connection  therewith,
during the fiscal year ended March 31,1998 and all subsequent periods there have
been  no  material  transactions  between  the  Corporation  and any  member  of
management or any principal shareholder of the Corporation.

PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

Financial Statements

          The  financial  statements  filed  as a part  of  this  report  are as
follows:

          Report of independent accountants

          Balance Sheets - March 31, 1998 and March 31, 1997

          Statements of  Operations - Years ended March 31, 1998, March 31, 1997
                               and March 31, 1996

          Statement  of  Changes  in  Stockholders'  (Deficiency)/Equity -Years 
               ended March 31, 1998, March 31, 1997 and March 31, 1996

          Statements of Cash Flows - Years ended March 31, 1998,  March 31, 1997
                               and March 31, 1996

          Notes to financial statements

Financial Statement Schedules

          The financial  statement schedule filed as a part of this report is as
follows:

          Valuation and Qualifying  Accounts for the years ended March 31, 1998,
March 31, 1997 and March 31, 1996.

          Other financial  statement  schedules have been omitted for the reason
that they are not required or are not applicable, or the required information is
shown in the financial statements or notes thereto.

<PAGE>

Exhibits

          The exhibits filed as a part of this report are as follows:

                                                               Exhibit No. 
                                                             of incorporated
                                                          report specified below

3  (a)   Certificate of Incorporation filed September 18, 1980(1)       3
   (b)   Amendment to Certificate filed September 29, 1980(1)           3
   (c)   Amendment to Certificate of Incorporation filed  
         July 28, 1983(2)                                               3(b)
   (d)   Amendment to Certificate of Incorporation filed 
         February 10, 1984(2)                                           3(d)
   (e)   Amendment to Certificate of Incorporation filed 
         March 31, 1986(3)                                              3(e)
   (f)   Amendment to Certificate of Incorporation filed 
         March 23, 1987(4)                                              3(g)
   (g)   Amendment to Certificate of Incorporation filed
         June 12, 1990(5)                                               3.8
   (h)   Amendment to Certificate of Incorporation filed 
         September 27, 1991(6)                                          3.9

   (i)   Certificate of Designation filed November 12, 1994(7)          3.8

   (j)   Amendment to Certificate of Incorporation filed  
         September 28, 1995(10)                                         3(j) 
 
   (k)   Certificate of Designation for the Series B 
         Preferred Stock dated May 18, 1998(12)                          C
                                                                       3(f)
   (l)   By-laws of the Corporation, as amended on 
         April 25, 1991(6)

   (m)   Amendment to Certificate of Incorporation 
         dated May 18, 1998(12)                                          A

4    (a)   Form of Underwriter's Warrant(6)                            4.9.1
     (b)   Form of Promissory Note - 1996 Offering(10)                 4(b)
     (c)   Form of Promissory Note - 1997 Offering(10)                 4(c)
     (d)   Form of Common Stock Purchase Warrant - 1996 Offering(10)   4(d)
     (e)   Form of Common Stock Purchase Warrant - 1997 Offering(10)   4(e)
10   (a)   1986 Stock Option Plan, as amended(7)                       10.6
     (b)   1992 Stock Option Plan(8)                                    B
     (c)   Stock  Purchase  Agreement  dated as of  
           January  30,  1997 by and  among the
           Corporation, the Bank of Scotland and 12 buyers(10)         10(m)
     (d)   Mutual  Release  dated as of January 30,  1997 
           by and among the  Corporation, James Fyfe and 
           the Bank of Scotland(10)                                    10(n)
     (e)   Stock Purchase Agreement,  dated as of March 4, 
           1998, between the Corporation and the Initial 
           Purchasers named therein(12)                                 B
     (f)   1998 Employees Stock Option Plan(12)                         D
16   (a)   Letter of Mahoney Cohen & Company,  CPA, PC 
           regarding their  concurrence with the statements 
           made by the  Corporation  concerning  their  
           resignation as the Corporation's principal accountant(11)   16(a)

<PAGE>

Notes:

(1)  Filed with the Securities and Exchange  Commission as an exhibit,  numbered
     as indicated  above,  to the  registration  statement of the Corporation on
     Form  S-18,  File No.  2-69627,  which  exhibit is  incorporated  herein by
     reference.

(2)  Filed with the Securities and Exchange  Commission as an exhibit,  numbered
     as indicated  above,  to the  registration  statement of the Corporation on
     Form  S-2,  File No.  2-88712,  which  exhibit  is  incorporated  herein by
     reference.

(3)  Filed with the Securities and Exchange  Commission as an exhibit,  numbered
     as indicated  above,  to the  registration  statement of the Corporation on
     Form  S-2,  File No.  33-4458,  which  exhibit  is  incorporated  herein by
     reference.

(4)  Filed with the Securities and Exchange  Commission as an exhibit,  numbered
     as indicated  above,  to the annual report of the  Corporation on Form 10-K
     for the year ended September 30, 1987, which exhibit is incorporated herein
     by reference.

(5)  Filed with the Securities and Exchange  Commission as an exhibit,  numbered
     as indicated  above,  to the  registration  statement of the Corporation on
     Form S-3,  File No.  33-42154,  which  exhibit  is  incorporated  herein by
     reference.

(6)  Filed with the Securities and Exchange  Commission as an exhibit,  numbered
     as indicated  above,  to the  registration  statement of the Corporation on
     Form S-1,  File No.  33-42154,  which  exhibit  is  incorporated  herein by
     reference.

(7)  Filed with the Securities and Exchange  Commission as an exhibit,  numbered
     as indicated  above,  to the annual report of the  Corporation on Form 10-K
     for the year ended September 30, 1994, which exhibit is incorporated herein
     by reference.

(8)  Filed  with the  Securities  and  Exchange  Commission  as an  exhibit,  as
     indicated above, to the proxy statement of the Corporation  dated March 30,
     1992, which exhibit is incorporated herein by reference.

(9)  Filed with the Securities and Exchange  Commission as an exhibit,  numbered
     as indicated  above,  to the current report of the Corporation on Form 8-K,
     dated April 5, 1995, which exhibit is incorporated herein by reference.

<PAGE>

(10) Filed with the Securities and Exchange  Commission as an exhibit,  numbered
     as indicated  above,  to the annual report of the  Corporation on Form 10-K
     for the year ended March 31, 1996, which exhibit is incorporated  herein by
     reference.

(11) Filed with the Securities and Exchange  Commission as an exhibit,  numbered
     as indicated  above,  to the annual report of the Corporation on Form 10K/A
     for the year ended March 31, 1996, which exhibit is incorporated  herein by
     reference.  

(12) Filed  with the  Securities  and  Exchange  Commission  as an  exhibit,  as
     indicated above, to the proxy statement of the Corporation  dated April 23,
     1998, which exhibit is incorporated herein by reference.


REPORTS ON FORM 8-K

          The Company filed no reports on Form 8-K during the fourth  quarter of
fiscal 1998.

SIGNATURES

          Pursuant to the  requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the  Corporation  has duly caused this report to be signed
on its behalf by the undersigned, "hereunto duly authorized.

