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As filed with the Securities and Exchange Commission on October 16, 2000
File No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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CORNICHE GROUP INCORPORATED
(Exact name of registrant as specified in its charter)
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DELAWARE 6770 22-2343568
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification no.)
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610 SOUTH INDUSTRIAL BLVD.
SUITE 220
EULESS, TEXAS 76040
(817) 283-4250
(Address, including zip code, and telephone
number, including area code, of
registrant's principal executive offices)
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ROBERT F. BENOIT
CHIEF EXECUTIVE OFFICER
610 SOUTH INDUSTRIAL BLVD.
SUITE 220
EULESS, TEXAS 76040
(817) 283-4250
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies of communications to:
DAVID H. ODEN
Haynes and Boone, LLP
1600 North Collins, Suite 2000
Richardson, Texas 75080
(972) 680-7550
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES TO BE REGISTERED REGISTERED (1) OFFERING PRICE PER SHARE AGGREGATE OFFERING PRICE REGISTRATION FEE
------------------------------------ ------------- ------------------------ ------------------------ ----------------
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Common Stock, par value $0.001...... 19,844,585 $ 1.22 $ 24,210,394 $ 6,392
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(1) Pursuant to Rule 416(a) under the Securities Act, this Registration
Statement also covers such additional shares of our common stock as may
become issuable pursuant to antidilution adjustments.
(2) Based upon the average of the high and low prices of the Registrant's
common stock on the NASDAQ Over-the-Counter Bulletin Board on October 12,
2000, pursuant to Rule 457(c) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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The information in this prospectus is not complete and may be changed. The
Corniche Group Incorporated and selling stockholders may not sell these
securities until the registration statement filed with the Securities and
Exchange Commission is effective. This prospectus is not an offer to sell these
securities nor is it soliciting an offer to buy these securities in any state
where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED OCTOBER 16, 2000
PROSPECTUS
19,844,585 SHARES
CORNICHE GROUP INCORPORATED
COMMON STOCK
$0.001 PAR VALUE PER SHARE
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This prospectus relates to the sale of 19,844,585 shares of Corniche
Group Incorporated common stock, $0.001 par value, 15,844,585 of which are being
sold by certain selling stockholders and 4,000,000 of which are being sold by
Corniche.
The common stock is quoted on the National Association of Securities
Dealers' Over-the-Counter Bulletin Board under the symbol CNGI. On October 12,
2000, the last reported sales price for our common stock as reported on the
Over-the-Counter Bulletin Board was $1.22.
See "Risk Factors"beginning on page 3 to read about factors you should consider
before buying shares of our common stock.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this prospectus is __________________ , 2000.
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.............................................. 1
Risk Factors.................................................... 2
This Prospectus Contains Forward-looking Statements............. 6
Use of Proceeds................................................. 7
Plan of Distribution ........................................... 7
Dividend Policy................................................. 7
Capitalization.................................................. 8
Selected Consolidated Financial Data............................ 9
Management's Discussion And Analysis of
Financial Condition And Results of Operations................... 10
Business........................................................ 13
Management...................................................... 15
Related Party Transactions...................................... 20
Principal And Selling Stockholders.............................. 21
Description of Capital Stock.................................... 24
Legal Matters................................................... 26
Experts......................................................... 26
Where You Can Find Additional Information....................... 26
Index to Consolidated Financial Statements......................F-1
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You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely on
it. We and the Selling Stockholders are not making an offer to sell these
securities in any jurisdiction where the offer or sale is not permitted. You
should assume that the information appearing in this prospectus is accurate only
as of the date on the front cover of this prospectus. Our business, financial
condition, results of operations and prospects may have changed since that date.
As used in this prospectus, unless the context otherwise requires, "we,"
"us," "our" or "Corniche" collectively refers to Corniche Group Incorporated.
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PROSPECTUS SUMMARY
This summary highlights information that we believe is especially
important concerning our business and this offering of common stock. It does not
contain all of the information that may be important to your investment
decision. You should read the entire prospectus, including "Risk Factors" and
our financial statements and related notes, before deciding to invest in our
common stock.
CORNICHE
We are a development stage company that is engaged in two businesses: the
sale to consumers of warranty service contracts on automobiles and consumer
products, and the property/casualty reinsurance business. We have developed a
web site on the Internet, WarrantySuperstore.com, to market warranty service
contracts directly to consumers. We intend to market service contracts solely
over the Internet.
With regard to the reinsurance business, our wholly owned subsidiary is
licensed as an insurance company in the Cayman Islands. We accept reinsurance
from domestic U.S. insurance companies. Once this subsidiary is sufficiently
capitalized, we intend to request the insurance carriers providing contractual
liability coverage on our service contracts to share (by way of reinsurance) a
portion of the risk with our insurance subsidiary.
Our principal executive office is located at 610 South Industrial
Boulevard, Suite 220, Euless, Texas 76040. Our telephone number is (817)
283-4250.
THE OFFERING
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Common stock offered by selling
stockholders:................................. 15,844,585 SHARES
COMMON STOCK OFFERED BY THE COMPANY........... 4,000,000 SHARES
COMMON STOCK OUTSTANDING:
PRIOR TO THIS OFFERING: 22,472,971(1)
AFTER THIS OFFERING: 26,472,971(1) (2)
USE OF PROCEEDS:.............................. Assuming that all 4,000,000
shares offered by the Company
in this offering are sold, we
estimate that we will receive
net proceeds of approximately
$9,800,000 from the sale of
4,000,000 shares of common
stock. We intend to use the
net proceeds we receive:
o to fund marketing and
sales efforts; and
o for working capital and
other general corporate
purposes.
NASDAQ OVER-THE-COUNTER BULLETIN BOARD
SYMBOL: CNGI
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(1) Does not include 175,000 shares of common stock reserved for
issuance under our stock option plans and 79,000 shares issuable upon exercise
of currently outstanding warrants, but assumes full conversion of all the
outstanding Series B convertible redeemable preferred stock.
(2) Of the shares being offered for sale in this offering, 14,222,971
shares of common stock are currently outstanding. 8,250,000 Shares are issuable
upon the conversion of currently outstanding shares of Series B convertible
redeemable preferred stock. The remaining 4,000,000 shares are being offered by
Corniche in this offering.
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RISK FACTORS
Investing in our common stock involves a substantial risk. You should
consider carefully the risks and uncertainties described below before deciding
to buy our common stock. If any of the following risks or uncertainties occurs,
our business could be adversely affected. In this event, the trading price of
our common stock could decline, and you could lose all or part of your
investment.
RISKS RELATED TO OUR WARRANTY SERVICE CONTRACT BUSINESS
IF WE CANNOT MEET OUR FUTURE CAPITAL REQUIREMENTS, OUR BUSINESS WILL SUFFER.
Since the time of the reorganization of the Company in May 1998, we
have experienced operating losses. To date, we have funded our operations from
the sale of our stock. There can be no assurance that we will be able to achieve
profitability.
We expect that we will need to raise additional funds in the future
through debt or equity financings to:
o fund operating losses;
o expand our business operations, including our warranty service
contract business;
o take advantage of opportunities, including acquisitions of
complementary businesses or technologies;
o develop new products; or
o respond to economic and competitive pressures.
Future additional financing may not be available on terms favorable to
us, if at all. If adequate funds are not available or are not available on
acceptable terms, our operating results and financial condition may suffer, and
our stock price may decline.
OUR BUSINESS AND PROSPECTS DEPEND ON DEMAND FOR AND MARKET ACCEPTANCE OF THE
INTERNET AS A MEDIUM OF COMMERCE AND THE DEVELOPMENT OF THE INTERNET'S
INFRASTRUCTURE.
Use of the Internet for retrieving, sharing and transferring
information among businesses, consumers, suppliers and partners has increased
substantially in recent years, and our success will depend in large part on
continued growth in the use of the Internet. Critical issues concerning the use
of the Internet and e-commerce, including security, reliability, cost, ease of
access, quality of service, regulatory initiatives and necessary increases in
bandwidth availability, remain unresolved and are likely to affect the
development of the market for our services. The adoption of the Internet for
information retrieval and exchange, commerce and communications generally will
require the continued increase in the acceptance of the Internet as a medium for
conducting business and exchanging information. Demand for, and market
acceptance of, the Internet are subject to a high level of uncertainty and are
dependent on a number of factors, including:
o the growth in consumer access to, and acceptance of, new
interactive technologies;
o concerns regarding the security of e-commerce transactions;
o the development of technologies that facilitate interactive
communication; and
o increases in user bandwidth and connectivity.
If the Internet develops more slowly than expected as a commercial or
business medium, our business and prospects will not grow.
THERE IS NO ASSURANCE THAT THE PUBLIC WILL ACCEPT THE INTERNET AS A
MEDIUM OF COMMERCE FOR THE PURCHASE OF WARRANTY SERVICE CONTRACTS.
We market warranty service contracts solely over the Internet. To date,
our sales of warranty service contracts has been minimal. There is no assurance
that consumers in significant numbers will accept the Internet as a medium for
the sale of warranty service contracts.
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WE DEPEND ON OUR KEY PERSONNEL TO MANAGE OUR BUSINESS EFFECTIVELY IN A RAPIDLY
CHANGING MARKET, AND IF WE ARE UNABLE TO RETAIN OUR KEY EMPLOYEES, OUR ABILITY
TO COMPETE COULD BE HARMED.
Our future operating results will depend in significant part upon the
continued services of our executive officers and support personnel who have
industry experience and relationships that we will rely on in implementing our
business plan. We face competition for qualified personnel. The loss of the
services of any of our key employees could negatively impact our ability to sell
our service. This could have a material adverse effect on our future results of
operations and financial condition.
THE MARKET IN WHICH WE OPERATE IS HIGHLY COMPETITIVE AND WE MAY BE UNABLE TO
COMPETE SUCCESSFULLY AGAINST NEW ENTRANTS AND ESTABLISHED COMPANIES WITH GREATER
RESOURCES.
The warranty service contract market is relatively new, intensely
competitive, highly fragmented and rapidly changing. We have experienced and
expect to experience increased competition. Many of our current competitors, as
well as a number of our potential competitors, have longer operating histories,
greater name recognition and substantially greater financial, technical and
marketing resources than we do. Some of our current or potential competitors
have the financial resources to withstand substantial price competition.
Moreover, many of our competitors have more extensive customer bases, broader
customer relationships and broader industry alliances that they could use to
their advantage in competitive situations. Our competitors may be able to
respond more quickly than we can to changes in the warranty service contract
market. Some of our current or potential competitors may enter into strategic
relationships or combine their service offerings with other business service or
consumer products providers in a manner that may make Internet sales for us more
difficult.
As competition in the warranty service contract market continues to
intensify, new solutions may come to market. We are aware of other companies
that are focusing or may in the future focus significant resources on developing
services that will compete directly with our WarrantySuperStore.com web site.
Increased competition could result in:
o price and revenue reductions and lower profit margins;
o increased cost of service from telecommunications providers;
and
o loss of customers.
Any one of the above could materially and adversely affect our
business, financial condition and results of operations.
RISKS RELATED TO LEGAL AND REGULATORY UNCERTAINTY
THE IMPOSITION OF A SALES TAX FOR INTERNET COMMERCE TRANSACTIONS MAY DISCOURAGE
ONLINE SHOPPING AND RESULT IN DECREASED INTERNET COMMERCE WEB SITE TRAFFIC,
WHICH IN TURN COULD DECREASE THE DEMAND FOR OUR SERVICE.
In 1998, the U.S. federal government enacted legislation prohibiting
states or other local authorities from imposing new taxes on Internet commerce
for a three-year period, ending on October 1, 2001. This period has been
extended for an additional year. A number of trade groups and government
entities have publicly stated their objections to this tax moratorium and have
argued for its repeal. There can be no assurance that future laws will not
impose taxes or other regulations on Internet commerce, or that the moratorium
will not be repealed, or that it will be renewed when it expires. The occurrence
of any of these events could substantially impair the growth of Internet
commerce, which, in turn, would decrease the demand for our warranty service
contracts.
OUR OPERATING RESULTS COULD BE IMPAIRED IF WE BECOME SUBJECT TO BURDENSOME
GOVERNMENT REGULATIONS AND INCREASED LEGAL REQUIREMENTS CONCERNING THE INTERNET.
Laws and regulations relating to the Internet remain largely unsettled,
even in areas where there has been some legislative action. However, due to the
increasing popularity and use of the Internet, additional laws and regulations
may be adopted with respect to the Internet, relating to:
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o user privacy;
o content;
o copyrights;
o communications services;
o characteristics and quality of products and services; and
o online advertising and marketing.
The adoption of additional laws or regulations, both domestically and
abroad, may decrease the popularity or impede the expansion of the Internet and
could seriously harm our business. A decline in the popularity or growth of the
Internet could decrease demand for our service. Moreover, the applicability of
existing laws to the Internet is uncertain with regard to many important issues,
including property ownership, intellectual property, export of encryption
technology, libel and personal privacy. The application of laws and regulations
from jurisdictions whose laws do not currently apply to our business, or the
application of existing laws and regulations to the Internet and other online
services, could also harm our business. It may take years to determine whether
and how existing and future laws and regulations apply to us.
RISKS RELATED TO OUR REINSURANCE BUSINESS
In connection with our reinsurance business, we are accepting risks
from direct insurance underwriters. As a result, our reinsurance business is
subject to the same risks and economic factors that could affect a direct
insurer.
THE NATURE OF THE INSURANCE BUSINESS.
The insurance business is cyclical in nature. It has historically been
characterized by periods of relatively high levels of price competition, less
restrictive underwriting standards and generally low premium rates, followed by
periods of capital shortages resulting in a lack of insurance availability,
relatively low levels of competition, more selective underwriting of risks and
relatively high premium rates. The unpredictability and competitive nature of
the insurance industry have contributed to significant quarter-to-quarter and
year-to-year fluctuations in underwriting results and net income. We cannot
predict if, or when, the market conditions for the insurance industry, including
the product lines that we insure, will change. Our profitability is affected by
many factors, including not only rate competition, but also severity and
frequency of claims, fluctuations in interest rates that affect investment
returns, regulation, court decisions, natural disasters, the legislative
climate, and general economic conditions and trends, such as inflationary
pressures that may affect the adequacy of reserves, all of which are
substantially beyond our control.
One of the distinguishing features of the insurance industry is that
prices are set before costs are known because rates for individual policies are
determined before losses for the policies are reported. Changes in statutory and
case law can dramatically affect the liability associated with known risks after
the insurance policy is in place. The number of competitors and the similarity
of products offered, as well as regulatory constraints, limit the ability of
insurance companies such as us to increase prices in response to declines in
profitability. In addition, during periods of high interest rates, some
insurance companies may be willing to absorb underwriting losses to generate
funds for investment, thereby prolonging low premium rates which are not
adequate to cover underwriting losses and expenses. As a result of these
factors, we may experience significantly lower premiums in the future.
Most insurance underwriting decisions are based on assumptions about
events that will occur over a period of future years and are generally based on
actuarial projections and historical data reflecting the collective experience
of large groups of insureds. The actuarial projections may not accurately
predict the aggregate obligations of any given insurer.
THE COMPETITION IN THE INDUSTRY IN WHICH WE COMPETE.
The insurance industry is highly competitive. Many of our reinsurance
competitors have more established national and international reputations and
substantially greater financial resources and market share than Corniche.
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THE ADEQUACY OF OUR LOSS RESERVES.
We are required to maintain adequate reserves to cover our estimated
ultimate liability for losses as of the end of each accounting period. These
reserves are estimates of what we expect our ultimate settlement and
administration of claims will cost, and are based on facts and circumstances
then known, predictions of future events, estimates of future trends in claims
severity and other variable, subjective factors. No method is available to
estimate precisely the ultimate liability. In recent years, a number of courts
have issued decisions expanding civil liability. These decisions have resulted
in higher damage awards to injured parties. In many cases, these decisions have
also resulted in liability and increased losses to insurance companies. In
addition, we rely on policy language, developed by us and by others, to exclude
or limit coverage. Any court ruling that this language is invalid or
unenforceable could materially adversely affect our financial position. This
possibility of expansion of insurers' liability either through new concepts of
liability or a refusal to accept restrictive policy language has added to the
inherent uncertainty of reserving for losses. Although management believes that
adequate provision has been made for loss reserves, the establishment of
appropriate reserves is an inherently uncertain process, and there can be no
assurance that ultimate losses will not exceed our loss reserves and have a
material adverse effect on our results of operations and financial condition. If
our reserves become inadequate, we will be required to increase reserves with a
corresponding increase in losses incurred and reduction in our net income and
stockholders' equity in the period in which the deficiency is identified.
INSURANCE RATINGS.
We compete with other reinsurance companies on the basis of a number of
factors, including the rating assigned by A.M. Best. A.M. Best's letter ratings
range from A++ (Superior) to C- (Weak) with A++ being highest. A.M. Best ratings
are based upon factors relevant to policyholders, agents, insurance brokers and
intermediaries and are not directed to the protection of investors.
Our reinsurance subsidiary is currently rated A+ by A.M. Best. There
can be no assurance that the rating will not be changed in subsequent periodic
reviews by A.M. Best. Any rating downgrade below B+ could have a material
adverse effect on our results of operations and our ability to effectively
compete in the marketplace.
RISKS RELATING TO THE SECURITIES MARKETS AND THIS OFFERING
OUR STOCK PRICE MAY BE VOLATILE, WHICH COULD RESULT IN LITIGATION AGAINST
CORNICHE AND SUBSTANTIAL LOSSES FOR INVESTORS PURCHASING SHARES IN THIS
OFFERING.
Our stock price may fluctuate in a manner unrelated or disproportionate
to our performance. The following factors could cause the market price of our
common stock in the public market to fluctuate significantly from the price paid
by investors in this offering:
o the addition or departure of key Corniche personnel;
o variations in our quarterly operating results;
o announcements by us or our competitors of new services or
enhancements, acquisitions, distribution partnerships, joint
ventures or capital commitments;
o sales of our common stock or other securities in the future;
o changes in market valuations of similar, publicly traded
companies; and
o fluctuations in stock market prices and volumes.
VOLATILITY IN THE MARKET PRICE OF OUR COMMON STOCK MAY PREVENT INVESTORS FROM
BEING ABLE TO SELL THEIR COMMON STOCK AT OR ABOVE OUR CURRENT PRICE.
