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 SEPTEMBER 30, 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: 864 963 8718
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 --
22,397,335 SHARES, $.001 PAR VALUE, AS OF OCTOBER 18, 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
Page No. Part I - Financial Information:
Item 1. Financial Statements (Unaudited):
Balance Sheets At September 30, 2002 and
December 31, 2001 3
Statements of Operations For the three and nine months
ended September 30, 2002 and 2001 4
Statement of Stockholders' Equity (Deficit) for
the nine months ended September 30, 2002 5
Statements of Cash Flows for the nine months
ended September 30, 2002 and 2001 6
Notes to Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of 11-12 Operations
Part II - Other Information:
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K. 13
Signatures 13
CORNICHE GROUP INCORPORATED
BALANCE SHEETS
(Unaudited)
ASSETS
September 30, December 31,
2002 2001
Current assets:
$ 50,043 $ 51,268
Cash and equivalents
Marketable securities - 1,503,374
Notes receivable 1,250,000 -
Prepaid expenses and other current assets 53,837 19,734
Total current assets 1,353,880 1,574,376
Property and equipment, net - 74,159
Deferred acquisition costs 137,100 183,579
Other assets 4,175 4,175
$ 1,495,155 $ 1,836,289
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Dividends payable - preferred stock $ 373,590 $ 337,827
Accounts payable 266,884 47,533
Accrued liabilities 155,731 83,084
Stockholder advances 106,000 -
Notes payable 125,000 -
Current portion of long-term debt 22,108 21,051
Total current liabilities 1,049,313 489,495
Unearned revenues 193,723 259,779
Long-term debt 15,347 32,108
Series A convertible preferred stock:
$0.07 convertible preferred stock;
liquidation
value, $1.00 per share; authorized,
1,000,000
shares; outstanding, 681,174 shares 681,174 681,174
Stockholders' equity (deficit):
Preferred stock - authorized - 5,000,000
shares
Series B convertible preferred stock,
$0.01 par value, authorized - 825,000
shares - outstanding 10,000 shares at
September 30, 2002 and 20,000 shares at
December 31, 2001 100 200
Common stock, $.001 par value, authorized -
75,000,000 shares, issued and outstanding
-
22,397,335 shares at September 30, 2002
and
22,290,710 shares at December 31, 2001 22,398 22,291
Additional paid-in capital 8,838,747 8,837,687
Accumulated deficit (9,305,647) (8,486,445)
Total stockholders' equity (deficit) (444,402) 373,733
$ 1,495,155 $ 1,836,289
See accompanying notes to financial statements
CORNICHE GROUP INCORPORATED
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
2002 2001 2002 2001
Earned revenues $ 19,986 $ 32,866 $ 62,825 $ 65,090
Direct costs (14,177) (31,147) (47,241) (52,871)
Gross profit 5,809 1,719 15,584 12,219
Selling, general and administrative
Expenses (230,770) (387,360) (807,731) (1,168,848)
Operating loss (224,961) (385,641) (792,147) (1,156,629)
Other income (expense):
Realized loss on
marketable securities (3,490)
Interest income - - 70,672 -
7,534 25,153 82,308
Interest expense (1,614) (1,472) (3,742) (4,905)
Property and equipment impairment
charge - - (54,732) -
_____5,920 23,681 8,708 77,403
Loss before discontinued operations
and preferred dividend (219,041) (361,960) (783,439) (1,079,226)
Discontinued Operations:
Income from Operations - - - 237,898
Loss on Disposal - - - (479,244)
(241,346)
Net Loss (219,041) (361,960) (783,439) (1,320,572)
Preferred dividend (11,921) (11,921) (35,763) (35,763)
Net loss attributable to common $=========== $=========== $============ ===========
stockholders (230,962) (373,881) (819,202) $(1,356,335)
Basic earnings per share:
Loss before discontinued operations
and preferred dividends $ (0.01) $ (0.02) $ (0.04) $ (0.05)
Loss from discontinued operations - - - (0.01)
Net Loss $ (0.01) $ (0.02) $ (0.04) $ (0.06)
Weighted average
common shares outstanding 22,395,960 22,282,209 22,327,055 22,282,209
See accompanying notes to financial statements.