                                     CORNICHE GROUP INCORPORATED


                                      By:      /s/Robert H. Hutchins
                                               --------------------------
                                               Robert H. Hutchins, President

          Pursuant to the  requirements of the Securities  Exchange Act of 1934,
as amended, this report has been signed below by the following persons on behalf
of the Corporation and in the capacities and on the dates indicated:


Signatures                                 Title                 Date

Principal Executive Officer:

/s/Robert H. Hutchins                      President            July 14, 1998
- --------------------------------------
ROBERT H. HUTCHINS


Principal Financial and
 Accounting Officer:

/s/Glenn Aber                              Treasurer            July 14, 1998
- --------------------------------------
GLENN ABER



<PAGE>


A Majority of the board of directors:

/s/Joel San Antonio                       Chairman of the Board  July 14, 1998
- --------------------------------------
JOEL SAN ANTONIO

/s/Robert H.Hutchins                                             July 14, 1998
- --------------------------------------
ROBERT H. HUTCHINS

/s/Ronald Glime                                                  July 14, 1998
- --------------------------------------
RONALD GLIME

/s/Glenn Aber                                                    July 14, 1998
- --------------------------------------
GLENN ABER

/s/James J. Fyfe                                                 July 14, 1998
- --------------------------------------
JAMES J. FYFE


<PAGE>





                           CORNICHE GROUP INCORPORATED

                              FINANCIAL STATEMENTS

                             MARCH 31, 1998 AND 1997





<PAGE>


To The Stockholders and
 Board of Directors
Corniche Group Incorporated
Wayne, New Jersey

                          INDEPENDENT AUDITOR'S REPORT

We have audited the accompanying  balance sheets of Corniche Group  Incorporated
as of  March  31,  1998  and  1997 and the  related  statements  of  operations,
stockholders' equity (deficiency),  and cash flows for the years ended March 31,
1998, 1997 and 1996. Our audits also included the financial  statement  schedule
for the years ended March 31, 1998, 1997 and 1996.  These  financial  statements
and the financial  statement  schedule are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audit. We did not audit the financial statements and the
financial statement schedule of Corniche  Distribution Limited and Subsidiaries,
a former  consolidated  subsidiary,  as of March 31,  1996 and for the year then
ended.  These statements and schedules were not audited as the corporations were
in receivership in the United Kingdom (see Note 2 of the Financial  statements),
and the records are unavailable for audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion,  based on our audit the financial  statements  referred to above
present fairly,  in all material  respects,  the financial  position of Corniche
Group  Incorporated  as of March 31,  1998 and 1997,  and the  results  of their
operations  and their cash flows for the years  ended March 31,  1998,  1997 and
1996 in conformity with generally accepted accounting  principles.  Also, in our
opinion,  the related financial statement schedule,  when considered in relation
to the basic financial  statements  taken as a whole,  presents  fairly,  in all
material respects, the information set forth therein.


/s/Simontacchi & Company, LLP

Fairfield, New Jersey
July 10, 1998



<PAGE>

<TABLE>
<CAPTION>

                           CORNICHE GROUP INCORPORATED
                                 BALANCE SHEETS




                                                               ASSETS



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

                                                                              March 31,                   March 31,
                                                                                 1998                       1997
                                                                                 ----                       ----

Current Assets:

<S>                                                                          <C>                        <C>     
Cash and Equivalents                                                         $1,129,064                 $ 13,167
Other Receivable                                                                      0                    1,000
Prepaid Expenses                                                                    179                        0
                                                                          -------------              -----------

   Total Current Assets                                                       1,129,243                   14,167


Other Assets:

Property and Equipment, net                                                         359                      747
                                                                           ------------               ----------

   Total Assets                                                              $1,129,602                 $ 14,914
                                                                             ==========                 ========



                                              See Accompanying Notes
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

                                            CORNICHE GROUP INCORPORATED
                                                  BALANCE SHEETS

                                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)


                                                                            March 31,                    March 31,
                                                                               1998                        1997
                                                                     -         ----            -           ----

Current Liabilities:

<S>                                                                   <C>                                <C>       
Notes Payable                                                         $            0                     $  400,000
Trade Accounts Payable                                                        21,362                          4,929
Dividends Payable - Preferred Stock                                          208,464                        148,397
Accrued Liabilities                                                           29,850                        113,297
                                                                          ----------                     ----------

   Total Current Liabilities                                                 259,676                        666,623
                                                                           ---------                     ----------

Stockholders' Equity (Deficiency):

Preferred  stock,   5,000,000  shares  authorized  Series  A  $0.07  convertible
  preferred stock and issued 1,000,000  shares,  and outstanding  893,908 shares
  March 31, 1998 and 909,267
  March 31,1997.                                                             893,908                        909,267

Common Stock, $0.10 par value,  authorized - 30,000,000 shares, issued 6,355,231
  March 31,
  1998 and 2,630,378 March 31, 1997.                                         635,522                        263,037

Additional Paid-In Capital                                                 2,053,750                        830,086

(Accumulated Deficit) Retained Earnings                                   (2,713,254)                    (2,449,389)
                                                                          ----------                     ----------
                                                                             869,926                       (446,999)

Treasury Stock - at cost, 218,100 shares at
   March 31, 1997                                                                  0                       (204,710)
                                                                      --------------                    -----------

   Total Stockholders' Equity (Deficiency)                                   869,926                       (651,709)
                                                                         -----------                    -----------

Total Liabilities and Stockholders'
  Equity (Deficiency)                                                     $1,129,602                   $     14,914
                                                                          ==========                   ============
</TABLE>


                                              See Accompanying Notes


<PAGE>

<TABLE>
<CAPTION>

                           CORNICHE GROUP INCORPORATED
                             STATEMENT OF OPERATIONS


                                                                       March 31,             March 31,              March 31,
                                                                          1998                 1997                   1996
                                                                          ----                 ----                   ----

<S>                                                               <C>                    <C>                    <C>           
Net Sales                                                         $           0          $            0         $            0

   Cost of Sales                                                              0                       0                      0
                                                                  -------------            ------------            -----------

Gross Profit                                                                  0                       0                      0

   Selling, General and Administrative
     Expenses                                                           221,602                 251,583                257,073
                                                                      ---------              ----------            -----------

Operating Loss                                                         (221,602)               (251,583)              (257,073)

   (Loss) on Sale of Assets                                                   0                       0                 (3,042)

   Interest (Net)                                                        17,804                 (17,373)                  (600)
                                                                     ----------             -----------            -----------

(Loss) Income before Income Tax                                        (203,798)               (268,956)              (260,715)

   Income Tax Benefit (Expense)                                               0                       0                      0
                                                                  -------------            ------------            -----------

Net (Loss) Income from Continuing Operations                           (203,798)               (268,956)              (260,715)

   Preferred Stock Dividend                                             (60,067)                (63,648)               (62,795)
                                                                     ----------              ----------            -----------

Net (Loss) Income After Preferred Dividends                            (263,865)               (332,604)              (323,510)

   Loss from Discontinued Operations                                          0                       0             (3,432,032)

   Excess of UK Subsidiary Cumulative Losses
     over Investment                                                          0                       0              5,466,636
                                                                   ------------            ------------             ----------

