<PAGE>
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 December 31, 1998
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 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 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
--- ---
6,370,179 shares, $.001 par value, as of January 26, 1999
(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
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CORNICHE GROUP INCORPORATED
DECEMBER 31, 1998
(Unaudited)
I N D E X
---------
Page No.
--------
Part I - Financial Information:
Item 1. Consolidated Financial Statements (Unaudited):
Balance Sheets
At December 31, 1998 and March 31, 1998............... 3
Statements of Operations
For the Three and Nine Months Ended
December 31, 1998 and 1997............................ 4
Statements of Cash Flows
For the Nine Months Ended
December 31, 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:
Items 3 - 9
Not Applicable................................................ 18
Signature..................................................... 19
Page 2 of 19
<PAGE>
CORNICHE GROUP INCORPORATED
BALANCE SHEETS
(Unaudited)
A S S E T S
-----------
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
---------------------------
(Consolidated) (Restated)
<S> <C> <C>
Current assets:
Cash and equivalents $ 206,313 $ 1,129,064
Marketable securities 628,175 -
Other receivables and prepaid expenses - 179
--------- -----------
Total current assets 834,488 1,129,243
Property and equipment, net 40,781 359
Other assets 12,525 -
License, net of accumulated amortization 17,997 -
--------- -----------
$ 905,791 $ 1,129,602
========= ===========
<CAPTION>
LIABILITIES, STOCKHOLDERS' EQUITY AND (CAPITAL DEFICIENCY)
----------------------------------------------------------
<S> <C> <C>
Current liabilities:
Dividends payable - preferred stock $ 236,981 $ 208,464
Accounts payable, accrued expenses
and other current liabilities 133,940 51,212
Current portion of capital lease obligations 4,649 -
--------- -----------
Total current liabilities 375,571 259,676
--------- -----------
Capital lease obligations 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 - 828,765 shares
at December 31, 1998 and 893,908 shares
at March 31, 1998 828,765 893,908
--------- -----------
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
December 31, 1998 - 825,000 shares and
zero shares at March 31, 1998 8,250 -
Common stock $.001 par value, December 31, 1998,
$0.10 par value, March 31, 1998
Authorized - 30,000,000 shares
Issued and outstanding - 6,369,968 at December 31,
1998 and 6,355,231 at March 31, 1998 6,370 635,522
Additional paid-in capital 2,836,420 2,053,750
Accumulated deficit (3,160,847) (2,713,254)
--------- -----------
Total convertible redeemable preferred
stock, common stock, other stockholders'
equity and (accumulated deficit) (307,807) (23,982)
--------- -----------
$ 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>
<CAPTION>
For the Three Months For the Nine Months
Ended December 31, Ended December 31,
-------------------------------------------------------
1998 1997 1998 1997
-------------------------------------------------------
(Consolidated) (Consolidated)
<S> <C> <C> <C> <C>
Net sales $ - $ - $ - $ -
Cost of sales - - - -
---------- ---------- ---------- ----------
Gross profit - - - -
---------- ---------- ---------- ----------
General and administrative
expenses 165,528 31,268 428,157 168,317
---------- ---------- ---------- ----------
Operating loss (165,528) (31,268) (428,157) (168,317)
Interest income - net 6,940 4,309 25,206 6,253
---------- ---------- ---------- ----------
Net loss before
preferred dividend (162,002) (25,143) (402,951) (162,064)
Preferred dividend (14,623) (15,697) (44,642) (45,083)
---------- ---------- ---------- ----------
Net loss ($176,625) ($ 40,840) ($447,583) ($207,147)
========== ========== ========== ==========
Net loss per share
of common stock ($0.02) ($0.01) ($0.07) ($0.04)
========== ========== ========== ==========
Weighted average number of
common shares outstanding 6,369,814 6,104,643 6,367,015 4,833,849
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
Page 4 of 19
<PAGE>
CORNICHE GROUP INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine For the Nine
Months Ended Months Ended
December 31, December 31,
1998 1997
----------------------------
<S> <C> <C>
(Consolidated)
Cash flows from operating activities:
Net loss ($447,593) ($207,147)
----------- -----------
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 44,642 45,083
Depreciation 3,435 291
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 (1,231)
Other assets (12,525) -
Accounts payable, accrued expense
and other current liabilities 82,729 (89,722)
----------- -----------
Total adjustments 124,460 (45,579)
----------- -----------
Net cash used in operating activities (323,133) (252,726)
----------- -----------
Cash flows from investing activities:
Investment in marketable securities (628,175) -
