UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 33-23473
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CORDIA CORPORATION
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(Name of small business issuer in its charter)
Nevada 2917728
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
509 Westport Avenue, Norwalk, Connecticut 06851
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (203) 750-1000
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Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure is contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $4,659,218
As of April 1, 2002, the issuer had outstanding 27,454,009 shares of its common
stock.
As of April 1, 2002, the aggregate market value of the issuer's common stock
held by non-affiliates was $8,662,964 (based upon the price at which the common
stock was sold, or the average bid and asked price of such common stock on such
date).
DOCUMENTS INCORPORATED BY REFERENCE
Part Item
1. Proxy Statement for the 2002 Annual Meeting of
Stockholders to be held on April 30, 2002 III 9, 10, 11, 12
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]
ii
Certain statements in this Report and in the documents incorporated by
reference herein constitute "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 our actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Factors that might cause such a
difference include, among others, uncertainties relating to general economic and
business conditions; industry trends; changes in demand for our products and
services; uncertainties relating to customer plans and commitments and the
timing of orders received from customers; announcements or changes in our
pricing policies or those of our competitors; unanticipated delays in the
development, market acceptance or installation of our products and services;
availability of management and other key personnel; availability, terms and
deployment of capital; relationships with third-party equipment suppliers; and
worldwide political stability and economic growth. The words "believe",
"expect", "anticipate", "intend" and "plan" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date the statement
was made.
Part I
Item 1. Description of Business.
Overview
Cordia Corporation is a business services holding company that provides
Internet-enabled outsourcing solutions and services to businesses and
organizations. We have historically focused substantially all of our efforts and
resources on providing outsourced solutions for the insurance industry. During
2001, we began developing outsourced solutions for the telecommunications
industry and expect to begin providing telecommunications services during the
second quarter of 2002.
We believe the growing use by businesses and other organizations of
strategic outsourcing to expert organizations and the rapid global development
and acceptance of Internet-based applications and technology have created
opportunities for us to address the business services needs of certain
industries. Because of specialized expertise often developed by business
services companies and the significant economies of scale that can be achieved
by providing specialized services for a number of customers, we believe
companies that provide outsourced services are often able to deliver such
services at lower costs and with higher quality than their customers can produce
internally. In addition, we believe the rapid growth and acceptance of the
Internet as a global medium for communication, information and commerce has
created a tremendous opportunity to perform business functions more efficiently
and effectively through the utilization of standardized Internet technologies,
databases and applications.
Our strategy is to accelerate our growth and increase our profitability
through the acquisition and internal development of businesses that provide
either industry-specific expert services or specialized business functions. We
plan to utilize internally developed proprietary systems that take advantage of
standardized Internet technologies to enhance both the quality and efficiency of
our services. We believe that properly designed and developed systems and
applications can allow us to leverage the expertise of our employees and to
deliver a superior service to our customers, which should give us a competitive
advantage over expert organizations that seek to provide their services through
traditional means.
Insurance Solutions Group
We operate our insurances services business primarily through ISG
Group, Inc., our wholly-owned subsidiary that conducts business under the name
Insurance Solutions Group ("ISG"). ISG provides comprehensive insurance
solutions to insurance companies, state insurance departments and self-insured
entities in conjunction with Universal Recoveries, Inc., a wholly-owned
subsidiary of ISG doing business as Subrogation Partners ("Subrogation
Partners"); U.L.A.E., Inc., a wholly-owned subsidiary of ISG doing business as
Claim Partners ("Claim Partners"); and US Direct Agency, Inc., doing business as
Premium Partners ("Premium Partners").
Subrogation Partners. Subrogation Partners provides subrogation
services for property and casualty and healthcare insurance providers.
Subrogation services include the identification, investigation and recovery of
accident-related payments made by insurance providers on behalf of other
insureds, but for which other persons or entities are primarily responsible. By
contract and state law, insurance providers are generally entitled to certain
rights with respect to paid claims that may be the primary obligation of other
insurance carriers or parties. These recovery rights include the right of
subrogation, which allows the insurance provider to recover accident-related
claims directly from the responsible party or the responsible party's insurance
carrier.
Subrogation Partners has historically derived the majority of its
revenues from the property and casualty sector of the insurance industry,
primarily from personal and commercial automobile insurance providers. During
2000, Subrogation Partners expanded its services into healthcare-related claims
and entered into an agreement with a large health maintenance organization, or
HMO, to run a pilot program to determine the economic viability of subrogating
accident-related medical payments. During 2001, Subrogation Partners identified
over $1 million of potential recoveries during the pilot program. Based on those
results, Subrogation Partners intends to expand its healthcare-related
recoveries business during 2002. We continue to believe the long-term
opportunities in healthcare-related claims is at least as great as the
opportunities in serving the property and casualty sector.
