SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from ________________ to ____________________
Commission file number 0-10909
CORNICHE GROUP INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 22-2343568
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
610 SOUTH INDUSTRIAL BLVD., SUITE 220 EULESS, TEXAS 76040
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: 817-283-4250
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
22,293,335 SHARES, $.001 PAR VALUE, AS OF APRIL 30, 2002
(Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date)
I N D E X
Part I - Financial Information:
Item 1. Financial Statements (Unaudited)
Balance Sheets
At March 31, 2002 and December 31, 2001 3
Statement of Operations
For the three months
ended March 31, 2002 and 2001 4
Statements of Convertible Redeemable
Preferred Stock, Common Stock, Other
Stockholders' Equity and Accumulated
Deficit for the three months ended
March 31, 2002 5
Statement of Cash Flows
for the three months ended
March 31,2002 and 2001 6
Notes to Financial Statements 7-10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 11-12
Part II - Other Information:
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 13
CORNICHE GROUP INCORPORATED
BALANCE SHEETS
(Unaudited)
ASSETS
March 31, December 31,
2002 2001
Current assets:
Cash and equivalents $ 42,020 $ 51,268
Marketable securities -- 1,503,374
Notes receivable 1,250,000 --
Prepaid expenses and other current assets 29,743 19,734
--------- ---------
Total current assets 1,321,763 1,574,375
Property and equipment, net 66,357 74,159
Deferred Acquisition Costs 165,327 183,579
Net assets of subsidiary -- --
Other assets 4,175 4,175
--------- --------
$1,557,622 $1,836,289
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Dividends payable - preferred stock $ 349,748 $ 337,827
Accounts payable 160,318 47,533
Accrued liabilities 50,990 83,084
Current portion of long-term debt 21,165 21,051
------- -------
Total current liabilities 582,221 489,495
------- -------
Unearned revenues 234,801 259,779
------- -------
Long-term debt 26,642 32,108
------- -------
Series A Convertible Redeemable Preferred Stock:
Series A $0.07 convertible redeemable preferred
stock - stated value - $1.00 per share,
authorized - 1,000,000 shares, outstanding -
681,174 shares at March 31, 2002 and
December 31, 2001, respectively 681,174 681,174
------- --------
Convertible Preferred Stock, Common Stock,
Other Stockholders' Equity and Accumulated
Deficit:
Preferred stock - authorized - 5,000,000 shares
Series B convertible preferred stock,
$0.1 par value, authorized - 20,000
shares - outstanding 20,000 shares at March 31,
2002 and December 31, 2001, respectively 200 200
Common stock, $.001 par value, authorized -
75,000,000 shares, issued and outstanding -
22,293,335 shares at March 31, 2002 and
22,290,710 shares at December 31, 2001 22,294 22,291
Additional paid-in capital 8,838,498 8,837,687
Accumulated deficit (8,828,208) (8,486,445)
---------- -----------
Total convertible preferred stock,
common stock, other stockholders' equity 32,784 373,733
----------- -----------
$1,557,622 $1,836,289
----------- -----------
See accompany notes to financial statements
CORNICHE GROUP INCORPORATED
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
2002 2001
Earned revenues $ 24,552 $ 11,457
Direct costs (19,370) (7,415)
------- -------
Gross profit (loss) 5,182 4,042
General and administrative
Expenses (371,435) (422,176)
-------- ---------
Operating loss (366,253) (418,134)
-------- ---------
Other income (expense):
Realized loss on
Marketable securities (3,490) -
Interest income 41,020 30,957
Interest expense (1,119) (3,174)
------- --------
Total other income 36,411 27,783
-------- ---------
Loss before preferred dividend (329,842) (390,351)
Preferred dividend (11,921) (11,921)
-------- ---------
Net loss from Continuing Operations $(341,763) $(402,272)
--------- ---------
Discontinued Operations:
Income from Operations - 181,352
Loss on Disposal - (431,857)
---------
Net Loss $(341,763) $ 652,777
--------- --------
Earnings (Loss) per common share
Loss for Continuing Operations $ (0.02) $ (0.02)
--------- ---------
Discontinued Operations:
Income from Operation $ - $ 0.01
Loss on Disposal $ - $ (0.02)
---------- -----------
Net Loss $ (0.02) $ (0.03)
---------- -----------
Weighted average number of
common shares outstanding 22,290,710 22,280,127
=========== ==========
See accompanying notes to financial statements.