CORNICHE GROUP INCORPORATED
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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 - - 6,625 7 1,060 - 1,067
Series A Convertible
Stock dividends - - - - - (35,763) (35,763)
Conversion of series B
convertible preferred stock
into common stock (10,000) (100) 100,000 100 -
Net loss - - - - - (783,439) (783,439)
____________
Balance - September 30, 2002 10,000 $ 100 22,397,335 $ 22,398 $8,838,747 $(9,305,647) $ (444,402)
See accompanying notes to financial statements.
CORNICHE GROUP INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine
Months Ended
September 30,
2002 2001
Cash flows from operating activities:
Net loss $ (783,439) $(1,320,572)
Adjustments to reconcile net loss to net
cash used in operating activities:
Loss from discontinued operations - 241,346
Issuance of common stock for services rendered 1,067 3,439
Depreciation and amortization 16,766 116,995
Property and equipment impairment charge 54,732 -
Unearned revenues (66,056) 151,384
Deferred acquisition costs 46,479 (110,238)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (34,103) 12,491
Accounts payable 219,351 -
Accrued liabilities 72,647 (38,375)
Net cash used in operating activities (472,556) (943,570)
Cash flows from investing activities:
Marketable securities 1,503,374 634,619
Notes receivable (1,250,000) -
Proceeds of sale of subsidiary - 372,000
Proceeds of sale of property and equipment 3,795 -
Acquisition of property and equipment (1,134) (9,061)
Net cash provided by investing activities 256,035 997,558
Cash flows from financing activities:
Payment of capital lease obligations (343) -
Stockholder advances 106,000 -
Notes payable net of repayments 109,639 (15,677)
Net cash provided by (used in) financing
activities 215,296 (15,677)
Net increase (decrease) in cash and cash
equivalents (1,225) 38,311
Cash and cash equivalents at beginning of period 51,268 85,604
Cash and cash equivalents at end of period $ 50,043 $ 123,915
Supplemental Disclosure of Cash Flow Information:
$ 3,023 $ 4,905
Interest paid
Supplemental Schedules of Non-cash Financing
Activities:
Net accrual of dividends on Series A Preferred $35,763 $ 35,763
Stock
Issuance of common stock to directors for $1,067 $ 3,439
services
See accompanying notes to financial statements.
CORNICHE GROUP INCORPORATED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1 THE COMPANY.
Corniche Group Incorporated (the "Company") through June 30, 2002 was 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. Effective June 30,
2002 the Company became inactive. The Company offered its products and services
in the United States in approximately 37 states for automotive service contracts
and most states for other product categories. While the Company managed most
functions relating to its extended warranty and service contracts, it did not
bear the economic risk to repair or replace products nor did it administer the
claims function.
NOTE 2 BASIS OF PRESENTATION.
The accompanying unaudited financial statements have been prepared in
accordance with U. S. 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 U. S. generally accepted accounting principles for
complete financial statements. In the opinion of management, the financial
statements contain all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the financial position as of September 30,
2002, the results of operations for the three and nine months ended September
30, 2002 and 2001 and the cash flows for the nine months ended September 30,
2002 and 2001. The results of operations for the three and nine months ended
September 30, 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 nine
months ended September 30, 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. Consummation of the
StrandTek Transaction was conditioned upon a number of closing conditions,
including the Company obtaining financing via an equity private placement, which
ultimately could not be met and as a result, the Agreements were formally
terminated by the Company and StrandTek in June 2002.
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 as discontinued operations for the
three and nine months ended September 30, 2001.
NOTE 6 NOTES RECEIVABLE.
In January 2002, the Company advanced to 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 were due on
July 31, 2002 following termination of the Agreements (as discussed in Note 4)
in June 2002. StrandTek failed to pay the notes on the due date and the Company
commenced legal proceedings against StrandTek and the guarantors immediately
thereafter to recover the principal, accrued interest and costs of recovery. The
Company ceased accruing interest July 31, 2002. Subsequent to July 31, 2002, the
notes accrue interest at the default rate of 12% per annum.
