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 JUNE 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
610 SOUTH INDUSTRIAL BLVD., SUITE 220 EULESS, TEXAS 76040
(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 ---
22,295,960 SHARES, $.001 PAR VALUE, AS OF AUGUST 23, 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 June 30, 2002 and December 31, 2001 3
Statements of Operations
For the three and six months
ended June 30, 2002 and 2001 4
Statement of Stockholders' Equity (Deficit)
for the six months ended June 30, 2002 5
Statements of Cash Flows
for the six months ended June 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
June 30, December 31,
2002 2001
----------- ---------
Current assets:
Cash and equivalents $ 8,672 $ 51,268
Marketable securities - 1,503,374
Notes receivable 1,250,000 -
Prepaid expenses and other current assets 45,536 19,734
------------ ------------
Total current assets 1,304,208 1,574,376
Property and equipment, net 3,795 74,159
Deferred acquisition costs 151,071 183,579
Other assets 4,175 4,175
----------- ------------
$ 1,463,249 $1,836,289
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Dividends payable - preferred stock $ 361,669 $ 337,827
Accounts payable 259,327 47,533
Accrued liabilities 37,191 83,084
Stockholder advances 81,000 -
Current portion of long-term debt 21,631 21,051
----------- ------------
Total current liabilities 760,818 489,495
Unearned revenues 213,709 259,779
Long-term debt 21,056 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 20,000 shares 200 200
Common stock, $.001 par value, authorized -
75,000,000 shares, issued and outstanding -
22,295,960 shares at June 30, 2002 and
22,290,710 shares at December 31, 2001 22,296 22,291
Additional paid-in capital 8,838,681 8,837,687
Accumulated deficit (9,074,685) (8,486,445)
----------- -----------
Total stockholders' equity (deficit) (213,508) 373,733
------------ -----------
$ 1,463,249 $ 1,836,289
=========== ===========
See accompanying notes to financial statements
CORNICHE GROUP INCORPORATED
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2002 2001 2002 2001
-------------- -------------- -------------- ---------
Earned revenues $ 18,287 $ 20,767 $ 42,839 $ 32,224
Direct costs (13,694) (14,309) (33,064) (21,724)
------------ ------------ ------------ ------------
Gross profit 4,593 6,458 9,775 10,500
Selling, general and administrative
Expenses (205,526) (359,312) (576,961) (781,488)
------------ ------------ ------------ ------------
Operating loss (200,933) (352,854) (567,186) (770,988)
Other income (expense):
Realized loss on
marketable securities - - (3,490) -
Interest income 22,118 26,198 63,138 57,155
Interest expense (1,009) (259) (2,128) (3,433)
Property and equipment impairment ------------ ------------ ------------ ------------
charge 54,732) - (54,732) -
(33,623) 25,939 2,788 53,722
------------ ------------ ------------ ------------
Loss before discontinued operations
and preferred dividend (234,556) (326,915) (564,398) (717,266)
Discontinued Operations:
Income from Operations - 56,546 - 237,898
Loss on Disposal - (47,387) - (479,244)
----------- ------------ ----------- ------------
- 9,159 - (241,346)
----------- ------------ - ------------
Net Loss (234,556) (317,756) (564,398) (958,612)
Preferred dividend (11,921) (11,921) (23,842) (23,842)
------------ ------------ ------------ ------------
Net loss attributable to common
stockholders $(246,477) $ (329,677) $ (588,240) $ (982,454)
============ ============ ============ ===========
Basic earnings per share
Loss before discontinued operations
and preferred dividends $ (0.01) $ (0.01) $ (0.03) $ (0.03)
-------------- -------------- -------------- --------------
Loss from discontinued operations - - - (0.01)
------------- ------------- ------------- --------------
Net Loss $ (0.01) $ (0.01) $ (0.03) $ (0.04)
============== ============== ============== ==============
Weighted average
common shares outstanding 22,293,335 22,280,879 22,292,015 22,280,879
=============== ============== ============== ==============
See accompanying notes to financial statements.