CORNICHE GROUP INCORPORATED
STATEMENTS OF CONVERTIBLE PREFERRED STOCK, COMMON STOCK,
OTHER STOCKHOLDERS' EQUITY AND ACCUMULATED DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2002
(Unaudited)
Series B
Convertible
Preferred Stock Common Stock Additional
Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit Total
Balance - January 1, 2002 20,000 $200 22,290,710 $22,291 $8,837,687 (8,486,445) 373,733
Issuance of common stock
to directors -- -- 2,625 3 811 -- 814
Series A Convertible
Stock dividends -- -- -- -- -- (11,921) (11,921)
Net loss before preferred
stock dividend -- -- -- -- -- (329,842) (329,842)
Balance-March 31, 2002
----- ------ ---------- ------ ----------- ------------ ----------
20,000 $200 22,293,335 $22,294 $8,838,498 (8,828,208) 32,784
====== ====== ========== ======= ========== ============ ==========
See accompanying notes to financial statements.
CORNICHE GROUP INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three
Months Ended
March 31,
2002 2001
Cash flows from operating activities:
Net loss from continuing operations
Adjustments to reconcile net loss to net
cash used in operating activities: $(341,763) $(402,272)
Issuance of common stock for services rendered 814 735
Series A preferred stock dividends 11,921 11,921
Depreciation and amortization 8,936 39,894
Unearned revenues (24,978) 60,087
Deferred acquisition costs 18,252 (44,978)
Increase (decrease) in cash flows as
a result of changes in asset and
Liability account balances:
Prepaid expenses and other current assets (10,009) 19,382
Accounts payable 112,785
Accrued liabilities (32,094) (47,923)
--------- ---------
Total adjustments 85,627 39,118
--------- ---------
Net cash used in operating activities (256,136) (363,154)
---------- ---------
Cash flows from investing activities:
(Increase) decrease in marketable securities 1,503,374 328,145
Notes receivable (1,250,000) --
Acquisition of fixed assets (1,134) --
---------- --------
Net cash provided by (used in) investment activities 252,240 328,145
Cash flows from financing activities:
Payment of capital lease obligations (343) (1,576)
Net repayment of notes payable (5,009) (3,450)
---------- --------
Net cash provided by (used in) financing activities (5,352) (5,026)
---------- --------
Net increase (decrease) in cash (9,248) (40,035)
Cash and cash equivalents at beginning of period 51,268 85,604
---------- --------
Cash and cash equivalents at end of period $ 42,020 $ 45,569
======== =======
Supplemental Disclosure of Cash Flow Information:
Interest paid $1,119 $3,174
======== =======
Supplemental Schedules of Non-cash Financing Activities:
Series A Preferred Stock dividends $11,921 $11,921
======== =======
Issuance of common stock to directors for services
Three months ended March 31, 2002 and 2001 $ 814 $ 735
======== =======
See notes to financial statements.
CORNICHE GROUP INCORPORATED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY.
Corniche Group Incorporated (the "Company") is a provider of extended
warranties and service contracts via the Internet at www.warrantysuperstore.com
covering automotive, home, office, personal electronics, home appliances,
computers and garden equipment. The Company offers its products and services in
the United States in states that permit program marketers to be the obligator on
service contracts. Currently this represents approximately 37 states for
automotive service contracts and most states for other product categories. While
the Company manages most functions relating to its extended warranty and service
contracts, it does not bear the economic risk to repair or replace products nor
does it administer the claims function.
NOTE 2 BASIS OF PRESENTATION.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions for Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, the statements contain all adjustments
(consisting only of normal recurring accruals) necessary to present fairly the
financial position as of March 31, 2002, the results of operations for the three
months ended March 31, 2002 and 2001 and the cash flows for the three months
ended March 31, 2002 and 2001. The results of operations for the three months
ended March 31, 2002 are not necessarily indicative of the results to be
expected for the full year.
The December 31, 2001 balance sheet has been derived from the audited
financial statements at that date included in the Company's annual report on
Form 10-K. These unaudited financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's annual
report on Form 10-K.
NOTE 3 ACCOUNTING POLICIES.