NOTE 7 PROPERTY AND EQUIPMENT.
Property and equipment consists of the following:
September 30, December 31,
2002 2001
Computer equipment $ - $ 131,014
Furniture and fixtures - 23,829
Equipment under capital lease - 17,806
Computer software 602,014 602,014
602,014 774,663
Less: Accumulated depreciation (602,014) (700,504)
$ - $ 74,159
Depreciation and amortization charged to operations was $0 and $16,766 for
the three and nine months ended September 30, 2002, respectively. An impairment
charge of $54,732 was recorded in June of 2002 to record property and equipment
at its net realizable value. All property and equipment, excluding computer
software, was sold in July 2002.
NOTE 8 NOTES PAYABLE.
During the quarter ended September 30, 2002, the Company entered into
various note payable agreements totaling $125,000. Interest on the notes is
accrued at 15% and the principal, together with accrued interest, is payable in
one installment 60 days from the effective date of the note. The note payable
agreements include a default clause, which states that if payment is not made
upon maturity the lenders have the option to purchase a predetermined number of
shares at a set price. The lenders can exercise this option on the last day of
each successive 30-day period until the note is paid in full.
NOTE 9 LONG-TERM DEBT.
Long-term debt consists of the following at September 30, 2002 and December
31, 2001:
September 30, 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. 37,455 52,816
37,455 53,159
Less current maturities 22,108 21,051
$ 15,347 $32,108
NOTE 10 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 September 30,
2002 and December 31, 2001, 681,174 shares of Series A Preferred Stock were
outstanding.
NOTE 10 SERIES "A" CONVERTIBLE REDEEMABLE PREFERRED STOCK - (continued).
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"). The Redemption, among
other financial, legal and business conditions, was a condition precedent to the
closing of the StrandTek Transaction. Similarly, completion of the Redemption
was subject to closing the StrandTek Transaction. Upon termination of the
StrandTek Transaction, the Company rescinded the Notice of Redemption.
NOTE 11 STOCKHOLDERS' EQUITY.
(a) Common Stock:
During the nine months ended September 30, 2002, the Company issued 6,625
shares of its common stock whose fair value was $1,067 to its board members
for director's fees.
(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 44,000 shares of common
stock are reserved for issuance upon exercise of outstanding warrants as of
September 30, 2002 at prices ranging from $3.20 to $8.10 and expiring
through October 2004.
(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 Nine Months Ended For the Nine Months Ended
September 30, 2002 September 30, 2001
Shares Prices Shares Prices
Outstanding at beginning
of period 301,500 $0.41 to 403,000 $0.31 to
$1.94 $1.94
Granted - -
Expired (201,500) $0.41 to (101,500) $0.31 to
$1.10 $1.94
Cancelled
Outstanding at end ______-__ -
of period 100,000 $1.94 301,500 $0.41 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.
NOTE 11 STOCKHOLDERS' EQUITY, (continued).
(c) Stock Options Plans (continued)
Assuming the fair market value of the stock at the date of grant to be
$.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 $43,593 for the three and nine
months ended September 30, 2002 and $(400) and $59,129 for the three and
nine months ended September 30, 2001, 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 For the Nine For the Nine
Months Ended Months Ended Months Ended Months Ended
Sept 30, 2002 Sept 30, 2001 Sept 30, 2002 Sept 30, 2001
Net loss as reported $ (230,962) $ (373,881) $ (819,202) $ (1,356,335)
Additional compensation (14,531) 400 (43,593) (59,129)
Adjusted net loss $ (245,493) $ (373,481) $ (862,795) $(1,415,464)
Net loss per share as
reported $ (0.01) $ (0.02) $ (0.04) $ (0.06)
Adjusted net loss per
share $ (0.01) $ (0.02) $ (0.04) $ (0.06)
NOTE 12 INDUSTRY AND GEOGRAPHICAL SEGMENTAL INFORMATION.
