SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from To
Commission file number: 0-10909
CORNICHE GROUP INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 52-2023491
(State of other jurisdiction of (IRS employer
incorporation or organization) Identification No.)
601 South Industrial Blvd.
Suite 220
Euless, Texas 76040
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: 817-283-4250
Not Applicable
(Former name, Former address and former fiscal year, if changed since last
report)
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
6,369,802 shares, $.001 par value, as of November 12, 1998 (Indicate the number
of shares outstanding of each of the issuer's classes of common stock, as of the
latest practicable date)
Page 1 of 19
<PAGE>
CORNICHE GROUP INCORPORATED
SEPTEMBER 30, 1998
(Unaudited)
I N D E X
<TABLE>
<S> <C>
Page No.
Part I - Financial Information:
Item 1. Consolidated Financial Statements (Unaudited):
Balance Sheets
At September 30, 1998 and March 31, 1998 .................................. 3
Statements of Operations
For the Three and Six Months Ended
September 30, 1998 and 1997 ............................................... 4
Statements of Cash Flows
For the Six Months Ended
September 30, 1998 and 1997 ............................................... 5
Notes to Consolidated Financial Statements ................................ 6-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............................. 14-17
Part II - Other Information:
Item 3 Through Item 9 - Not Applicable..................................... 18
Signatures................................................................. 19
</TABLE>
<PAGE>
CORNICHE GROUP INCORPORATED
SEPTEMBER 30, 1998
(Unaudited)
I N D E X
<TABLE>
<S> <C>
Page No.
Part I - Financial Information:
Item 1. Consolidated Financial Statements (Unaudited):
Balance Sheets
At September 30, 1998 and March 31, 1998 .................................. 3
Statements of Operations
For the Three and Six Months Ended
September 30, 1998 and 1997 ............................................... 4
Statements of Cash Flows
For the Six Months Ended
September 30, 1998 and 1997 ............................................... 5
Notes to Consolidated Financial Statements ................................ 6-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............................. 14-17
Part II - Other Information:
Item 3 Through Item 9 - Not Applicable..................................... 18
Signatures................................................................. 19
</TABLE>
Page 2 of 19
<PAGE>
CORNICHE GROUP INCORPORATED
BALANCE SHEETS
(Unaudited)
A S S E T S
<TABLE>
<S> <C> <C>
September 30, March 31,
1998 1998
(Consolidated)
Current assets:
Cash and equivalents $ 222,251 $1,129,064
Marketable securities 747,671 -
Other receivables and prepaid expenses - 179
-------------- --------------
Total current assets 969,922 1,129,243
Property and equipment, net 27,143 359
Other assets 12,525 -
License 18,302 -
-------------- --------------
$1,027,892 $1,129,602
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Dividends payable - preferred stock $ 222,863 $ 208,464
Accounts payable, accrued expenses
and other current liabilities 102,393 51,212
Current portion of capital lease obligation 2,140 -
-------------- --------------
Total current liabilities 327,396 259,676
-------------- --------------
Capital lease obligation 5,187 -
-------------- --------------
Stockholders' equity:
Preferred stock, $.01 par value,
authorized 5,000,000 shares including:
Series A 7% cumulative convertible preferred stock -
stated value - $1.00 per share
Authorized - 1,000,000 shares
Issued and outstanding - 830,646 shares
at September 30, 1998 and 893,908 shares
at March 31, 1998 830,646 893,908
Series B convertible redeemable preferred
stock, $.01 par value:
Authorized, issued and outstanding at
September 30, 1998 - 825,000 shares and
zero shares at March 31, 1998 8,250 -
Common stock $.001 par value, September 30, 1998,
$0.10 par value, March 31, 1998
Authorized - 30,000,000 shares
Issued and outstanding - 6,369,609 at September 30,
1998 and 6,355,231 at March 31, 1998 6,370 635,522
Additional paid-in capital 2,836,034 2,053,750
Accumulated deficit ( 2,985,991) ( 2,713,254)
-------------- --------------
Total stockholders' equity 695,309 869,926
-------------- --------------
$1,027,892 $1,129,602
-------------- --------------
</TABLE>
See accompanying notes to financial statements.