Net Income (Loss)                                                    $ (263,865)             $ (332,604)            $1,711,094
                                                                     ==========              ===========            ==========

Profit / (Loss) per share of Common Stock

Income (Loss) from Continuing Operations                                 (0.05)                  (0.14)                 (0.14)

Income (Loss) from Discontinued Operations                                0.00                    0.00                   0.88
                                                                   -----------             -----------          -------------

Net Income (Loss) per share                                        $     (0.05)           $      (0.14)         $        0.74
                                                                   ===========            ============          =============

Weighted Average Number of Common Shares Outstanding


                                                                      5,165,272              2,412,278               2,300,289
                                                                      =========              =========               =========

                                                       See Accompanying Notes
</TABLE>


<PAGE>

<TABLE>
<CAPTION>


                           CORNICHE GROUP INCORPORATED
                 STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)

                                            Common Stock
                                                                     Additional              Cumulative
                                 Preferred     Number of              Paid-In   Accumulated  Translation  Treasury
                                   Stock        Shares      Amount    Capital    Deficit     Adjustment    Stock         Total
                                   -----        ------      ------    -------    -------     ----------    -----         -----

<S>                              <C>          <C>         <C>                   <C>           <C>        <C>          <C>         
 Balance - March 25, 1995        $ 946,069    2,119,857   $ 211,985       -     $(3,827,879)  $(4,630)   $ (204,710)  $(2,879,165)

 Conversion of Preferred Stock     (36,802)       7,077         708       -           -           -           -           -
 Adjustment to Common Stock            -           (156)        (16)      -           -           -           -           -
 Issuance of Common Stock              -        478,600      47,860    36,094         -           -           -           957,200
 Costs Related to Sale of 
   Common Stock                        -             -           -         16         -           -           -          (162,864)
 Issuance of Common Stock              -         25,000       2,500   909,340         -           -           -            50,000
 Preferred Stock Dividends             -             -           -   (162,864)     (62,795)       -           -           (62,795)
 Elimination of UK Subsidiaries        -             -           -     47,500    2,034,604        -           -         2,039,234
 Net Loss                              -             -           -        -       (260,715)     4,630         -          (260,715)
                                  -----------  ----------  --------- ---------   ----------    --------    ---------    ----------

 Balance - March 31, 1996         $909,267    2,630,378     263,037   830,086   (2,116,785)       -        (204,710)     (319,105)

 Preferred Stock Dividends             -             -           -        -        (63,648)       -           -           (63,648)

 Net Loss                              -             -           -   (268,956)    (268,956)       -           -          (268,956)
                                  ----------   ---------   --------- ---------  -----------  ---------    ----------    ----------

 Balance - March 31, 1997        $ 909,267    2,630,378    $263,037  (830,086) $(2,449,389)   $   0      $(204,710)    $ (651,709)

 Issuance of Common Stock 
  for Cash                           -        3,940,000     394,000       -           -       $                         1,970,000
 Costs related to Sale of 
  Common Stock                       -             -           -                   -              0           -          (184,500)
 Conversion of Preferred Stock     (15,359)       2,953         295  $830,086         -           -           -
 Retirement of Treasury Stock        -         (218,100)    (21,810)                  -           -           -               -
 Preferred Stock Dividends           -             -           -    1,576,000      (60,067)       -        204,710        (60,067)
 Net Loss                            -             -           -     (184,500)    (203,798)       -           -          (203,798)
                                 -----------  ----------   -------- ---------   ----------    --------     ----------   ----------

 Balance - March 31, 1998        $ 893,908    6,355,231     635,522  (182,900) $(2,713,254)   $   0        $   0        $ 869,926
                                  ========    =========    ========= ========  ===========    ========     ==========    ========

</TABLE>


                             See Accompanying Notes


<PAGE>

<TABLE>
<CAPTION>


                           CORNICHE GROUP INCORPORATED
                             STATEMENT OF CASH FLOWS


                                                                            March 31,           March 31,           March 31,
                                                                              1998                1997                1996
                                                                             -----               -----                ----

 Cash Flows from Operation Activities:
<S>                                                                        <C>                 <C>                  <C>       
   Net Loss from Continuing Operations                                     $(203,798)          $(268,956)           $(260,715)

 Adjustments  to  reconcile  Net Loss from  
   Continuing  Operations  to Net Cash used in Operating
  Activities:
   Depreciation                                                                  388                 388                1,749
   Loss on Sale of Property and Equipment                                          -                   -                3,042

 Changes in Assets and Liabilities Net of Effects
  from Acquisitions:
   Decrease in Notes Receivable                                                    -             125,000               75,000
   Decrease (Increase) in Prepaid Expenses and
    Other Receivables                                                            821               9,000                8,422
   (Decrease) Increase in Notes Payable                                            -                   -              (11,292)
   (Decrease) Increase in Trade Accounts Payable                              16,433            (178,194)             127,757
   Increase (Decrease) in Accrued Liabilities                                (83,447)              8,493             (451,070)
                                                                           ---------          ----------            ---------

 Net Cash used in Operating Activities                                      (269,603)           (304,269)            (507,107)

   Net Cash used in Discontinued Operations                                         -                  -             (331,337)
                                                                        -------------        -----------            ---------

 Net Cash used in Operating Activities                                      (269,603)           (304,269)            (838,444)
                                                                           ---------           ---------            ---------

 Cash Flows from Investing Activities:
   Payments to Acquire Fixed Assets                                                -                   -               (8,926)
   Proceeds from Sale of Equipment                                                 -                   -                3,000
                                                                        -------------      ----------------         ---------

   Net Cash used in Investing Activities                                           -                   -               (5,926)
                                                                        -------------      ---------------          ---------

 Balance Carried Forward                                                   $(269,603)          $(304,269)           $(844,370)
                                                                        --------------     ---------------          ----------
</TABLE>


                             See Accompanying Notes

<PAGE>

<TABLE>
<CAPTION>

                           CORNICHE GROUP INCORPORATED
                             STATEMENT OF CASH FLOWS



                                                                           March 31,        March 31,             March 31,
                                                                             1998             1997                  1996
                                                                             ----             ----                  ----

<S>                                                                        <C>              <C>                    <C>       
Balance Brought Forward                                                    $(269,603)       $(304,269)             $(844,370)
                                                                           ---------        ---------              ---------

Cash Flows from Financing Activities:

  Net Proceeds from Issuance of Common Stock
   for Cash                                                                 1,785,500            -                794,336
  Net Proceeds from Issuance of Common Stock
   for Services                                                                  -               -                    50,000
  Payment of Notes Payable                                                  (400,000)         (77,630)                     -
  Additional Borrowings                                                          -            395,000                      -
                                                                           ---------         -------             -----------

  Net Cash Provided by Financing                                            1,385,500         317,370                844,336
                                                                            ---------        --------              ---------


Net Increase (Decrease) in Cash                                             1,115,897          13,101                    (34)

Cash at Beginning of Period                                                    13,167              66                    100
                                                                            ---------        --------             ----------


Cash and Equivalents at End of Period                                      $1,129,064      $   13,167            $        66
                                                                           ==========      ==========            ===========


Supplemental Disclosures of Cash Flow Information

Cash Paid during the Year for:
  Interest
  Income Taxes                                                            $     4,181     $    17,373            $       600
                                                                          $       -       $       -              $        -

</TABLE>

                             See Accompanying Notes


<PAGE>



                           CORNICHE GROUP INCORPORATED
                       STATEMENT OF CASH FLOWS (CONCLUDED)


                   Supplemental Schedule of Non-Cash Investing
                            and Financing Activities


During the year ended March 31, 1998 and 1997,  the  Company  accrued  preferred
stock dividends of $60,067 and $63,648, respectively.