There were no changes in the Company's accounting policies during the
quarter ended March 31, 2002.
NOTE 4 PROPOSED STRANDTEK TRANSACTION.
As previously reported, on January 7, 2002, the Company entered into a
Stock Contribution Exchange Agreement (the "Exchange Agreement") and a
Supplemental Disclosure Agreement (together with the Exchange Agreement, the
"Agreements") with StrandTek International, Inc., a Delaware corporation
("StrandTek"), certain of StrandTek's principal shareholders and certain
non-shareholder loan holders of StrandTek (the "StrandTek Transaction"). The
Exchange Agreement was amended on February 11, 2002. After the consummation of
the transactions contemplated by the Agreements, StrandTek will become a
majority owned subsidiary ofthe Company and the former shareholders of StrandTek
will control the Company.
StrandTek is a high-tech manufacturer with proprietary technology producing
melt-blown polypropylene for acoustical and thermal insulation applications. The
main applications for the material are in the automotive, appliance, home and
office building markets. StrandTek has achieved acceptance for its product with
a number of Fortune 100 companies, which are already switching from traditional
materials to the StrandTek product. Following extensive evaluation and testing
by several potential major customers StrandTek now supplies companies such as
GE, Maytag, GM and Daimler Chrysler. Further information about StrandTek is
available in its Form 10-KSB for its fiscal year ended September 30, 2001 and in
its Form 10-QSB for the fiscal quarter ended March 31, 2002 on file with the
SEC.
A closing of the transaction with StrandTek did not occur on March 15,
2002, as contemplated by the Agreements but the Agreements have not been
terminated. Since that date, StrandTek and Corniche have engaged in discussions
regarding further modifications and amendments to the Agreements and a further
extension of the closing date. As a part of the discussions of many potential
adjustments, Corniche, StrandTek and the participating StrandTek shareholders
have discussed a material reduction in the amount of unencumbered cash, after
the payment of all liabilities, required to be possessed by Corniche as a
condition of the closing, a material reduction in the initial conversion price
of the shares of Series C 7% Convertible Preferred Stock contemplated to be
received by certain of the participating StrandTek noteholders (from $1.00 per
share to $0.57 per share), and minor adjustments in the percentages of shares of
Corniche common stock par value $0.001 per share ("Common Stock") and Preferred
Stock to be received by the participating StrandTek investors compared to
percentages to be held by others at any closing. A draft of a Second Amendment
and Waiver to Stock Contribution Exchange Agreement has been prepared (but not
yet executed) reflecting the various amendments discussed and an anticipated a
closing date of May 8, 2002. Notwithstanding the contemplated closing date, a
closing has still not occurred, but the parties continue to work towards such a
closing including seeking financing which is a condition precedent to this
transaction.
The Company is still in discussions with StrandTek and is continuing to
attempt to close the transaction contemplated in the Agreement as it may be
modified and amended by the parties, although no assurances can be given that a
closing will occur.
NOTE 5 DISCONTINUED OPERATIONS.
Through April 2001 the Company operated a property and casualty reinsurance
business through its wholly owned subsidiary, Stamford Insurance Company, Ltd.
("Stamford"). Stamford is chartered under the laws of, and is licensed to
conduct business as an insurance company by, the Cayman Islands. Stamford
provided reinsurance coverage for one domestic insurance company until the
fourth quarter of 2000 when the relationship with the carrier was terminated.
Stamford continued to receive premiums through April 2001 for business written
prior to termination. Stamford was not able to obtain any additional reinsurance
relationships. In light of the inability of Stamford to write new business and
difficulty in forecasting future claims losses in the run off of its prior
reinsurance contract, on April 30, 2001 the Board of Directors of the Company
approved the sale of Stamford to Butler Financial Solutions, LLC for a
consideration totaling approximately $372,000. In the six months ended June 30,
2001 the Company recorded a loss of approximately $479,000 on the sale of
Stamford. The closing and transfer of funds was completed on July 6, 2001. The
operations of Stamford have been reported in discontinued operations for the
three months ended March 31, 2001.
NOTE 6 NOTES RECEIVABLE
In January 2002 the Company advancedto StrandTek a loan of $1 million on an
unsecured basis, which is personally guaranteed by certain of the principal
shareholders of StrandTek and a further loan of $250,000 on February 19, 2002 on
an unsecured basis. Such loans bear interest at 7% per annum and are due on the
earlier of March 31, 2002 or forty five days after termination of the Agreements
(as defined in Note 4).