Page 3 of 19
<PAGE>
CORNICHE GROUP INCORPORATED
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
For the Three Months For the Six Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
(Consolidated) (Consolidated)
---------- --------- ----------- -----------
Net sales $ - $ - $ - $ -
Cost of sales - - - -
---------- --------- ----------- -----------
Gross profit - - - -
---------- --------- ----------- -----------
General and administrative
expenses 128,087 16,233 262,324 137,049
---------- --------- ----------- -----------
Operating loss ( 128,087) ( 16,233) ( 262,324) ( 137,049)
Interest income - net 6,940 4,309 19,606 128
---------- --------- ----------- -----------
Net loss before
preferred dividend ( 121,147) ( 11,924) ( 242,718) ( 136,921)
Preferred dividend ( 14,376) ( 15,697) ( 30,019) ( 29,386)
---------- --------- ----------- -----------
Net loss ($135,523) ($ 27,621) ($272,737) ($166,307)
---------- --------- ----------- -----------
Net loss per share
of common stock ($0.02) ($0.01) ($0.04) ($0.04)
---------- --------- ----------- -----------
Weighted average number of
common shares outstanding 6,369,609 5,295,622 6,367,015 4,195,436
---------- --------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
Page 4 of 19
<PAGE>
CORNICHE GROUP INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<S> <C> <C>
For the Six Months Ended
September 30, September 30,
1997 1998
(Consolidated)
Cash flows from operating activities:
Net loss ($ 272,737) ($ 166,307)
--------------- ---------------
Adjustments to reconcile net loss to net
cash used in operating activities:
Series B Preferred shares issued
for services rendered 6,000 -
Series A Preferred stock dividends 30,019 29,386
Depreciation 1,600 194
Increase (decrease) in cash flows as
a result of changes in assets and
liability account balances net of
effects from purchases of Stamford
Insurance Company, Ltd.:
Other receivables 179 904
Other assets ( 12,525) -
Accounts payable, accrued expense
and other current liabilities 51,083 ( 91,573)
--------------- ---------------
Total adjustments 76,356 ( 61,089)
--------------- ---------------
Net cash used in operating activities ( 196,381) ( 227,396)
--------------- ---------------
Cash flows from investing activities:
Investment in marketable securities ( 747,671) -
Acquisition of property assets ( 18,275) -
Acquisition of Stamford Insurance Company, Ltd. ( 37,000) -
--------------- ---------------
Net cash used in investing activities ( 802,946) -
--------------- ---------------
Cash flows from financing activities:
Net proceeds from issuance of capital stock 76,500 1,660,500
Payments of capital lease obligation ( 2,783) -
Payments of notes payable - ( 450,000)
Additional borrowings - 50,000
--------------- ---------------
Net cash provided by financing activities 73,717 1,260,500
--------------- ---------------
Net increase (decrease) in cash ( 925,610) 1,033,104
Cash balance acquired with purchase of subsidiary 18,797 -
Cash and cash equivalents at beginning of period 1,129,064 13,167
--------------- ---------------
Cash and cash equivalents at end of period $ 222,251 $1,046,271
--------------- ---------------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period:
Income taxes $ - $ -
--------------- ---------------
Interest $ 711 $ -
--------------- ---------------
Supplemental Schedules of Non-Cash Transactions:
Issuance of preferred stock for services rendered $ 6,000 $ -
Company asset received under capital
lease obligation $ 10,110 $ -
--------------- ---------------
Accrual of dividend on Series A Preferred Stock $ 30,019 $ 29,386
--------------- ---------------
</TABLE>
See accompanying notes to financial statements.
Page 5 of 19
<PAGE>
CORNICHE GROUP INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(Unaudited)
NOTE 1 - THE COMPANY.
Corniche Group Incorporated (hereinafter referred to as
the "Company" or "CGI") as a result of a reverse acquisition with
Corniche Distribution Limited and its Subsidiaries ("Corniche"),
was engaged 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
the 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 and Corniche Distribution Limited was placed in
receivership on February 28, 1996. Since then the Company has
been inactive.
On March 4, 1998, the Company entered into a Stock
Purchase Agreement ("Agreement"), approved by the Company's
stockholders on May 18, 1998, with certain 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 Company new business operations in the
insurance sector, more specifically the property and casualty
specialty insurance markets. Management is exploring a number of
specialty insurance opportunities for the development of new
business operations.
On September 30, 1998, the Company acquired all of the
capital stock of Stamford Insurance Company, Ltd. ("Stamford")
for $37,000 in cash in a transaction accounted for as a purchase.
Stamford was charted under the Laws of, and is licensed to
conduct business as an insurance company by, the Cayman Islands.
