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 June 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 22-2343568
(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
6,355,231 shares, $.001 par value, as of June 1, 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 18 pages
<PAGE>
CORNICHE GROUP INCORPORATED
TABLE OF CONTENTS
Part I - Financial Information Page
Item I. Financial Statements (Unaudited)
Balance Sheet at June 30, 1998
and March 31, 1998 3
Statement of Operations for the three
months ended June 30, 1998 and June 30, 1997 4
Statement of Cash Flows for the three
months ended June 30, 1998 and June 30, 1997 5
Notes to Unaudited Financial Statements 6-12
Item II. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-14
Part II - Other Information
Item 5 Other Information 15
Item 6 Exhibits and Reports on Form 8-K 15
2
<PAGE>
CORNICHE GROUP INCORPORATED
BALANCE SHEET
ASSETS
<TABLE>
<S> <C> <C>
June 30, March 31,
1998 1998
(unaudited) (audited)
Current Assets:
Cash $1,126,383 $1,129,064
Other receivables and prepaid expenses 13,365 179
Total current assets 1,139,748 1,129,243
Other Assets:
Property and equipment, net 269 359
Total Assets $1,140,017 $1,129,602
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 21,649 $ 21,362
Dividends payable - preferred stock 224,107 208,464
Accrued liabilities 85,050 29,850
Total current liabilities 330,806 259,676
Stockholders' Equity:
Preferred Stock, $.01 par value,
authorized 5,000,000 shares including
1,000,000 shares of Series A 7% cumulative
convertible preferred stock, issued and out-
standing 893,908 shares of Series A preferred
stock at June 30, 1998 and March 31, 1998. 893,908 893,908
Series B convertible redeemable preferred
stock $.01 par value authorized 825,000 shares
issued 825,000 shares June 30, 1998, zero
shares March 31, 1998. 76,500 -
Common Stock $.001 par value, June 30, 1998,
$0.10 par value, March 31, 1998, authorized
30,000,000 shares, issued 6,355,231 shares at
June 30, 1998 and 6,355,231 shares at March
31, 1998 6,355 635,522
Additional paid-in capital 2,682,917 2,053,750
(Accumulated deficit) retained earnings (2,850,469) (2,713,254)
Total stockholders' equity 809,211 869,926
Total Liabilities and Stockholders' Equity $1,140,017 $1,129,602
</TABLE>
See Accompanying Notes
3
<PAGE>
CORNICHE GROUP INCORPORATED
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<S> <C> <C>
----------- 3 Months ended ----------
June 30, June 30,
1998 1997
Net Sales $ - $ -
Cost of Sales - -
Gross Profit - -
Selling, General and Administrative Expenses (134,237) (120,816)
Operating Loss (134,237) (120,816)
Interest (net) 12,666 (4,181)
Net Loss before Preferred Dividend (121,571) (124,997)
Preferred Dividend (15,643) (13,689)
Net Loss (137,214) (138,686)
Loss per share of Common Stock (0.02) (0.04)
Weighted average number of common shares
Outstanding 5,916,146 3,083,159
</TABLE>
See Accompanying Notes
4
<PAGE>
CORNICHE GROUP INCORPORATED
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<S> <C> <C>
----------- 3 Months ended ----------
June 30, June 30,
1998 1997
Cash Flows from Operations:
Net Loss from Continuing Operations $(121,571) $(124,997)
Adjustments to reconcile net loss from continuing
operations to net cash used in operating activities:
Depreciation 90 97
Changes in Assets and Liabilities:
(Increase)/Decrease in Other Receivables (5,400) 50
(Increase) in Prepaid Expenses (7,787) (137)
Increase/(Decrease) in Accounts Payable 287 (4,355)
Increase/(Decrease) in Accrued Liabilities 55,200 (93,397)
Net Cash Used in Continuing Operations (79,181) (222,739)
Cash Flows from Financing Activities:
Net Proceeds from Issuance of Preferred Stock 76,500 -
Net Proceeds from Issuance of Common Stock for
Cash - 873,000
Payment of Notes Payable - (450,000)
Additional Borrowings - 50,000
Net Cash Provided by Financing Activities 76,500 473,000
Net (Decrease) Increase in Cash (2,681) 250,261
Cash at Beginning of Period 1,129,064 13,167
Cash at End of Period $1,126,383 $ 263,428
</TABLE>
During the three months ended June 30, 1998 and 1997, the Company accrued
Preferred Stock dividends of $15,643 and $13,689, respectively, which are
non-cash items.