NOTE 7 PROPERTY AND EQUIPMENT.
Property and equipment consists of the following:
March 31 December 31
2002 2001
-------- ------------
Computer equipment $132,148 $131,014
Furniture and fixtures 23,829 23,829
Equipment under capital lease 17,806 17,806
Computer software 602,014 602,014
-------- -------
775,797 774,663
Less: Accumulated depreciation (709,440) (700,504)
--------- ---------
$ 66,357 $ 74,159
========== ========
Depreciation and amortization charged to operations was $8,936 and $39,894
for the three months ended March 31, 2002 and 2001, respectively.
NOTE 8 LONG-TERM DEBT.
Long-term debt consists of the following at March 31, 2002 and December
31, 2001:
March 31, December 31,
2002 2001
Capital lease obligations $ $ 343
Note payable - bank - in equal monthly
installments of $2,043 including interest
At 8-3/4%. The notes are collateralized
by computer equipment. 47,807 52,816
------ -------
47,807 53,159
Less current maturities 21,165 21,051
------ -------
$ 26,642 $ 32,108
======== ========
NOTE 9 SERIES "A" CONVERTIBLE REDEEMABLE PREFERRED STOCK.
The Certificate of Designation for the Company's Series A Preferred Stock
provides that at any time after December 1, 1999 any holder of Series A
Preferred Stock may require the Company to redeem his shares of Series A
Preferred Stock (if there are funds with which the Company may legally do so) at
a price of $1.00 per share. Notwithstanding the foregoing redemption provisions,
if any dividends on the Series A Preferred Stock 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. The holders of
Series A Preferred Stock may convert their Series A Preferred Stock into shares
of Common Stock of the Company at a price of $5.20 per share. At March 31, 2002
and December 31, 2001, 681,174 shares of Series A Preferred Stock were
outstanding.
On January 29, 2002 notice was given that, pursuant to the Company's
Restated Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), the Company has called for redemption and will redeem (the
"Redemption") on the date of the closing of the StrandTek Transaction (the
"Redemption Date"), all shares of the Company's Series A Convertible Preferred
Stock outstanding on that date at a redemption price of $1.05, plus accrued and
unpaid dividends from July 1, 1995 through and including the Redemption Date of
approximately $0.47 per share (the "Redemption Price"). Holders will not be
entitled to interest on the Redemption Price and the Series A Preferred Stock
will cease to accrue dividends on the Redemption Date. The Redemption, among
other financial, legal and business conditions, is a condition precedent to the
closing of the StrandTek Transaction, which is expected to close during May
2002. See "Note 4 - Proposed StrandTek Transaction". Similarly, completion of
the Redemption is subject to closing the StrandTek Transaction. As a result,
Letters of Transmittal in connection with the redemption will be held in escrow
pending the closing of the StrandTek Transaction. Simultaneous with the closing
of the StrandTek Transaction, the holders of the Series A Preferred Stock shall
receive the Redemption Price. In the event that the StrandTek Transaction is not
consummated, the Company will rescind the Notice of Redemption. Pursuant to the
Certificate of Incorporation, each share of Series A Preferred Stock, may be
converted into 0.193 shares of Common Stock at any time prior to the close of
business on the tenth (10) day preceding the Redemption Date.
NOTE 10 STOCKHOLDERS' EQUITY.
(a) Common Stock:
During the three months ended March 31, 2002, the Company issued 2,625
shares of its common stock whose fair value was $814 to its board members
for director's fees.
On February 12, 2002 the Company commenced a private placement offering to
sell a minimum of 16,500,000 shares and a maximum of 23,500,000shares of
its Common Stock at $0.70 per share. The offering was amended on April 30,
2002 to sell a minimum of 18,875,000 shares and a maximum of
31,250,000shares of its Common Stock at $0.40 per share. Only selected
investors which qualify as "accredited investors" as defined in Rule 501(a)
under the Securities Act of 1933, as amended (the "Securities Act"), are
eligible to purchase these shares. The shares of Common Stock are being
offered to enable the Company to satisfy one of the conditions precedent to
consummating the StrandTek Transaction described in "Note 4 - Proposed
StrandTek Transaction". The shares being offered in the private placement
have not been registered under the Securities Act but such investors are
being granted registration rights pursuant to which the Company must file a
registration statement covering the shares sold in the placement with the
SEC within sixty days of closing the StrandTek Transaction. The private
placement is being made pursuant to the exemption provided by Section 4(2)
of the Securities Act and certain rules and regulations promulgated under
that section. The securities sold in the private placement may not be
resold in absence of such registration or an applicable exemption from
registration.