During the year ended March 31, 1998 holders of 15,359 shares of preferred stock
converted such shares into 2,953 shares of CGI=s common stock.

On February 27, 1998, the Company  retired the treasury stock of 218,100 shares,
reducing the value of common stock  outstanding by $21,810;  additional  paid in
capital by $182,900 and removing treasury stock of $204,710.

In March 1996 holders of 36,802 shares of preferred  stock converted such shares
into 7,077 shares of Chi's common stock.





                             See Accompanying Notes


<PAGE>


                           CORNICHE GROUP INCORPORATED
                          NOTES TO FINANCIAL STATEMENTS



NOTE 1       THE COMPANY

                    Corniche Group Incorporated, formerly Fidelity Medical, Inc.
                    (hereinafter  referred  to as the  "Company"  or  "CGI")  as
                    result of a reverse  acquisition with Corniche  Distribution
                    Limited  and its  Subsidiaries  ("Corniche")  (see  "Reverse
                    Acquisition"  below),  was  engage  in the  retail  sale and
                    wholesale  distribution  of stationery  products and related
                    office products,  including office furniture,  in the United
                    Kingdom.   The  operating   subsidiaries  of  Corniche  were
                    Chessbourne  International  Limited  ("Chessbourne") and The
                    Stationery Company Limited ("TSCL").

                    Corniche  experienced  large  operating  losses and net cash
                    outflows from  operating  activities in fiscal 1995 and 1996
                    resulting  in a  significant  reduction  in working  capital
                    during that  period.  The Company  was  unsuccessful  in its
                    efforts to raise interim  financing to resolve its liquidity
                    problems.  Additionally, the Company was not able to convert
                    a  significant  portion  of its bank  debt to  equity.  As a
                    result,  receivers were appointed to Corniche's subsidiaries
                    Chessbourne  and TSCL on February  7, 1996 by their  primary
                    bankers  and  secured  lender,  Bank of  Scotland.  Corniche
                    Distribution  Limited was placed in receivership on February
                    28, 1996 (See Note 2).

                    New Business Operations - See Note 8.

NOTE 2      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

                    Reverse Acquisition

                    On March 2, 1995, the stockholders of Corniche exchanged all
                    of their common stock for 1,097,250 shares of CGI. Since the
                    former  stockholders'  of  Corniche  owned a majority of the
                    outstanding  stock  of  CGI  after  the  acquisition,   such
                    purchase   transaction   was  accounted  for  as  a  reverse
                    acquisition.  The acquired company  (Corniche) was deemed to
                    have  acquired  the  acquiring  company  (CGI).   Historical
                    stockholders'  equity  of  Corniche  has been  retroactively
                    restated  to  give  effect  to  the  recapitalization.   The
                    historical  financial  statements prior to March 2, 1995 are
                    those of Corniche. Further, on March 2, 1995, CGI acquired a
                    49% interest in the outstanding shares of Chessbourne.

                    UK Receivership Proceeding

                    Significant  losses were incurred  during the forty weeks to
                    December  30,  1995,  and in the fiscal year ended March 25,
                    1995,  resulting  in a working  capital  and a  stockholders
                    deficiency  as of  December  30,  1995 and March  25,  1995.
                    Management of Corniche had taken several steps to reduce the
                    amount of cash used by operations,  including  relocation of
                    its  corporate  facilities  and reduce  staffing  levels and
                    other operating expenses. However, a receivership proceeding
                    involving  the  operating  subsidiaries  of the  Company was
                    commenced  on February  7, 1996 and the UK holding  company,
                    Corniche Distribution Limited, was placed in receivership on
                    February 28, 1996. The receiverships resulted in the loss of
                    all of the Company's  operations  and  operating  assets and
                    eliminated  most  liabilities.  Accordingly,  the  operating
                    activities of the UK subsidiaries  have been classified as a
                    discontinued operation and the excess of the UK subsidiary's
                    cumulative losses over the Company's investment was included
                    in the income statement for the year ended March 31, 1996.

                    Cash Equivalents

                    Short term cash investments  which have a maturity of ninety
                    days  or  less  are  considered  cash   equivalents  in  the
                    statement of cash flows.

<PAGE>

                    Estimates

                    The  preparation of financial  statements in conformity with
                    generally accepted accounting principles requires management
                    to  make  estimates  and  assumptions  that  affect  certain
                    reported  amounts  and  disclosures.   Accordingly,   actual
                    results could differ from those estimates.

                    Office Furniture and Equipment

                    Office  furniture  and  equipment  are  depreciated  by  the
                    straight-line  method over the estimated useful lives of the
                    assets, which range principally from three to ten years.

                    Income Taxes

                    Effective  October  1993,  the  Company  adopted  SFAS  109,
                    "Accounting  for Income  Taxes",  which  recognizes  (a) the
                    amount of taxes payable or  refundable  for the current year
                    and, (b) deferred tax  liabilities and assets for the future
                    tax  consequences  of events that have been recognized in an
                    enterprise's financial statement or tax returns. There is no
                    difference as to financial and tax reporting; as such, there
                    are no deferred taxes.


NOTE 2      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

                    New Accounting Standards

                    Effective  fiscal  1996,  the Company  adopted  Statement of
                    Financial  Accounting  Standards No. 107,  "Disclosure About
                    Fair  Value of  Financial  Instruments",  and  Statement  of
                    Position 94-6,  "Disclosure of Certain Significant Risks and
                    Uncertainties".


                    Per Share Information

                    Per  share  information  has  been  computed  based  on  the
                    weighted  average number of shares and dilutive common stock
                    equivalents outstanding during each respective period.

NOTE 3      PROPERTY AND EQUIPMENT

                    Property and Equipment consists of the following:

<TABLE>
<CAPTION>

                                                                               March 31,             March 31,
                                                                                 1998                  1997
                                                                                 ----                  ----

<S>              <C>                                                            <C>                   <C>
                 Furniture and Fixtures                                         $1,426                $1,426

                 Less:  Accumulated Depreciation                                 1,067                   679
                                                                                 -----                 -----
                                                                                $ 359                 $  747
                                                                                 =====                 =====
</TABLE>

NOTE 4       NOTES PAYABLE

                    During the  period  July 1996  through  December  1996,  the
                    Company engaged in a private offering of securities pursuant
                    to Rule 506 of Regulation D of the  Securities  Act of 1933,
                    as amended.  The offering of up to $300,000 was conducted on
                    a "best  efforts"  basis through Robert M. Cohen & Co., Inc.
                    ("RMCC"), a New York based broker-dealer and was offered and
                    sold in the form of $25,000  units.  Each unit  consisted of
                    one $25,000 face amount 90-day,  8% promissory  note and one
                    redeemable  common stock purchase warrant to purchase 60,000
                    shares of the Company's  common stock at a price of $.50 per
                    share  during a period of three  years  from  issuance.  The
                    offering was  terminated in December 1996 upon the sale of 4
                    units resulting in $100,000 in gross proceeds. In connection
                    with such offering, RMCC was paid sales commissions equal to
                    10% of the  aggregate  purchase  price  of  the  units  sold
                    resulting in aggregate sales commissions of $10,000.