See Accompanying Notes
5
<PAGE>
CORNICHE GROUP INCORPORATED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
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' 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 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.
6
<PAGE>
CORNICHE GROUP INCORPORATED
NOTES TO UNAUDITED FINANCIAL STATEMENTS (Cont'd)
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 June 30, 1998 and 1997 and the
results of operations and cash flows for the three months ended June
30, 1998 and 1997. The results of operations for the three months
ended June 30, 1998 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
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.
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.
7
<PAGE>
CORNICHE GROUP INCORPORATED
NOTES TO UNAUDITED FINANCIAL STATEMENTS (Cont'd)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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".
NOTE 4 STOCKHOLDERS' EQUITY
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. Robert M. Cohen & Co., Inc. ("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
$0.50 per share realizing $125,000.
NOTE 5 OTHER 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).
8
<PAGE>
CORNICHE GROUP INCORPORATED
NOTES TO FINANCIAL STATEMENTS (Cont'd)
NOTE 5 OTHER EVENTS (Cont'd)
B. Issuance of Series B Convertible Redeemable Preferred Stock, change
in control.
On March 4, 1998, the Company entered into a Stock Purchase Agreement
("Agreement"), approved by the Company'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 ("Series B Stock"), par value $0.01 per share.
Pursuant to the Agreement and subsequent transactions, Mr. Joel San
Antonio acquired 685,000 shares of Series B Stock at $68,500 and
Messrs. Ronald Glime, Robert Hutchins and Glenn Aber acquired 50,000,
15,000 and 15,000 shares, respectively, of Series B Stock at the same
price per share. Pursuant to the Agreement, 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 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 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 Series B Preferred Stock
The following summarizes the terms of the Series B Stock, which 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.
9
<PAGE>
CORNICHE GROUP INCORPORATED
NOTES TO FINANCIAL STATEMENTS (Cont'd)
NOTE 5 OTHER EVENTS (Cont'd)
Terms of Preferred Stock (Cont'd)
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 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 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 $2.5 million of new equity
capital through a placement of Common Stock, or
(iii)the Company has net revenues of at least $1 million 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.
Each Series B Stock is convertible into ten shares of Common Stock.
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.
10
<PAGE>
CORNICHE GROUP INCORPORATED
NOTES TO FINANCIAL STATEMENTS (Cont'd)
NOTE 5 OTHER EVENTS (Cont'd)
B. Issuance of Series B Convertible Redeemable Preferred Stock, change
in control and new business operations.
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 is
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.
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.
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.
11
<PAGE>
CORNICHE GROUP INCORPORATED
NOTES TO FINANCIAL STATEMENTS (Cont'd)
NOTE 5 OTHER EVENTS (Cont'd)
E. 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.
F. 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.
12
<PAGE>
CORNICHE GROUP INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Unaudited Financial Statements and notes thereto.
Results of Operations
Prior to the change in control discussed below, the Company has not
engaged in any operating activities nor generated any operating
revenues since February 1996 when its then operating subsidiaries were
placed in receivership in the UK.
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.
At the Company's annual meeting of stockholders on May 18, 1998, the
stockholders approved the issuance of Series B convertible redeemable
preferred stock, change in control and new business operations. The
new officers and directors are endeavoring to establish for the
Company new business operations in the insurance sector, more
specifically, the property and casualty specialty insurance markets.
No assurance can be given that the Company will be able to obtain
needed licenses, consummate planned acquisitions, or otherwise
establish or development operations in this sector, or that, if it is
successful in doing so, it will be able to operate profitably.