(b) 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 79,000 shares of common
stock are reserved for issuance upon exercise of outstanding warrants as of
March 31, 2002 at prices ranging from $3.20 to $27.50 and expiring through
October 2004.
NOTE 10 STOCKHOLDERS' EQUITY. (Continued)
(c) Stock Options Plans:
The Company has two stock option plans The 1998 Employee Incentive Stock
Option Plan and The 1992 Stock Option Plan. 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.
Information with respect to options under the 1992 and 1998 Stock Option
Plans is summarized as follows:
For the Three Months Ended For the Three Months Ended
March 31, 2002 March 31, 2001
Shares Price Shares Prices
Outstanding at beginning
of period 301,500 $0.41 to $1.94 403,000 $0.31 to $1.94
Granted - -
Expired - -
Cancelled ------ -------
Outstanding at end
of period 301,500 $0.41 to $1.94 403,000 $0.31 to $1.94
======= =======
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. Financial Accounting Standards Board Interpretation No. 44 is an
interpretation of APB Opinion No. 25 and SFAS No. 123, which requires that
effective July 1, 2000 all options issued to non-employees after January 12,
2000, be accounted for under the rules of SFAS No. 123. Options granted to
non-employees after December 15, 1998 through January 12, 2000 are also required
to follow SFAS No. 123 prospectively from July 1, 2000. The effect of the
adoption of the Interpretation was a charge to operations in 2000 of $2,667 and
an increase in additional paid in capital in the same amount.
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,
$1.00 per share in September 1999, and $1.94 in June 2000, 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 $14,531 and $77,229 for the three months
ended March 31, 2002 and 2001 respectively, as calculated by the Black-Scholes
option pricing model.
As such, pro-forma net loss and loss per share would be as follows:
For the Three For the Three
Months Ended Months Ended
March 31, 2002 March 31, 2001
Net loss as reported $(341,763) $652,777)
Additional compensation (14,531) 77,229)
---------- ----------
Adjusted net loss $(356,294) $(730,006)
========== ==========
Loss per share as reported $ (0.02) $ (0.03)
========== ==========
Adjusted loss per share $ (0.02) $ (0.03)
========== ==========
NOTE 11 INDUSTRY AND GEOGRAPHICAL SEGMENTAL INFORMATION
The Company is engaged in the sale of extended warranties and service
contracts over the Internet. The Company's operations are currently conducted
entirely in the United States. The Company is authorized to sell its automotive
extended warranties and service contracts in 37 states, its home extended
warranties and service contracts in 49 states and its other products in 43
states.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q and the documents incorporated herein contain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. When used in this
Quarterly Report, statements that are not statements of current or historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "plan", "intend" "may," "will," "expect," "believe",
"could," "anticipate," "estimate," or "continue" or similar expressions or other
variations or comparable terminology are intended to identify such
forward-looking statements. In particular, any statements relating to whether
the StrandTek Transaction will be consummated is a forward-looking statement.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. Except as required by law,
the Company undertakes no obligation to update any forward-looking statements,
whether as a result of new information, future events or otherwise.
GENERAL
During the first half of fiscal 2001 management became concerned by the slow
progress being made by its warrantysuperstore.com business. Accordingly,
alternative strategies for the Company were evaluated by the Board of Directors,
including the acquisition of new business operations. As a result on January 7,
2002 the Company entered into the StrandTek Transaction as previously reported.
The transaction is expected to close during May 2002 but is contingent upon
certain closing conditions, including the Company obtaining financing via its
equity private placement. There can be no assurance given however that the
financing can be satisfied on terms reasonably acceptable to the parties or that
the other financial, legal and business conditions can be met or that a
transaction can be consummated.