<PAGE>

                    During the period  January 1997 through April 30, 1997,  the
                    Company engaged in a private offering of securities pursuant
                    to Rule 506 of Regulation D of the  Securities  Act of 1933,
                    as amended.  The  offering  consists of up to 19 units being
                    sold at an  offering  price of $25,000  per unit.  Each unit
                    consists of one $25,000 face amount  90-day,  8%  promissory
                    note and one  redeemable  common stock  purchase  warrant to
                    purchase  60,000 shares of the  Company's  common stock at a
                    price of $.50 per share  during a period of three years from
                    issuance.  The offering of up to $475,000 was conducted on a
                    "best efforts"  basis through RMCC. In connection  with such
                    offering,  RMCC was paid sales  commissions  equal to 10% of
                    the  purchase  price for each unit sold or $2,500  per unit.
                    RMCC sold 17 units.

                    The Notes  Payable of $400,000 at March 31, 1997 relating to
                    the above  offering  were paid in full during the year ended
                    March 31, 1998 with funds  generated  from the sale units of
                    stock (see Note 5).

NOTE 5      STOCKHOLDERS' EQUITY

                    Effective October 1, 1995 the Company declared a one-for-ten
                    reverse  stock  split and all  numbers  of shares  and share
                    values  stated  herein  reflect  such  reverse  split unless
                    otherwise noted.

                    In connection  with the settlement of the  securities  class
                    action litigation (see Note 6), the Company issued 1,000,000
                    shares of 7% cumulative  convertible preferred stock with an
                    aggregate  value of  $1,000,000.  The preferred  stock has a
                    liquidation  value  of  $1  per  share,  is  non-voting  and
                    convertible  into common  stock of the Company at a price of
                    $5.20 per share.  Preferred  stockholders  are  entitled  to
                    receive  a  cash  dividend  of 7%  paid  semi-annually.  The
                    preferred  shares are  callable  by the  Company at any time
                    after the first  anniversary of issuance,  at prices ranging
                    from 101% to 105% of face value. In addition, if the closing
                    price of the Company's common stock exceeds $13.80 per share
                    for a period of 20  consecutive  trading days, the preferred
                    shares are callable by the Company at a price equal to 1% of
                    face value.  In March 1995,  the holders of 53,931 shares of
                    preferred  stock  exercised  their  rights to  convert  and,
                    accordingly,  10,371  shares of common  stock  were  issued.
                    During  the year  ended  March 31,  1996,  holders of 36,802
                    shares of preferred  stock  converted such shares into 7,077
                    shares of CGI's  common  stock.  During the year ended March
                    31,  1998,  holders  of  15,359  shares of  preferred  stock
                    converted  such  shares  into 2,953  shares of CGI's  Common
                    Stock.  

                    In  March  1995,  the  Company  issued a total  of 1,312,400
                    shares  of  common  stock to  acquire  all of the issued and
                    outstanding  stock of Corniche.  Brian J. Baylis was  issued
                    877,800  shares of  common  stock  and Susan A.M. Crisp  was
                    issued  219,450 shares of common stock in exchange for their
                    holdings  representing  100% of  the issued common  stock of
                    Corniche,  and the balance of 215,150  shares were issued to
                    Chester in  connection  with the  acquisition.  In addition,
                    the Company issued 25,000  shares  of  the  Company's common
                    stock to Ronatree in exchange for the  remaining  49% Of the
                    common shares of Chessbourne.

                    Simultaneous  with the Company's  acquisition of Corniche on
                    March 2, 1995, NWCM Limited ("NWCM"), a Hong Kong investment
                    banker,  agreed  on  a  staggered  basis,  to  raise  up  to
                    $5,000,000 of new equity capital on a "best efforts"  basis.
                    This  offer  was  limited  to   experienced,   sophisticated
                    investors who are "non-U.S.  persons" under  Regulation S of
                    the United States Securities Act of 1933. An initial tranche
                    of 600,000 shares was offered at a price of $2.00 per share.
                    Pursuant to the transaction,  the Company paid NWCM a fee of
                    $50,000.  In addition,  NWCM was paid a sales  commission of
                    10% and a  non-accountable  expense allowance equal to 2% of
                    the total dollars raised, a total of $162,864.  The offering
                    was closed on  September  8, 1995 and the  Company  raised a
                    total of $957,200  gross,  $794,336 net of sales  commission
                    and expense  allowance  in the year ended March 31, 1996 and
                    $100,000 March 25, 1995. The Company has agreed to indemnify
                    NWCM for certain liabilities arising from the transaction.

                    During the year ended March 31,  1996,  the  Company  issued
                    25,000 shares of common stock to Trisec  Holdings,  Ltd. for
                    consulting   services  in   connection   with  the  "Reverse
                    Acquisition"  (see  Note 2) of  Corniche  on March 2,  1995.

                    Effective January 30, 1997, the Company entered into a Stock
                    Purchase  Agreement  with the Bank of  Scotland  and  twelve
                    unrelated  persons whereby 1,042,250 of the 1,097,250 shares
                    of  the  Company's  common  stock  pledged  to the  bank  of
                    Scotland by Brian J.  Baylis and Susan A.M.  Crisp to secure
                    certain   debts  of   Corniche   Distribution   Limited  and

<PAGE>

                    subsidiaries  to the Bank of Scotland  were sold by the bank
                    of Scotland following a default in the obligation secured by
                    the  pledge  to  such  twelve   persons  for  an   aggregate
                    consideration of $125,070.

                    On May 15, 1997, the company commenced a private  securities
                    offering  pursuant  to  Rule  506  of  Regulation  D of  the
                    Securities  Act of 1933,  as amended.  The offering of up to
                    400 units,  each unit  consisting of 10,000 shares of common
                    stock being offered at a price of $5,000 per unit.  RMCC was
                    the  placement  agent for such  offering  and is entitled to
                    receive  a sales  commission  equal  to 10% of the  offering
                    price for each unit sold. The first 50 units were offered on
                    a "best efforts, all or none" basis. The remaining 350 units
                    were offered on a "best efforts"  basis.  In connection with
                    the  offering,  369 units  were sold for gross  receipts  of
                    $1,845,000.  RMCC was paid a commission  $184,500 for net of
                    $1,660,500 to the Company. The proceeds of such offering are
                    intended  to be utilized to enable the Company to attempt to
                    effect the acquisition of an operating  business entity, for
                    working  capital and to pay off the promissory  notes and to
                    redeem  the common  stock  purchase  warrants  issued in the
                    Company's private securities offering which was completed on
                    April 30, 1997.

                    In March  1998 the  Company  sold  250,000  shares of common
                    stock at $.50 per share realizing $125,000.

