<PAGE> 1
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 MARCH 31, 1999
OR
[ ] 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 (I.R.S. Employer
incorporation or organization) Identification No.)
610 SOUTH INDUSTRIAL BLVD.
SUITE 220
EULESS, TEXAS 76040
(Address of principal executive offices) (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 the 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 the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes[X] No[ ]
6,371,686 SHARES, $.001 PAR VALUE, AS OF APRIL 1, 1999
(Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date)
<PAGE> 2
CORNICHE GROUP INCORPORATED
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Part I - Financial Information:
Item 1. Consolidated Financial Statements (Unaudited):
Balance Sheets
At March 31, 1999 and December 31, 1998...................................... 2
Statements of Operations
For the Three Months Ended
March 31, 1999 and 1998 ..................................................... 3
Statements of Cash Flows
For the Three Months Ended
March 31, 1999 and 1998 ..................................................... 4
Notes to Consolidated Financial Statements .................................. 5-14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............................... 14-17
Item 3. Quantitative and Qualitative Disclosures
About Market Risk - Not Applicable........................................... 17
Part II - Other Information:
Item 1. Legal Proceedings - Not Applicable........................................... 18
Item 2. Changes in Securities Area Use of
Proceeds - Not Applicable.................................................... 18
Item 3. Defaults Upon Securities - Not Applicable.................................... 18
Item 4. Submission of Matters to a Vote of Security
Holders - Not Applicable..................................................... 18
Item 5. Other Information - Not Applicable........................................... 18
Item 6. Exhibits and Reports on Form 8-K............................................. 18-20
Signatures ............................................................................. 21
</TABLE>
1
<PAGE> 3
CORNICHE GROUP INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 169,316 $ 206,313
Marketable securities 281,455 628,175
Prepaid expenses 29,760 --
----------- -----------
Total current assets 480,531 834,488
Property and equipment, net 48,484 40,781
Other assets 30,248 12,525
License, net of accumulated amortization 17,692 17,997
----------- -----------
$ 576,955 $ 905,791
=========== ===========
LIABILITIES, STOCKHOLDERS' EQUITY AND (CAPITAL DEFICIENCY)
Current liabilities:
Dividends payable - preferred stock $ 248,730 $ 236,981
Accounts payable, accrued expenses
and other current liabilities 201,314 133,941
Current portion of capital lease obligations 4,649 4,649
----------- -----------
Total current liabilities 454,693 375,571
----------- -----------
Capital lease obligations 8,027 9,262
----------- -----------
Series A Convertible Preferred Stock:
Series A $0.07 cumulative convertible preferred
stock - stated value - $1.00 per share
Issued - 1,000,000 shares
Outstanding - 819,818 shares at March 31, 1999
and 828,765 shares at December 31, 1998 819,818 828,765
----------- -----------
Convertible Redeemable Preferred Stock, Common Stock,
Other Stockholders' Equity and (Accumulated Deficit):
Preferred stock - authorized 5,000,000 shares
Series B convertible redeemable preferred
stock, $.01 par value:
Authorized, issued and outstanding at March 31,
1999 and December 31, 1998 - 825,000 shares 8,250 8,250
Common stock $.001 par value:
Authorized - 30,000,000 shares,
Issued and outstanding - 6,371,686 at March 31,
1999 and 6,369,968 at December 31, 1998 6,372 6,370
Additional paid-in capital 2,850,062 2,838,420
Accumulated deficit (3,570,267) (3,160,847)
----------- -----------
Total convertible redeemable preferred
stock, common stock, other stockholders'
equity and (accumulated deficit) (705,583) (307,807)
----------- -----------
$ 576,955 $ 905,791
=========== ===========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 4
CORNICHE GROUP INCORPORATED
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three
Months Ended
March 31,
----------------------------
1999 1998
----------- -----------
(Consolidated)
<S> <C> <C>
Net sales $ -- $ --
Cost of sales -- --
----------- -----------
Gross profit -- --
General and administrative expenses 399,122 53,285
----------- -----------
Operating loss (399,122) (53,285)
Interest income - net 4,453 11,551
----------- -----------
Loss before preferred dividend 394,669) (41,734)