The Company was engaged in the sale of extended warranties and service
contracts over the Internet. The Company's operations were conducted entirely in
the United States. The Company was 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.
NOTE 13 COMMITMENTS AND CONTINGENCIES.
As discussed in Note 6, the Note Receivable was in default at July 31, 2002
and the Company has commenced collection proceedings. The Company ceased
accruing interest July 31, 2002. Management intends to vigorously pursue the
collection of all amounts due from the borrowers and has commenced legal
actions. The borrowers have filed counter claims disputing the validity of the
amounts owed and is seeking unspecified damages. There can be no assurances that
the Company will prevail on its claim.
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. 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 was expected to close during May 2002 but was contingent upon
certain closing conditions, including the Company obtaining financing via an
equity private placement. The closing conditions were not met and in June 2002,
the Agreements were terminated by written agreement between the parties. In June
2002, management determined, in light of continuing operating losses, to
discontinue its warranty and service contract business and to seek new business
opportunities for the Company.
NEW BUSINESS OPPORTUNITIES
Management has been exploring new business opportunities for the Company
and is currently in discussion with an experienced management group with a view
to taking the Company into the Biotech and/or medical sectors. A strategic plan
is currently being developed by this management group, which may lead to the
Company investing in Biotech and/or medical companies or becoming engaged in the
business of developing and marketing one or more late stage proprietary drugs or
medical devices. The management group may identify and acquire an existing
company owning a drug or medical device that has been developed to late stage
but is not yet available to the public. Alternatively, the ultimate strategic
plan may be to acquire rights to such drugs or medical devices rather than
acquiring their proprietors. In either case, the Company will need to recruit
management, sales and technical personnel, incur development and marketing
expenditures and locate an appropriate distribution network. Accordingly, it
will be necessary for the Company to raise new capital in a Common Stock,
preferred stock or debt offering. There can be no assurance that the Company
will be able to acquire such new business or raise new capital or that the terms
will be favorable to the Company.
RESULTS OF CONTINUING 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 September 30, 2002 Compared To Three Months Ended September
30, 2001.
The Company generated recognized revenues from the sale of extended
warranties and service contracts via the Internet of $20,000 for the three
months ended September 30, 2002 (three months ended September 30, 2001:
$33,000). The revenues generated in the quarter were derived 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.
Selling, general and administration expenses decreased 40.2% to $231,000
for the three months ended September 30, 2002 as compared to $387,000 for the
three months ended September 30, 2001. Costs generally were significantly lower
as the Company wound down its operations and closed its office facilities in
Texas in July 2002. One time employee termination and general closure costs
totaling $143,000 were incurred in the quarter.
Interest income decreased by $18,000 in the three months ended September
30, 2002 as compared to the corresponding period in 2001. Interest income from
the StrandTek loans, accrued through July 31, 2002, was less than the interest
income earned from investments in marketable securities in the prior year.
For the reasons cited above, loss before discontinued operations and
preferred dividends for the three months ended September 30, 2002 decreased by
39.5% to $219,000 from the comparable loss of $362,000 for the three months
ended September 2001.
Nine Months Ended September 30, 2002 Compared To Nine Months Ended September 30,
2001.
The Company generated recognized revenues from the sale of extended
warranties and service contracts via the Internet of $63,000 for the nine months
ended September 30, 2002 (nine months ended September 30, 2001: $65,000). The
revenues generated in the period 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.
Selling, general and administration expenses decreased 30.9% to $808,000
for the nine months ended September 30, 2002 as compared to $1,169,000 for the
nine months ended September 30, 2001. The cost reductions generally are due to
the Company focusing on minimizing costs while the strategic future direction of
the Company was determined. As described above, selling, general and
administration expenses in the third quarter of the period were significantly
lower, although one time employee termination and general closure costs totaling
$143,000 were incurred in the nine months ended September 30, 2002. Year on year
decreases in expenses were primarily payroll costs $190,000, advertising
$104,000, technology $124,000 and depreciation $100,000.