                    The Company has issued common stock  purchase  warrants from
                    time to time to  investors  in private  placements,  certain
                    vendors,  underwriters,  and  directors  and officers of the
                    Company.

                    A total of 101,308  shares of common  stock are reserved for
                    issuance  upon  exercise of  warrants as of March 31,  1998.
                    Warrants issued and outstanding are summarized as follows:


NOTE 5     STOCKHOLDER'S EQUITY (Cont'd)

<TABLE>

- ---------------- ------------------------------- ----------------- ------------------------ ----------------------
<CAPTION>

<S>                                             <C>                       <C>                    <C>  
                                                 Shares Issuable
                                                        on                Exercise               Expiration
                                                     Exercise               Price                   Date
- ---------------- ------------------------------- ----------------- ------------------------ ----------------------
- ---------------- ------------------------------- ----------------- ------------------------ ----------------------

                 September 1993                             9,375                   $46.40                   4/99
                 March 1995                                91,933            $3.20 - $8.10           1/99 - 11/03

</TABLE>

                    In March 1995, as a result of the sale by the Company of its
                    medical  imaging  subsidiary,  stock options held by certain
                    directors,  officers and employees  under the Company's 1986
                    Stock   Option   Plan  were   converted   to   warrants   on
                    substantially  the same terms as the  previously  held stock
                    options, except these warrants were immediately vested.

                    Stock Option Plans

                    CGI has two stock option  plans.  The 1986 Stock Option Plan
                    provides for the grant of options to purchase  shares of the
                    Company's  common stock to employees.  The 1992 Stock Option
                    Plan provides for the grant of options to directors.

                    The 1986 Stock Option Plan allows for the grant of incentive
                    stock options (ISO),  non-qualified stock options (NQSO) and
                    stock  appreciation  rights  (SAR).  The  maximum  number of
                    shares of the Company's common stock that may be granted, as
                    amended in April 1993, is 140,000  shares.  The terms of the
                    plan provide that options are exercisable for a period of up
                    to ten  years  from the  date of  grant or a period  of five
                    years with respect to incentive  stock options if the holder
                    owns  more  that  10% of the  Company's  outstanding  common
                    stock.  The  exercise  price and  grantees  of  options  are
                    established  by the Stock  Option  Committee.  The  exercise
                    price of  ISO's  must be at  least  100% of the fair  market
                    value of the common stock at the time of grant.

                    For  holders of more than 10% of the  Company's  outstanding
                    common  stock,  the exercise  price must be at least 110% of
                    fair market value.  The exercise price of NQSO's must be not
                    less than 80% of the fair market  value of the common  stock
                    at the time of grant.  An option is exercisable  not earlier
                    than six months from the date of grant.

                    In April  1992,  the Company  adopted the 1992 Stock  Option
                    Plan to provide for the  granting  of options to  directors.
                    According  to the  terms  of this  plan,  each  director  is
                    granted  options to purchase  1,500  shares  each year.  The
                    maximum  amount of the  Company's  common  stock that may be
                    granted  under  this  plan is  20,000  shares.  Options  are
                    exercisable  at the fair market value of the common stock on
                    the date of grant and have five year terms.

                    Information  with respect to options under the 1986 and 1992
                    Stock Option Plans is summarized as follows:

<PAGE>

<TABLE>
<CAPTION>
- ----------------- --------------------------- ---------------- ---------------- ------------------ -----------------

<S>                                                     <C>              <C>               <C>
                                                  March 31,        March 31,         March 31,
                                                    1998             1997              1996
                                                    ----             ----              ----
- ----------------- --------------------------- ---------------- ---------------- ------------------ -----------------
- ----------------- --------------------------- ---------------- ---------------- ------------------ -----------------

                  Outstanding,  Beginning of
                  Year                                  1,500            7,500             28,980

                  Granted                               1,500            3,000              9,000
                  Converted                                 0                0                  0
                  Expired                                   0          (9,000)           (30,480)
                  Exercised                                 0                0                  0
                                                      -------          -------            --------

                  Outstanding,
                  End of Year                           3,000            1,500              7,500
                                                        =====            =====              =====
- ----------------- --------------------------- ---------------- ---------------- ------------------
</TABLE>

          Outstanding  options  expire 90 days  after  termination  of  holder's
          status as employee or director.

          At March 31, 1998, there were 1,500  exercisable  outstanding  options
          and  158,500  shares  available  for  grant.  The  exercise  price  of
          outstanding options was $0.40625.

          On May 1, 1997,  1,500  options were  granted at an exercise  price of
          $.3125 per share.

     Options  were  granted at an exercise  price equal to the fair value of the
common stock at the grant date. Therefore,  in accordance with the provisions of
APB Opinion No. 25 related to fixed stock options,  no  compensation  expense is
recognized with respect to options  granted or exercised.  Under the alternative
fair-value  based  method  defined in SFAS No. 123,  the fair value of all fixed
stock  options on the grant date would be recognized as expense over the vesting
period. As the number of options granted in 1998 is immaterial,  recognizing the
expense  would  not have a  material  effect  on the  Company's  1998  financial
statements.


NOTE 6    COMMITMENTS, CONTINGENCIES AND OTHER

          Legal Proceedings

          During  fiscal  1994,  the  Company  disclosed  irregularities  in its
          revenue  recognition  practices  which led to the  restatement  of the
          Company's  financial  statements for fiscal years ended  September 30,
          1989,  1990,  and 1991,  and the first  quarter of fiscal  1992.  As a
          result, nine class action securities  complaints (the "lawsuits") were
          filed against the Company and certain other persons which were settled
          in  January  1994.  Pursuant  to  the  settlement,  the  Company  paid
          $2,560,000  in cash in 1995 and  issued  $1,000,000  in 7%  cumulative
          convertible  preferred  stock. The preferred stock is convertible into
          common  stock at a price of $5.20 per share,  and is callable for five
          years. Stockholders who purchased CGI's shares between January 3, 1989
          and May 7, 1992 were included  within the plaintiff class for purposes
          of the settlement.

          CGI and certain of its former  officers and directors were involved in
          a shareholders'  derivative  action filed in Delaware  Chancery Court.
          The  causes of action  asserted  included  breach of  fiduciary  duty,
          breach of duty of care and trust of the Company's shareholders,  gross
          negligence  and  mismanagement,  as well as common law  conspiracy and
          aiding and abetting. The Court granted the Company's motion to dismiss
          by Opinion and Order dated May 2, 1995. The Company instituted its own
          action in State Court in New Jersey against its former chief executive
          officer,  Efriam Landa.  The  complaint was filed on May 4, 1995.  Mr.
          Landa answered on October 16, 1995 and asserted  counterclaims seeking
          (a)  reimbursement  of  defense  costs in the  derivative  action  and
          related  investigations  by the  Securities  and  Exchange  Commission
          ("SEC") and the United States  Attorney for the District of New Jersey
          and (b) damages for breach of his employment contract. This matter was
          settled by exchange of mutual releases on December 5, 1996.

In the opinion of  management,  there are no other  lawsuits  or claims  pending
against the Company.


<PAGE>


NOTE 7    INCOME TAXES

          There were no significant  differences between the financial statement
          and tax basis of assets and  liabilities  that were  expected  to give
          rise  to  taxable  income  in the  future  in  view  of the  Company's
          substantial tax losses available for carryforward.