Preferred dividend 14,446 14,984
----------- -----------
Net loss $ (409,115) $ (56,718)
=========== ===========
Net loss per share of common stock $ (0.06) $ (0.01)
=========== ===========
Weighted average number of common shares outstanding 6,370,569 5,165,272
=========== ===========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 5
CORNICHE GROUP INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three
Months Ended
March 31,
----------------------------
1999 1998
----------- -----------
(Consolidated)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (409,115) $ (56,718)
----------- -----------
Adjustments to reconcile net loss to net
cash used in operating activities:
Series A Preferred stock dividends 14,446 14,984
Depreciation 3,112 97
Increase (decrease) in cash flows as
a result of changes in assets and
liability account balances:
Prepaid expenses (29,760) 2,052
Accounts payable, accrued expense
and other current liabilities 67,374 22,708
----------- -----------
Total adjustments 55,172 39,841
----------- -----------
Net cash used in operating activities (353,943) (16,877)
----------- -----------
Cash flows from investing activities:
Decrease in marketable securities 346,720 --
Acquisition of property assets (10,816) --
----------- -----------
Net cash provided by investing activities 335,904 --
----------- -----------
Cash flows from financing activities:
Net proceeds from issuance of capital stock -- 125,000
Payments of capital lease obligation (1,235) --
Increase in other assets (17,723) --
----------- -----------
Net cash provided by (used in) financing activities (18,958) 125,000
----------- -----------
Net increase (decrease) in cash (36,997) 108,123
Cash and cash equivalents at beginning of period 206,313 1,020,941
----------- -----------
Cash and cash equivalents at end of period $ 169,316 $ 1,129,064
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period:
Income taxes $ -- $ --
=========== ===========
Interest $ -- $ --
=========== ===========
Supplemental Schedules of Non-Cash Transactions:
Series A Preferred Stock and dividends thereon
converted to common stock and additional
paid-in capital upon conversion $ 11,644 $ 3,059
=========== ===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 6
CORNICHE GROUP INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(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. From that time until May 1998, the Company was
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
service contract business and the insurance industry.
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.
5
<PAGE> 7
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>
<CAPTION>
For the Three Months
Ended March 31, 1998
--------------------
<S> <C>
Net sales $ --
=========
Costs and expenses $ 399,163
=========
Net loss $(407,491)
=========
Net loss per share $ (0.06)
=========
</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 March 31, 1999 and the results of
operations and cash flows for the three months ended March 31,
1999 and 1998. The results of operations for the three months
ended March 31, 1999 and 1998 are not necessarily indicative
of the results to be expected for the full year.
The December 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.
(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.
6
<PAGE> 8
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(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 are no
significant differences between the financial statement and
tax basis of assets and liabilities and, accordingly, no
deferred tax provision/benefit is required. At December 31,
1998, the Company's tax year-end, the Company had a federal
net operating loss carryforward of approximately $1,038,000,
which can be applied against future income. The future tax
benefit of the operating loss carryforward of $353,000 has
been fully reserved as it is not more likely than not that the
Company will be able to use the operating loss in the future.
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 net operating loss carryforwards is limited following a
change in ownership in excess of fifty percentage points.
The 825,000 shares of Series B Convertible Redeemable
Preferred Stock, subject to certain conditions, can be
converted into 8,250,000 common shares. such conversion would
trigger a 50% change in ownership of the Company. The effect
would be to limit the amount of operating loss to be utilized
in any tax year. Additionally, the Company has plans to sell
up to 3,500,000 shares of its common stock in a private
placement (see Note 7), which could effect the utilization of
the net operating loss.