CORNICHE GROUP INCORPORATED
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 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 - - 5,250 5 994 - 999
Series A Convertible
Stock dividends - - - - - (23,842) (23,842)
Net loss - - - - - (564,398) (564,398)
Balance - June 30, 2002 20,000 $ 200 22,295,960 $ 22,296 $8,838,681 $ (9,074,685) $ (213,508)
====== ===== ========== ======== ========== ============= ============
See accompanying notes to financial statements.
CORNICHE GROUP INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six
Months Ended
June 30,
2002 2001
------------- ---------
Cash flows from operating activities:
Net loss $ (564,398) $ (958,612)
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 999 1,864
Depreciation and amortization 16,766 77,633
Property and equipment impairment charge 54,732 -
Unearned revenues (46,070) 124,230
Deferred acquisition costs 32,508 (92,334)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (25,802) 35,582
Accounts payable 211,794 -
Accrued liabilities (45,893) (49,352)
------------- -------------
Net cash used in operating activities (365,364) (619,643)
Cash flows from investing activities:
Marketable securities 1,503,374 624,140
Notes receivable (1,250,000) -
Acquisition of property and equipment (1,134) (4,341)
---------- ---------
Net cash provided by investing activities 252,240 619,799
Cash flows from financing activities:
Payment of capital lease obligations (343) -
Stockholder advances 81,000 -
Net repayment of notes payable (10,129) (10,445)
------------ ---------
Net cash provided by (used in) financing
activities 70,528 (10,445)
------------ ----------
Net increase (decrease) in cash and cash
equivalents (42,596) (10,289)
Cash and cash equivalents at beginning of period 51,268 85,604
----------- ---------
Cash and cash equivalents at end of period $ 8,672 $ 75,315
========== ==========
Supplemental Disclosure of Cash Flow Information:
Interest paid $ 1,009 3,433
========== ===========
Supplemental Schedules of Non-cash Financing
Activities:
Net accrual of dividends on Series A Preferred $ 23,842 $ 23,842
Stock ========== ===========
Issuance of common stock to directors for $ 999 $ 1,864
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 June 30,
2002, the results of operations for the three and six months ended June 30, 2002
and 2001 and the cash flows for the six months ended June 30, 2002 and 2001. The
results of operations for the three and six months ended June 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 six
months ended June 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 six months ended June 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:
June 30, 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 (772,002) (700,504)
---------- ----------
$ 3,795 $ 74,159
-======== ---========
Depreciation and amortization charged to operations was $7,831 and $16,766
for the three and six months ended June 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.
NOTE 8 LONG-TERM DEBT.
Long-term debt consists of the following at June 30, 2002 and December 31,
2001:
June 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. 42,687 52,816
----------- -------
42,687 53,159
Less current maturities 21,631 21,051
----------- -------
$ 21,056 $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 June 30, 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"). 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 10 STOCKHOLDERS' EQUITY.
(a) Common Stock:
During the six months ended June 30, 2002, the Company issued 5,250 shares
of its common stock whose fair value was $999 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 79,000 shares of common
stock are reserved for issuance upon exercise of outstanding warrants as of
June 30, 2002 at prices ranging from $3.20 to $27.50 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 Six Months Ended For the Six Months Ended
June 30, 2002 June 30, 2001
Shares Prices Shares Prices
Outstanding at beginning
of period 301,500 $0.41 to $1.94 403,000 $0.31 to $1.94
Granted - -
Expired (1,500) $0.41 (1,500) $0.31
Cancelled - -
Outstanding at end -------- ----------
of period 300,000 $0.69 to $1.94 401,500 $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.
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 $29,062 for the three and six
months ended June 30, 2002 and $10,863 and $30,898 for the three and six
months ended June 30, 2001, as calculated by the Black-Scholes option
pricing model.
NOTE 10 STOCKHOLDERS' EQUITY (continued).