          Earnings  (loss) before income taxes and preferred  stock  dividend is
          attributable to the following sources:

<TABLE>
<CAPTION>

                                                                            Years Ended In
- ----------------- --------------------------------- -------------------- -------------------- -------------

<S>                                                         <C>                  <C>                  <C> 
                                                            1998                 1997                 1996
                                                            ----                 ----                 ----
- ----------------- --------------------------------- -------------------- -------------------- ----------------------
- ----------------- --------------------------------- -------------------- -------------------- ----------------------

                                                             $(203,798)           $(268,956)             $(260,715)
                                                             =========            =========              =========
- ----------------- --------------------------------- -------------------- -------------------- ----------------------

</TABLE>

                  The Tax  Reform  Act of 1986  enacted a  complex  set of rules
                  limiting the  utilization of net operating loss  carryforwards
                  to  offset  future  taxable   income   following  a  corporate
                  ownership  change.  The  Company's  ability to utilize its NOL
                  carryforwards  is limited  following a change in  ownership in
                  excess  of fifty  percentage  points.  The  Company  has fully
                  reserved the balance of tax benefits of its  operating  losses
                  because the  likelihood  of  realization  of the tax  benefits
                  cannot be determined.

NOTE 8      SUBSEQUENT EVENTS

          The  following  actions of the Board of Directors  were  approved by a
          vote of the  Corporation's  stockholders  at the annual meeting on May
          18, 1998.

          A.        Amendment to the Corporation's  Certificate of Incorporation
                    to reduce the par value of the Common Stock.

          The par value of the Common Stock will be reduced from $0.10 per share
          to $0.001  per  share.  The par value is being  reduced  to $0.001 per
          share  to  conform  with  the  new  Series  B  Convertible  Redeemable
          Preferred Stock, as each share of the Series B Convertible  Redeemable
          Preferred  Stock par value $0.01 per share,  is  convertible  into ten
          (10) shares of Common Stock (see B below).


<PAGE>


NOTE 8    SUBSEQUENT EVENTS (Cont'd)


          B. Issuance of Series B Convertible Redeemable Preferred Stock, change
          in control and new business operations.

          On  March 4,  1998,  the  Corporation  entered  into a Stock  Purchase
          Agreement ("Agreement"), approved by the Corporation=s stockholders on
          May 18, 1998, with Mr. Joel San Antonio and certain other  individuals
          (the "Initial  Purchasers") whereby the Initial Purchasers acquired an
          aggregate of 765,000  shares of a newly  created  Series B Convertible
          Redeemable Preferred Stock, par value $0.01 per share.  Thereafter the
          Initial   Purchasers  have  been  endeavoring  to  establish  for  the
          Corporation  new business  operations  in the insurance  sector,  more
          specifically the property and casualty  specialty  insurance  markets.
          Mr. San Antonio, who has many years experience in these sectors, is in
          the process of exploring a number of specialty insurance opportunities
          for the development of new business operations.

          In connection  with the  implementation  of these  strategies,  it may
          become necessary for the Corporation to become licensed in one or more
          states in order to enable it to  conduct  operations  or to  acquire a
          company that maintains appropriate licenses. To further such goal, the
          Corporation  recently has entered into a non-binding  letter of intent
          to acquire all of the stock of an existing insurance company which has
          had limited  operations and revenues for the past several  years.  The
          acquisition is subject to due diligence by the Corporation and subject
          to material conditions, including satisfaction of capital requirements
          of  regulatory  authorities.  No  assurances  can be  given  that  the
          Corporation  will be able to obtain such licenses or to consummate any
          such acquisitions. The acquisition, if consummated, will represent the
          Corporation's entry into the United States insurance market.

          Pursuant to  Agreement  and  subsequent  transactions  Mr. San Antonio
          acquired 685,000 shares of Series B Convertible  Redeemable  Preferred
          Stock at $68,500 and Messrs. Glime, Hutchins and Aber acquired 50,000,
          15,000  and  15,000  shares,  respectively,  of  Series B  Convertible
          Redeemable  Preferred  Stock at the same price per share.  Pursuant to
          the  Agreement,  the  Corporation  will pay  certain  expenses  of the
          Initial Purchasers in connection with the Transaction,  which expenses
          are  currently  estimated  to  be  approximately  $50,000,  for  legal
          expenses. In addition,  the Corporation issued 50,000 shares of Series
          B  Convertible   Redeemable  Preferred  Stock  to  Alan  Zuckerman  as
          compensation   for  his   assistance   to  the   Corporation   in  the
          identification   and  review  of  business   opportunities   and  this
          Transaction  and for his  assistance  in bringing the  Transaction  to
          fruition. Additionally, the Corporation issued 10,000 shares of Series
          B Convertible Redeemable Preferred Stock to James Fyfe for his work in
          bringing this  Transaction to fruition.  These  issuances  diluted the
          voting rights of existing stockholders by approximately 57%. The total
          authorized shares of Series B Convertible  Redeemable  Preferred Stock
          are 825,000.

          Terms of Preferred Stock

          The  following  summarizes  the  terms  of the  Series  B  Convertible
          Redeemable  Preferred  Stock,  which terms are more fully set forth in
          the  Certificate of Designation.  The Series B Convertible  Redeemable
          Preferred  Stock  carries a zero coupon and each share of the Series B
          Convertible  Redeemable Preferred Stock is convertible into ten shares
          of the Corporation=s Common Stock. The holder of a share of the Series
          B Convertible  Redeemable Preferred Stock is entitled to ten times any
          dividends paid on the Common Stock. Mr. San Antonio assumed control of
          the  Corporation  as the  holder  of such  685,000  shares of Series B
          Convertible Redeemable Preferred Stock, since the Series B Convertible
          Redeemable  Preferred  Stock  has ten votes per share and votes as one
          class with the  Common  Stock.  Accordingly,  Mr.  San  Antonio,  with
          approximately  47% of the voting  power,  will by himself  almost have
          sufficient  voting  power to  elect  all of the  Board  of  Directors.
          However, the Initial Purchasers of the Series B Convertible Redeemable
          Preferred  Stock,  including Mr. San Antonio,  are required to vote in
          favor of Mr. Fyfe or his  designee  as a director  of the  Corporation
          through June 30, 2000.

          Pursuant  to the  terms  of  the  Agreement  and  the  Certificate  of
          Designation, from March 31, 2000 to June 30, 2000, the Corporation has
          the right to  repurchase or redeem such shares of Series B Convertible
          
<PAGE>

          Redeemable  Preferred Stock from the holders for a total consideration
          of $0.10 per share  ($76,500  in the  aggregate)  unless,  during  the
          period from the date of the closing of the  Transaction  through March
          31, 2000;

          (i)       the Corporation's  shares of common stock maintain a minimum
                    closing  bid price of not less than $2 per share on a public
                    market during a period of any 10  consecutive  trading days,
                    and either

NOTE 8    SUBSEQUENT EVENTS (Cont'd)


          (ii)      the  Corporation  raises a minimum  of $2.5  million  of new
                    equity capital through a placement of Common Stock, or

          (iii)     the  Corporation  has net revenues of at least $1 million in
                    any fiscal  quarter  through the fiscal quarter ending March
                    31, 2000 (collectively, the "Trigger Conditions").