In the past, class action litigation has often been brought against
companies following periods of volatility in the market price of those
companies' common stock. We may become involved in this type of litigation in
the future. Litigation is often expensive and diverts management's attention and
resources, which could materially adversely affect our business and results of
operations.
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INSIDERS WILL CONTINUE TO HAVE SUBSTANTIAL CONTROL OVER CORNICHE AFTER THIS
OFFERING AND COULD LIMIT YOUR ABILITY TO INFLUENCE THE OUTCOME OF KEY
TRANSACTIONS, INCLUDING CHANGES OF CONTROL.
The holders of our Series B preferred stock and our executive officers,
directors and entities affiliated with them beneficially owned approximately 40%
of our outstanding voting stock prior to this offering. Even after this
offering, these stockholders, if acting together, could be able to influence
significantly all matters requiring the approval of our stockholders, including
the election of directors and the approval of mergers or other business
combination transactions.
THERE MAY BE SALES OF A SUBSTANTIAL AMOUNT OF OUR COMMON STOCK AFTER THIS
OFFERING THAT COULD CAUSE OUR STOCK PRICE TO FALL.
Our current stockholders hold a substantial number of shares, which
they are able to sell in the public market at any time. Sales of a substantial
number of shares of our common stock within a short period of time after this
offering could cause our stock price to fall. In addition, the sale of these
shares could impair our ability to raise capital through the sale of additional
stock.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
This prospectus contains statements about future events and
expectations that are "forward-looking statements." Any statement in this
prospectus that is not a statement of historical fact may be deemed to be a
forward- looking statement. These forward-looking statements address, among
other things:
o the development and management of our business;
o our anticipated revenue, expense levels, liquidity and capital
resources and operating losses;
o the success of our marketing efforts;
o our ability to attract customers;
o the extent of acceptance of our services;
o the market opportunity and trends in the market for our
services;
o our ability to compete;
o our future capital expenditures and needs; and
o other statements, including statements containing words such
as "may," "might," "could," "would," "anticipate," "believe,"
"plan," "estimate," "project," "expect," "seek," "intend" and
other similar words that signify forward-looking statements.
These statements may be found in the sections of the prospectus
entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business" and in
this prospectus generally.
We have based these forward-looking statements on our current
expectations and projections about future events. However, our actual results
could differ materially from those anticipated in these forward-looking
statements as a result of risks facing us, including risks stated in "Risk
Factors," or faulty assumptions on our part. For example, assumptions that could
cause actual results to vary materially from future results include, but are not
limited to:
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o our ability to generate customer demand for our services;
o the development of our target market and market opportunities;
o changes or advances in technology;
o trends in regulatory, legislative and judicial developments;
and
o the extent of competition.
These forward-looking statements are made as of the date of this
prospectus. We assume no obligation to update them or to explain the reasons why
actual results may differ. In light of these risks, uncertainties and
assumptions, the forward-looking events discussed in this prospectus might not
occur.
USE OF PROCEEDS
Corniche will not receive any of the proceeds from the common stock
offered by the selling stockholders. Assuming that all 4,000,000 shares offered
by Corniche in this offering are sold at an assumed offering price of $2.50 per
share, we estimate that we will receive net proceeds of approximately $9,800,000
from the sale. We intend to use the net proceeds we receive:
o to fund marketing and sales efforts; and
o for working capital and other general corporate purposes.
We will retain broad discretion in the allocation of the net proceeds
of this offering. In addition, we may use a portion of the net proceeds to
acquire or invest in businesses that are complementary to our business. We
currently do not have any commitments or agreements for any acquisitions or
investments of this kind.
PLAN OF DISTRIBUTION
The common stock offered hereby may be sold directly by Corniche and
each selling stockholder or indirectly through agents, dealers or underwriters
from time to time in one or more transactions on the Nasdaq Over-the-Counter
Bulletin Board or any exchanges on which the common stock is then listed, or in
privately negotiated transactions at prices related to market prices, at
negotiated prices or fixed prices. The selling stockholders will bear all
discounts and commissions paid to broker-dealers in connection with the sale of
their common stock. Other offering expenses will be borne by Corniche.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock.
We do not expect to pay cash dividends on our common stock in the foreseeable
future. We currently intend to retain our future earnings, if any, to fund the
development and growth of our business. Future dividends, if any, will be
determined by our board of directors and will depend upon our results of
operations, financial condition, and capital expenditure plans, as well as other
factors that our board of directors considers relevant.
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CAPITALIZATION
The following table sets forth as of June 30, 2000, (a) the "actual"
capitalization of the Company and (b) the "as adjusted" capitalization of the
Company after giving effect to the issuance of 4,000,000 shares of common stock
being offered by Corniche at an assumed offering price of $2.50 per share.
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June 30, 2000
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Actual As Adjusted
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Total current liabilities $ 499,334 $ 499,334
Deferred revenues $ 587,766 $ 587,766
Long-term debt $ 64,116 $ 64,116
Series A $0.07 convertible preferred stock,
stated value - $1.00 per share
authorized - 1,000,000 shares
outstanding - 694,974 shares $ 694,974
Series B convertible redeemable preferred $ 694,974
stock, $.01 par value, authorized, issued $ 8,250
and outstanding - 825,000 shares $ 8,250
Common stock $.001 par value,
authorized - 30,000,000 shares
Issued: actual - 14,222,971 shares 14,223 --
as adjusted - 18,222,971 shares -- 18,223(1)
Additional paid-in capital 8,806,734 18,602,734(1)
Accumulated deficit (4,911,517) (4,911,517)
3,917,690 13,691,217
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$ 5,763,880 $ 15,563,876
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(1) Reflects the receipt of $9,800,000 in net proceeds from the issuance
of 4,000,000 shares of common stock at an assumed offering price of
$2.50 per share, after deducting estimated offering expenses of
$200,000.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth summary financial data of the Company (i) for
each of the six month periods ended June 30, 2000, and 1999, (ii) for the year
ended December 31, 1999, (iii) for the period from April 1, 1998, through
December 31, 1998, and (iv) for the years ended March 31, 1998, 1997, and 1996.
The historical financial data for the year ended December 31, 1999, and for the
nine months ended December 31, 1998, are derived from the audited financial
statements of Corniche, which were audited by Weinick Sanders Leventhal & Co.,
LLP, independent certified public accountants, are included elsewhere in this
prospectus. The historical financial data for the years ended March 31, 1998,
1997, and 1996 are derived from the audited financial statements of Corniche,
which were audited by Simontacchi & Company, LLP, independent certified public
accountants. The audited financial statements for Corniche for the year ended
March 31, 1998, are included elsewhere in this Prospectus. The summary financial
data should be read in conjunction with both the Company's financial statements
and the notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus. The
financial data for the six month periods ended June 30, 2000, and 1999, are
unaudited, but, in the opinion of management, reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of results for the interim periods. The operating results for
interim periods are not necessarily indicative of results for the full fiscal
year.
<TABLE>
<CAPTION>
NINE MONTHS
SIX MONTHS ENDED YEAR ENDED ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
---------------------------- ------------ ------------
2000 1999 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING DATA:
CONTINUING OPERATIONS:
Earned revenues $ 275,549 $ -- $ 12,854 $ --
Direct costs 106,580 -- 7,557 --
Gross profit 168,969 -- 5,297 --
Operating expenses 824,041 999,763 1,060,668 428,157
Operating loss (655,072) (999,763) (1,055,371) (428,157)
Interest income (expense) 86,620 5,965 (56,965) 25,206
Loss from continuing operations
before preferred dividend
(566,792) (993,798) (1,112,336) (402,951)
Preferred dividend 24,370 (28,714) (57,172) (44,642)
------------ ------------ ------------ ------------
Loss from continuing operations (581,162) (1,022,512) (1,169,508) (447,593)
------------ ------------ ------------ ------------
DISCONTINUED OPERATIONS:
Loss from discontinued
operations -- -- -- --
Excess of UK subsidiary
cumulative loss over
investment -- -- -- --
------------ ------------ ------------ ------------
Net income (loss) per common share $ (581,162) $ (1,022,512) $ (1,169,508) $ (447,593)
============ ============ ============ ============
PER SHARE DATA:
Net income (loss) per common
share:
Continuing operations $ (0.04) $ (0.16) $ (0.17) $ (0.07)
Discontinued operations -- -- -- --
------------ ------------ ------------ ------------
$ (0.04) $ (0.16) $ (0.17) $ (0.07)
============ ============ ============ ============
Weighted average number of common
shares outstanding 13,820,536 6,377,357 6,905,073 6,367,015
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING DATA:
CONTINUING OPERATIONS:
Earned revenues $ -- $ -- $ --
Direct costs -- -- --
Gross profit -- -- --
Operating expenses 221,602 251,583 257,073
Operating loss (221,602) (251,583) (257,073)
Interest income (expense) 17,804 (17,373) (600)
Loss from continuing operations
before preferred dividend
(203,798) (268,956) (260,715)
Preferred dividend (60,067) (63,648) (62,795)
------------ ------------ ------------
Loss from continuing operations (263,865) (332,604) (323,510)
------------ ------------ ------------
DISCONTINUED OPERATIONS:
Loss from discontinued
operations -- -- (3,432,032)
Excess of UK subsidiary
cumulative loss over
investment -- -- 5,466,636
------------ ------------ ------------
Net income (loss) per common share $ (263,865) $ (332,604) $ 1,711,094
============ ============ ============
PER SHARE DATA:
Net income (loss) per common
share:
Continuing operations $ (0.05) $ (0.14) $ (0.14)
Discontinued operations -- -- 0.88
------------ ------------ ------------
$ (0.05) $ (0.14) $ 0.74
============ ============ ============
Weighted average number of common
shares outstanding 5,165,272 2,412,278 2,300,289
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
June 30, 2000
-------------------------------
Actual As Adjusted(1)
-------------- --------------
<S> <C> <C>
Balance sheet data:
Working capital $ 4,624,638 $ 9,424,638
Total assets 5,763,880 10,563,880
Long-term debt and unearned
revenues 651,882 651,882
Series A convertible preferred
stock 694,974 694,974
Convertible redeemable preferred
stock, common stock an other
stockholders' equity 3,917,690 13,691,217
</TABLE>
(1) Gives effect to the sale of 4,000,000 shares of common stock
being offered hereby, at $2.50 per share, net of estimated offering costs of
$200,000.
9
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis when you read the
consolidated financial statements and the related notes included in this
prospectus.
OVERVIEW
PLAN OF OPERATION
We have relied solely on the proceeds from the sales of securities in
October 1997, May 1998, May 1999, December 1999, and during the six months ended
June 30, 2000, for the primary source of our funds. These funds were and will be
utilized to fund our operating expenses. Management anticipates we will require
additional funds from future sales of our securities and/or other financing
alternatives to fund our future operational costs and at the same time fully
develop our service contract sales and insurance businesses.
On September 30, 1998, we acquired Stamford Reinsurance Company Ltd., which
was then an inactive foreign corporation that is licensed in the Cayman Islands
as a casualty and property insurer. In the fourth quarter of 1999, Stamford
commenced underwriting as a reinsurer. Also in the fourth quarter, we commenced
sales of our automotive vehicle and consumer products service contracts through
our website.
Our plan of operation for the next 12 months is principally to continue our
endeavors to establish ourselves in the vehicle and consumer products service
contract business through our Internet web site, www.warrantysuperstore.com, and
to continue to seek additional property/casualty reinsurance opportunities for
our wholly owned reinsurance company, Stamford Reinsurance Co. Ltd.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000, COMPARED TO SIX MONTHS ENDED JUNE 30, 1999.
Sales. We did not generate any operating revenues until the fourth quarter
of fiscal 1999, when our reinsurance subsidiary commenced generating premium
revenues and the Company began the sale of its service contracts.
Cost of Sales. In the six months ended June 30, 2000, Stamford continued
reinsuring contractual liability insurance policies from one United States
carrier that is rated "A-" Excellent by A.M. Best. This insurance generated
approximately $536,000 in premiums, of which $296,000 was unearned at June 30,
2000. Policy acquisition costs were $67,000 of which $49,000 was expensed in the
six months ended June 30, 2000. Income from operations in the six months ended
June 30, 2000, was $169,000 of which $5,000 is management's estimate of incurred
by not reported losses at June 30, 2000. Our sales of extended service contracts
for new and used service contracts for new and used automotive vehicles in the
six months ended June 30, 2000, generated $28,600 in revenues of which $10,000
was recognized within the current period with the balance deferred over the life
of the contract. Direct costs associated with the sale of the service contracts
are being recognized pro rata over the length of the contract.
General and Administrative. General and administrative costs decreased by
17.6% to $824,000 for the six months ended June 30, 2000, compared to $1,000,000
for the six months ended June 30, 1999. For the three months ended June 30,
2000, general and administrative costs decreased by 17.3% to $497,000 compared
to $601,000 for the comparable period in 1999. The decreases are primarily
attributable to reduced website development costs.
Interest Income and Interest Expense. Interest income increased 1416.7% to
$91,000 for the six months ended June 30, 2000, compared to $6,000 for the six
months ended June 30, 1999. For the three months ended June 30, 2000, interest
income increased 3600% to $55,000 compared to $1,500 for the comparable period
in 1999. Interest expense increased $4,600 for the six months and $2,400 for the
three months ended June 30, 2000, from $-0- for the both periods in 1999. The
increase in interest income and interest expense is the result of the cash, cash
equivalents, and investments used to fund the Company's increased operating
costs in the current period and the incidence of debt in a prior period.
10
<PAGE> 14
Preferred Stock Dividend. The accrued preferred stock dividend of $24,000
in June 2000 is $5,000 less than the $29,000 accrued during the same period in
1999 principally because of the reduction of the average number of Series A
preferred stock outstanding in the current year.
Net Loss. Net loss for the six months ended June 30, 2000 decreased 43.2%
to $581,000 from the comparable loss of $1,023,000 incurred in 1999. For the
three months ended June 30, 2000, the net loss decreased 37.7% to $382,000 from
the comparable loss of $613,000 in 1999. These decreases are a result of the
reasons cited above.
YEAR ENDED DECEMBER 31, 1999, COMPARED TO THE YEAR ENDED DECEMBER 31, 1998.
Sales. We did not generate any operating revenues until the fourth quarter
of fiscal 1999, when our reinsurance subsidiary commenced generating premium
revenues and we began the sale of our service contracts.
Cost of Sales. Stamford in the quarter ended December 1999 began reinsuring
contractual liability reinsurance policies from one United States carrier that
is rated "A-" Excellent by A.M. Best. This reinsurance generated approximately
$300,000 in premiums, of which $288,000 was unearned at December 31, 1999.
Policy acquisition costs were $38,000 of which $2,000 was expensed in the
current period. Losses charged to operations in the current period were $5,112
of which $5,000 is management's estimate of incurred but not reported losses at
December 31, 1999. Corniche commenced the sales of the extended service
contracts for new and used automotive vehicles in the last quarter of 1999,
generating $11,000 in revenues of which $400 was recognized in 1999 with the
balance deferred over the life of the contract. Direct costs associated with the
sale of the service contracts are being recognized pro rata over the length of
the contract. Since neither we nor our subsidiary generated any revenues in
1998, no meaningful comparative analysis can be made.
General and Administrative. General and administrative costs for 1999
aggregating $1,071,000 as compared to $481,000 for the 12 months ended December
31, 1998. The increase of $590,000 (122.7%) is attributable to increases in (i)
advertising of $253,000 in 1999 (ii) payroll and related employment costs of
$173,000 to $257,000 in 1999, (iii) website development of $98,000 to $140,000
and (iv) depreciation and amortization of $78,000 to $83,000 in 1999.
Interest Income and Interest Expense. Interest income decreased $30,000
(78.9%) from $38,000 in the 12 months ended December 31, 1998, to $8,000 for the
year ended December 31, 1999. Interest expense increased from $1,000 in the 12
months ended December 31, 1998, to $65,000 for the year ended December 31, 1999.
The reduction in interest income and increase in interest expense is the result
of the cash, cash equivalents, and investments used to fund our increased
operating costs for the year ended December 31, 1999, and the incurrence of debt
of $98,000 to fund property asset additions.
Preferred Stock Dividend. The accrued preferred stock dividend of $57,000
in 1999 is $3,000 less than the $60,000 accrued during the 12 months ended
December 31, 1998, principally because of the reduction of the average number of
Series A preferred shares outstanding for the year ended December 31, 1999.
Net Loss. Net loss for fiscal 1999 increased $676,000 (133.9%) to
$1,180,000 from the comparable loss of $504,000 incurred during the 12 months
ended December 31, 1998, for the reasons cited above.
LIQUIDITY AND CAPITAL RESOURCES
We have committed to acquire computer hardware and software and to develop
an Internet website for approximately $1,500,000 of which $1,000,000 has been
expended through June 30, 2000. Although we are not contractually obligated to
fulfill the remaining $500,000 of the project, we intend to do so over the next
one to two years as and if funding permits. If successful, the project will
enable us to fully utilize the Internet in the sales, advertising, marketing and
collections of our warranty service contract business. There can be no assurance
that we will have the funds available to fund the hardware and/or software we
will require to successfully develop this project nor can there be assurance
that if it is developed such project will aid in the intended results of
additional revenues.
The Certificate of Designation for our Series A preferred stock states that
at any time after December 1, 1999, any holder of Series A preferred stock may
require us to redeem his shares of Series A preferred stock (if there are funds
11
<PAGE> 15
with which we 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 are past due, no shares of Series A preferred stock may be redeemed by us
unless all outstanding shares of Series A preferred stock are simultaneously
redeemed. The holders of Series A preferred stock may convert their Series A
preferred stock into shares of our common stock at a price of $5.20 per share.
At June 30, 2000, 694,971 shares of Series A preferred stock were outstanding.
If the preferred stockholders do not convert their shares into common stock, and
if we were required to redeem any significant number of shares of Series A
preferred stock, our financial condition would be materially affected.
INFLATION
Inflation has not had a significant effect on our operations or financial
position and management believes that the future effects of inflation on our
operations and financial position will be insignificant.
12
<PAGE> 16
BUSINESS
OUR STRATEGY
We are in the process of putting into place a strategic and operational
business plan to establish ourselves in the warranty service contract business
and the reinsurance industry.