While no decision has been made about the future of the warranty and service
contract business, the Company has determined not to continue to promote the
business by incurring additional advertising expense or by other business
development initiatives. It is anticipated that the Board of Directors will
consider the contraction, sale or termination of the warranty and service
contract business if the StrandTek Transaction is consummated. There can be no
assurance that the Company will be able to complete the sale of such business,
if a decision to sell is made, on terms favorable to the Company or at all.
RESULTS OF OPERATIONS
The Company recognizes revenue from its warranty service contracts business over
the life of contracts executed. Additionally, the Company amortizes the
insurance premium expense and third party claims fees evenly over the life of
these contracts.
Three Months Ended March 31, 2002 Compared To Three Months Ended March 31, 2001.
The Company generated recognized revenues from the sale of extended warranties
and service contracts via the Internet of $25,000 for the three months ended
March 31, 2002 (three months ended March 31, 2001: $11,000). The revenues
generated in the quarter were derived almost entirely from revenues deferred
over the life of contracts sold in prior periods. Similarly, direct costs
incurred in the period relate to costs previously deferred over the life of such
contracts.
General, selling and administration expenses decreased 12.0% to $371,000 for the
three months ended March 31, 2002 as compared to $442,000 for the three months
ended March 31, 2001. Increased professional fees ($106,000) and travel and
subsistence ($20,000) incurred primarily in connection with the StrandTek
Transaction being offset by lower costs in payroll ($50,000), advertising
($67,000), technology ($28,000) and depreciation ($31,000). The cost reductions
are due to the Company focusing on strategic partnerships and endeavoring to
minimize costs while the strategic future direction of the Company is
determined.
Interest income increased by $10,000 in the three months ended March 31, 2002 as
compared to the corresponding period in 2001, interest income from the StrandTek
loans more than offsetting the lower interest income from investment in
marketable securities.
For the reasons cited above, net loss for the three months ended March 31, 2002
decreased by 15.0% to $342,000 from the comparable loss of $402,000 for the
three months ended March 2001.
LIQUIDITY AND CAPITAL RESOURCES
The following chart represents the net funds provided by or used in operating,
financing and investment activities for each period as indicated:
Three Months Ended
March 31, 2002 March 31, 2001
Cash used in
Operating Activities $ (256,136) $(363,154)
Cash provided by
Investing Activities 252,240 328,145
Cash used in
Financing activities (5,352) (5,026)
The Company incurred a net loss $341,763 for the three months ended March 31,
2002. Such losses adjusted for non-cash items such as depreciation and
amortization charges $8,936, deferred revenues (net of deferred acquisition
costs) ($6,726), preferred stock dividend accrual $11,921 and other non cash
credits totaling $814 resulted in cash used in continuing operations totaling
$256,136 for the three months ended March 31, 2001, net of working capital
movements.
To meet its cash requirements during the three months ended March 31, 2002 the
Company relied on the proceeds of sale of the marketable securities held at
December 31, 2001 ($1,503,374).
The Company has no contracted capital expenditure commitments in place. As of
March 31, 2002 the Company had cash balances totaling $42,020. The Company will
rely on its cash reserves and short-term loans to fund its operations pending
completion of the StrandTek Transaction or the acquisition of other profitable
operations. Additionally, should the StrandTek Transaction not be completed, the
Company anticipates having available to it the proceeds of repayment of the
short-term loans advanced to StrandTek during the quarter ended March 31, 2002
in the sum of $1,250,000 which is due 45 days after termination of any
transaction.
INFLATION
The Company does not believe that its operations have been materially influenced
by inflation for the three months ended March 31, 2002, a situation which is
expected to continue for the foreseeable future.
CORNICHE GROUP INCORPORATED
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Form 8-K dated January 7, 2002, reporting that the Company had entered into
a Stock Contribution Exchange Agreement and a Supplemental Disclosure Agreement
(the "Agreements") with StrandTek International, Inc., a Delaware corporation
("StrandTek"), certain of StrandTek's principal shareholders and certain
non-shareholder loan holders of StrandTek. After the consummation of the
transactions contemplated by the Agreements, StrandTek will become a majority
owned subsidiary ofthe Company and the former shareholders of StrandTek will
control the Company.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORNICHE GROUP INCORPORATED (Registrant)
By: /s/ James J. Fyfe
James J. Fyfe, Director
Date: May 17, 2002