7
<PAGE> 9
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(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 March 31, 1999,
the carrying values of the Company's other assets and
liabilities approximate their estimated fair values.
(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 - SERIES A $0.07 CONVERTIBLE PREFERRED STOCK.
In connection with the settlement of the securities
class action litigation in 1994, the Company issued 1,000,000
shares of Series A $0.07 Convertible Preferred Stock
(the"Series A Preferred Stock") with an aggregate value of
$1,000,000. The following summarizes the terms of Series A
Preferred Stock as more fully set forth in the Certificate of
Designation relating to the Series A Preferred Stock. The
Series A 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. Holders of Series A
Preferred Stock are entitled to receive cumulative cash
dividends of $0.07 per year,
8
<PAGE> 10
NOTE 4 - SERIES A $0.07 CONVERTIBLE PREFERRED STOCK. (Continued)
payable semi-annually. Until November 30, 1999, the Series A
Preferred Stock is callable by the Company at a price of $1.04
per share, plus accrued and unpaid dividends, and thereafter
at a price of $1.05 per share, plus accrued and unpaid
dividends. 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 Series A Preferred Stock is
callable by the Company at a price equal to $0.01 per share,
plus accrued and unpaid dividends. The Certificate of
Designation for the Series A Preferred Stock also states that,
at any time after December 1, 1999, any holder of the Series A
Preferred Stocks may require the Company to redeem his shares
of Series A Preferred Stock (if there are funds with which the
Company may do so) at a price of $1.00 per share.
Notwithstanding any of the foregoing redemption provisions, if
any dividends on the Series A Preferred Stock are past due, no
shares of Series A Preferred Stock may be redeemed by the
Company, unless all outstanding shares of Series A Preferred
Stock are simultaneously redeemed. During the three months
ended March 31, 1999, 8,947 shares of the Series A Preferred
Stock were converted into 1,714 shares of common stock. At
March 31, 1999, 819,818 shares of Series A Preferred Stock
were outstanding.
NOTE 5 - STOCKHOLDER'S EQUITY.
(a) 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 has paid
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 number of authorized shares of
Series B Preferred Stock is 825,000.
The following summarizes the terms of the Series B
Stock whose terms are more fully set forth in the Certificate
of Designation relating to the Series B Stock. 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
9
<PAGE> 11
NOTE 5 - STOCKHOLDER'S EQUITY. (Continued)
(a) Series B Convertible Redeemable Preferred Stock:
(Continued)
share and votes 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 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.
Pursuant to the terms of the Agreement and the
Certificate of Designation relating to the Series B Stock,
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.
(b) 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 consisted
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 proceeds of $1,660,500 to
the Company. The proceeds of such offering were intended to be
utilized to enable the Company to attempt to effect the
acquisition of an
10
<PAGE> 12
NOTE 5 - STOCKHOLDER'S EQUITY. (Continued)
(b) Common Stock: (Continued)
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 proceeds of $125,000.
At the Company's annual meeting of stockholders held
on May 18, 1998, the stockholders approved the reduction of
the par value of the common stock from $0.10 per share to
$0.001 per share. The par value was reduced to $0.001 per
share to conform with the new Series B Stock, as each share of
the Series B Stock is convertible into ten (10) shares of
common stock.
(c) 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 March
31, 1999.
(d) 1998 Employee Incentive Stock Option Plan:
Under the Company's 1998 Employee Incentive Stock
Option Plan (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 option is 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 Company 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
Company ("Option Committee"). On February 15, 1999, the
Company's Chief Operating Officer was granted an option under
the 1998 Plan to acquire 75,000 shares of Common Stock at an
exercise price of $1.097 per share.
11
<PAGE> 13
NOTE 5 - STOCKHOLDER'S EQUITY. (Continued)
(e) 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 of the Company
would receive compensation of $2,500 plus 500 shares of the
Company's Common Stock each quarter. The Plan became effective
as of April 30, 1998.