          B. Issuance of Series B Convertible Redeemable Preferred Stock, change
             in control and new business operations.

                    Terms of Preferred Stock (cont=d)

                    Mr. Fyfe or the  director  designated  by Mr. Fyfe will have
                    the ability to  determine if the  Corporation  will elect to
                    exercise this redemption right on behalf of the Corporation.

                    Each  Series B  Convertible  Redeemable  Preferred  Share is
                    convertible   into  ten   shares  of  Common   Stock.   Upon
                    liquidation,  the Series B Convertible  Redeemable Preferred
                    Stock  would  be  junior  to  the  Corporation=s   Series  A
                    Preferred  Stock and would  share  ratably  with the  Common
                    Stock with respect to liquidating distributions.

                    Conversion

                    The holder of any share of Series B  Convertible  Redeemable
                    Preferred  Stock has the right, at such holder's option (but
                    not if such share is called for redemption),  exercisable on
                    or after  September 30, 2000, to convert such share into ten
                    (10) fully paid and  non-assessable  shares of Common  Stock
                    (the  "Conversion  Rate").  The  Conversion  Rate  shall  be
                    subject to adjustment as stipulated in the Agreement.

                    C. 1998 Employee Incentive Stock Option Plan

                    Under the 1998 Plan, the maximum  aggregate number of shares
                    which may be  issued  under  options  is  300,000  shares of
                    Common Stock. The aggregate fair market value (determined at
                    the time the  option is  granted)  of the  shares  for which
                    incentive  stock options are  exercisable for the first time
                    under the terms of the 1998  Plan by any  eligible  employee
                    during any calendar year cannot exceed $100,000.  The option
                    exercise  price of each  option  is 100% of the fair  market
                    value  of the  underlying  stock  on the  date  the  options
                    granted,  except  that  no  option  will be  granted  to any
                    employee who, at the time the option is granted,  owns stock
                    possessing  more than 10% of the total combined voting power
                    of all classes of stock of the Corporation or any subsidiary
                    unless  (a) at the  time the  options  granted,  the  option
                    exercise  price is at least 110% of the fair market value of
                    the shares of Common Stock subject to the option and (b) the
                    option by its terms is not exercisable  after the expiration
                    of five years from the date such option is granted. At least
                    one-half of the shares  issued  upon  exercise of any option
                    granted  pursuant  to the 1998 Plan must be  retained by the
                    optionee for at least one year.

                 C. 1998 Employee Incentive Stock Option Plan (cont=d)

                    The  Plan   will  be   administered   by  a   committee   of
                    disinterested  directors  of the Board of  Directors  of the
                    Corporation ("Option Committee").

                 D. Independent Directors Compensation Plan

                    In  order  to  be  able  to  attract  qualified  independent
                    directors  in the future,  the  Corporation  has adopted the
                    Independent  Directors  Compensation Plan, pursuant to which
                    each  director  who is  not an  officer  or  employee  would
                    receive  compensation  of  $2,500  plus  500  shares  of the
                    Corporation=s  Common  Stock  each  quarter.  The  Plan  was
                    effective as of April 30, 1998.

<PAGE>
                    Independent  directors  will also continue to be eligible to
                    receive  stock  options each year under the Director  Option
                    Plan at the rate of 1,500  options  per year at fair  market
                    value.

         Lease of New Office Space

                    As of August 1, 1998,  the  Corporation  has entered  into a
                    three year lease for  business  offices of 4,100 square feet
                    in Euless, Texas.

         Investment Contract

                    The  Corporation  has entered  into an  investment  advisory
                    agreement with AIG Global Investment Corporation under which
                    it will function as investment advisor and manager of all of
                    the  Corporation's  investable  assets.  AIG Global provides
                    investment   management   services  to  domestic   insurance
                    companies  seeking to create an  investment  alternative  to
                    letters  of  credit  that,  at the  same  time,  meet  state
                    statutory insurance requirements.


                           CORNICHE GROUP INCORPORATED
                                   SCHEDULE II
                        VALUATION AND QUALIFYING ACCOUNTS
                FOR THE YEARS ENDED MARCH 31, 1998 MARCH 31, 1997
                               AND MARCH 31, 1996

<TABLE>





         COL. A                               COL. B                               COL. C                COL. D             COL. E
         ------                               ------                               ------                ------             ------
                                                                                   ADDITIONS

                                        Balance at Beginning    Charged to Costs   Acquisition          Deductions       Balance at
        Description                         of Period             and Expenses     of Subsidiaries       Describe      End of Period
        -----------                         ---------           ----------------   ----------------      --------      -------------



<S>                              <C>         <C>                 <C>               <C>                   <C>           <C>     
 Allowance for Doubtful Account  1996        $345,108             $    0            $        0            $345,108 (1)  $      0
                                 1997               0                  0                     0                   0             0
                                 1998               0                  0                     0                   0             0
 Reserve against
 Notes Receivable
 in Default                      1996               0             75,000                     0                   0        75,000
                                 1997          75,000                  0                     0                   0        75,000
                                 1998          75,000                  0                     0                   0        75,000

 Inventory Reserve               1996          40,224                  0                     0              40,224(1)          0
                                 1997               0                  0                     0                   0             0
                                 1998               0                  0                     0                   0             0

</TABLE>

(1) Elimination of UK subsidiary following receivership proceeding.


<TABLE> <S> <C>

<ARTICLE>                     5
<LEGEND>
     (Replace this text with the legend)
</LEGEND>
<CIK>                         0000320017
<NAME>                        CORNICHE
       
<S>                             <C>
<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                              MAR-31-1998
<PERIOD-START>                                 APR-01-1997
<PERIOD-END>                                   MAR-31-1998
<CASH>                                         13,167
<SECURITIES>                                        0
<RECEIVABLES>                                  75,000
<ALLOWANCES>                                  (75,000)
<INVENTORY>                                         0
<CURRENT-ASSETS>                               14,167
<PP&E>                                          1,426
<DEPRECIATION>                                    679
<TOTAL-ASSETS>                                 14,914
<CURRENT-LIABILITIES>                         666,623
<BONDS>                                             0
                               0
                                   909,267
<COMMON>                                      263,037
<OTHER-SE>                                 (1,824,013)
<TOTAL-LIABILITY-AND-EQUITY>                   14,914
<SALES>                                             0
<TOTAL-REVENUES>                                    0
<CGS>                                               0
<TOTAL-COSTS>                                       0
<OTHER-EXPENSES>                              251,583
<LOSS-PROVISION>                                    0
<INTEREST-EXPENSE>                             17,373
<INCOME-PRETAX>                              (332,604)
<INCOME-TAX>                                        0
<INCOME-CONTINUING>                          (332,604)
<DISCONTINUED>                                      0
<EXTRAORDINARY>                                     0
<CHANGES>                                           0
<NET-INCOME>                                 (332,604)
<EPS-PRIMARY>                                   (0.13)
<EPS-DILUTED>                                   (0.13)
        


</TABLE>


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