Acquisition of property assets (25,746) -
Acquisition of Stamford Insurance Company, Ltd. (37,000) -
----------- -----------
Net cash used in investing activities (690,921) -
----------- -----------
Cash flows from financing activities:
Net proceeds from issuance of capital stock 76,500 1,660,500
Payments of capital lease obligation (3,995) -
Payments of notes payable - (450,000)
Additional borrowings - 50,000
----------- -----------
Net cash provided by financing activities 72,505 1,260,500
----------- -----------
Net increase (decrease) in cash (941,549) 1,007,774
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 $ 206,312 $ 1,020,941
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period:
Income taxes $ - $ -
=========== ===========
Interest $ 886 $ -
=========== ===========
Supplemental Schedules of Non-Cash Transactions:
Issuance of preferred stock for services rendered $ 6,000 $ -
=========== ===========
Property assets received under capital
lease obligations $ 17,806 $ -
=========== ===========
Accrual of dividends on Series A Preferred Stock $ 28,517 $ 45,083
=========== ===========
Series A Preferred Stock and dividends thereon
converted to common stock and additional
paid-in capital upon conversion $ 15,125 $ 2,007
=========== ===========
</TABLE>
See accompanying notes to financial statements.
Page 5 of 19
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CORNICHE GROUP INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(Unaudited)
NOTE 1 - CORRECTION OF AN ERROR.
The financial statements as at March 31, 1998 have been restated
to reflect the Series A 7% Redeemable Preferred Stock as an item
similar to debt instead of a component of equity as previously
reported in Form 10-K for the period ended March 31, 1998 as
prescribed by the Securities and Exchange Commission ("SEC")
Accounting Series Release No. 268. The Series A Preferred Stock's Put
feature (see Note 5) places the redemption of this class of stock
outside the control of the Company (assuming the conditions allowing
redemption are satisfied) and accordingly should be classified similar
to debt. Previously the Series A Preferred Stock was included in
stockholders' equity, which is not in accordance with SEC regulations
and generally accepted accounting principles.
NOTE 2 - 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.
Page 6 of 19
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NOTE 2 - THE COMPANY. (Continued)
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
chartered 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.
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 For the Nine Months
Ended December 31, Ended December 31,
------------------------ ------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ - $ - $ - $ -
========== ========== ========== ==========
Costs and expenses $ 165,528 $ 33,440 $ 428,157 $ 179,498
========== ========== ========== ==========
Net loss ($176,625) ($ 41,318) ($447,583) ($214,227)
========== ========== ========== ==========
Net loss per share ($0.02) ($0.01) ($0.07) ($0.04)
========== ========== ========== ==========
</TABLE>
NOTE 3 - 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 December 31, 1998 and 1997 and the
results of operations and cash flows for the three and nine months
ended December 31, 1998 and 1997. The results of operations for the
three and nine months ended December 31, 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 retroactively reflecting the correction of
an error (See Note 1). 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.
Page 7 of 19
<PAGE>
NOTE 4 - 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.
(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 $950,000 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 December 31,
1998, the carrying values of the Company's other assets and
liabilities approximate their estimated fair values.
Page 8 of 19
<PAGE>
NOTE 4 - 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 5 - 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. The Series A Preferred Stock has a liquidation value
of $1 per share and is non-voting. Each share Series A Preferred Stock
is convertible into 0.1923 of a share of common stock. Holders of
Series A Preferred Stock are entitled to receive cumulative cash
dividends of $0.07 per year, 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 Series A
Preferred Stock 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 nine months
ended December 31, 1998, 65,029 shares of the Series A
Page 9 of 19
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NOTE 5 - SERIES A $0.07 CONVERTIBLE PREFERRED STOCK. (Continued)
preferred stock were converted into 12,525 shares of common stock.
During the year ended March 31, 1998, holders of 15,359 shares of the
Series A Preferred Stock converted such shares into 2,953 shares of
the Company's common stock. At December 31, 1998, 828,765 shares of
Series A Preferred Stock were outstanding.