Independent directors also continue to be eligible to
receive stock options to purchase 1,500 shares of Common Stock
at an exercise price equal to fair market value each year
under the Director Option Plan.
NOTE 6 - OTHER EVENTS.
(a) Lease of New Office Space:
As of August 1, 1998, the Company entered into a
three year lease for business offices of 4,100 square feet in
Euless, Texas at an annual rental of $50,000.
(b) Investment Contract:
The Company 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 Company'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 effected by
Year 2000 software or hardware failures. The Company has
commenced communications with its suppliers, banks, investment
advisors and others with which it presently does business to
coordinate Year 2000 conversion, and it intends to continue
such communications over the next several months. The results
of such communications, which to date are insignificant, have
not required the Company to incur any additional costs.
Since the Company has not been engaged in any
business for the past several years, its basic concerns
regarding Year 2000 are focused on the future. The Company is
in the process of making the initial assessment of its
computer information needs and has just recently ordered and
has partially received its first system hardware, which is
expected to be fully delivered and installed shortly. The
Company will be further assessing its future software needs.
The Company has received assurances
12
<PAGE> 14
NOTE 6 - OTHER EVENTS. (Continued)
from the vendors of the hardware and software that it has
acquired to date that such hardware and software is Year 2000
compliant. The Company intends to continue to obtain such
assurances in connection with any future purchases of hardware
and software.
The Company does not know what impact, if any, Year
2000 non-compliance will have on its financial condition or
its contemplated future operations. Based upon information
currently available, the Company does not anticipate that, in
the aggregate, costs associated with Year 2000 issue will have
a material adverse financial impact. However, there can be no
assurances that, despite steps taken by the Company 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 under its Year
2000 planning, 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.
NOTE 7 - SUBSEQUENT EVENT.
In May 1999, the Company entered into a placement
agent agreement with a broker-dealer to sell 3,500,000 shares
of its common stock to accredited investors in a private
offering that will be exempt from the registration
requirements of the Securities Act. The gross proceeds from
the sale of the securities before offering costs (estimated to
be $355,000) is anticipated to be $3,150,000. If the offering
is successful, the Company will lose its right to repurchase
the Series B Stock for $0.10 per share, as the requisite
conditions for extinguishment of this repurchase right will
have been met.
13
<PAGE> 15
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.
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. From the liquidation of the subsidiaries by
the receivers through May 1998, the Company was inactive.
At the 1998 Annual Meeting of the Stockholders held
in May 1998, the Company's stockholders approved the terms of
a Stock Purchase Agreement (the "Agreement") among the
Company, Mr. Joel San Antonio and certain other individuals.
Pursuant to the Agreement, Mr. San Antonio and the other
individuals purchased 765,000 shares of the Company's newly
created Series B Preferred Stock for $76,500. An additional
60,000 shares of Series B Preferred Stock were issued to two
individuals for services rendered to the Company in connection
with the Agreement.
The Series B Preferred Stock has 10 votes per share
and votes as a class with the Common Stock on all matters
submitted to a vote of the Company's stockholders. Each share
of Series B Preferred Stock is convertible into 10 shares of
Common Stock and is entitled to ten times any dividends paid
on the Common Stock. The Series B Preferred Stock carries a
zero coupon.
As a result of the issuance of the Series B Preferred
Stock pursuant to the Agreement, Mr. San Antonio has control
of the Company, as he holds approximately 47% of the Company's
voting power. However, Mr. San Antonio and the other
individuals who acquired Series B Preferred Stock pursuant to
the Agreement are required to vote in favor of Mr. James Fyfe
or his designee as a director of the Company through June 30,
2000.
Since May 1998, the Company has been developing a
comprehensive strategic and operational business plan and
assembling a quality management team. Following the Company's
change of control, the Company's management has sought to put
in place a new strategic and operational business plan for the
Company that involves the Company's entry into the service
contract business and the insurance industry.