WARRANTYSUPERSTORE.COM WEB SITE
We have developed a web site on the Internet to market warranty service
contracts on automobiles and consumer products. Our web site is called
WarrantySuperstore.com. Through this web site, we plan to sell our products and
services directly to consumers.
We are currently offering warranty service contracts for automobiles (new
and used), office equipment, consumer electronics, home appliances, lawn and
garden equipment, and computers.
We intend to advertise our web site through print, radio, and television
advertising and links from other Internet sites. We do not currently intend to
have distribution channels for our products and services other than the
Internet.
We offer our products and services in states that permit program marketers
to be the obligor on warranty service contracts. Currently, this represents
approximately 40 states for automobile service contracts and most states for
other service contracts. We now anticipate that the obligor on warranty service
contracts sold on WarrantySuperstore.com will be a third party warranty company.
We are responsible for marketing, booking sales, collecting payment for warranty
service contracts, reporting and paying premiums to a reinsurance carrier, and
providing information to the reinsurance carrier's appointed claims
administrator.
Although we will manage most functions for the warranty service contracts,
we will not administer the claim functions. The reinsurance carrier has
appointed a claims administrator to administer the claims functions, including
payment of claims. We are in the process of establishing an electronic data
processing interface with the claims administrator and to report details
regarding the contracts to the reinsurance carrier.
Great American Insurance Company is providing contractual liability
reinsurance covering the obligations to repair or replace the products covered
by the service contracts.
We intend to provide customer analysis reports to retailers on a fee basis.
We believe that it will be able to develop market research questionnaires and
produce market research reports based on database information collected through
sales on WarrantySuperstore.com.
We expect to use WarrantySuperstore.com to generate advertising revenues.
We plan to sell banner page advertisements on its web site and to sell
advertisements on a preferred client list basis.
REINSURANCE ACTIVITIES
Stamford Reinsurance Company, Ltd. ("Stamford") is a wholly owned
subsidiary of ours chartered under the laws of the Cayman Islands. Stamford is
licensed to conduct business as an reinsurance company in the Cayman Islands and
as a reinsurance company throughout the U.S. Stamford began generating revenues
in the fourth quarter of 1999.
When Stamford is sufficiently capitalized, we intend to request the
reinsurance carriers providing contractual liability coverage on our warranty
service contracts to share (via reinsurance) a portion of the risk with
Stamford. Our ability to influence the reinsurance carriers to direct
reinsurance business to Stamford will depend on our negotiating strength, which,
in turn, will depend on the success of WarrantySuperstore.com. Stamford's
ability to reinsure our warranty service contract business will largely depend
on the primary reinsurance carriers' willingness to cede reinsurance to
Stamford.
13
<PAGE> 17
Our long-range plans for Stamford depend on Stamford's growth and
development of greater financial stability. If Stamford's operations are
successful, then we intend to cause Stamford to seek additional reinsurance
opportunities that are not related to us. Stamford may use reinsurance brokers
to identify other reinsurance opportunities. We may also consider any
appropriate opportunities to sell Stamford that may arise.
DOMESTIC LICENSING
As an offshore reinsurance company, Stamford is permitted to function as a
reinsurance company in the U.S. As such, it can reinsure U.S. reinsurance
companies. Our long-range strategy is to identify and acquire a property and
casualty reinsurance carrier that holds state licenses. If we acquire a domestic
reinsurance carrier, we plan to use the carrier to serve as a specialty insurer
in niche commercial markets that are under served by standard reinsurance
carriers.
OTHER INFORMATION
We are party to an investment advisory agreement AIG Global Investment
Corporation under which AIG Global will function as investment advisor and
manager of our investment assets. AIG Global provides management services to all
affiliated reinsurance companies of American International Group and other third
party institutions worldwide.
EMPLOYEES
At September 30, 2000, we employed six full-time personnel.
PROPERTIES
We lease approximately 4,100 square feet of office space at 610 South
Industrial Boulevard, Euless, Texas. Monthly rental under the lease is $4,175.
The lease expires in July 2001. We do not own any real property.
14
<PAGE> 18
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table presents information with respect to our directors and
executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
------------------ --- ------------------------------------------
<S> <C> <C>
James J. Fyfe 45 Chairman of the Board of Directors
Robert F. Benoit 42 Director and Chief Executive Officer
Robert H. Hutchins 71 Director and President
John L. King 56 Vice President, Chief Financial Officer
David H. Boltz 42 Vice President, Chief Information Officer
Paul L. Harrison 38 Director
Joseph P. Raftery 57 Director
</TABLE>
JAMES F. FYFE has served as a director of Corniche since May 1995. He
became Chairman of the Board in April 2000. From May 1995 until May 1998, Mr.
Fyfe served as Vice President and Chief Operating Officer of Corniche. Mr. Fyfe
has been a director of Machine Vision Holdings, Inc., an intelligent automation
technology software company, since January 1998 and of Transmedia Asia Pacific,
Inc., a member benefit loyalty marketing company, since October 1999. From
August 1996 to August 1997, Mr. Fyfe was an outside director of Medical Laser
Technologies, Inc.
ROBERT F. BENOIT has served as Chief Executive Officer since September 1999
and Secretary since June 1999. He was Executive Vice President and Chief
Operating Officer from February 1999 to September 1999. From May 1996 to
February 1999, Mr. Benoit was a business analyst at Warrantech Automotive, Inc.,
a service contract provider, in Euless, Texas, where he served as project leader
for Internet applications. From October 1995 to May 1996, Mr. Benoit served as
the corporate accounting manager responsible for the non-bank subsidiaries of
Shawmut Bank, National Association.
ROBERT H. HUTCHINS has served as a director and the President and Principal
Financial Officer of Corniche since May 1998. Mr. Hutchins was employed by
Warrantech Automotive, Inc. as National Claims Manager, from May 1995 to May
1998. Prior to joining Warrantech, he spent 45 years in the property and
casualty reinsurance industry in various executive and management positions.
JOHN L. KING has served as the Vice President, Chief Financial Officer
since June 2000. From January 1996 to June 2000, Mr. King was an independent
business consultant. From May 1993 to December 1995, Mr. King was the Chief
Financial Officer for Advacare, Inc., a health care billings company based in
Dallas, Texas. From April 1989 to April 1993, Mr. King served as the business
unit controller for a division of Conner Peripherals, Inc., based in Orlando,
Florida.
DAVID H. BOLTZ, PH.D. has served as Vice President, Chief Information
Officer since June 2000. From May of 1991 to June 2000, Dr. Bolt was an
independent business consultant operating as Language Engineering Services,
where he was engaged in providing business technology consulting services and
information management services to numerous firms in the Dallas/Ft. Worth
metroplex.
PAUL L. HARRISON was elected as a director of Corniche in June 2000. He has
been a director of Transmedia Europe, Inc., a member benefit loyalty marketing
company in London, England, since June 1996. Mr. Harrison was also President,
Principal Financial and Accounting Officer and Secretary of Transmedia Asia
Pacific, Inc., also a member benefit loyalty marketing company in London,
England, until October 1999. From May 1994 until June 1997, he was a business
and financial consultant to Transmedia Europe, Inc.
JOSEPH P. RAFTERY was also elected as a director of Corniche in June 2000.
He has been an independent business consultant since 1998. From 1990 to 1998,
Mr. Raftery was Chairman and a member of the Board of Directors and President of
BankAmerica Insurance Group, Inc., a subsidiary of BankAmerica Corp. based in
San Diego, California.
15
<PAGE> 19
TERMS OF OFFICE
Members of the board are elected at each annual meeting of stockholders, to
serve one year terms or until their successors are elected and qualified or
their earlier resignation or removal. Our executive officers are elected
annually by the board and serve at the discretion of the board until their
successors are elected and qualified or their earlier resignation or removal.
BOARD COMMITTEES
Our Board of Directors has established two committees: the Audit Committee,
and the Compensation Committee.
The Audit Committee is responsible for recommending to the Board of
Directors the engagement of our independent auditors and reviewing with the
independent auditors the scope and results of the audits, our internal
accounting controls, audit practices, and the professional services furnished by
the independent auditors. The current members of the Audit Committee are Messrs.
Fyfe, Harrison and Raftery.
The Compensation Committee is responsible for reviewing and approving all
compensation arrangements for our senior executive officers. The current members
of the Compensation Committee are Messrs. Benoit, Harrison and Raftery.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our Board of Directors established the Compensation Committee in June 2000.
Prior to establishing the Compensation Committee, our Board of Directors as a
whole performed the functions delegated to the Compensation Committee. No
current or former member of our Compensation Committee has served as a member of
the board of directors or compensation committee of any entity that has one or
more executive officers serving as a member of our Board of Directors or
Compensation Committee.
COMPENSATION OF DIRECTORS
Pursuant to the 1998 Independent Director Compensation Plan, each director
who is not an officer or employee of Corniche is entitled to receive
compensation of $2,500 per calendar quarter plus 500 shares of common stock per
calendar quarter of board service, in addition to reimbursement of travel
expenses. Outside directors are entitled to be compensated for committee service
at $500 per calendar quarter plus 125 shares of common stock per calendar
quarter. No directors' fees are payable to Corniche employees who serve as
directors. Corniche deferred the payment of directors' fees for service during
the year ended December 31, 1999.
All directors are entitled to receive options to purchase 1,500 shares of
common stock each May under Corniche's 1992 Stock Option Plan for Directors.
EXECUTIVE COMPENSATION
In February 1998, Corniche changed its fiscal year end from March 31 to
December 31. Consequently, the executive compensation information presented
below relates to the period from April 1, 1998, through December 31, 1999. Mr.
Hutchins, Corniche's President and former Principal Financial Officer, was
Corniche's only executive officer as of December 31, 1998, who received
compensation from Corniche during the nine-month period then ended. Mr. Hutchins
and Robert F. Benoit were Corniche's only executive officers during 1999. Except
for Mr. Hutchins' service in 1998, neither of them was an employee of Corniche
during any prior fiscal year. The table below sets forth information concerning
the compensation of Hutchins and Benoit for services in all capacities to
Corniche for the nine months ended December 31, 1998, and the year ended
December 31, 1999.
16
<PAGE> 20
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY OTHER(2)
-------------------------------------------- ------- ------- ---------
<S> <C> <C> <C>
Robert H. Hutchins 1997 -- --
President and Principal Financial Officer 1998(1) $49,038 $ 3,200
1999 $85,000 $ 4,000
Robert A. Benoit 1997 -- --
Chief Executive Officer, Executive Vice 1998 -- --
President, and Secretary 1999(3) $62,019 $ 4,000
</TABLE>
----------
(1) From May 18, 1998, when Mr. Hutchins first joined Corniche, to December
31, 1998.
(2) Represents an automobile allowance.
(3) From February 15, 1999, when Mr. Benoit first joined Corniche, to
December 31, 1999.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning grants of stock
options to the named executive officers during 1999. All options granted to
executive officers in the last fiscal year were granted under the 1998 Employees
Incentive Stock Option Plan. The percent of the total options set forth below is
based on an aggregate of 175,000 options granted to one employee during the year
ended December 31, 1999. All options were granted at the fair market value on
the date of grant as determined by our board of directors and are immediately
exercisable.
The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the rules of the Securities and Exchange Commission. There can
be no assurance that the actual stock price appreciation over the 10-year
option term will be at the assumed 5% and 10% levels or at any other defined
level. Unless the market price of the common stock appreciates over the option
term, no value will be realized from the option grants. The potential realizable
value is calculated by assuming that the fair market value of the common stock
on the date of grant of the options appreciates over the exercise price at the
indicated rate for the entire term of the option and that the option is
exercised at the exercise price and the resulting shares sold on the last day at
the appreciated price.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------------- VALUE AT ASSUMED
ANNUAL RATES OF STOCK
NUMBER OF % OF TOTAL EXERCISE PRICE APPRECIATION
SECURITIES OPTIONS/SARS OR BASE FOR OPTION TERM
UNDERLYING GRANTED TO PRICE ------------------------
OPTIONS/SARS EMPLOYEES IN (PER EXPIRATION
GRANTED FISCAL YEAR SHARE) DATE 5% 10%
------------ ------------ -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Robert F. Benoit 75,000 43% $1.097 2/15/2009 $105,000 $132,500
100,000 57% $1.000 9/27/2009 $127,900 $161,000
</TABLE>
AGGREGATE OPTION EXERCISES IN 1999 AND FISCAL YEAR-END OPTION VALUES
None of the named executive officers exercised any stock options during
1999.
The following table sets forth as of December 31, 1999, for each of the
named executive officers:
o the total number of unexercised options to purchase our common
stock; and
o the value of options that were in-the-money at December 31,
1999.
17
<PAGE> 21
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING-UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY-OPTIONS
YEAR-END AT FISCAL YEAR-END
NAME (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)
--------------------------------- -------------------------- ---------------------------
<S> <C> <C>
Robert F. Benoit................. 175,000/- -/-
</TABLE>
BENEFIT PLANS
1992 STOCK OPTION PLAN
In April 1992, Corniche adopted the 1992 Stock Option Plan to provide for
the granting of options to directors. According to the terms of this plan, each
director is granted options to purchase 1,500 shares each year. The maximum
amount of Corniche's common stock that may be granted under this plan is 20,000
shares. Options are exercisable at the fair market value of the common stock on
the date of grant and have five-year terms.
1998 EMPLOYEE INCENTIVE STOCK OPTION PLAN
Under the 1998 Plan, the maximum aggregate number of shares which may be
issued under options is 3,000,000 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 are 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 are granted, the option exercise price is at least 110% of the
fair market value of the shares of common stock subject to the options and (b)
the option by its terms is not exercisable after the fifth anniversary of the
date on which the option is granted.
The 1998 Plan is administered by the Compensation Committee of the Board of
Directors. In 1999, options to acquire 100,000 common shares at $1.00 per share
and options to acquire 75,000 common shares at $1.097 were granted to an
officer. Additionally, an option to acquire 25,000 common shares at $0.6875 per
share was granted to a consultant. In June 2000, options to acquire 100,000
common shares at $1.88 per share and options to acquire 100,000 common shares at
$1.94 per share were granted to two officers.
EMPLOYMENT AGREEMENTS
ROBERT F. BENOIT
Effective June 26, 2000, we entered into an employment agreement with Mr.
Benoit. This employment agreement has a three-year term and provides that Mr.
Benoit receive a base salary of $100,000 per year. Mr. Benoit also receives a
$6,000 automobile allowance per year. Additionally, Mr. Benoit is eligible to
receive a performance bonus at the sole discretion of our board of directors.
Mr. Benoit is also entitled to reimbursement for business or entertainment
expenses and other expenses and he may participate in all employee benefit
plans, severance plans, health insurance plans, deferred compensation plans,
incentive plans and other plans as may be available to our other employees,
subject to the terms of those programs. If we terminate Mr. Benoit's employment
without cause or he resigns for good reason, as both terms are defined in his
employment agreement, we will pay Mr. Benoit a severance payment equal to 18
months base salary and performance bonus for the term of his employment
agreement and Mr. Benoit will retain all rights to his vested stock options,
among other things described in his employment agreement. Mr. Benoit has agreed,
pursuant to his employment agreement, not to compete with us during his
employment and for a period of two years following termination of his
employment. Further, Mr. Benoit has agreed not to disclose any of our
confidential information at any time during or subsequent to his employment with
us, other than pursuant to our policies regarding disclosure. In addition, Mr.
Benoit has agreed not to solicit our employees for a period of 18 months
following termination of his agreement.
18
<PAGE> 22
DAVID H. BOLTZ
Effective June 26, 2000, we entered into an employment agreement with Mr.
Boltz. This employment agreement has a three-year term and provides that Mr.
Boltz receive a base salary of $75,000 per year. Additionally, Mr. Boltz is
eligible to receive a performance bonus at the sole discretion of our board of
directors. Mr. Boltz is also entitled to reimbursement for business or
entertainment expenses and other expenses and he may participate in all employee
benefit plans, severance plans, health insurance plans, deferred compensation
plans, incentive plans and other plans as may be available to our other
employees, subject to the terms of those programs. If we terminate Mr. Boltz's
employment without cause or he resigns for good reason, as both terms are
defined in his employment agreement, we will pay Mr. Boltz a severance payment
equal to 18 months base salary and performance bonus for the term of his
employment agreement and Mr. Boltz will retain all rights to his vested stock
options, among other things described in his employment agreement. Mr. Boltz has
agreed, pursuant to his employment agreement, not to compete with us during his
employment and for a period of two years following termination of his
employment. Further, Mr. Boltz has agreed not to disclose any of our
confidential information at any time during or subsequent to his employment with
us, other than pursuant to our policies regarding disclosure. In addition, Mr.
Boltz has agreed not to solicit our employees for a period of 18 months
following termination of his agreement.
JOHN L. KING
Effective June 26, 2000, we entered into an employment agreement with Mr.
King. This employment agreement has a three-year term and provides that Mr. King
receive a base salary of $75,000 per year. Additionally, Mr. King is eligible to
receive a performance bonus at the sole discretion of our board of directors.
Mr. King is also entitled to reimbursement for business or entertainment
expenses and other expenses and he may participate in all employee benefit
plans, severance plans, health insurance plans, deferred compensation plans,
incentive plans and other plans as may be available to our other employees,
subject to the terms of those programs. If we terminate Mr. King's employment
without cause or he resigns for good reason, as both terms are defined in his
employment agreement, we will pay Mr. King a severance payment equal to 18
months base salary and performance bonus for the term of his employment
agreement and Mr. King will retain all rights to his vested stock options, among
other things described in his employment agreement. Mr. King has agreed,
pursuant to his employment agreement, not to compete with us during his
employment and for a period of two years following termination of his
employment. Further, Mr. King has agreed not to disclose any of our confidential
information at any time during or subsequent to his employment with us, other
than pursuant to our policies regarding disclosure. In addition, Mr. King has
agreed not to solicit our employees for a period of 18 months following
termination of his agreement.
19
<PAGE> 23
RELATED PARTY TRANSACTIONS
Other than the compensation and other arrangements described in
"Management," and the transactions described below, since January 1, 1997 there
has not been, nor is there currently proposed, any transaction or series of
similar transactions to which we were or will be a party:
o in which the amount involved exceeded or will exceed $60,000;
and
o in which any director, executive officer, holder of more than 5% or our
common stock on an as-converted basis or any member of their immediate
family had or will have a direct or indirect material interest.