The Company recorded losses in the three months ended June 30, 1998 of
$134,237 before interest expense and preferred stock dividends accrual
($120,816 in 1997). Such losses arose from general and administrative
expenses which principally comprised professional fees, stockholder
annual meeting, and general office costs. Compared to the three months
ended June 30, 1997, such costs were $13,421 higher. The increase is
primarily due to the change in corporate control, legal fees ($60,000)
and higher professional fees and general corporate costs.
Liquidity and Capital Resources
During the three months ended June 30 1998 the Company relied on the
net proceeds from its prior securities offering which was completed on
September 30, 1997 (see Note 4 of the Company's unaudited financial
statements included in Part I, Item I).
13
<PAGE>
CORNICHE GROUP INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital resources (cont'd)
The Company sold 765,000 shares of its new Series B preferred stock on
May 19, 1998 for $76,500.
The Company will need additional capital in order to implement its
business plan, since it will have to meet capital and surplus
requirements in order to become licensed in any state in which it
hopes to do business, and its present capital would not be sufficient
to meet any such licensing requirements. The Company intends to
undertake a private placement of its equity securities to meet such
needs as well as to provide capital for acquisitions in the insurance
sector. There can be no assurance that the Company will be able to
successfully complete such financing or that if it is unable to do so
alternative source of capital will be available to it.
14
<PAGE>
CORNICHE GROUP INCORPORATED
PART II
OTHER INFORMATION
ITEM 5 OTHER INFORMATION
Change of Accountants
On August 12, 1998, the Company and its former auditors, Simontacchi &
Co. LLP ("Simontacchi") terminated their client-auditor relationship.
The reports of Simontacchi on the financial statements of the Company
for the prior two fiscal years contained no adverse opinion or
disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles. The Board of
Directors of the Company participated in and approved the decision to
change the independent accountants. In connection with its audits for
the prior two fiscal years and through August 12, 1998, there were no
disagreements with Simontacchi on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of
Simontacchi, would have caused Simontacchi to make reference thereto
in its report on the financial statements for such years. No
"reportable events" as described under Item 304(a)(1)(v) of Regulation
S-K occurred during the prior two fiscal years. The Company requested
that Simontacchi furnish it with a letter addressed to the Securities
and Exchange Commission stating whether or not it agrees with the
above statements. A copy of such letter, dated as of August 12, 1998,
is filed as an Exhibit to this Form 10-Q.
The Company simultaneously engaged Weinick, Sanders & Co. ("Weinick")
as its new independent accountants as of August 12, 1998. Such
appointment was approved by the Company's Board of Directors. The
Company had not consulted with Weinick regarding any matters or events
set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed herewith
Letter from Simontacchi & Company, LLP
(27) Financial Data Schedule
(B) Forms 8-K filed during quarter
None
15
<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, President and
Principal Financial Officer
Date: August 14, 1998
16
<PAGE>
EXHIBIT
SIMONTACCHI & COMPANY, LLP
Certified Public Accountants
9 Law Drive
Fairfield, New Jersey 07004
Tel: (973) 575-5040
Fax: (973) 575-5044
August 12, 1998
Securities and Exchange Commission
Washington, D.C. 20549
RE: Corniche Group Incorporated
Dear Sir &/or Madam:
We are in agreement with the statement attached to the Corniche Group
Incorporated's Form 10-Q for the quarter ended June 30, 1998 in relation to the
Company's changing of its auditors.
Very truly yours,
David Miller, CPA, Partner
Simontacchi & Company, LLP
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-1-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1.000
<CASH> 1,127
<SECURITIES> 0
<RECEIVABLES> 13
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,140
<PP&E> 1
<DEPRECIATION> 1
<TOTAL-ASSETS> 1,140
<CURRENT-LIABILITIES> 331
<BONDS> 0
0
970
<COMMON> 6
<OTHER-SE> (167)
<TOTAL-LIABILITY-AND-EQUITY> 1,140
<SALES> 0
<TOTAL-REVENUES> 12
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 134
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (122)
<INCOME-TAX> 0
<INCOME-CONTINUING> (122)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (122)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