The Company has developed a web site on the Internet
to market service contracts on automobiles and consumer
products. The Company's web site is called
WarrantySuperstore.com. Through the WarrantySuperstore.com web
site, the Company sells its products and services directly to
consumers. The Company does not intend currently to have any
other distribution channels for its products and services
other than the Internet.
14
<PAGE> 16
The first product line offered through the
WarrantySuperstore.com web site is the Vehicle Service
Contract Program, which includes automobile service contracts
for new and used vehicles. The Company intends to add new
product lines to the web site every two to three months. The
Company went online with its first product, vehicle service
contracts, during the last week of April 1999. With funds from
the private securities offering described in Note 7 of the
Notes to the Company's Consolidated Financial Statement, the
Company intends to advertise its web site through print, radio
and television and links from other Internet sites.
The Company has received from Reliance National
Insurance Company a Contractual Liability Policy providing
coverage for the Company as the obligor under the
aforementioned Vehicle Service Contracts.
The Company expects that it will use the
WarrantySuperstore.com site to generate advertising revenues
by selling banner page advertisements on its web site on a
preferred client list basis.
Stamford Reinsurance Activities
On September 30, 1998, the Company acquired all of
the capital stock of Stamford Insurance Company, Ltd.
("Stamford"). Stamford was chartered under the laws of the
Cayman Islands in 1991. Stamford has not generated any
revenues since its inception. Stamford is licensed by the
Cayman Islands to conduct business as an insurance company.
When Stamford is sufficiently capitalized, the
Company intends to request the insurance carriers who provide
contractual liability coverage to the Company on its service
contracts to share (via reinsurance) a portion of the risk
with Stamford. The Company's ability to influence the
insurance carriers to direct reinsurance business to Stamford
will depend on the Company's negotiating strength, which, in
turn, will depend on the success of the WarrantySuperstore.com
program. Stamford's ability to reinsure the Company's Internet
business will largely depend on the primary insurance
carrier's willingness to cede reinsurance to Stamford.
The Company's long range plans for Stamford depends
on Stamford's growth and development of greater financial
stability. If Stamford's operations are successful, the
Company plans to have Stamford seek reinsurance opportunities
that are not related to the Company. Stamford may use
reinsurance brokers to identify other reinsurance
opportunities.
Domestic Licensing Plans
As an offshore insurance company, Stamford is
permitted to function as a reinsurance company in the United
States. As such, it can reinsure U.S. insurance companies. The
Company's long range strategy is to identify and acquire a
property and casualty insurance carrier that holds state
licenses. If the Company acquires a domestic insurance
carrier, it will use the carrier to act as a specialty insurer
in niche commercial markets that are under served by standard
insurance carriers.
RESULTS OF OPERATIONS
During the period March 1996 through March 1998, the
Company's primary activities were to engage in three private
securities offerings, and to settle and pay off
15
<PAGE> 17
certain of its outstanding liabilities. In May 1998, the
stockholders approved the Agreement and related issuance of
the Series B Preferred Stock and change in control of the
Company. The losses before net interest income and preferred
dividend accrual during the three month periods ended
March 31, 1999 and 1998 were $399,000 and $53,000,
respectively, which is an increase of $346,000 (652.8%).
The increase arose from increases in general and
administrative costs primarily consulting and professional
fees, web site costs and general office costs.
Net interest income decreased to $4,000 in the
current period from $12,000 in the three months ended March
31, 1998. The decrease is the result of sales of its
marketable securities.
The accrual of the preferred dividend remained
relatively constant in each period.
Net loss in the current quarter increased by $352,000
(331.7%) to $409,000 from $57,000 in 1997 principally from the
increased general and administrative costs and costs
associated with the development of its internet website.
FINANCIAL CONDITION
The Company's cash condition was reduced by $37,000
from December 31, 1998 to March 31, 1999, due to the
acquisition of property and equipment of $11,000, other assets
of $18,000, and cash used in operations of $354,000, offset by
a decrease in marketable securities of $347,000.