We believe that each of the transactions described below were on terms no
less favorable than could have been obtained from unaffiliated third parties.
All future transactions between Corniche and any director or executive officer
will be subject to approval by a majority of the disinterested members of our
board of directors.
STOCK SALES TO DIRECTORS, OFFICERS AND 5% STOCKHOLDERS
On March 4, 1998, we entered into a Stock Purchase Agreement with Joel San
Antonio, Robert H. Hutchins (a director and President of Corniche) and certain
other individuals acquiring an aggregate of 765,000 shares of a Series B
convertible redeemable preferred stock, par value $0.01 per share. Mr. San
Antonio purchased 710,000 shares of Series B convertible redeemable preferred
stock at $0.10 per share, for total consideration of $71,000 and Mr. Hutchins
purchased 15,000 shares of Series B convertible redeemable preferred stock at
$0.10 per share, for total consideration of $1,500. Assuming the full conversion
of the Series B convertible preferred stock into common stock, Mr. San Antonio
is the beneficial owner of 4,852,500 shares of common stock, over 20% of the
voting power of our voting stock.
AGREEMENTS WITH DIRECTORS, EXECUTIVE OFFICERS AND 5% STOCKHOLDERS
From May 1998 to September 1999, Mr. San Antonio served as Chairman of the
Board of Directors of Corniche. Mr. San Antonio is the Chairman of the Board and
Chief Executive Officer of Warrantech Corporation. Warrantech is the claims
administrator for our warranty service contracts. Under this arrangement we
report all claims to Warrantech and pay $25 per claim to Warrantech.
STOCK OPTIONS GRANTED TO DIRECTORS, EXECUTIVE OFFICERS AND 5% STOCKHOLDERS
Since 1997, we have granted the following options to purchase our common
stock to our directors, executive officers and stockholders who beneficially own
5% or more of our common stock. In 1999, options to acquire 100,000 common
shares at $1.00 per share and options to acquire 75,000 common shares at $1.097
per share were granted to Robert F. Benoit, a director and Chief Executive
Officer of Corniche. In May 1997, James J. Fyfe (Chairman of the Board of
Directors of Corniche) was granted an option to acquire 1,500 common shares at
$0.3125 per share under the 1992 Plan. In June 2000, John L. King (Vice
President and Chief Financial Officer of Corniche) was granted options to
acquire 100,000 common shares at $1.88 per share and David H. Boltz (Vice
President and Chief Information Officer) was granted options to acquire 100,000
common shares at $1.94 per share.
20
<PAGE> 24
PRINCIPAL AND SELLING STOCKHOLDERS
The following table shows the number and percentage of outstanding shares
of Corniche's common stock beneficially owned as of September 30, 2000, by (i)
each of our directors and executive officers, (ii) all of our directors and
officers as a group, (iii) all persons that we know to be beneficial owners of
5% or more of any class of our voting capital stock, and (iv) each selling
stockholder. Unless otherwise noted, each person listed in the table has sole
voting and investment power with respect to the shares indicated as beneficially
owned by that person. The table assumes that everyone listed below has converted
all of their shares of convertible preferred stock into shares of common stock.
For a description of Corniche's convertible preferred stock, see "Description of
Capital Stock."
<TABLE>
<CAPTION>
COMMON SHARES COMMON SHARES
OWNED BEFORE OWNED AFTER
OFFERING COMMON OFFERING (1)
NAME AND ADDRESS OF --------------------------- SHARES TO ---------------------
BENEFICIAL OWNER AMOUNT % OF CLASS BE SOLD AMOUNT % OF CLASS
--------------------------------------- ------------ ---------- --------- ------ ----------
<S> <C> <C> <C> <C> <C>
Robert F. Benoit 5,000 * 5,000 -- --
James J. Fyfe(2)(3) 107,500 * 107,500 -- --
Paul L. Harrison -- -- -- -- --
Robert H. Hutchins(2)(4) 150,000 * 150,000 -- --
Joseph P. Raftery -- -- -- -- --
All Officers and Directors as a Group 262,500 1.1% 262,500 -- --
(5 Persons)
Glen Aber(2) 150,000 * 150,000 -- --
Naomi Anne Aboud 40,000 * 40,000 -- --
Adler Corporation PTY, Ltd. 937,500 4.1% 937,500 -- --
Advanced Balanced International
Investment Strategies N.V. 625,000 2.7% 625,000 -- --
Placido Amendolia 20,000 * 20,000 -- --
Balanced International Investment
Strategies (BIIS) N.V. 625,000 2.7% 625,000 -- --
Michael Barrasso 60,000 * 60,000 -- --
Dr. Richard Berger 20,000 * 20,000 -- --
Anthony J. Blazej 2,500 * 2,500 -- --
Dr. Craig Bloom 10,000 * 10,000 -- --
William J. Bozsnyak 5,000 * 5,000 -- --
William J. Bozsnyak & Beverly J. Brook-
Bozsnyak 30,000 * 30,000 -- --
Cappadocia Limited(2) 100,000 * 100,000 -- --
Paul M. Cervino 20,000 * 20,000 -- --
Jan R. Culp 10,000 * 10,000 -- --
Andrew Darmstadter 20,000 * 20,000 -- --
Herbert P. Decordova 20,000 * 20,000 -- --
Roland A. Desilva 20,000 * 20,000 -- --
Dr. C. Durbak 30,000 * 30,000 -- --
George N. Faris 27,778 * 27,778 -- --
Michael Edward Fitzgerald 80,000 * 80,000 -- --
Robert Franco 12,500 * 12,500 -- --
Dominick Fusco 2,500 * 2,500 -- --
</TABLE>
21
<PAGE> 25
<TABLE>
<CAPTION>
COMMON SHARES COMMON SHARES
OWNED BEFORE OWNED AFTER
OFFERING COMMON OFFERING (1)
NAME AND ADDRESS OF --------------------------- SHARES TO ---------------------
BENEFICIAL OWNER AMOUNT % OF CLASS BE SOLD AMOUNT % OF CLASS
--------------------------------------- ------------ ---------- --------- ------ ----------
<S> <C> <C> <C> <C> <C>
PICTEC & CIE(5) 2,925,000 13% 2,925,000 -- --
General & Private Funds Management
PTY, Ltd. 10,000 * 10,000 -- --
Ronald F. Glime(2) 502,500 2.2% 502,500 -- --
Robert C. Gmuer 100,000 * 100,000 -- --
Lou Hammer 2,500 * 2,500 -- --
Hamo PTY, Ltd. 50,000 * 50,000 -- --
Headline Securities, Ltd. 625,000 2.7% 625,000 -- --
Maryellen Gussack-Hochstein 10,000 * 10,000 -- --
Mark Ian Horrocks 312,500 1.3% 312,500 -- --
A.R. Kerr 62,500 * 62,500 -- --
Justin and Sharen Kolnick 10,000 * 10,000 -- --
Joseph Longo 10,000 * 10,000 -- --
Edward J. Madden 11,111 * 11,111 -- --
Connor Michael Maloney 105,000 * 105,000 -- --
Peter & Alisa Metzner, Trustees, Metzner
Family Trust 15,000 * 15,000 -- --
Frontier Investments Limited(2) 1,800,000 8% 1,800,000 -- --
Steven Miner 2,500 * 2,500 -- --
OIC Nominees Limited(2) 100,000 * 100,000 -- --
Keith Parker 58,056 * 58,056 -- --
Colin Pomfret 20,000 * 20,000 -- --
Pritdown PTY, Ltd. 40,000 * 40,000 -- --
Alex Pusco 312,500 1.3% 312,500 -- --
Peter and Margaret Ranieri 10,000 * 10,000 -- --
Michael Salpeter(2) 500,000 2.2% 500,000 -- --
Joel San Antonio(2)(6) 4,852,500 21.5% 4,852,500 -- --
Mark Seigerman 2,500 * 2,500 -- --
Edward Spindel 55,556 * 55,556 -- --
Michael R. Spindel 55,556 * 55,556 -- --
Charles G. Stiene 2,500 * 2,500 -- --
Larry Targan 10,000 * 10,000 -- --
Bradley Vidgeon 43,750 * 43,750 -- --
Bradley D. Weber 10,000 * 10,000 -- --
Joel Weissman 10,000 * 10,000 -- --
Grant White 50,000 * 50,000 -- --
Sam Wolkowicki 27,778 * 27,778 -- --
</TABLE>
----------
* less than 1%.
(1) For the purposes of this table, it is assumed that all common shares to
be registered will be sold in this offering.
22
<PAGE> 26
(2) All of the shares included in the table represent common stock issuable
upon conversion of Series B convertible redeemable preferred stock.
(3) Includes: 3,000 shares of common stock issuable upon exercise of
currently exercisable stock options; and 100,000 shares issuable upon
conversion of 10,000 shares of Series B convertible redeemable
preferred stock.
(4) Includes: 150,000 shares issuable upon conversion of 15,000 shares of
Series B convertible redeemable preferred stock held by Mr. Hutchins
and his wife as co-trustees of a living trust for the benefit of their
children.
(5) The address of PICTEC & CIE is B.D. Georges-Favon 29, Geneva 1204,
Switzerland.
(6) Mr. San Antonio's address is c/o Corniche Group Incorporated, 610 South
Industrial Boulevard, Euless, Texas 76040. According to Amendment No. 2
to Schedule 13D filed by Mr. San Antonio in August 2000, Mr. San
Antonio has sole power to vote and to direct the disposition of
4,850,000 of the shares included in the table. He shares voting and
dispositive power with respect to 1,100,000 shares included in the
table, which are issued to his wife, children, mother, and brother.
23
<PAGE> 27
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of Corniche consists of 75,000,000 shares of
common stock, $0.001 par value per share, 14,222,971 of which are outstanding.
As of September 30, 2000, there were 694,974 shares of Series A convertible
preferred stock outstanding, and 825,000 shares of Series B convertible
redeemable preferred stock outstanding. The following statements are brief
summaries of certain provisions relating to Corniche's capital stock.
SERIES A CONVERTIBLE PREFERRED STOCK
The Series A preferred stock has a liquidation value of $1 per share, is
nonvoting and convertible into common stock 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 share, per year, payable semi-annually. Corniche can call
the Series A preferred stock at a price of $1.05 per share, plus accrued and
unpaid dividends. In addition, if the closing price of our common stock exceeds
$13.80 per share for any 20 consecutive trading days, we can call the Series A
preferred stock 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, the holders of the Series A
preferred stock may require us to redeem their shares of Series A preferred
stock (if there are funds with which we 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, we may not redeem any
shares of Series A preferred stock unless all outstanding shares of Series A
preferred stock are simultaneously redeemed.
SERIES B CONVERTIBLE REDEEMABLE PREFERRED STOCK
The Series B preferred stock carries a zero coupon and each share of the
Series B preferred stock is convertible into 10 shares of our common stock. The
holder of a share of the Series B preferred stock is entitled to ten times any
dividends paid on the common stock, as well as 10 votes per share, voting as one
class with the common stock.
The holder of each share of Series B preferred stock has the right, at the
holder's option (but not if the share is called for redemption), to convert the
share into 10 fully paid and non-assessable shares of common stock. The
conversion rate is subject to adjustment as stipulated in the Series B Stock
Purchase Agreement. Upon liquidation, the Series B Stock would be junior to our
Series A preferred stock and would share ratably with the common stock with
respect to liquidating distributions.
COMMON STOCK
Holders of common stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders. Cumulative voting is not
permitted with respect to the election of directors, with the result that the
holders of more than 50% of the shares voted in the election of directors can
elect all of the directors. Holders of common stock are entitled to receive
ratably such dividends, if any, as may be declared by the board of directors of
Corniche out of funds legally available therefor. Upon the liquidation,
dissolution or winding up of Corniche, the holders of common stock are entitled
to receive ratably the net assets of Corniche after payment of all debts and
liabilities and liquidation preferences of outstanding shares of preferred
stock. Holders of common stock have no preemptive, subscription, redemption or
conversion rights.
WARRANTS
As of September 30, 2000, we have issued warrants to purchase 79,000
shares of common stock in connection with certain financings and to certain
other persons who provided services to Corniche. The exercise prices of these
warrants range from $3.20 to $27.50.
24
<PAGE> 28
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of Delaware law and our amended certificate of
incorporation and amended bylaws could make our acquisition, by means of a
tender offer, a proxy contest or otherwise, more difficult and could also make
the removal of incumbent officers and directors more difficult. These
provisions, summarized below, are expected to discourage certain types of
coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control of us to negotiate with us first. We believe
that the benefits of increased protection of our potential ability to negotiate
with the proponent of an unfriendly or unsolicited proposal to acquire or
restructure us outweigh the disadvantages of discouraging such proposals
because, among other things, negotiation of such proposals could result in an
improvement of their terms.
SECTION 203
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, the statute prohibits us from engaging in a
business combination with an interested stockholder for a period of three years
after the date that the stockholder became an interested stockholder, unless:
o prior to the date that the stockholder became an interested
stockholder, the transaction or business combination that resulted in
the stockholder becoming an interested stockholder is approved by the
Board of Directors;
o upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owns at
least 85% of our outstanding voting stock at the time the transaction
commenced, excluding those shares owned by persons who are directors
and also officers, and employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or
exchange offer; or
o on or after the date the stockholder became an interested stockholder,
the business combination is approved by our Board of Directors and
authorized at an annual or special meeting of stockholders, and not by
written consent, by the affirmative vote of at least 66 2/3% of our
outstanding voting stock that is not owned by the interested
stockholder.
Generally, a "business combination" includes a merger, asset or stock
sale, or other transaction resulting in a financial benefit to the stockholder.
Subject to certain exceptions, an "interested stockholder" is any entity or
person beneficially owning 15% or more of our voting stock and any entity or
person affiliated with or controlling or controlled by that entity or person.
LIMITATIONS ON DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION
Our amended certificate of incorporation and amended bylaws also provide
that we shall have the power to indemnify our directors, officers, employees and
other agents to the fullest extent authorized by the Delaware General
Corporation Law. As a result of these provisions, we and our stockholders may be
unable to obtain monetary damages from a director for breach of his or her duty
of care.
We believe that the provisions in our amended certificate of incorporation
and amended bylaws are necessary to attract and retain qualified persons as
directors and officers.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Continental Stock
Transfer & Trust Company.
25
<PAGE> 29
LEGAL MATTERS
Certain legal matters in connection with the sale of the shares of common
stock offered hereby will be passed upon for Corniche by Haynes and Boone, LLP.
EXPERTS
The consolidated financial statements of Corniche at December 31, 1999 and
for the year then ended appearing in this prospectus and registration statement
have been audited by Weinick Sanders Leventhal & Co., LLP ("Weinick"),
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
The consolidated financial statements of Corniche at March 31, 1997 and
1998 and for the fiscal years then ended appearing in this prospectus and
registration statement have been audited by Simontacchi & Company, P.A.
("Simontacchi"), independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
Simontacchi's report on Corniche's financial statements for the fiscal
years ended March 31, 1997 expressed an unqualified opinion on those financial
statements based upon their audits, but included paragraphs noting a
"substantial doubt about Corniche's ability to continue as a going concern"
based upon the several matters summarized in such reports.
On August 12, 1998, Corniche and Simontacchi terminated their
client-auditor relationship. The reports of Simontacchi on the financial
statements of Corniche for the prior two fiscal years contained no adverse
opinion or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles. Corniche's Board of Directors
participated in and approved the decision to change the independent accountants.
In connection with its audits for the prior two fiscal years and through August
12, 1998, there were no disagreements with Simontacchi on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
Simontacchi, would have caused Simontacchi to make reference thereto in its
report on the financial statements for such years. No "reportable events" as
describe under Item 304(a)(1)(v) of Regulation S-K occurred during the prior two
fiscal years.
Corniche simultaneously engaged Weinick as its new independent accountants
as of August 12, 1998. Such appointment was approved by Corniche's Board of
Directors. Corniche had not consulted with Weinick regarding any matters or
events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
The prospectus constitutes a part of the registration statement on Form
S-1, together with all amendments, supplements, schedules and exhibits to the
registration statement, referred to as the registration statement, which we have
filed with the Securities and Exchange Commission with respect to the common
stock offered in this prospectus. This prospectus does not contain all of the
information in the registration statement. For further information about us and
our securities, see the registration statement and its exhibits. This prospectus
contains a description of the material terms and features of some material
contracts, reports or exhibits to the registration statement required to be
disclosed. However, as the descriptions are summaries of the contracts, reports
or exhibits, we urge you to refer to the copy of each material contract, report
and exhibit attached to the registration statement. Copies of the registration
statement and the exhibits to the registration statement, as well as the
periodic reports, proxy statements and other information we will file with the
SEC, may be examined without charge in the Public Reference Section of the
Securities and Exchange Commission, 450 Fifth Street, N.W. Room 1024,
Washington, DC 20549, and the Securities and Exchange Commission's regional
offices located at 500 West Madison Street, Suite 1400, Chicago, IL 60661, and 7
World Trade Center, 13th Floor, New York, NY 10048 or on the Internet at
http://www.sec.gov. You can get information about the operation of the Public
Reference Room by calling the Securities and Exchange Commission at
1-800-SEC-0330. Copies of all or a portion of the registration statement can be
obtained from the Public Reference Section of the Securities and Exchange
Commission upon payment of prescribed fees. In addition, the Securities and
Exchange Commission maintains a web site which provides online access to
periodic reports, proxy and information statements
26
<PAGE> 30
and other information regarding registrants that file electronically with the
Securities and Exchange Commission at the address http://www.sec.gov.
We are subject to the information and reporting requirements of the
Securities Exchange Act of 1934 and file periodic reports, proxy statements and
other information with the Securities and Exchange Commission. We send an annual
report to stockholders and any additional reports or statements required by the
Securities and Exchange Commission. The annual report to stockholders contains
financial information that has been examined and reported on, with an opinion
expressed by an independent public accountant.