NOTE 6 - 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 will pay certain legal expenses of the
Initial Purchasers equaling approximately $50,000 in connection with
the Agreement. 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 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 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
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NOTE 6 - STOCKHOLDER'S EQUITY. (Continued)
(a) 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.
(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 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 6 - STOCKHOLDER'S EQUITY. (Continued)
(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 December 31, 1998.
(d) 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").
(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 would receive compensation of $2,500 plus 500
shares of the Corporation's Common Stock each quarter. The Plan
became 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.
Note 7 - 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.
Page 12 of 19
<PAGE>
NOTE 7 - OTHER EVENTS. (Continued)
(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 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 from its vendors of hardware and software that it
has acquired to date is Year 2000 compliant. The Company intends to
continue to obtain such assurances from its hardware and software
vendors that the hardware and software 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 has taken, is presently taking and intends to
take in the future 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.
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 "Forward
Looking And Cautionary 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 $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 initially 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 requirements, it could 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 plan.
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
Page 14 of 19
<PAGE>
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 nine month periods ended December
31, 1998 were $166,000 and $428,000, respectively, which is an increase
of $134,000 (432.2%) over the three months ended December 31, 1997 and
an increase of $260,000 (154.8%) over the nine months ended December 31,
1997. The increase in both current periods arose from increases in
general and administrative costs primarily consulting and professional
fees of $60,000, salaries of $55,000, and stockholders annual meeting
and general office costs of $50,000 over the 1997 period amounts.
General and administrative costs increased in the current quarter
by $38,000 to $166,000 as compared to the three months ended September
30, 1998 cost of $128,000. The increase is attributable to increased
professional fees. The general and administrative costs in the second
quarter of 1997 were $15,000 less than the costs incurred in the quarter
ended December 31, 1997. The increase is attributable to stockholder
costs and professional fees in the third quarter.
Net interest income increased to $7,000 and $25,000 in the current
three and nine month periods from $4,000 and $6,000 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 $136,000 (331.7%) to
$177,000 from $41,000 in 1997 and the net loss increased $240,000
(115.9%) in the current nine month period to $447,000 from $207,000 in
the prior year principally from the increased general and administrative
costs.
FINANCIAL CONDITION
The Company's cash condition was reduced by $942,000 from March
31, 1998 to December 31, 1998 due to an increase in investments in
marketable securities of $628,000, the acquisition of property of
$26,000, the acquisition of the Company's subsidiary for $37,000, and
cash used in operations of $323,000. 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 reevaluate its
Page 15 of 19
<PAGE>
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 sale 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 December 31, 1998, December 31,
1997 and March 31, 1998 was $458,000, $801,000, and $870,000,
respectively. The deterioration of working capital of approximately
$412,000 and $343,000 from a year and nine months ago, respectively,
primarily results from the net loss incurred during the period, net of
the proceeds from the sale of the Company's securities.
The Certificate of Designation for the Series A Preferred Stock
(filed as Exhibit 3.8 to the Company's Form 10-K for the year ended
September 30, 1994) states that at any time after December 1, 1999 any
holder of Series A Preferred Stock may require the Company to redeem his
shares of Series A Preferred Stock (if there are funds with which the
Company may legally do so) at a price of $1.00 per share.
Notwithstanding the foregoing redemption provisions, if any dividends on
the Series A Preferred Stock 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. Each share of
Series A Preferred Stock is convertible into 0.19234 of a share of
common stock of the Company, which is equal to one share of Common Stock
per each 5.2 shares of Series A Preferred Stock converted. At December
31, 1998, 828,765 shares of Series A Preferred Stock were outstanding.
If after December 1, 1999 a significant number of shares of Series A
Preferred Stock remain unconverted into common stock, and if the Company
were required to redeem any significant number of shares of Series A
Preferred Stock, the Company's financial condition would be materially
affected.
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 through 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
communications over the next several months.
Page 16 of 19
<PAGE>
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 its vendors of hardware and software that it
has acquired to date is Year 2000 compliant. The Company intends to
continue to obtain such assurances from its hardware and software
vendors that the hardware and software 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 has taken, is presently taking and intends to take in the future
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 on other filings with the
Securities and Exchange Commission.
Page 17 of 19
<PAGE>
CORNICHE GROUP INCORPORATED
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AREA 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.
Not applicable.
Page 18 of 19
<PAGE>
SIGNATURE
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: February 19, 1999
Page 19 of 19
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<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1998
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