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.
The Company's working capital at March 31, 1999 and
December 31, 1998 was $26,000 and $459,000, respectively. The
deterioration of working capital of approximately $433,000
primarily results from the net loss incurred during the three
months ended March 31, 1999.
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 effected by
Year 2000 software or hardware failures. The Company has
commenced communications with its suppliers, banks, investment
advisors and others with which it does business to coordinate
Year 2000 conversion and it intends to continue such
16
<PAGE> 18
communications over the next several months. The results of
such communications, which to date are insignificant, have not
required the Company to incur any additional costs.
Since the Company has not been engaged in any
business for the past several years, its basic concerns
regarding Year 2000 are focused on the future. The Company is
in the process of making the initial assessment of its
computer information needs and has just recently ordered and
has partially received its first system hardware, which is
expected to be fully delivered and installed shortly. The
Company will be further assessing its future software needs.
The Company has received assurances from the vendors of the
hardware and software that it has acquired to date that such
hardware and software is Year 2000 compliant. The Company will
continue to obtain such assurances in connection with any
future purchases of hardware or software.
The Company does not know what impact, if any,
non-compliance will have on its financial condition or its
contemplated future operations. Based upon information
currently available, the Company does not anticipate that, in
the aggregate, costs associated with Year 2000 issue will have
a material adverse financial impact. However, there can be no
assurances that, despite steps taken by the Company 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 under its Year
2000 planning, 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.
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 and other filings with the
Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
17
<PAGE> 19
CORNICHE GROUP INCORPORATED
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The following exhibits are filed herewith or are
incorporated by reference from previous filings with the
Securities and Exchange Commission.
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C> <C>
3.1 Certificate of Incorporation of the Company (1)
3.2 Amendment to Certificate of Incorporation of the Company (1)
3.3 Amendment to Certificate of Incorporation of the Company (2)
3.4 Amendment to Certificate of Incorporation of the Company (2)
3.5 Amendment to Certificate of Incorporation of the Company (3)
3.6 Amendment to Certificate of Incorporation of the Company (4)
3.7 Amendment to Certificate of Incorporation of the Company (5)
3.8 Amendment to Certificate of Incorporation of the Company (6)
3.9 Certificate of Designation for Series A Preferred Stock of the Company (7)
3.10 Amendment to Certificate of Incorporation of the Company (9)
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C> <C>
3.11 Certificate of Designation for Series B Preferred Stock of the Company (10)
3.12 By-laws of the Company, as amended (6)
3.13 Amendment to Certificate of Incorporation of the Company (10)
4.1 Form of Underwriter's Warrant (6)
4.2 Form of Promissory Note - 1996 Offering (9)
4.3 Form of Promissory Note - 1997 Offering (9)
4.4 Form of Common Stock Purchase Warrant - 1996 Offering (9)
4.5 Form of Common Stock Purchase Warrant - 1997 Offering (9)
10.1 1986 Stock Option Plan, as amended (7)
10.2 1992 Stock Option Plan (8)
10.3 Stock Purchase Agreement dated as of January 30, 1997 by and among
the Company, the Bank of Scotland and 12 buyers (9)
10.4 Mutual Release dated as of January 30, 1997 by and among the Company,
James Fyfe and the Bank of Scotland (9)
10.5 Stock Purchase Agreement, dated as of March 4,1998, between the Company
and the Initial Purchasers named therein (10)
10.6 1998 Employees Stock Option Plan (10)
27 Financial Data Schedule, filed herewith
</TABLE>
Notes:
(1) Filed with the Securities and Exchange Commission as
an exhibit, numbered as indicated above, to the
registration statement of the Company 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 Company 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 Company 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 Company 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 Company 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 Company 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 Company on Form 10-K for the
year ended September 30, 1994, which exhibit is
incorporated herein by reference.