27
<PAGE> 31
CORNICHE GROUP INCORPORATED AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ................................................. F-2, F-3
FINANCIAL STATEMENTS:
Consolidated Balance Sheets at December 31, 1999 and 1998 .................................. F-4
Statements of Operations
For the Year Ended December 31, 1999 (Consolidated) and
For the Nine Months Ended December 31, 1998 (Consolidated) and
For the Year Ended March 31, 1998 ........................................................ F-5
Statements of Convertible Redeemable Preferred Stock, Common Stock,
Other Stockholders' Equity and Accumulated Deficit For the Year Ended
December 31, 1999 (Consolidated) and For the Nine Months Ended
December 31, 1998 (Consolidated) and
For the Year Ended March 31, 1998......................................................... F-6
Statements of Cash Flows
For the Year Ended December 31, 1999 (Consolidated) and
For the Nine Months Ended December 31, 1998 (Consolidated) and
For the Year Ended March 31, 1998 ........................................................ F-7, F-8
Notes to Financial Statements ....................................................................... F-9 - F-24
Schedule II - Valuation of Qualifying Accounts
For the Year Ended December 31, 1999 (Consolidated) and
For the Nine Months Ended December 31, 1998 (Consolidated) and
For the Year Ended March 31, 1998 .......................................................... F-25
Consolidated Balance Sheets at June 30, 2000 and 1999 ...................................... F-26
Statements of Operations
For the Six Months ended June 30, 2000 (Consolidated) and
For the Six Months ended June 30, 1999 (Consolidated)..................................... F-28
Statements of Convertible Redeemable Preferred Stock,
Common Stock, Other Stockholders' Equity and Accumulated Deficit
For the Six Months ended June 30, 2000 (Consolidated) and
For the Six Months ended June 30, 1999 (Consolidated)..................................... F-29
Statements of Cash Flows
For the Six Months ended June 30, 2000 (Consolidated) and
For the Six Months ended June 30, 1999 (Consolidated)..................................... F-30
Notes to Consolidated Financial Statements........................................................... F-32
</TABLE>
<PAGE> 32
[WEINICK SANDERS LEVENTHAL & CO., LLP LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
Corniche Group Incorporated
We have audited the accompanying consolidated balance sheets of Corniche Group
Incorporated and Subsidiary as at December 31, 1999 and 1998, and the related
statements of operations, redeemable preferred stock, common stock, other
stockholders' equity and accumulated deficit, and cash flows for the year ended
December 31, 1999 and for the nine months ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Corniche Group
Incorporated and Subsidiary as at December 31, 1999 and 1998, and the results of
their operations and their cash flows for the year ended December 31, 1999 and
for the nine months ended December 31, 1998, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statements schedules for the year ended December 31, 1999 and for the nine
months ended December 31, 1998, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ WEINICK SANDERS LEVENTHAL & CO., LLP
New York, New York
January 28, 2000 (Except as to a portion of Note 8 (b) to which the date is
February 15, 2000)
F-2
<PAGE> 33
[SIMONTACCHI & COMPANY, LLP LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
Corniche Group Incorporated
We have audited the accompanying statements of operations, redeemable preferred
stock, common stock, other stockholders' equity and accumulated deficit, and
cash flows of Corniche Group Incorporated for the year ended March 31, 1998. Our
audit also included the financial statement schedule for the year ended March
31, 1998. These financial statements and the financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of the operations and the cash flows of
Corniche Group Incorporated for the year ended March 31, 1998 in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule for the year ended March 31, 1998, when considered
in relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
/s/ SIMONTACCHI & COMPANY, LLP
Fairfield, New Jersey
July 10, 1998
F-3
<PAGE> 34
CORNICHE GROUP INCORPORATED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and equivalents $ 1,639,473 $ 206,313
Marketable securities 2,733,319 628,175
Prepaid expenses 71,622 --
------------ ------------
Total current assets 4,444,414 834,488
Property and equipment, net 655,002 40,781
Deferred acquisition costs 41,946 --
License, net of accumulated amortization 16,777 17,997
Other assets 12,525 12,525
------------ ------------
$ 5,170,664 $ 905,791
============ ============
LIABILITIES, STOCKHOLDERS' EQUITY AND (CAPITAL DEFICIENCY)
Current liabilities:
Dividends payable - preferred stock $ 288,334 $ 236,981
Accounts payable, accrued expenses
and other current liabilities 561,870 133,941
Current portion of long-term debt 22,662 4,649
------------ ------------
Total current liabilities 872,866 375,571
Unearned revenues 298,801 --
------------ ------------
Long-term debt 76,591 9,262
------------ ------------
Series A Convertible Preferred Stock:
Series A $0.07 cumulative convertible
preferred stock - stated value - $1.00 per share, authorized - 1,000,000
shares, outstanding - 810,054 shares at December 31, 1999
and 828,765 shares at December 31, 1998 810,054 828,765
------------ ------------
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 - 825,000 shares 8,250 8,250
Common stock, $.001 par value, authorized - 30,000,000 shares
Issued and outstanding - 12,513,127 at December 31, 1999 12,513 --
- 6,369,968 at December 31, 1998 -- 6,370
Additional paid-in capital 7,421,944 2,838,420
Accumulated deficit (4,330,355) (3,160,847)
------------ ------------
Total convertible redeemable preferred
stock, common stock, other stockholders'
equity and (accumulated deficit) 3,112,352 (307,807)
------------ ------------
$ 5,170,664 $ 905,791
============ ============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 35
CORNICHE GROUP INCORPORATED AND SUBSIDIARY
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year For the Nine For the Year
Ended Months Ended Ended
December 31, December 31, March 31,
1999 1998 1998
------------ ------------ ------------
(Consolidated) (Consolidated)
<S> <C> <C> <C>
Earned revenues $ 12,854 $ -- $ --
Direct costs 7,557 -- --
------------ ------------ ------------
Gross profit 5,297 -- --
General and administrative expenses 1,060,668 428,157 221,602
------------ ------------ ------------
Operating loss (1,055,371) (428,157) (221,602)
Interest income (expense), net (56,965) 25,206 17,804
------------ ------------ ------------
Net loss before preferred dividend (1,112,336) (402,951) (203,798)
Preferred dividend (57,172) (44,642) (60,067)
------------ ------------ ------------
Net loss $ (1,169,508) $ (447,593) $ (263,865)
============ ============ ============
Net loss per share of common stock $ (0.17) $ (0.07) $ (0.05)
============ ============ ============
Weight average number of
common shares outstanding 6,905,073 6,367,015 5,165,272
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 36
CORNICHE GROUP INCORPORATED AND SUBSIDIARY
STATEMENTS OF CONVERTIBLE REDEEMABLE PREFERRED STOCK, COMMON STOCK,
OTHER STOCKHOLDERS' EQUITY AND ACCUMULATED DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 AND
FOR THE YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
Series B
Convertible
Preferred Stock Common Stock Additional
--------------------------- ---------------------------- Paid-In
Shares Amount Shares Amount Capital
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at April 1, 1997 -- -- 2,630,378 $ 2,630 $ 1,090,493
Issuance of common stock for cash,
net of related costs of $184,500 -- -- 3,940,000 3,940 1,781,560
Retirement of treasury stock -- -- (218,100) (218) (204,492)
Conversion of Series A convertible
preferred stock into common
stock -- -- 2,953 3 15,356
Series A convertible preferred
stock dividend -- -- -- -- --
Net loss before preferred
stock dividend -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance at March 31, 1998 -- -- 6,355,231 6,355 2,682,917
Adjustments to common stock -- -- 2,212 2 (2)
Issuance of Series B convertible
preferred stock for cash 765,000 7,650 -- -- 68,850
Issuance of Series B convertible
preferred stock for services
rendered 60,000 600 -- -- 5,400
Conversion of Series A convertible
preferred stock into common stock -- -- 12,525 13 81,255
Series A convertible preferred
stock dividend -- -- -- -- --
Net loss before preferred
stock dividend -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1998 825,000 8,250 6,369,968 6,370 2,838,420
Issuance of common stock for
interest and services rendered -- -- 55,000 55 57,664
Issuance of common stock for
indebtedness -- -- 208,738 209 252,973
Issuance of common stock for
cash, net of offering costs -- -- 5,875,835 5,876 4,248,360
Conversion of Series A convertible
preferred stock into common stock -- -- 3,586 3 24,527
Series A convertible stock dividends -- -- -- -- --
Net loss before preferred stock dividend -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1999 825,000 $ 8,250 12,513,127 $ 12,513 $ 7,421,944
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Treasury Stock
---------------------------- Accumulated
Shares Amount Deficit Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at April 1, 1997 (218,100) $( 204,710) $( 2,449,389) $( 1,560,976)
Issuance of common stock for cash,
net of related costs of $184,500 -- -- -- 1,785,500
Retirement of treasury stock 218,100 204,710 -- --
Conversion of Series A convertible
preferred stock into common
stock -- -- -- 15,359
Series A convertible preferred
stock dividend -- -- (60,067) (60,067)
Net loss before preferred
stock dividend -- -- (203,798) (203,798)
------------ ------------ ------------ ------------
Balance at March 31, 1998 -- -- (2,713,254) (23,982)
Adjustments to common stock -- -- -- --
Issuance of Series B convertible
preferred stock for cash -- -- -- 76,500
Issuance of Series B convertible
preferred stock for services
rendered -- -- -- 6,000
Conversion of Series A convertible
preferred stock into common stock -- -- -- 81,268
Series A convertible preferred
stock dividend -- -- (44,642) (44,642)
Net loss before preferred
stock dividend -- -- (402,951) (402,951)
------------ ------------ ------------ ------------
Balance at December 31, 1998 -- -- (3,160,847) (307,807)
Issuance of common stock for
interest and services rendered -- -- -- 57,719
Issuance of common stock for
indebtedness -- -- -- 253,182
Issuance of common stock for
cash, net of offering costs -- -- -- 4,254,236
Conversion of Series A convertible
preferred stock into common stock -- -- -- 24,530
Series A convertible stock dividends -- -- (57,172) (57,172)
Net loss before preferred stock dividend -- -- (1,112,336) (1,112,336)
------------ ------------ ------------ ------------
Balance at December 31, 1999 -- $ -- $( 4,330,355) $ 3,112,352
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 37
CORNICHE GROUP INCORPORATED AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year For the Nine For the Year
Ended Months Ended Ended
December 31, December 31, March 31,
1999 1998 1998
------------ ------------ ------------
(Consolidated) (Consolidated)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,169,508) $ (447,593) $ (263,865)
------------ ------------ ------------
Adjustments to reconcile net loss to
net cash used in operating activities:
Common shares and Series B preferred
shares issued for interest expense
and for services rendered 57,719 6,000 --
Series A preferred stock dividends 57,172 44,642 60,067
Depreciation and amortization 82,338 3,435 388
Unearned revenues 298,801 -- --
Increase (decrease) in cash flows as
a result of changes in asset and liability account balances net of
effects from purchase of Stamford Insurance Company, Ltd.:
Deferred acquisition costs (41,946) -- --
Prepaid expenses and other receivables (71,622) 179 821
Other assets -- (12,525) --
Accounts payable, accrued expenses
and other current liabilities 422,929 82,729 (67,014)
------------ ------------ ------------
Total adjustments 805,391 124,460 (5,738)
------------ ------------ ------------
Net cash used in operating activities (364,117) (323,133) (269,603)
------------ ------------ ------------
Cash flows from investing activities:
Investment in marketable securities (2,105,144) (628,175) --
Acquisition of property assets (442,157) (25,745) --
Acquisition of subsidiary -- (37,000) --
------------ ------------ ------------
Net cash used in investment activities (2,547,301) (690,920) --
------------ ------------ ------------
Cash flows from financing activities:
Net proceeds from issuance
of capital stock 4,254,236 76,500 1,785,500
Net proceeds from long-term debt 89,264 -- --
Payments of capital lease obligations (3,922) (3,995) --
Net repayments of notes payable -- -- (400,000)
------------ ------------ ------------
Net cash provided by financing activities 4,339,578 72,505 1,385,500
------------ ------------ ------------
Net increase (decrease) in cash 1,428,160 (941,548) 1,115,897
Cash balance acquired with
purchase of subsidiary -- 18,797 --
Cash and cash equivalents
at beginning of period 206,313 1,129,064 13,167
------------ ------------ ------------
Cash and cash equivalents
at end of period $ 1,634,473 $ 206,313 $ 1,129,064
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 38
CORNICHE GROUP INCORPORATED AND SUBSIDIARY
STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
For the Year For the Nine For the Year
Ended Months Ended Ended
December 31, December 31, March 31,
1999 1998 1998
------------ ------------ ------------
(Consolidated) (Consolidated)
<S> <C> <C> <C>
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the period
Income taxes $ -- $ -- $ --
============ ============ ============
Interest $ 35,193 $ 886 $ 4,181
============ ============ ============
Supplemental Schedules of Noncash
Investing and Financing Activities:
Issuance of common stock for interest $ 27,719 $ -- $ --
============ ============ ============
Issuance of preferred and common
stock for services rendered $ 30,000 $ 6,000 $ --
============ ============ ============
Property assets acquired under
capital lease obligations $ -- $ 17,806 $ --
============ ============ ============
Net accrual of dividends on
Series A preferred stock $ 51,353 $ 28,517 $ 60,067
============ ============ ============
Series A preferred stock and
dividends thereon converted to
common stock and additional
paid-in capital upon conversion $ 24,530 $ 81,268 $ 15,359
============ ============ ============
Issuance of common stock for indebtedness $ 253,182 $ -- $ --
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE> 39
CORNICHE GROUP INCORPORATED AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
AS AT DECEMBER 31, 1999 AND 1998 AND
FOR THE YEARS ENDED DECEMBER 31, 1999,
FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 AND
FOR THE YEAR ENDED MARCH 31, 1998
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. In February 1996, the Company was placed in
receivership by its creditors. Through March 1998, the Company had no
activity.
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 property and casualty specialty insurance and the
service contract markets.
On September 30, 1998, the Company acquired all of the capital
stock of Stamford Insurance Company, Ltd. ("Stamford") from
Warrantech Corporation for $37,000 in cash in a transaction accounted
for as a purchase. Warrantech's chairman is the former chairman of
the Company. Stamford was charted under the Laws of, and is licensed
to conduct business as an insurance company by, the Cayman Islands.
Although Stamford has incurred expenses since its inception, it first
generated revenues in the fourth quarter of 1999.
F-9
<PAGE> 40
NOTE 1 - THE COMPANY. (Continued)
The unaudited consolidated combined results of operations, on
a pro forma basis as though Stamford has been acquired at the
beginning of each period, is as follows:
<TABLE>
<CAPTION>
For the Nine For the Years
Months Ended Ended
December 31, March 31,
1998 1998
------------ ------------
<S> <C> <C>
Net sales $ -- $ --
------------ ------------
Costs and expenses 511,335 232,824
------------ ------------
Net loss $ (527,991) $ (268,321)
============ ============
Net loss per share $ (0.08) $ (0.05)
============ ============
</TABLE>
At December 31, 1999 and 1998, Stamford's total net assets
consisted of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Assets:
Cash and equivalents $ 384,849 $ 155,806
Deferred acquisition costs 35,568 --
Licenses, net of accumulated
depreciation 16,777 17,997
------------ ------------
437,194 173,803
Liabilities:
Current liabilities 5,021 879
Unearned premiums 288,086 --
------------ ------------
293,107 879
------------ ------------
Net assets $ 144,087 $ 172,924
============ ============
</TABLE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
(a) Basis of Presentation:
On February 4, 1999, the Board of Directors approved a
resolution to change the Company's fiscal year-end from March 31, to
December 31. The accompanying financial statements as at and for the
year ended December 31, 1999 reflect the consolidated financial
position and consolidated results of operations and cash flows of the
Company and its wholly-owned subsidiary, Stamford, for the year ended
December 31, 1999.
F-10
<PAGE> 41
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
(a) Basis of Presentation: (Continued)
The financial statements as at and for the nine months ended
December 31, 1999 reflect the consolidated financial position and
consolidated results of operations and cash flows of the Company for
the nine months ended December 31, 1998 and its wholly-owned
subsidiary from its acquisition on September 30, 1998 to December 31,
1998. The financial statements for the year ended March 31, 1998
reflect the financial position and results of operations and cash
flows of the Company for the year then ended. All material
intercompany transactions have been eliminated in consolidation.
(b) Cash Equivalents:
Short-term cash investments which have a maturity of ninety
days or less when purchased are considered cash equivalents in the
statement of cash flows.
(c) 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.
(d) Concentrations of Credit-Risk:
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash
and marketable securities. The Company places it domestic operations
cash accounts with high credit quality financial institutions which
at times may be in excess of the FDIC insurance limit. The Company's
subsidiary places its cash in the Cayman Island subsidiaries of
domestic banks whose net worth exceeds $100,000,000. The Company's
marketable securities are primarily comprised of investments in
municipal bank funds. The Company employs the services of an
investment advisor to assist in monitoring its investments.
(e) Marketable Securities:
Marketable securities are classified as trading securities and
are reported at market value at December 31, 1999 and 1998 which
approximates cost.
F-11
<PAGE> 42
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
(f) Property and Equipment: (Continued)
The cost of property and equipment is depreciated over the
estimated useful lives of the related assets of 5 to 7 years. The
cost of computer software programs is amortized over their estimated
useful lives of five years. Depreciation is computed on the
straight-line method. Repairs and maintenance expenditures which do
not extend original asset lives are charged to income as incurred.
(g) Intangibles:
The excess of the purchase price for the capital stock of
Stamford over the net assets acquired has been attributed to the
subsidiary's license to conduct business as an insurance carrier in
the Cayman Islands. Amortization charged to operations in fiscal 1999
was $1,220 and in the nine months ended December 31, 1998 was $305.
(h) Income Taxes:
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 basis of assets and liabilities.
(i) Fair Value of Financial Statements:
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 recognizes and measures
impairment losses of long-lived assets, certain identifiable
intangibles, value long-lived assets to be disposed of and long-term
liabilities. At December 31, 1999 and 1998, the carrying values of
the Company's other assets and liabilities approximate their
estimated fair values.
(j) Advertising Costs:
The Company expenses advertising costs as incurred.
Advertising costs amounted to $252,983 in fiscal 1999 and none for
the nine months ended December 31, 1998 and year ended March 31,
1998.
F-12
<PAGE> 43
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
(k) 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.
(l) 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.
(m) Revenue Recognition:
Stamford is a property and casualty reinsurance company
writing reinsurance coverages for one domestic carrier's consumer
products service contracts. The domestic carrier is rated "A-"
Excellent by A.M. Best.
Premiums are recognized on a pro rata basis over the policy
term. The deferred policy acquisition costs are the net cost of
acquiring new and renewal insurance contracts. These costs are
charged to expense in proportion to net premium revenue recognized.