2
Subrogation Partners actively serves over thirty insurance carriers.
Subrogation Partners earns revenue under written contracts with its customers
that generally provide for the payment of contingency fees upon recoveries.
Subrogation Partners has been able to rapidly grow its revenues over the last
four years. For the Year Ended December 31, 2001, Subrogation Partners had
revenues of approximately $2.6 million, as compared to revenues of approximately
$1.6 million for the nine months ended December 31, 2000, and approximately $1.7
million and $0.6 million for the 1999 and 1998 fiscal years, respectively. Its
gross recoveries for its clients was approximately $8.5 million as compared to
$7.3 million for the nine months ended December 31, 2000, and approximately $5.8
million and $2.3 million for the 1999 and 1998 fiscal years, respectively. Prior
to December 31, 2000, Subrogation Partners' fiscal year ended on March 31. The
1999 and 1998 fiscal years of Subrogation Partners referenced herein relates to
its fiscal years ended March 31, 2000 and 1999, respectively.
We intend to dedicate a significant portion of our resources to the
future growth and development of Subrogation Partners. During 2001, our
technical development group developed and launched an integrated proprietary
subrogation system called SubroAGS that is expected to increase the productivity
of Subrogation Partners' staff of adjusters. Subrogation Partners believes that
SubroAGS will significantly decrease the time period of recovery, which starts
with the analysis and identification of potential recoveries and ends with the
final collections for customers. In addition, Subrogation Partners expects to
utilize SubroAGS to bond electronically with its customers by automating
reporting and data transfer. Subrogation Partners believes these capabilities
will provide it with a competitive advantage, which can be utilized in the
marketing and sales of its services.
Claim Partners. Claim Partners is a claims administrator that provides
claim management solutions to insurance companies. ISG launched Claim Partners
business during 2001 believing that the claims handling expertise developed by
Subrogation Partners personnel can be utilized in the development of a suite of
outsourced claims administration services. Claims Partners intends to build upon
the systems, expertise and industry reputation of Subrogation Partners to build
its business. Claims Partners generated revenues of approximately $1.9 million
for year ended December 31, 2001. Claims Partners did not generate any material
revenues for the year ended December 31, 2000.
Premium Partners. Premium Partners has been focusing primarily on the
development of proprietary technological systems, solutions and processes to
provide outsourced premium generation and administration services through the
integration of call center services, hosted applications and Internet-based
solutions. To date, Premium Partners has focused primarily on the development of
front-end insurance industry applications, such as comparative rating, online
policy application, underwriting and issuance systems. Premium Partners also is
developing outsourced services to assist insurance carriers in the management of
both their agent and direct distribution channels utilizing proprietary hosted
applications that take advantage of universal client technology. Universal
client technology allows ubiquitous access to applications with the use of
industry-standard Internet browsers.
3
RiderPoint, Inc., a subsidiary in which we own an approximately 80%
interest, has been the primary operating entity of our Premium Partners
division. Operating through its wholly owned insurance agency, RP Insurance
Agency, Inc., RiderPoint marketed insurance products through its Riderpoint.com
web site. During 2001, RiderPoint and RP Insurance Agency generated revenues of
approximately $73,000 as compared to revenues of approximately $63,000 in 2000.
Cordia has yet to realize material revenues from RiderPoint and decided to cease
operations of RP Insurance Agency during 2001. We expect to dedicate minimal
resources for future development of our Premium Partners business until
management identifies a tangible opportunity for significant revenues and
profits.
Cordia Communications Corp.
During 2001, we began to focus some of our resources on the development
of telecommunications services. In July 2001, we formed Cordia Communications
Corp. to develop integrated systems designed to support providers of
telecommunications services and to utilize these systems to provide outsourced
services to telecommunications providers. In addition, Cordia Communication
Corp. has begun the process of becoming a licensed provider of local and long
distance services in multiple states. As of April 8, 2002, Cordia Communications
Corp. has received approvals to provide local and long distance
telecommunications services in Florida, New York and Pennsylvania. We believe
recent wholesale price reductions, particularly in New York, have created
significant opportunities to quickly develop a profitable Competitive Local
Exchange Carrier (CLEC) business utilizing a network platform commonly referred
to as unbundled network elements - platform, or UNE-P. We intend to profit from
these developments by providing consulting and outsourced technical services to
CLECs wishing to utilize UNE-P and by developing our own CLEC business in
geographic areas with the potential for high margins.