From its inception through its acquisition by the Company,
Stamford did not generate any revenues but has incurred expenses.
Page 6 of 19
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NOTE 1 - THE COMPANY. (Continued)
The unaudited consolidated combined results of
operations, on a pro forma basis as though Stamford had been
acquired at the beginning of each period, is as follows:
<TABLE>
<S> <C> <C> <C> <C>
For the Three Months For the Six Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
Net sales $ - $ - $ - $ -
------------ ------------ ------------ ------------
Costs and expenses $205,086 $ 22,223 $345,502 $146,058
------------ ------------ ------------ ------------
Net loss ($211,380) ($ 31,976) ($353,134) ($171,908)
------------ ------------ ------------ ------------
Net loss per share ($0.03) ($0.01) ($0.05) ($0.04)
------------ ------------ ------------ ------------
</TABLE>
NOTE 2 - BASIS OF PRESENTATION.
The accompanying unaudited financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions for Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management,
the statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the financial
position as of September 30, 1998 and 1997 and the results of
operations and cash flows for the three and six months ended
September 30, 1998 and 1997. The results of operations for the
three and six months ended September 30, 1998 and 1997 are not
necessarily indicative of the results to be expected for the full
year.
The March 31, 1998 balance sheet has been derived from
the audited financial statements at that date included in the
Company's annual report on Form 10-K. These unaudited financial
statements should be read in conjunction with the financial
statements and notes thereto included in the Company's annual
report on Form 10-K.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
(a) 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.
Page 7 of 19
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NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(b) 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.
(c) Marketable Securities:
The Company uses an investment advisory company to
invest its funds in highly liquid cash management funds. The
market value of the investment approximates cost.
(d) Property and Equipment:
Property 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. Assets
held under capital leases are amortized over the life of the
lease which approximates its useful life.
(e) 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. The deferred tax
asset attributable to the Company's $870,000 net operating loss
carryforward has been fully reserved as management can not
determine the likelihood of its utilization.
(f) Fair Value of Financial Instruments:
The Company adopted Statement of Financial Accounting
Standards No. 121 ("SFAS No. 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of". The statement requires that the Company recognize
and measure impairment losses of long-lived assets, certain
identifiable intangibles, value long-lived assets to be disposed
of and long-term liabilities. At September 30, 1998, the carrying
values of the Company's other assets and liabilities approximate
their estimated fair values.
Page 8 of 19
<PAGE>
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(g) Earnings Per Share:
The Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings Per Share," in the year ended March
31, 1998. Basic earnings per share is based on the weighted
effect of all common shares issued and outstanding, and is
calculated by dividing net income available to common
stockholders by the weighted average shares outstanding during
the period. Diluted earnings per share, which is calculated by
dividing net income available to common stockholders by the
weighted average number of common shares used in the basic
earnings per share calculation plus the number of common shares
that would be issued assuming conversion of all potentially
dilutive securities outstanding, is not presented as it is anti-
dilutive in all periods.
(h) Recently Issued Accounting Pronouncements:
The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130 - "Reporting
Comprehensive Income", No. 131 - "Disclosures about Segments of
an Enterprise and Related Information", No. 132 - "Employer's
Disclosures about Pension and Other Postretirement Benefits" and
No. 133 - "Accounting for Derivative Instruments and Hedging
Activities". Management does not believe that the effect of
implementing these new standards will be material to the
Company's financial position, results of operations and cash
flows.
NOTE 4 - STOCKHOLDER'S EQUITY.
(a) 7% Cumulative Convertible Preferred Stock:
In connection with the settlement of the securities
class action litigation in 1994, the Company issued 1,000,000
shares of 7% cumulative convertible preferred stock with an
aggregate value of $1,000,000. The following summarizes the terms
of 7% cumulative convertible preferred stock as more fully set
forth in the Certificate of Designation. 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 stock- holders 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 form 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. The Certificate of Designation also
states that the holders of the preferred shares may require the
Company, subject to certain conditions, to purchase any and all
of the outstanding preferred shares at a price of $1.00 per share
at any time commencing December 1, 1999. During the six months
ended September 30, 1998, 63,262 shares of the preferred were
converted into 12,166 shares of 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 the Company's common
stock.