(c) Stock Options Plans (continued)
As such, pro-forma net loss and loss per share would be as follows:
For the Three For the Three For the Six For the Six
Months Ended Months Ended Months Ended Months Ended
June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001
-------------- -------------- -------------- --------------
Net loss as reported $ (234,556) $ (317,756) $ (564,398) $ (958,612)
Additional compensation (14,531) (10,863) (29,062) (59,529)
----------- ----------- ----------- -----------
Adjusted net loss $ (249,087) $ (338,619) $ (593,460) $(1,018,141)
========== ========== ========== ===========
Net loss per share as
reported $ (0.01) $ (0.01) $ (0.03) $ (0.04)
=========== ========== =========== ==========
Adjusted net loss per
share $ (0.01) $ (0.01) $ (0.03) $ (0.05)
=========== =========== =========== ==========
NOTE 11 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 12 SUBSEQUENT EVENTS.
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.
The Company has negotiated a settlement with its former president under his
employment agreement. There can be no assurance the settlement will be
finalized. The settlement is not significant to the financial statements.
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. There can be no assurance that the Company will
be able to acquire such new business 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 June 30, 2002 Compared To Three Months Ended June 30, 2001.
The Company generated recognized revenues from the sale of extended warranties
and service contracts via the Internet of $18,000 for the three months ended
June 30, 2002 (three months ended June 30, 2001: $21,000). 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 42.6% to $206,000 for the
three months ended June 30, 2002 as compared to $359,000 for the three months
ended June 30, 2001. Costs generally were lower, in particular payroll ($70,000)
and technology ($49,000) due to the Company focusing on minimizing costs while
the future direction of the Company is determined.
Interest income decreased by $4,000 in the three months ended June 30, 2002 as
compared to the corresponding period in 2001. Interest income from the StrandTek
loans was less than the interest income earned from investments in marketable
securities in the prior year.
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 three months ended June 30, 2002 decreased by 28.3% to
$235,000 from the comparable loss of $327,000 for the three months ended June
2001.
Six Months Ended June 30, 2002 Compared To Six Months Ended June 30, 2001.
The Company generated recognized revenues from the sale of extended warranties
and service contracts via the Internet of $43,000 for the six months ended June
30, 2002 (six months ended June 30, 2001: $32,000). 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 26.1% to $577,000 for the
six months ended June 30, 2002 as compared to $781,000 for the six months ended
June 30, 2001. Increased professional fees ($93,000) and travel and subsistence
($26,000) incurred primarily in connection with the StrandTek Transaction being
offset by lower costs in payroll ($116,000), advertising ($83,000), technology
($77,000) and depreciation and amortization ($61,000). The cost reductions
generally are due to the Company focusing on minimizing costs while the
strategic future direction of the Company is determined.
Interest income increased by $6,000 in the six months ended June 30, 2002 as
compared to the corresponding period in 2001, interest income from the StrandTek
loans more than offsetting the lower interest income received from investments
in marketable securities.
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 six months ended June 30, 2002 decreased by 21.3% to $564,000
from the comparable loss of $717,000 for the six months ended June 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:
Six Months Ended
June 30, 2002 June 30, 2001
Cash used in
Operating Activities $(365,364) $ (619,643)
Cash provided by
Investing Activities 252,240 619,799
Cash provided by (used in)
Financing activities 70,528 (10,445)
The Company incurred a net loss attributable to common stockholders of $588,240
for the six months ended June 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 ($13,562), preferred stock
dividend accrual of $23,842 and other non cash credits totaling $999 resulted in
cash used in continuing operations totaling $365,364 for the six months ended
June 30, 2002, net of working capital movements.
To meet its cash requirements during the six months ended June 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 $81,000.
The Company has no contracted capital expenditure commitments in place. As of
June 30, 2002 the Company had cash balances totaling $8,672. 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 six months ended June 30, 2002, a situation which is
expected to continue for the foreseeable future.
CORNICHE GROUP INCORPORATED
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not aware of any material pending legal proceedings or claims
against the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Form 8-K dated June 18, 2002 reporting that the Stock Contribution Exchange
Agreement and Supplemental Disclosure Agreement entered into on January 7, 2002,
as amended by the Company with StrandTek International, Inc., a Delaware
corporation ("StrandTek"), certain of StrandTek's principal shareholders and
certain non-shareholder loan holders of StrandTek had been terminated by the
parties.
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: August 30, 2002