The provisions for losses and loss-adjustment expenses
includes an amount determined from loss reports on individual cases
and an amount, based on past experience for losses incurred but not
reported. Such liabilities are necessarily based on estimates, and
while management believes that the amount is adequate, the ultimate
liability may be in excess of or less than the amounts provided. The
methods for making such estimates and for estimates and for
establishing the resulting liability are continually reviewed, and
any adjustments are reflected in earnings currently.
The parent company sells via the Internet directly to
consumers automotive vehicle services contracts. The Company
recognizes revenue ratably over the length of the contract. The
Company purchases insurance to fully cover any losses under the
service contracts from the domestic carrier referred to above. The
insurance premium and other costs related to the sale are amortized
over the contract.
F-13
<PAGE> 44
NOTE 3 - PROPERTY AND EQUIPMENT.
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Computer equipment $ 116,660 $ 3,906
Furniture and fixtures 23,266 23,266
Computer software 582,585 --
------------ ------------
722,511 27,172
Less: Accumulated depreciation 77,896 2,713
------------ ------------
644,615 24,459
------------ ------------
Lease property under capital lease:
Office equipment 17,806 17,806
Less: Accumulated depreciation 7,419 1,484
------------ ------------
10,387 16,322
------------ ------------
$ 655,002 $ 40,781
============ ============
</TABLE>
Depreciation and amortization charged to operations was
$81,118, $3,130 and $388, for the year ended December 31, 1999, for
the nine months ended December 31, 1998 and for the year ended March
31, 1998, respectively.
The estimated present value of the capital lease obligations
at December 31, 1999 reflects imputed calculated at 12.7% and 19.32%.
The obligations are payable in equal monthly installments through
January 2002 as follows:
<TABLE>
<CAPTION>
Years Ending
December 31,
------------
<S> <C>
2000 $ 7,115
2001 5,181
2002 317
--------
12,613
Amount representing interest 2,630
--------
Present value of minimum
lease payments 9,983
Present value of minimum lease
payments due within one year 5,392
--------
Present value of minimum lease
payments due after one year $ 4,591
========
</TABLE>
The aggregate maturities of the present value of the minimum
lease obligations is as follows:
<TABLE>
<CAPTION>
Years Ending
December 31,
------------
<S> <C>
2000 $5,392
2001 4,294
2002 297
------
$9,983
======
</TABLE>
F-14
<PAGE> 45
NOTE 4 - ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES.
Accounts payable, accrued expenses and other current
liabilities consist of the following at:
<TABLE>
<CAPTION>
December 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Accrued offering costs $ 419,120 $ --
Accrued professional fees 41,534 80,000
Advertising 69,427 --
Other 26,789 11,956
Due to related party (see Note 10) -- 41,985
Accrued claims losses 5,000 --
------------ ------------
$ 556,870 $ 133,941
============ ============
</TABLE>
NOTE 5 - NOTES PAYABLE.
During the period January 1997 through April 30, 1997, the
Company engaged in a private offering of securities pursuant to Rule
506 of Regulation D of the Securities Act of 1993, as amended. The
offering consists of up to 19 units being sold at an offering price
of $25,000 per unit. Each unit consists of one $25,000 face amount
90-day, 8% promissory note and one redeemable common stock purchase
warrant to purchase 60,000 shares of the Company's common stock at a
price of $.50 per share during a period of three years from issuance.
The offering of up to $475,000 was conducted on a "best efforts"
basis through Robert M. Cohen & Co. ("RMCC"). In connection with such
offering, RMCC was paid sales commissions equal to 10% of the
purchase price of each unit sold or $2,500 per unit.
The notes payable relating to the above offering were paid in
full and the warrants were simultaneously redeemed during the year
ended March 31, 1998 with funds generated from the sale of stock (see
Note 8).
In October 1999 the Company sold to accredited investors 10
units of its promissory notes and common stock for $25,025 each. Each
unit was comprised of a 5% interest bearing $25,000 note and 25,000
shares. The variance between the fair market value of the 25,000
common shares issued in the aggregate of $27,969 and the cash
received of $250 was deemed to be additional interest and was charged
to operations over the life of the notes. The notes were repaid in
full in December 31, 1999. At December 31, 1999, accrued interest on
the notes of $3,025 remained outstanding and was repaid in January,
2000. The effective weighted average interest rate of the notes
during the period they were outstanding was 49.2%.
F-15
<PAGE> 46
NOTE 6 - LONG-TERM DEBT.
Long-term debt consists of the following at December 31, 1999
and 1998:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Capital lease obligations (see Note 3) $ 9,983 $ 13,911
Note payable - bank - in equal monthly
installments of $2,043 including interest
at 8-3/4%. The notes are collateralized
by computer equipment having an
undepreciated cost of $78,927 89,270 --
------------ ------------
99,253 13,911
Portion payable within one year 22,662 4,649
------------ ------------
$ 76,591 $ 9,262
============ ============
</TABLE>
The aggregate maturities of the obligations is as
follows:
<TABLE>
<CAPTION>
Years Ending
December 31,
------------
<S> <C>
2000 $22,662
2001 23,459
2002 20,616
2003 22,525
2004 9,991
-------
$99,253
=======
</TABLE>
NOTE 7 - SERIES A CONVERTIBLE PREFERRED STOCK.
In connection with the settlement of a 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, 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 share, per year, payable semi-annually. Until
November 30, 1999 the Series A Preferred Stock was 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.
F-16
<PAGE> 47
NOTE 7 - SERIES A CONVERTIBLE PREFERRED STOCK. (Continued)
price of the Company's common stock exceeds $13.80 per share for a
period of 20 consecutive trade 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 the holders of the Series A Preferred Stocks may require the
Company to redeem their 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 year ended December 31, 1999, 18,711 shares of
Series A Preferred Stock were converted into 3,586 shares of common
stock. During the nine months ended December 31, 1998, 65,143 shares
of the Series A 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, 1999,
810,054 shares of Series A Preferred Stock were outstanding, and
accrued dividends on these outstanding shares are $288,334.
NOTE 8 - 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 incurred 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 a consultant 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 the then
existing stockholders by approximately 57%. The total authorized
shares of Series B Convertible Redeemable Preferred Stock are
825,000.
F-17
<PAGE> 48
NOTE 8 - STOCKHOLDER'S EQUITY. (Continued)
(a) Series B Convertible Redeemable Preferred Stock: (Continued)
The following summarizes the terms of the Series B Stock whose
terms are more fully set forth in the Certificate of Designation. The
Series B Stock carries a zero coupon and each share of the Series B
Stock is convertible into ten shares of the Company's common stock.
The holder of a share of the Series B Stock is entitled to ten times
any dividends paid on the common stock and such stock has ten votes
per share and vote as one class with the common stock. Accordingly,
the Initial Purchasers have sufficient voting power to elect all of
the Board of Directors. However, the Initial Purchasers are required
to vote in favor of Mr. Fyfe or his designee as a director of the
Corporation through June 30, 2000.
The holder of any share of Series B Convertible Redeemable
Preferred Stock has the right, at such holder's option (but not if
such share is called for redemption), exercisable on or after
September 30, 2000, to convert such share into ten (10) fully paid
and non-assessable shares of common stock (the "Conversion Rate").
The Conversion Rate is subject to adjustment as stipulated in the
Agreement. Upon liquidation, the Series B Stock would be junior to
the Corporation's Series A Preferred Stock and would share ratably
with the common stock with respect to liquidating distributions.
Since, the Company raised in excess of $2,500,000 in fiscal
1999 from the sale of its common shares and the Company's common
shares maintained a minimum closing bid price in excess of $2.00 per
shares for 10 consecutive trading days, then the Company's right,
pursuant to the terms of the Agreement and the Certificate of
Designation to repurchase or redeem such shares of Series B Stock
from the holders for total consideration of $0.10 per share was
eliminated.
(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, 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.
F-18
<PAGE> 49
NOTE 8 - STOCKHOLDER'S EQUITY. (Continued)
(b) Common Stock: (Continued)
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.
Commencing in May 1999 through July 1999, the Company sold
688,335 shares of its common stock to accredited investors for
$538,492 net of offering costs. In December 1999, accredited
investors purchased 5,187,500 shares of the Company's common stock
for $3,715,744, net of offering costs. Through February 15, 2000,
additional investors acquired 1,676,250 shares of the Company's
common stock for approximately $1,206,000, net of offering costs.
The Company in 1999 issued 5,000 shares of its common stock
whose fair value was $5,000 to its President as a signing bonus which
was charged to operations at the time of issuance. The Company also
issued in 1999, 25,000 shares of its common stock whose fair value
was $25,000 at the date of issuance to a public relations consultant
for future services. The arrangement with the consultant was
terminated in 1999 and the fair value of the shares was charged to
operations in 1999.
(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 and March
31, 1998. Of these outstanding warrants, warrants for 9,375 common
shares at $46.40 per share expired in April 1999. The remaining
warrants to acquire 91,933 common shares at exercise prices ranging
from $3.20 to $8.10 per share were granted in March 1995 to certain
directors, officers and employees who converted previously
outstanding stock options under the 1986 Plan into warrants on
substantially the same terms as the previously held stock options,
except the warrants were immediately vested. During fiscal 1999,
warrants to acquire 22,308 common shares at prices ranging from $3.90
to $46.40 per share expired. No warrants were exercised during any of
the periods presented. A total of 79,000 shares of common stock are
reserved for issuance upon exercise of outstanding warrants as of
December 31, 1999 at prices ranging from $3.20 to $27.50 and expiring
through October 2004.
F-19
<PAGE> 50
NOTE 8 - STOCKHOLDER'S EQUITY. (Continued)
(d) Stock Option Plans:
The Company has two stock option plans. The 1998 Stock Option
Plan provides for the grant of options to purchase shares of the
Company's common stock to employees. The 1992 Stock Option Plan
provides for the grant of options to directors.
In April 1992, the Company adopted the 1992 Stock Option Plan
to provide for the granting of options to directors. According to the
terms of this plan, each director is granted options to purchase
1,500 shares each year. The maximum amount of the Company's common
stock that may be granted under this plan is 20,000 shares. Options
are exercisable at the fair market value of the common stock on the
date of grant and have five year terms.
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 are
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 are
granted, the option exercise price is at least 110% of the fair
market value of the shares of common stock subject to the options and
(b) the option by its terms is not exercisable after the expiration
of five years from the date such option is granted.
F-20
<PAGE> 51
NOTE 8 - STOCKHOLDER'S EQUITY. (Continued)
(d) Stock Option Plans: (Continued)
The 1998 Plan is administered by a committee of disinterested
directors of the Board of Directors of the Corporation ("Option
Committee"). In 1999, options to acquire 100,000 common shares at
$1.00 per share were granted to an officer and an option to acquire
25,000 common shares at $0.6875 per share was issued to a consultant
were granted under the 1998 Plan. In May 1997, a director was granted
an option to acquire 1,500 common shares at $0.3125 per share were
granted under the 1992 Plan.
Information with respect to options under the 1992 and 1998
Stock Option Plans is summarized as follows:
<TABLE>
<CAPTION>
For the Nine
For the Year Ended Months Ended For the Year Ended
December 31, 1999 December 31, 1998 March 31, 1998
------------------------------- ------------------------------- -------------------------------
Shares Prices Shares Prices Shares Prices
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of period 3,000 $0.31 to $0.41 3,000 $ .31 to $.41 1,500 $ 0.41
Granted 125,000 $0.69 to $1.00 -- -- 1,500 $ 0.31
Converted -- -- -- -- -- --
Expired -- -- -- -- -- --
Exercised -- -- -- -- -- --
-------------- -------------- -------------- -------------- -------------- --------------
Outstanding at
end of period 128,000 $0.31 to $1.00 3,000 $ .31 to $.41 3,000 $ .31 to $.41
============== ============== ============== ============== ============== ==============
</TABLE>
Outstanding options expire 90 days after termination of
holder's status as employee or director. At December 31, 1999 and
1998, options to acquire 3,000 common shares were exercisable at
prices ranging from $0.31 to $0.41 per share. The Company has 332,000
shares available for grant under all plans.
All options were granted at an exercise price equal to the
fair value of the common stock at the grant date. Therefore, in
accordance with the provisions of APB Opinion No. 25 related to fixed
stock options, no compensation expense is recognized with respect to
options granted or exercised. Under the alternative fair-value based
method defined in SFAS No. 123, the fair value of all fixed stock
options on the grant date would be recognized as expense over the
vesting period. Assuming the fair market value of the stock at the
date of grant to be $.3125 per share in May 1996, $.40625 per share
in May 1997, $.6875 in January 1999 and $1.00 per share in September
1999, the life of the options to be from three to ten years, the
expected volatility at 200%, expected dividends are none, and the
risk-free interest rate of 10%, the Company would have recorded
compensation expense of $7,750 for the year ended December 31, 1999
as calculated by the Black-Scholes option pricing model. As such,
pro-forma net loss and loss per share would be as follows:
F-21
<PAGE> 52
NOTE 8 - STOCKHOLDER'S EQUITY. (Continued)
(d) Stock Option Plans: (Continued)
<TABLE>
<S> <C>
Net loss as reported $ (1,169,508)
Additional compensation 7,750
------------
Adjusted net loss $ (1,177,258)
============
Loss per share as reported $ (0.17)
============
Adjusted loss per share $ (0.17)
============
</TABLE>
As the number of options granted at December 31, 1998 and
March 31, 1998 is immaterial, recognizing the expense would not have
a material effect on the Company's financial statements for the nine
months ended December 31, 1998 and the year ended March 31, 1998.
NOTE 9 - INCOME TAXES.
The Company has received permission from the Internal Revenue
Service to change its taxable year-end from March 31, to December 31,
effective with the December 31, 1998 period.
The differences between income taxes computed using the
statutory federal income tax rate and that shown in the financial
statements are summarized as follows:
<TABLE>
<CAPTION>
For the Nine
For the Year Ended Months Ended For the Year Ended
December 31, 1999 December 31, 1998 March 31, 1998
---------------------------- ---------------------------- ----------------------------
(Consolidated) Consolidated
<S> <C> <C> <C> <C> <C> <C>
Loss before income taxes
and preferred dividend $ (1,112,336) % $ (402,951) % $ (203,798) %
============ ------------ ============ ------------ ============ ------------
Computed tax benefit at
statutory rate $ (378,000) (34.0) $ (137,000) (34.0) $ (69,300) (34.0)
Compensatory element of
common stock issuances 19,600 1.8 -- -- -- --
Foreign subsidiary loss not
subject to U.S. taxes 9,800 0.9 300 -- -- --
Net operating loss
valuation reserve 348,600 31.3 136,700 34.0 69,300 34.0
------------ ------------ ------------ ------------ ------------ ------------
Total tax benefits $ -- -- $ -- -- $ -- --
============ ============ ============ ============ ============ ============
</TABLE>
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.
F-22
<PAGE> 53
NOTE 9 - INCOME TAXES. (Continued)
The Tax Reform Act of 1986 enacted a complex set of rules
limiting the utilization of net operating loss carryforwards to
offset future taxable income following a corporate ownership change.
The Company's ability to utilize its NOL carryforwards is limited
following a change in ownership in excess of fifty percentage points
during any three year period. Upon receipt of the proceeds from the
last foreign purchasers of the Company's common stock in January
2000, common stock ownership changed in excess of 50% during the
three year period then ended. The utilization of the Company's net
operating loss carryforward at December 31, 1999 of $2,063,000 was
not negatively impacted by this ownership change. The future tax
benefit of the net operating loss carryforward aggregated $701,000 at
December 31, 1999 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.
NOTE 10 - COMMITMENTS, CONTINGENCIES AND OTHER.
(a) Leases:
Commencing in August 1998, the Company entered into short-term
operating leases for its general office space and certain office
equipment. Prior to August 1998, the Company did not incur rent
expense as it was inactive. Rent expense charged to operations for
the year ended December 31, 1999 and for the nine months ended
December 31, 1998 was $63,162 and $23,000 and none for the year ended
March 31, 1998. Future minimum annual rent commitments under
operating leases as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Years Ending
December 31,
------------
<S> <C>
2000 $54,000
2001 33,000
2002 3,000
-------
Total minimum
annual rentals $90,000
=======
</TABLE>
(b) Web Site:
At December 31, 1998, a liability in the amount of $41,985 was
owed to Warrantech Corporation, an affiliate, for expenses associated
with a Web Site that were incurred by the Company. They are included
in accounts payable, accrued expenses and other current liabilities
in the accompanying financial statements. The affiliate had paid the
vendors on the Company's behalf for their services.
F-23
<PAGE> 54
NOTE 10 - COMMITMENTS, CONTINGENCIES AND OTHER. (Continued)
(c) 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.
(d) Year 2000:
Although the Company has had limited operations through
December 31, 1999, it recognized the need to ensure that its
operations will not be adversely effected by Year 2000 software or
hardware failures. The Company in developing its software and
hardware made certain that all its systems were compliant with Year
2000 requirements. The Company has not experienced any adverse
computer hardware or software effect to date. If, despite the
Company's effects under its Year 2000 related failures affecting the
Company from outside sources, management at the present time does not
believe the impact will be substantial.