Page 9 of 19
<PAGE>
NOTE 4 - STOCKHOLDER'S EQUITY. (Continued)
(b) Series B Convertible Redeemable Preferred Stock:
On March 4, 1998, the Company entered into a Stock
Purchase Agreement ("Agreement"), approved by the Company's
stockholders on May 18, 1998, with certain individuals (the
"Initial Purchasers") whereby the Initial Purchasers and two
other persons acquired an aggregate of 825,000 shares of a newly
created Series B Convertible Redeemable Preferred Stock ("Series
B Stock"), par value $0.01 per share.
Pursuant to the Agreement and subsequent transactions,
the Initial Purchasers acquired 765,000 shares of Series B Stock
for $76,500 in cash. The Company will pay certain legal expenses
of the Initial Purchasers equaling approximately $50,000 in
connection with the Transaction. In addition, the Company issued
50,000 shares of Series B Stock to Alan Zuckerman as compensation
valued at $5,000 for his assistance to the Company in the
identification and review of business opportunities and this
transaction and for his assistance in bringing the transaction to
fruition. Additionally, the Company issued 10,000 shares of
Series B Stock to James Fyfe as compensation valued at $1,000 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.
The following summarizes the terms of the Series B
Stock whose terms are more fully set forth in the Certificate of
Designation. The Series B Stock carries a zero coupon and each
share of the Series B Stock is convertible into ten shares of the
Company's Common Stock. The holder of a share of the Series B
Stock is entitled to ten times any dividends paid on the Common
Stock and such stock has ten votes per share and vote as one
class with the Common Stock. Accordingly, the Initial Purchasers
have sufficient voting power to elect all of the Board of
Directors. However, the Initial Purchasers are required to vote
in favor of Mr. Fyfe or his designee as a director of the
Corporation through June 30, 2000.
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 is subject to adjustment
as stipulated in the Agreement. Upon liquidation, the Series B
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.
Page 10 of 19
<PAGE>
NOTE 4 - STOCKHOLDER'S EQUITY. (Continued)
(b) Series B Convertible Redeemable Preferred Stock: (Continued)
Pursuant to the terms of the Agreement and the
Certificate of Designation, from March 31, 2000 to June 30, 2000,
the Company has the right to repurchase or redeem such shares of
Series B Stock from the holders for total consideration of $0.10
per share ($82,500 in the aggregate) unless, during the period
from the date of the closing of the transaction through March 31,
2000,
(i) the Company'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
(ii) the Company raises a minimum of $2,500,000 of new
equity capital through a placement of Common Stock, or
(iii) the Company has net revenues of at least $1,000,000 in
any fiscal quarter through the fiscal quarter ending
March 31, 2000 (collectively, the "Trigger
Conditions").
Mr. Fyfe or the director designated by Mr. Fyfe will
have the ability to determine if the Company will elect to
exercise this redemption right on behalf of the Company.
(c) Common Stock:
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. The Company used a
placement agent for such offering who received a sales commission
equal to 10% of the offering price of each unit sold. In
connection with the offering, 369 units were sold for gross
receipts of $1,845,000 from which the agent 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 stockholders at the annual meeting held on May 18,
1998, approved the reduction of the par value of the common stock
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.
Page 11 of 19
<PAGE>
NOTE 4 - STOCKHOLDER'S EQUITY. (Continued)
(d) Warrants:
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 September 30, 1998.
(e) 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.
The Plan will be administered by a committee of
disinterested directors of the Board of Directors of the
Corporation ("Option Committee").
(f) 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 effective as of April 30,
1998.
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.
Page 12 of 19
<PAGE>
NOTE 5 - OTHER EVENTS.
(a) 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 fee in
Euless, Texas at an annual rental of $50,000.
(b) Investment Contract:
The Corporation has entered into an investment advisory
agreement with AIG Global Investment Corporation ("AIG") under
which AIG will function as investment advisor and manager of all
the Corporation's investable assets. AIG provides management
services to all affiliated insurance companies of American
International Group and other third-party institutions on a
world-wide basis.
(c) Year 2000:
Even though the Company at the present time does not
have any operations, it recognizes the need to ensure that its
future operations, if any, will not be adversely affected by Year
2000 software or hardware failures. The Company has not
commenced communications with its suppliers, banks, investment
advisors, and others with which it presently does, or intends to
conduct, business to coordinate Year 2000 conversion. It intends
to commence such communications over the next several months.