Our Business Strategy
In recent years, businesses have been increasingly outsourcing non-core
specialized business services. We believe our future development or acquisition
opportunities are likely to be characterized by outsourcing business services
that will produce predictable and recurring revenue streams; competitive
advantages from effective process management, proprietary systems and the
provision of knowledge-rich services; the development of niche markets; and
value-based pricing.
We intend to pursue a three-fold growth strategy. First, we intend to
continue to develop technology-based outsourcing solutions for businesses and
organizations through internal development and by acquiring other businesses
that meet our selection criteria of offering specific expert services or
specialized business functions. In doing so, we intend to be able to provide
outsourcing solutions to a wide range of businesses with the goal of increasing
the productivity of their skilled workers. In connection with this strategy, we
expect to implement a pricing strategy that will reward us for those
productivity gains.
Second, with respect to our existing subrogation recovery and claim
administration businesses, we intend to focus on servicing our existing
customers; continuing to offer additional services to existing and new
customers, including those in the medical payments segment; and cross-selling
expanded products and services to our existing customers.
4
Third, with respect to our Cordia Communications Corp. business, we
intend to initially focus on growing a New York retail customer base, while
leveraging our systems and expertise to generate consulting and outsourced
services revenue from other telecommunications providers. As we receive
licensing approval in additional states with attractive UNE-P pricing and
availability, we intend to expand our retail business into those additional
states. In addition, we will continually look for acquisition and partnership
opportunities in telecommunications that will permit us to rapidly and
profitably grow our telecommunication-related revenues.
Sales and Marketing Strategies
We are currently marketing ISG's outsourced business solutions and
services to insurers and other participants in the insurance industry. In
addition, we have begun to market outsourced telecommunication services to
telecommunications carriers and investors. We expect to begin marketing retail
telecommunications in New York beginning in May 2002. As we expand our product
and service offerings, we intend to develop strategies to expand our marketing
efforts to other industries.
Within the insurance industry, we primarily market and contract our
products and services to property and casualty and healthcare insurance
providers, including HMOs. To do so, we employ a staff of salespersons. Sales
are made directly through contact with prospective clients, trade show
presentations and employer seminars. Additional business is also generated from
existing clients who have either expanded their businesses or have business
segments with which we do not already have a contract.
Due to the nature of the business, the sales process is lengthy and
involves demonstrating to prospective clients that we can provide economies of
scale, proprietary processes and value-added services that allow (1) us to
generate and return to the clients a greater dollar amount of recoveries than
the clients' in-house recovery department and (2) our clients to focus greater
resources on core business functions.
We are currently exploring several alternative methods of marketing our
retail telecommunications business. We expect to leverage our expertise in
system development to bond to professional sales organizations, including
telemarketers, multi-level marketers and telecommunications agents. We believe
our ability to provide universal access to customer account information and
transactions will provide us with a competitive advantage in the acquisition and
retention of customers for our retail telecommunications services.
During the years ended December 31, 2001 and 2000, four and two
customers accounted for approximately 63% and 64%, respectively, of our
subrogation revenues. The loss of a major account could have a material adverse
effect on our business, results of operation and financial condition. However,
our agreement with each customer provides that in the event of termination, we
are entitled to complete the recovery process on the backlog for that customer.
At December 31, 2001, we had a backlog of approximately $9.1 million with these
customers.
5
Competition
The insurance and telecommunications industries are highly-competitive
and many of our competitors in the various business sectors in which we compete
have substantially greater financial resources, larger sales forces, more
widespread agency and broker relationships, and offer more diversified lines of
insurance coverage. In the insurance industry, there have been various federal
administrative, legislative and judicial activities that have resulted in
changes to federal banking laws that increase the ability of national banks to
offer insurance products. Furthermore, the telecommunications industry has been
experiencing frequent regulatory changes and capital market access volatility
that may significantly impact our planned telecommunication business. We are
unable to determine what effect, if any, such changes may have on our
operations.
We compete with the internal recovery departments of potential
customers and others that provide subrogation services. We believe that there
are barriers to entry in the bulk of our market, including process expertise,
capital requirements necessitated by the unusually long revenue cycle in the
recovery industry, assembling and training a qualified and productive employee
base possessing appropriate industry expertise, and an information processing
system designed to aid investigators and examiners engaged in the recovery
process. However, there are participants in the healthcare, insurance,
transaction processing and software development industries that possess
sufficient capital, and managerial and technical expertise, to develop
competitive services.