F-24
<PAGE> 55
CORNICHE GROUP INCORPORATED AND SUBSIDIARY
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
------ ------------ --------------------------- ------------ ------------
Additions
---------------------------
Balance Charged to Acquisition Balance
Beginning Costs and of Deductions at end of
of Period Expenses Subsidiaries Describe Period
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
For the year ended March 31, 1998:
Reserve against notes receivable in default $ 75,000 $ -- $ -- $ -- $ 75,000
For the nine months ended December 31, 1998:
Reserve against notes receivable in default 75,000 -- -- -- 75,000
For the year ended December 31, 1999:
Reserve against notes receivable in default 75,000 -- -- -- 75,000
</TABLE>
F-25
<PAGE> 56
CORNICHE GROUP INCORPORATED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Current assets:
Cash and equivalents $ 1,082,014 $ 1,639,473
Marketable securities 3,765,618 2,733,319
Prepaid expenses and other current assets 276,340 71,622
------------ ------------
Total current assets 5,123,972 4,444,414
Property and equipment, net 579,055 655,002
Deferred acquisition costs 32,161 41,946
License, net of accumulated amortization 16,167 16,777
Other assets 12,525 12,525
------------ ------------
$ 5,763,880 $ 5,170,664
============ ============
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE> 57
CORNICHE GROUP INCORPORATED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Current liabilities:
Dividends payable - preferred stock $ 271,742 $ 288,334
Accounts payable, accrued expenses
and other current liabilities 203,903 561,870
Current portion of long-term debt 23,689 22,662
------------ ------------
Total current liabilities 499,334 872,866
------------ ------------
Unearned revenues 587,766 298,801
------------ ------------
Long-term debt 64,116 76,591
------------ ------------
Series A Convertible Preferred Stock: Series A $0.07 cumulative convertible
preferred stock - stated value - $1.00 per share, authorized - 1,000,000
shares, outstanding - 694,974 shares at June 30, 2000 and
810,054 shares at December 31, 1999 694,974 810,054
------------ ------------
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, $0.1 par value, authorized, issued
and outstanding - 825,000 shares 8,250 8,250
Common stock, $.001 par value, authorized -
75,000,000 shares, issued and outstanding -
14,222,971 shares at June 30, 2000 and
12,513,127 shares at December 31, 1999 14,223 12,513
Additional paid-in capital 8,806,734 7,421,944
Accumulated deficit (4,911,517) (4,330,355)
------------ ------------
Total convertible redeemable preferred stock,
common stock, other stockholders' equity 3,917,690 3,112,352
------------ ------------
$ 5,763,880 $ 5,170,664
============ ============
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE> 58
CORNICHE GROUP INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Six For the Three
Months Ended Months Ended
June 30, June 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Earned revenues $ 275,549 $ -- $ 129,949 $ --
Direct costs 106,580 -- 63,080 --
------------ ------------ ------------ ------------
Gross profit 168,969 -- 66,869 --
General and administrative
expenses 824,041 999,763 496,765 600,641
------------ ------------ ------------ ------------
Operating loss (655,072) (999,763) (429,896) (600,641)
------------ ------------ ------------ ------------
Other income (expense):
Unrealized gain on
marketable securities 11,660 -- 7,478 --
Interest income 91,259 5,965 54,958 1,512
Interest expense (4,639) -- (2,399) --
------------ ------------ ------------ ------------
Total other income (expense) 98,280 5,965 60,037 1,512
------------ ------------ ------------ ------------
Loss before preferred dividend (556,792) (993,798) (369,859) (599,129)
Preferred dividend 24,370 28,714 12,162 14,268
------------ ------------ ------------ ------------
Net loss $ (581,162) $ (1,022,512) $ (382,021) $ (613,397)
============ ============ ============ ============
Net loss per share of
common stock $ (0.04) $ (0.16) $ (0.03) $ (0.10)
============ ============ ============ ============
Weighted average number of
common shares outstanding 13,820,536 6,377,357 14,211,840 6,380,997
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE> 59
CORNICHE GROUP INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONVERTIBLE REDEEMABLE PREFERRED STOCK, COMMON STOCK,
OTHER STOCKHOLDERS' EQUITY AND ACCUMULATED DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Series B
Convertible
Preferred Stock Common Stock Additional
------------------- ---------------------- Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit Total
--------- ------ ------------ --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - January 1, 2000 825,000 $8,250 12,513,127 $12,513 $7,421,944 $(4,330,355) $ 3,112,352
Issuance of common stock for
cash, net of offering costs -- -- 1,676,250 1,676 1,205,094 -- 1,206,770
Issuance of common stock for
services rendered -- -- 2,000 2 5,873 -- 5,875
Conversion of Series A
Convertible Preferred
Stock into Common Stock -- -- 22,094 22 156,020 -- 156,042
Series A Convertible
Stock dividends -- -- -- -- -- (24,370) (24,370)
Net loss before preferred
stock dividend -- -- -- -- -- (556,792) (556,792)
Shares to be issued for
services rendered -- -- 9,500 10 17,803 -- 17,813
------- ------ ----------- -------- ---------- ------------ ------------
Balance - June 30, 2000 825,000 $8,250 14,222,971 $14,223 $8,806,734 $(4,911,517) $ 3,917,690
======= ====== ========== ======= ========== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE> 60
CORNICHE GROUP INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six
Months Ended
June 30,
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (581,162) $ (1,022,512)
------------ ------------
Adjustments to reconcile net loss to net
cash used in operating activities:
Unrealized gain on marketable securities (11,660) --
Issuance of common stock for
services rendered 23,688 --
Series A preferred stock dividends 24,370 28,714
Depreciation and amortization 76,557 10,866
Unearned revenues 288,965 --
Deferred acquisition costs 9,785 --
Increase (decrease) in cash flows as
a result of changes in asset and
liability account balances:
Prepaid expenses and other current assets (204,718) (22,464)
Accounts payable, accrued expenses
and other current liabilities (357,967) 107,325
------------ ------------
Total adjustments (150,980) 124,441
------------ ------------
Net cash used in operating activities (732,142) (898,071)
------------ ------------
Cash flows from investing activities:
(Increase) decrease in marketable securities (1,020,639) 545,689
Acquisition of property assets -- (103,618)
------------ ------------
Net cash provided by (used in) investment activities (1,020,639) 442,071
------------ ------------
Cash flows from financing activities:
Net proceeds from issuance of capital stock - net 1,206,770 556,527
Payments of capital lease obligations (2,944) (2,328)
Proceeds from notes payable -- 97,336
Repayments of notes payable (8,504) --
------------ ------------
Net cash provided by financing activities 1,195,322 651,535
------------ ------------
Net increase (decrease) in cash (557,459) 195,535
Cash and cash equivalents at beginning of period 1,639,473 206,313
------------ ------------
Cash and cash equivalents at end of period $ 1,082,014 $ 401,848
============ ============
</TABLE>
See notes to financial statements.
F-30
<PAGE> 61
CORNICHE GROUP INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
For the Six
Months Ended
June 30,
--------------------------
2000 1999
------------ ------------
<S> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period:
Income taxes $ -- $ --
============ ============
Interest $ 4,639 $ 719
============ ============
Supplemental Schedules of Noncash Financing Activities:
Series A Preferred Stock and dividends thereon
converted to common stock and additional
paid-in capital upon conversion $ 156,020 $ 28,714
============ ============
Issuance of common stock for
services rendered $ 23,688 $ --
============ ============
</TABLE>
See notes to financial statements.
F-31
<PAGE> 62
CORNICHE GROUP INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(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. In February 1996, the Company was placed in receivership by
its creditors. Through March 1998, the Company had no activity.
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
property and casualty specialty insurance and the service contract
markets.
On September 30, 1998, the Company acquired all of the capital
stock of Stamford Insurance Company, Ltd. ("Stamford") from Warrantech
Corporation for $37,000 in cash in a transaction accounted for as a
purchase. Warrantech's chairman is the former chairman of the Company.
Stamford was charted under the Laws of, and is licensed to conduct
business as an insurance company by, the Cayman Islands. Although
Stamford has incurred expenses since its inception, it first generated
revenues in the fourth quarter of 1999.
F-32
<PAGE> 63
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
(a) Basis of Presentation:
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions for Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, the statements contain all adjustments (consisting only
of normal recurring accruals) necessary to present fairly the financial
position as of June 30, 2000 and the results of operations and cash
flows for the six and three months ended June 30, 2000 and 1999. The
results of operations for the six and three months ended June 30, 2000
and 1999 are not necessarily indicative of the results to be expected
for the full year.
The December 31, 1999 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.
(b) Cash Equivalents:
Short-term cash investments which have a maturity of ninety
days or less when purchased are considered cash equivalents in the
statement of cash flows.
(c) 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.
(d) Concentrations of Credit-Risk:
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash
and marketable securities. The Company places its domestic operations
cash accounts with high credit quality financial institutions, which at
times may be in excess of the FDIC insurance limit. The Company's
subsidiary places its cash in the Cayman Island subsidiaries of
domestic banks whose net worth exceeds $100,000,000. The Company's
marketable securities are primarily comprised of investments in
municipal bank funds. The Company employs the services of an investment
advisor to assist in monitoring its investments.
F-33
<PAGE> 64
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(e) Marketable Securities:
Marketable securities are classified as trading securities and
are reported at market value at December 31, 1999. At June 30, 2000,
the market value of securities exceeded their cost by $11,660. The
market value of the investment approximated cost at December 31, 1999.
(f) Property and Equipment:
The cost of property and equipment is depreciated over the
estimated useful lives of the related assets of 5 to 7 years. The cost
of computer software programs is amortized over their estimated useful
lives of five years. Depreciation is computed on the straight-line
method. Repairs and maintenance expenditures which do not extend
original asset lives are charged to income as incurred.
(g) Intangibles:
The excess of the purchase price for the capital stock of
Stamford over the net assets acquired has been attributed to the
subsidiary's license to conduct business as an insurance carrier in the
Cayman Islands. Amortization charged to operations in the six months
ended June 30, 2000 and 1999 was $610, in each period, and for the
three months ended March 31, 2000 and 1999 was $305, in each period.
(h) Income Taxes:
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 basis of assets and liabilities.
(i) Fair Value of Financial Statements:
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 recognizes and measures impairment
losses of long-lived assets, certain identifiable intangibles, value
long-lived assets to be disposed of and long-term liabilities. At June
30, 2000 and December 31, 1999, the carrying values of the Company's
other assets and liabilities approximate their estimated fair values.
F-34
<PAGE> 65
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(j) Advertising Costs:
The Company expenses advertising costs as incurred.
Advertising costs amounted to $282,521 and $276,752 for the six and
three months ended June 30, 2000 and none for the six and three months
ended June 30, 1999.
(k) Earnings Per Share:
The Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings Per Share". 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 that would be issued assuming conversion of all
potentially dilutive securities outstanding, is not presented as it is
anti-dilutive in all periods.
(l) 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.
(m) Revenue Recognition:
Stamford is a property and casualty reinsurance company
writing reinsurance coverages for one domestic carrier's consumer
products service contracts. The domestic carrier is rated "A-"
Excellent by A.M. Best.
Premiums are recognized on a pro rata basis over the policy
term. The deferred policy acquisition costs are the net cost of
acquiring new and renewal insurance contracts. These costs are charged
to expense in proportion to net premium revenue recognized.
F-35
<PAGE> 66
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(m) Revenue Recognition: (Continued)
The provisions for losses and loss-adjustment expenses include
an amount determined from loss reports on individual cases and an
amount based on past experience for losses incurred but not reported.
Such liabilities are necessarily based on estimates, and while
management believes that the amount is adequate, the ultimate liability
may be in excess of or less than the amounts provided. The methods for
making such estimates and for establishing the resulting liability are
continually reviewed, and any adjustments are reflected in earnings
currently.
The parent company sells via the Internet directly to
consumers automotive vehicle services contracts. The Company recognizes
revenue ratably over the length of the contract. The Company purchases
insurance to fully cover any losses under the service contracts from
the domestic carrier referred to above. The insurance premium and other
costs related to the sale are amortized over the contract.
NOTE 3 - PROPERTY AND EQUIPMENT.
Property and equipment consists of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Computer equipment $ 116,660 $ 116,660
Furniture and fixtures 23,266 23,266
Computer software 582,585 582,585
------------ ------------
722,511 722,511
Less: Accumulated depreciation 150,875 77,896
------------ ------------
571,636 644,615
------------ ------------
Lease property under capital lease:
Office equipment 17,806 17,806
Less: Accumulated depreciation 10,387 7,419
------------ ------------
7,419 10,387
------------ ------------
$ 579,055 $ 655,002
============ ============
</TABLE>
Depreciation and amortization charged to operations was
$76,577 and $10,866 for the six months ended June 30, 2000 and 1999,
respectively, and $38,269 and $3,580 for the three months ended June
30, 2000 and 1999, respectively.
F-36
<PAGE> 67
NOTE 3 - PROPERTY AND EQUIPMENT. (Continued)
The estimated present value of the capital lease obligations
at June 30, 2000 reflects imputed calculated at 12.7% and 19.32%. The
obligations are payable in equal monthly installments through February
2002 as follows:
<TABLE>
<CAPTION>
Years Ending
June 30,
------------
<S> <C>
2001 $ 5,750
2002 2,721
----------
8,471
Amount representing interest 1,431
----------
Present value of minimum
lease payments 7,040
Present value of minimum lease
payments due within one year 5,519
----------
Present value of minimum lease
payments due after one year $ 1,521
==========
</TABLE>
The aggregate maturities of the present value of the minimum
lease obligation is as follows:
<TABLE>
<CAPTION>
Years Ending
June 30,
------------
<S> <C>
2001 $5,519
2002 1,521
------
$7,040
======
</TABLE>
NOTE 4 - ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES.
Accounts payable, accrued expenses and other current
liabilities consist of the following at:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Accrued offering costs $ -- $ 419,120
Accrued professional fees 43,006 41,534
Advertising 30,000 69,427
Insurance 7,118 --
Other 118,779 26,789
Accrued claims losses 5,000 5,000
------------ ------------
$ 203,903 $ 561,870
============ ============
</TABLE>
F-37
<PAGE> 68
NOTE 5 - NOTES PAYABLE.
In October 1999, the Company sold to accredited investors 10
units of its promissory notes and common stock for $25,025 each. Each
unit was comprised of a 5% interest bearing $25,000 note and 25,000
shares. The variance between the fair market value of the 25,000 common
shares issued in the aggregate of $27,969 and the cash received of $250
was deemed to be additional interest and was charged to operations over
the life of the notes. The notes were repaid in full in December 31,
1999. At December 31, 1999, accrued interest on the notes of $3,025
remained outstanding and was repaid in January, 2000.
NOTE 6 - LONG-TERM DEBT.
Long-term debt consists of the following at June 30, 2000 and
December 31, 1999:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Capital lease obligations $ 7,040 $ 9,983
Note payable - bank - in equal monthly
installments of $2,043 including interest
at 8-3/4%. The notes are collateralized
by computer equipment having an
undepreciated cost of $78,927 80,765 89,270
------------ ------------
87,805 99,253
Portion payable within one year 23,689 22,662
------------ ------------
$ 64,116 $ 76,591
============ ============
</TABLE>
The aggregate maturities of the obligations are as follows:
<TABLE>
<CAPTION>
Years Ending
June 30,
------------
<S> <C>
2001 $23,689
2002 21,347
2003 21,631
2004 21,138
-------
$87,805
=======
</TABLE>
F-38
<PAGE> 69
NOTE 7 - SERIES A CONVERTIBLE PREFERRED STOCK.
In connection with the settlement of a 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
the Series A Preferred Stock as more fully set forth in the
Certificates of Designation. 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 share, per year, payable semi-annually. Until
November 30, 1999 the Series A Preferred Stock was 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 trade 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 the holders
of the Series A Preferred Stocks may require the Company to redeem
their 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 year
ended December 31, 1999, 18,711 shares of Series A Preferred Stock were
converted into 3,586 shares of common stock. During the six months
ended June 30, 2000, holders of 115,080 shares of the Series A
Preferred Stock converted such shares into 22,094 shares of the
Company's common stock. At June 30, 2000 and December 31, 1999, 694,974
and 810,054 shares of Series A Preferred Stock were outstanding,
respectively. At June 30, 2000 and 1999, and accrued dividends on these
outstanding shares were $271,742 and $288,334, respectively.
NOTE 8 - STOCKHOLDERS' 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.
F-39
<PAGE> 70
NOTE 8 - STOCKHOLDERS' EQUITY. (Continued)
(a) Series B Convertible Redeemable Preferred Stock: (Continued)
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 incurred 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 a consultant 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 bring 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 the then existing stockholders by
approximately 57%. The total authorized shares of Series B Convertible
Redeemable 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. The
Series B Stock carries a zero coupon and each share of the Series B
Stock is convertible into ten shares of the Company's common stock. The
holder of a share of the Series B Stock is entitled to ten times any
dividends paid on the common stock and such stock has ten votes per
share and vote as one class with the common stock. Accordingly, the
Initial Purchasers have sufficient voting power to elect all of the
Board of Directors. However, the Initial Purchasers are required to
vote in favor of Mr. Fyfe or his designee as a director of the
Corporation through June 30, 2000.
The holder of any share of Series B Convertible Redeemable
Preferred Stock has the right, at such holder's option (but not if such
share is called for redemption), exercisable on or after September 30,
2000, to convert such share into ten (10) fully paid and non-assessable
shares of common stock (the "Conversion Rate"). The Conversion Rate is
subject to adjustment as stipulated in the Agreement. Upon liquidation,
the Series B Stock would be junior to the Corporation's Series A
Preferred Stock and would share ratably with the common stock with
respect to liquidating distributions.
Since, the Company raised in excess of $2,500,000 in fiscal
1999 from the sale of its common shares and the Company's common shares
maintained a minimum closing bid price in excess of $2.00 per shares
for 10 consecutive trading days, then the Company's right, pursuant to
the terms of the Agreement and the Certificate of Designation to
repurchase or redeem such shares of Series B Stock from the holders for
total consideration of $0.10 per share was eliminated.
F-40
<PAGE> 71
NOTE 8 - STOCKHOLDERS' EQUITY. (Continued)
(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, 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 of $184,500 for
net of $1,660,500 to the Company.
In March 1998, the Company sold 250,000 shares of common stock
at $.50 per share realizing $125,000.
The stockholders at the 1998 annual meeting approved the
reduction of the par value of the common stock from $0.10 per share to
$0.001 per share.
The stockholders at the 2000 annual meeting approved amending
the authorized common stock to 75 million shares from 30 million
shares.
Commencing in May 1999 through July 1999, the Company sold
688,335 shares of its common stock to accredited investors for $538,492
net of offering costs. In December 1999, accredited investors purchased
5,187,500 shares of the Company's common stock for $3,715,744, net of
offering costs. During the six months ended June 30, 2000, the Company
sold 1,676,250 shares of common stock at $.80 per share realizing
$1,206,770, net of offering costs.
The Company in 1999 issued 5,000 shares of its common stock
whose fair value was $5,000 to its President as a signing bonus, which
was charged to operations at the time of issuance. The Company also
issued in 1999, 25,000 shares of its common stock whose fair value was
$25,000 at the date of issuance to a public relations consultant for
future services. The arrangement with the consultant was terminated in
1999 and the fair value of the shares was charged to operations in
1999.
During the quarter ended June 30, 2000, the Company issued
2000 shares of its common stock to a consultant for promotional
activities amounting to $5,875.