Since the Company has not been engaged in any business
for the past several years,its basic concerns regarding Year 2000
compliance are focused on future operations. The Company is in
the process of making the initial assessment of its computer
information needs and has just recently ordered its first system
hardware which is expected to be delivered shortly. The Company
will be further assessing its future software needs. The Company
intends to obtain assurances from vendors that the hardware and
software which it acquires is Year 2000 compliant.
The Company does not know what impact, if any, Year
2000 non-compliance will have on its financial condition or its
contemplated future operations. But based upon the available
current information, the Company does not anticipate that, in the
aggregate, costs associated with Year 2000 issues will have a
material adverse financial impact. However, there can be no
assurances that, despite steps which the Company intends to take
to insure that it, its future customers, its suppliers and others
are free of Year 2000 issues, the Company will not encounter non-
compliance issues that could have a material adverse impact on
its financial condition and/or its future operations. If, despite
the Company's efforts, there are Year 2000 related failures
affecting the Company from outside sources, management at the
present time does not believe the impact will be substantial.
Page 13 of 19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with the financial statements and notes thereto
contained elsewhere in this Form 10-Q. Certain statements under
this caption "Management's Discussion and Analysis of Financial
Conditions and Results of Operations," constitute
"forward-looking statements" under the Private Securities
Litigation Reform Act of 1995. See "Risk Factors-Forward Looking
Statements.
PLAN OF OPERATION
Through February 28, 1996, the Company was engaged in
the retail sale and wholesale distribution of stationery products
and related office products, including office furniture, in the
United Kingdom through its two subsidiaries. As a result of large
operating losses and cash outflows in 1995 and 1996 receivers
were appointed to these subsidiaries in February 1996. Since the
liquidation of the subsidiaries by the receivers, the Company has
been inactive.
In May 1998, the Company sold to certain individuals
through a stock purchase agreement an aggregate of 765,000 shares
of a newly created Series B Convertible Redeemable Preferred
Stock, par value for 0.01 per share for $76,500. Following the
sale management has been endeavoring to establish for the Company
new business operations in the insurance sector, more
specifically the property and casualty specialty insurance
markets.
The Company's plan of operation for the next twelve
months will principally involve the continuation of its endeavors
to establish itself in the casualty and property insurance
sector. Towards that end, the Company entered into a letter of
intent to acquire a domestic insurance carrier. In August 1998,
management terminated these negotiations. The Company acquired on
September 30, 1998, Stamford Insurance Company, Ltd., an inactive
foreign corporation, which is licensed in the Cayman Islands as a
casualty and property insurer. The Company intends to use this
subsidiary as a reinsurer. Management believes that sufficient
reinsurance business is available to be written by the Company
subject to, among other things, its ability to raise the
requisite capital funding. Depending upon when and if the
Company is successful in securing its capital reqirements, it may
be feasible for the Company to generate operating revenues in or
about the middle of 1999. Management is also exploring
other opportunities in specialty insurance markets. The Company's
future success in developing operations in the insurance sector
is dependent upon, among other things, management's ability to
obtain sufficient capital funding for its plans.
RESULTS OF OPERATIONS
During the period March 1996 through March 1998, the
Company's primary activities have been to engage in three private
securities offerings, and to settle and pay off certain of its
outstanding liabilities. In May 1998, the stockholders approved
the issuance of the Series B Preferred Stock, change in control
and new business operations. The losses before net interest
income and preferred dividend accrual during the three and six
month periods ended September 30, 1998 were $128,000 and $262,000
which is an increase of $111,000 (693.8%) over the three months
ended September 30, 1997 and an increase of $125,000 (91.2%) over
the six months ended September 30, 1997. The increase in both
current periods arose from increases in general and
administrative costs primarily consulting and professional fees
of $40,000, salaries of $35,000, stockholders annual meeting and
general office costs of $30,000 over the 1997 period amounts.
Page 14 of 19
<PAGE>
RESULTS OF OPERATIONS (Continued)
Although general and administrative costs were
relatively the same in the current quarter ($128,000) as compared
to the three months ended June 30, 1998 cost of $134,000, the
current quarter's professional fees decreased $35,000 and
salaries increased $35,000 as compared to the prior quarter's
costs. The general and adminis- trative costs in the quarter
ended September 30, 1997 were $121,000 less than the costs
incurred in the quarter ended June 30, 1997. The reduction is
attributable to incurring annual stockholder costs and
professional fees in the first quarter without any such costs in
the subsequent quarter.
Net interest income increased to $7,000 and $20,000 in
the current three and six periods from $4,000 and $0 in the prior
year. The increase is the result of income earned from the
Company's sales of its securities in October 1997 through May
1998.