19
<PAGE> 21
(8) Filed with the Securities and Exchange Commission as
an exhibit, as indicated above, to the proxy
statement of the Company 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
annual report of the Company on Form 10-K for the
year ended March 31, 1996, which exhibit is
incorporated herein by reference.
(10) Filed with the Securities and Exchange Commission as
an exhibit, as indicated above, to the proxy
statement of the Company dated April 23, 1998, which
exhibit is incorporated herein by reference.
(b) Reports on Form 8-K.
On February 17, 1999, the Company filed a Current
Report on Form 8-K to report the change in its fiscal year end
from March 31 to December 31 (Item 8). No financial statements
were filed with the Form 8-K.
20
<PAGE> 22
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: May 20, 1999
21
<PAGE> 23
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C> <C>
3.1 Certificate of Incorporation of the Company (1)
3.2 Amendment to Certificate of Incorporation of the Company (1)
3.3 Amendment to Certificate of Incorporation of the Company (2)
3.4 Amendment to Certificate of Incorporation of the Company (2)
3.5 Amendment to Certificate of Incorporation of the Company (3)
3.6 Amendment to Certificate of Incorporation of the Company (4)
3.7 Amendment to Certificate of Incorporation of the Company (5)
3.8 Amendment to Certificate of Incorporation of the Company (6)
3.9 Certificate of Designation for Series A Preferred Stock of the Company (7)
3.10 Amendment to Certificate of Incorporation of the Company (9)
</TABLE>
<PAGE> 24
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C> <C>
3.11 Certificate of Designation for Series B Preferred Stock of the Company (10)
3.12 By-laws of the Company, as amended (6)
3.13 Amendment to Certificate of Incorporation of the Company (10)
4.1 Form of Underwriter's Warrant (6)
4.2 Form of Promissory Note - 1996 Offering (9)
4.3 Form of Promissory Note - 1997 Offering (9)
4.4 Form of Common Stock Purchase Warrant - 1996 Offering (9)
4.5 Form of Common Stock Purchase Warrant - 1997 Offering (9)
10.1 1986 Stock Option Plan, as amended (7)
10.2 1992 Stock Option Plan (8)
10.3 Stock Purchase Agreement dated as of January 30, 1997 by and among
the Company, the Bank of Scotland and 12 buyers (9)
10.4 Mutual Release dated as of January 30, 1997 by and among the Company,
James Fyfe and the Bank of Scotland (9)
10.5 Stock Purchase Agreement, dated as of March 4,1998, between the Company
and the Initial Purchasers named therein (10)
10.6 1998 Employees Stock Option Plan (10)
27 Financial Data Schedule, filed herewith
</TABLE>
Notes:
(1) Filed with the Securities and Exchange Commission as
an exhibit, numbered as indicated above, to the
registration statement of the Company 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 Company 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 Company 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 Company 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 Company 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 Company 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 Company on Form 10-K for the
year ended September 30, 1994, which exhibit is
incorporated herein by reference.
<PAGE> 25
(8) Filed with the Securities and Exchange Commission as
an exhibit, as indicated above, to the proxy
statement of the Company 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
annual report of the Company on Form 10-K for the
year ended March 31, 1996, which exhibit is
incorporated herein by reference.
(10) Filed with the Securities and Exchange Commission as
an exhibit, as indicated above, to the proxy
statement of the Company dated April 23, 1998, which
exhibit is incorporated herein by reference.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 169,316
<SECURITIES> 281,455
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 480,531
<PP&E> 55,794
<DEPRECIATION> (7,309)
<TOTAL-ASSETS> 576,955
<CURRENT-LIABILITIES> 454,693
<BONDS> 0
819,818
8,250
<COMMON> 6,372
<OTHER-SE> 720,205
<TOTAL-LIABILITY-AND-EQUITY> 576,955
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 399,122
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 394,669
<INCOME-TAX> 0
<INCOME-CONTINUING> 394,669
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (409,115)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> 0
</TABLE>