F-41
<PAGE> 72
NOTE 8 - STOCKHOLDERS' 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 and March
31, 1998. Of these outstanding warrants, warrants for 9,375 common
shares at $46.40 per share expired in April 1999. The remaining
warrants to acquire 91,933 common shares at exercise prices ranging
from $3.20 to $8.10 per share were granted in March 1995 to certain
directors, officers and employees who converted previously outstanding
stock options under the 1986 Plan into warrants on substantially the
same terms as the previously held stock options, except the warrants
were immediately vested. During the fiscal 1999, warrants to acquire
22,308 common shares at prices ranging from $3.90 to $46.40 per share
expired. No warrants were exercised during any of the periods
presented. A total of 79,000 shares of common stock are reserved for
issuance upon exercise of outstanding warrants as of December 31, 1999
at prices ranging from $3.20 to $27.50 and expiring through October
2004.
(d) Stock Options Plans:
The Company has two stock option plans. The 1998 Employee
Incentive Stock Option Plan provides for the grant of options to
purchase shares of the Company's common stock to employees. The 1992
Stock Option Plan provides for the grant of options to directors.
F-42
<PAGE> 73
NOTE 8 - STOCKHOLDERS' EQUITY. (Continued)
(d) Stock Options Plans: (Continued)
In April 1992, the Company adopted the 1992 Stock Option Plan
to provide for the granting of options to directors. According to the
terms of this plan, each director is granted options to purchase 1,500
shares each year. The maximum amount of the Company's common stock that
may be granted under this plan is 20,000 shares. Options are
exercisable at the fair market value of the common stock on the date of
grant and have five year terms.
Under the 1998 Plan, the maximum aggregate number of shares
which may be issued under options has been amended to 3,000,000 from
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 of
the options are 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 are granted, the option exercise price is at least 110% of the
fair market value of the shares of common stock subject to the options
and (b) the option by its terms is not exercisable after the expiration
of five years from the date such option is granted.
The 1998 Plan will be administered by a committee of
disinterested directors of the Board of Directors of the Corporation
("Option Committee"). In 1999, options to acquire 100,000 common shares
at $1.00 per share were granted to an officer and an option to acquire
25,000 common shares at $0.6875 per share was issued to a consultant
were granted under the 1998 Plan. In May 1997, a director was granted
an option to acquire 1,500 common shares at `$0.3125 per share were
granted under the 1992 Plan. In February 2000, the Company's CEO was
granted an option to acquire 75,000 common shares of $1.10 per share in
the 1998 plan.
Information with respect to options under the 1992 and
1998 Stock Option Plans is summarized as follows:
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
2000 1999
------------------------------ ------------------------------
Shares Prices Shares Prices
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning
of period 128,000 $0.31 to $1.00 3,000 $0.31 to $0.40
============== ==============
Options issued 75,000 $ 1.10 --
-------------- ============== --------------
Outstanding at end
of period 203,000 $0.31 to $1.10 3,000 $0.31 to $0.40
============== ============== ============== ==============
</TABLE>
F-43
<PAGE> 74
NOTE 8 - STOCKHOLDERS' EQUITY. (Continued)
(d) Stock Options Plans: (Continued)
Outstanding options expire 90 days after termination of
holder's status as employee or director.
All options were granted at an exercise price equal to the
fair value of the common stock at the grant date. Therefore, in
accordance with the provisions of APB Opinion No. 25 related to fixed
stock options, no compensation expense is recognized with respect to
options granted or exercised. Under the alternative fair-value based
method defined in SFAS No. 123, the fair value of all fixed stock
options on the grant date would be recognized as expense over the
vesting period. Assuming the fair market value of the stock at the date
of grant to be $.3125 per share in May 1996, $.40625 per share in May
1997, $.6875 in January 1999 and $1.00 per share in September 1999, the
life of the options to be from three to ten years, the expected
volatility at 200%, expected dividends are none, and the risk-free
interest rate of 10%, the Company would have recorded compensation
expense of $10,523 for the six months ended June 30, 2000 and $1,938
for the three months ended June 30, 2000 as calculated by the
Black-Scholes option pricing model. As such, pro-forma net loss and
loss per share would be as follows:
<TABLE>
<CAPTION>
For the Six For the Three
Months Ended Months Ended
June 30, 2000 June 30, 2000
------------- -------------
<S> <C> <C>
Net loss as reported $ (581,162) $ (382,021)
Additional compensation 10,523 1,938
------------- -------------
$ (591,685) $ (383,959)
============= =============
Loss per share as reported $ (0.04) $ (0.03)
============= =============
Adjusted loss per share $ (0.04) $ (0.03)
============= =============
</TABLE>
As the number of options granted at December 31, 1998 and
March 31, 1998 is immaterial, recognizing the expense would not have a
material effect on the Company's financial statements for the three
months and six months ended June 30, 1999.
F-44
<PAGE> 75
NOTE 9 - INCOME TAXES.
The Company has received permission from the Internal Revenue
Service to change its taxable year-end from March 31, to December 31,
effective with the December 31, 1998 period.
The differences between income taxes computed using the
statutory federal income tax rate and that shown in the financial
statements are summarized as follows:
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
-------------------------------------------------
2000 % 1999 %
----------------------- -----------------------
<S> <C> <C> <C> <C>
Loss before income taxes
and preferred dividend $ 556,792 -- $ (993,798) --
========== ========== ========== ==========
Computed tax benefit at
statutory rate $ (189,300) (34.0) $ (337,900) (34.0)
Foreign subsidiary income
not subject to U.S. taxes (49,700) (9.2) (7,560) (.8)
Net operating loss
valuation reserve 239,000 43.2 345,460 34.8
---------- ---------- ---------- ----------
Total tax benefits $ -- -- $ -- --
========== ========== ========== ==========
</TABLE>
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.
The Tax Reform Act of 1986 enacted a complex set of rules
limiting the utilization of net operating loss carryforwards to offset
future taxable income following a corporate ownership change. The
Company's ability to utilize its NOL carryforwards is limited following
a change in ownership in excess of fifty percentage points during any
three year period. Upon receipt of the proceeds from the last foreign
purchasers of the Company's common stock in January 2000, common stock
ownership changed in excess of 50% during the three year period then
ended. The utilization of the Company's net operating loss carryforward
at December 31, 1999 of $2,063,000 was not negatively impacted by this
ownership change. The future tax benefit of the net operating loss
carryforward aggregated $701,000 at December 31, 1999 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.
F-45
<PAGE> 76
NOTE 10 - COMMITMENTS, CONTINGENCIES AND OTHER.
(a) Leases:
Commencing in August 1998, the Company entered into short-term
operating leases for its general office space and certain office
equipment. Prior to August 1998, the Company did not incur rent expense
as it was inactive. Rent expense charged to operations for the six and
three months ended June 30, 2000 and 1999 was $25,050 and $12,525,
respectively in each period. Future minimum annual rent commitments
under operating leases as of June 30, 2000 are as follows:
<TABLE>
<CAPTION>
Years Ending
June 30,
------------
<S> <C>
2001 $50,000
2002 4,167
-------
$54,167
=======
</TABLE>
(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:
Although the Company has had limited operations through
December 31, 1999, it recognized the need to ensure that its operations
will not be adversely effected by Year 2000 software or hardware
failures. The Company in developing its software and hardware made
certain that all its systems were compliant with Year 2000
requirements. The Company has not experienced any adverse computer
hardware or software effect to date. If, despite the Company's effects
under its Year 2000 related failures affecting the Company from outside
sources, management at the present time does not believe the impact
will be substantial.
F-46
<PAGE> 77
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses and costs expected to
be incurred in connection with the issuance and distribution of the securities
to be registered. All of the amounts shown are estimated, except for the
Securities and Exchange Commission registration fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee..................................... $ [ 6,392]
------
Legal fees and expenses................................................................. *
Accounting fees and expenses............................................................ *
*
Miscellaneous expenses.................................................................. --------------------------
Total.............................................................................. $ *
==========================
</TABLE>
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if the person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if the person had
no reasonable cause to believe his conduct was unlawful; provided that, in the
case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which the person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that indemnification is proper
under the circumstances.
Article X of the amended Certificate of Incorporation (the "Certificate")
of Corniche Group Incorporated ("Corniche") provides that no director of
Corniche shall be personally liable to Corniche or its stockholders for monetary
damage for breach of fiduciary duty as a director, except for liability
o for any breach of the director's duty of loyalty to Corniche or its
stockholders,
o for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
o under Section 174 of the Delaware General Corporation Law, or
o for any transaction from which the director derived any improper
personal benefit.
Article VI of the amended Certificate also provides that Corniche's Board
of Directors has the power on behalf of Corniche to indemnify any person, other
than a director, officer, employee, or agent of Corniche made a party to any
action, suit or proceeding by reason of the fact that he is or was a director,
officer, employee or agent of Corniche.
Article V of Corniche's amended bylaws (the "Bylaws") provides that
Corniche may indemnify any and all persons who it shall have power to indemnify
against any and all expenses, liabilities or other matters to the fullest extent
authorized under Delaware law.
Corniche has directors' and officers' liability insurance covering its
directors and officers.
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<PAGE> 78
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Summarized below are issuances of securities by Corniche that have occurred
since September 30, 1997, that were not registered under the Securities Act.
None of the following transactions involved any underwriters, underwriter
discounts or commissions, or any public offering, and Corniche believes that
each transaction was exempt from the registration requirements of the Securities
Act by virtue of Section 4(2) thereof, Regulation D promulgated thereunder or
Rule 701 pursuant to compensatory benefit plans and contracts relating to
compensation as provided under Rule 701. The recipients in these transactions
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof, and
appropriate legends were affixed to the share certificates and instruments
issued in the transactions.
COMMON STOCK / SERIES B CONVERTIBLE REDEEMABLE PREFERRED STOCK
<TABLE>
<CAPTION>
TITLE AND AMOUNT OF CONSIDERATION
DATE SOLD SECURITIES PURCHASER RECEIVED
--------- ------------------- --------- -------------
<S> <C> <C> <C>
March 1998 250,000 shares of A group of 2 accredited An aggregate amount of
common stock investors $125,000
May 1998 875,000 shares of Series A group of 6 accredited An aggregate amount of
B convertible redeemable investors $87,500
preferred stock
January 1999 25,000 shares of common A consultant Consulting services
stock valued at $25,000
February 1999 5,000 shares of common Robert H. Benoit, Signing bonus valued at
stock President $5,000
May 1999 - July 1999 688,335 shares of A group of 27 accredited An aggregate amount of
common stock investors $619,499.90
October - 250,000 shares of A group of 10 accredited An aggregate amount of
November 1999 common stock investors $250,000
December 1999 - 6,863,750 shares of A group of 18 accredited An aggregate amount of
April 2000 common stock investors $5,491,000
August 2000 5,000 shares of common A group of 2 accredited Consulting services
stock investors valued at $9,250
August 2000 4,500 shares of common James J. Fyfe, Chairman Consulting services
stock of the Board of Directors valued at $8,325
</TABLE>
STOCK OPTIONS
o Pursuant to Corniche's 1998 Stock Plan, between September 30, 1997, and
the date hereof, Corniche granted options to four employees and one
consultant to purchase an aggregate of 403,000 shares of its common
stock at exercise prices ranging from $.31 to $1.097 per share.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
The exhibits are as set forth in the Exhibit Index.
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<PAGE> 79
(b) Financial Statement Schedules:
No financial statement schedules are filed because the required
information is not applicable or is included in the financial statements or
related notes.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts of events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post- effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be in the initial bona fide offering thereof.
(3) For determining liability under the Securities Act of 1933, treat
each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be
the initial bona fide offering.
(4) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(5) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(6) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by Corniche pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(7) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
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<PAGE> 80
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Corniche
pursuant to the foregoing provisions, or otherwise, Corniche has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. If a claim for indemnification against such
liabilities (other than the payment by Corniche of expenses incurred or paid by
a director, officer or controlling person of Corniche in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, then
Corniche will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
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<PAGE> 81
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Corniche has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, hereunto duly authorized, in the City of Euless, State of Texas as
of October 3, 2000.
CORNICHE GROUP INCORPORATED
By: /s/ ROBERT F. BENOIT
--------------------------------------
Robert F. Benoit
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each of the undersigned officers and
directors of Corniche Group Incorporated hereby constitutes and appoints Robert
F. Benoit, his true and lawful attorney-in-fact and agent, with full power of
substitution, for him and on his behalf and in his name, place and stead, in any
and all capacities, to sign, execute and file any and all documents relating to
this Registration Statement, including any and all amendments, exhibits and
supplements thereto and including any Registration Statement filed pursuant to
Rule 462(b) of the Securities Act of 1933, with any regulatory authority,
granting unto said attorney full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the premises
to effectuate the same as fully to all intents and purposes as he himself might
or could do if personally present, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute, may lawfully do or cause to be
done.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated as of October 3, 2000.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ ROBERT F. BENOIT Chief Executive Officer, Director October 3, 2000
-------------------------------------------
Robert F. Benoit
/s/ ROBERT H. HUTCHINS President, Director October 3, 2000
-------------------------------------------
Robert H. Hutchins
/s/ JOHN L. KING Vice President, Chief Financial Officer October 3, 2000
-------------------------------------------
John L. King
/s/ JAMES J. FYFE Chairman of the Board of Directors October 3, 2000
-------------------------------------------
James J. Fyfe
/s/ PAUL L. HARRISON Director October 3, 2000
-------------------------------------------
Paul L. Harrison
/s/ JOSEPH P. RAFTERY Director October 3, 2000
-------------------------------------------
Joseph P. Raftery
</TABLE>
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<PAGE> 82
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
3 (a) Certificate of Incorporation filed September 18, 1980(1)
(b) Amendment to Certificate filed September 29, 1980(1)
(c) Amendment to Certificate of Incorporation filed July 28, 1983(2)
(d) Amendment to Certificate of Incorporation filed February 10, 1984(2)
(e) Amendment to Certificate of Incorporation filed March 31, 1986(3)
(f) Amendment to Certificate of Incorporation filed March 23, 1987(4)
(g) Amendment to Certificate of Incorporation filed June 12, 1990(5)
(h) Amendment to Certificate of Incorporation filed September 27, 1991(6)
(i) Certificate of Designation filed November 12, 1994(7)
(j) Amendment to Certificate of Incorporation filed September 2, 1995(1)
(k) Certificate of Designation for the Series B Preferred Stock dated May 18, 1998(12)
(l) By-laws of the Corporation, as amended on April 25, 1991(6)
(m) Amendment to Certificate of Incorporation dated May 18, 1998(12)
4 (a) 1992 Stock Option Plan(8)
(b) Form of 1992 Incentive Stock Option Agreement, filed herewith
(c) Form of 1992 Non-Qualified Stock Option Agreement, filed herewith
(d) Stock Purchase Agreement dated as of January 30,
1997 by and among the Company, the Bank of
Scotland and 12 buyers(10)
(e) Mutual Release dated as of January 30, 1997 by and among the Company, James Fyfe
and the Bank of Scotland(10)
(f) Stock Purchase Agreement, dated as of March 4,
1998, between the Company and the Initial
Purchasers named therein(12)
(g) 1998 Employees Stock Option Plan(12)
(h) Form of 1998 Incentive Stock Option Agreement, filed herewith
(i) Form of 1998 Non-Qualified Stock Option Agreement, filed herewith
(j) 1998 Independent Director Compensation Plan, filed herewith
</TABLE>
<PAGE> 83
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
5 (a) Opinion of Haynes and Boone, LLP, filed herewith
10 (a) Employment Agreement by and between the Company and Robert F. Benoit, dated
February 15, 1999, filed herewith
(b) Employment Agreement by and between the Company and John L. King, dated
June 27, 2000, filed herewith
(c) Employment Agreement by and between the Company and David H. Boltz, dated June
26, 2000, filed herewith
(d) Lease Agreement by and between Shoal Creek No. 2, L.L. and the Company dated July
7, 1998, to be filed by Amendment
23 (a) Consent of Weinick Sanders Leventhal & Co., LLP
(b) Consent of Simontacchi & Company, LLP
27 (a) Financial Data Schedule, filed herewith
</TABLE>
Notes:
(1) Filed with the Securities and Exchange Commission as an exhibit,
numbered as indicated above, to our registration statement on Form
S-18, File No. 2-69627, which exhibit is incorporated here by
reference.
(2) Filed with the Securities and Exchange Commission as an exhibit,
numbered as indicated above, to our registration statement on Form
S-288712, which exhibit is incorporated here by reference.
(3) Filed with the Securities and Exchange Commission as an exhibit,
numbered as indicated above, to our registration statement on Form
S-2, File No. 33-4458, which exhibit is incorporated here by
reference.
(4) Filed with the Securities and Exchange Commission as an exhibit,
numbered as indicated above, to our annual report on Form 10-K for
the year ended September 30, 1987, which exhibit is incorporated
here by reference.
(5) Filed with the Securities and Exchange Commission as an exhibit,
numbered as indicated above, to our registration statement on Form
S-3, File No. 33-42154, which exhibit is incorporated here by
reference.
(6) Filed with the Securities and Exchange Commission as an exhibit,
numbered as indicated above, to our registration statement on Form
S-1, File No. 33-42154, which exhibit is incorporated here by
reference.
(7) Filed with the Securities and Exchange Commission as an exhibit,
numbered as indicated above, to our registration statement on Form
10-K for the year ended September 30, 1994, which exhibit is
incorporated here by reference.
(8) Filed with the Securities and Exchange Commission as an exhibit,
numbered as indicated above, to our proxy statement dated March 30,
1992, which exhibit is incorporated here by reference.
(9) Filed with the Securities and Exchange Commission as an exhibit,
numbered as indicated above, to our current report on Form 8-K,
dated April 5, 1995, which exhibit is incorporated here by
reference.
(10) Filed with the Securities and Exchange Commission as an exhibit,
numbered as indicated above, to our annual report on Form 10-K for
the year ended March 31, 1996, which exhibit is incorporated here
by reference.
(11) Filed with the Securities and Exchange Commission as an exhibit,
numbered as indicated above, to our annual report on Form 10K/A for
the year ended March 31, 1996, which exhibit is incorporated here
by reference.
(12) Filed with the Securities and Exchange Commission as an exhibit,
numbered as indicated above, to our proxy statement dated April 23,
1998, which exhibit is incorporated here by reference.