The accrual of the preferred dividend remained
relatively constant in each period.
Net loss in the current quarter increased by $108,000
(385.7%) to $136,000 from $28,000 in 1997 and the net loss
increased $107,000 (64.5%) in the current six month period to
$273,000 from $166,000 in the prior year principally from the
increased general and administrative costs.
FINANCIAL CONDITION
The Company's cash position was reduced by $907,000
from March 31, 1998 to September 30, 1998 due to an increase in
investments in marketable securities of $748,000, the acquisition
of property and other assets of $31,000 and the acquisition of
the Company's subsid- iary for $37,000. The purchased subsidiary
had cash on the date of acquisition September 30, 1998 of
$19,000.
Even though the acquisition of Stamford may enable
the Company to generate limited reinsurance revenues,
management's business plan requires additional funding
through future sales of the Company's securities and/or other
financing alternatives. Management anticipates a continued
deterioration in the Company's financial condition in the near
term due to ongoing general and administrative costs until the
Company raises the sufficient financing to capitalize its
insurance business and commence its intended operations. The
Company intended to raise capital through a private
placement of its securities, and in that regard, the Company had
preliminary discussions with potential investors. Based upon
these preliminary discussions, the Company has decided to re-
evaluate its financing options and may seek to raise funds
through different investment vehicles than initially
contemplated. There can be no assurance that the Company will be
successful in its efforts to raise any funds from any of the
options under evaluation or that it will be able to avail itself
of other alternative sources of funds.
LIQUIDITY AND CAPITAL RESOURCES
The Company relied solely on the proceeds from the
sales of its securities in October 1997 and May 1998 for the
sources of its funds. The Company will need additional capital to
implement its business plan.
Page 15 of 19
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (Continued)
The Company's working capital at September 30, 1998,
September 30, 1997 and March 31, 1998 was $643,000, $842,000, and
$870,000, respectively. The deterioration of working capital of
approximately $199,000 and $227,000 from a year and six months
ago, respectively primarily resulted from the net loss incurred
during the period net of the proceeds from the sale of the
Company's securities.
INFLATION
Inflation has not had a significant effect on the
Company's operations or financial position and management
believes that the future effects of inflation on the Company's
operations and financial position will be insignificant.
YEAR 2000 COMPLIANCE
Even though the Company at the present time does not
have any operations, it recognizes the need to ensure that its
future operations, if any, will not be adversely affected by Year
2000 software or hardware failures. The Company has not
commenced communications with its suppliers, banks, investment
advisors, and others with which it presently does, or intends to
conduct, business to coordinate Year 2000 conversion. It intends
to commence such communications over the next several months.
Since the Company has not been engaged in any business
for the past several years,its basic concerns regarding Year 2000
compliance are focused on future operations. The Company is in
the process of making the initial assessment of its computer
information needs and has just recently ordered its first system
hardware which is expected to be delivered shortly. The Company
will be further assessing its future software needs. The Company
intends to obtain assurances from vendors that the hardware and
software which it acquires is Year 2000 compliant.
The Company does not know what impact, if any, Year
2000 non-compliance will have on its financial condition or
its contemplated future operations. But based upon the available
current information, the Company does not anticipate that, in the
aggregate, costs associated with Year 2000 issues will have a
material adverse financial impact. However, there can be no
assurances that, despite steps which the Company intends to take
to insure that it, its future customers, its suppliers and others
are free of Year 2000 issues, the Company will not encounter non-
compliance issues that could have a material adverse impact on
its financial condition and/or its future operations. If,
despite the Company's efforts, there are Year 2000 related
failures affecting the Company from outside sources, management
at the present time does not believe the impact will be
substantial.
Page 16 of 19
<PAGE>
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
Certain statements included in this report, including
the words "believes," anticipates, "expects" and similar
expressions, are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties,
which could cause actual results to differ materially from those
projected. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date
hereof. The Company undertakes no obligation to republish revised
forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrences of
unanticipated events. Readers are also urged to carefully review
and consider the various disclosures made by the Company in this
report, as well as the Company's periodic reports on other
fillings with the Securities and Exchange Commission.
Page 17 of 19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
CORNICHE GROUP INCORPORATED
(Registrant)
By/s/ Robert Hutchins
Robert Hutchins, President and
Principal Financial Officer
Date: November 23, 1998
16
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