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>