Interest income decreased by $18,000 in the nine months ended September 30,
2002 as compared to the corresponding period in 2001, interest income from the
StrandTek loans being lower than the interest income received from investments
in marketable securities in the nine months ended September 30, 2001.
An impairment charge of $55,000 was recorded in June 2002 to adjust
property and equipment to its net realizable value.
For the reasons cited above, loss before discontinued operations and
preferred dividends for the nine months ended September 30, 2002 decreased by
27.4% to $783,000 from the comparable loss of $1,079,000 for the nine months
ended September 30, 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:
Nine Months Ended Sept 30, 2002 Sept 30, 2001 Cash used in Operating Activities
$(472,556) $ (943,570)
Cash provided by
Investing Activities 256,035 997,558
Cash provided by (used in)
Financing activities 215,296 (15,677)
The Company incurred a net loss of $783,439 before preferred stock
dividends of $35,763 for the nine months ended September 30, 2002. Such losses
adjusted for non-cash items such as depreciation, amortization and impairment
charges of $71,498, deferred revenues (net of deferred acquisition costs) of
($19,577) and other non cash credits totaling $1,067 resulted in cash used in
continuing operations totaling $472,556 for the nine months ended September 30,
2002, net of working capital movements.
To meet its cash requirements during the nine months ended September 30,
2002 the Company relied on the proceeds of sale of the marketable securities
held at December 31, 2001 ($1,503,374) and short term borrowings of $231,000.
The Company has no contracted capital expenditure commitments in place. As
of September 30, 2002, the Company had cash balances totaling $50,043. The
Company will rely on its cash reserves and short-term loans to fund its
operating commitments pending establishment or acquisition of new profitable
operations. Additionally, 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 plus accrued interest of
approximately $100,000.
INFLATION
The Company does not believe that its operations have been materially
influenced by inflation for the nine months ended September 30, 2002, a
situation which is expected to continue for the foreseeable future.
CORNICHE GROUP INCORPORATED
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As discussed in Notes 6 and 13 of the accompanying notes to the financial
statements, StrandTek defaulted on the payment of $1,250,000 plus accrued
interest due to the Company on July 31, 2002. The Company ceased accruing
interest as of July 31, 2002 for financial statement purposes. As a result, on
August 6, 2002, the Company filed a complaint in the Superior Court of New
Jersey entitled Corniche Group Incorporated v StrandTek International, Inc., a
Delaware corporation, StrandTek International, Inc., a Florida corporation,
David M. Veltman, William G. Buckles Jr., Jerome Bauman and Jan Arnett. The
complaint seeks recovery of the $1,250,000 loan, plus interest, costs and fees,
and seeks recovery against the individual defendants pursuant to their partial
guarantees. The Company has moved for partial summary judgment with respect to
certain aspects of its complaint. The defendants filed an answer and
counterclaim on November 1, 2002 disputing the validity of the amounts owed and
seeking unspecified damages for, among other things, failure to obtain the
financing that was a condition precedent to the transaction. The Company
believes that the defenses are meritless and intends to vigorously pursue its
claims against StrandTek and the guarantors. The case has just commenced, no
discovery has taken place as yet, and there can be no assurances that the
Company will prevail in its claims.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
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: November 19, 2002
CERTIFICATION
I, James Fyfe, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Corniche Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 19, 2002
/s/James Fyfe
- -----------------------
Name: James Fyfe
Title: Chief Executive Officer of Corniche Group, Inc.
EXHIBIT 99
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Corniche Group, Inc. (the
"Company") on Form 10-Q for the quarter ended September 30, 2002 filed with the
Securities and Exchange Commission (the "Report"), I, James Fyfe, President and
Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the consolidated financial condition of the Company as of the
dates presented and the consolidated result of operations of the Company
for the periods presented.
Dated: November __, 2002
_________________________________
James Fyfe
Chief Executive Officer
of Corniche Group, Inc.
This certification has been furnished solely pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.