We also compete with online and traditional providers of insurance
products. The market for distributing insurance products over the Internet is
relatively new, rapidly evolving and intensely competitive. Current and new
competitors may be able to launch new sites at a relatively low cost. There are
a number of companies that either sell insurance online or provide lead referral
services, including traditional distributors of insurance, such as captive
agents, independent brokers and agents and direct distributors of insurance.
Government Regulation
Insurance companies, marketers of insurance products and insurance
agents are subject to extensive regulation and supervision in the states in
which they transact business. These regulations pertain to matters such as
providing policy forms and various premium rates, minimum reserves and loss
ratio requirements, the type and amount of investments, minimum capital and
surplus requirements, granting and revoking licenses to transact business,
levels of operations and regulating trade practices. Insurance companies are
required to file detailed annual reports with the supervisory agencies in each
of the states in which they do business, and are subject to examination by such
agencies at any time. Increased regulation of insurance agencies at the state
level and new regulation at the federal level is possible, although we cannot
predict the nature or extent of any such regulation or what impact it would have
on our operations.
6
Local and long distance telecommunications services are subject to
regulation by the Federal Communications Commission ("FCC") and by state
regulatory authorities. Among other things, these regulatory authorities impose
regulations governing the rates, terms and conditions for interstate and
intrastate telecommunications services and will require us to file tariffs for
interstate and international service with the FCC and obtain approval for any
intrastate service we provide in the states in which we elect to market our
services. In addition, we will be required to obtain and maintain certificates
of public convenience and necessity from regulatory authorities in the states in
which we operate. We will also be required to file and obtain prior regulatory
approval for tariffs and intrastate services. In addition, we must update or
amend the tariffs and, in some cases, the certificates of public convenience and
necessity, when rates are adjusted or new products are added to the local and
long distance services we offer. Changes in existing laws and regulations,
particularly regulations resulting in increased price competition, may have a
significant impact on our business activities and on our future operating
results. We will also be subject to Federal Trade Commission regulation and
other federal and state laws relating to the promotion, advertising and direct
marketing of our products and services. Certain marketing practices, including
the means to convert a customer's local or long distance telephone service from
one carrier to another, have recently been subject to increased regulatory
review of both federal and state authorities. Even though we have implemented
procedures to comply with applicable regulations, increased regulatory scrutiny
could adversely affect the transitioning of customers and the acquisition of new
customer bases. Amendments to existing statutes and regulations, adoption of new
statutes and regulations and expansion of our operations into new geographic
areas and new services could require us to alter our methods of operation or
obtain additional approvals, at costs which could be substantial. There can be
no assurance that we will be able to comply with applicable laws, regulations
and licensing requirements. Failure to comply with applicable laws, regulations
and licensing requirements could result in civil penalties, including
substantial fines, as well as possible criminal sanctions.
While no regulatory actions are pending against us, we cannot assure
you that we would be deemed to be in compliance with all applicable insurance
licensing requirements in each jurisdiction in which we operate. Nor can we
assure you that we do not need to obtain additional licenses.
Employees
As of March 15, 2002, we had 81 employees, all but one of whom were
employed on a full-time basis. At such date, five of our employees were located
at our executive offices in Norwalk, Connecticut; 61 were located at our offices
in Farmingville, New York where we maintain our subrogation and claim services
division, and 15 are outside adjusters or field representatives. None of our
employees are represented under collective bargaining agreements. We believe our
relations with our employees to be good.
7
Our History
We were incorporated under the laws of New York on June 22, 1988 and
consummated an initial public offering of our common stock on March 15, 1989. We
had originally been organized to evaluate, structure and complete the
acquisition of a business that we believed had the potential for success. On
November 21, 1990, we acquired all the issued and outstanding shares of common
stock of Nuvision Entertainment, Inc., a development stage company. As a result
of the acquisition, Nuvision became our wholly-owned subsidiary.
Nuvision, founded in January 1990, was a company that intended to
create, develop and market interactive entertainment products and video game
software primarily for use with the Sega Genesis System, a 16-bit, video game
system from Sega Enterprises Ltd., a Japanese-based manufacturer and world
leader in the high technology arcade game business and video game market.
On February 26, 1992, we ceased operations due to our inability to
raise additional capital to fulfill our financial needs and become an on-going
business enterprise. We wound up our affairs and liquidated our assets to pay
off our then-existing liabilities. Nuvision was dissolved in 1994.
In the latter half of 1999, we replaced our Board of Directors with two
new members and directed these individuals to seek, identify, engage and acquire
new businesses. In conjunction with our future plans, we elected to change our
state of incorporation from New York to Nevada on April 28, 2000.
Pursuant to the terms of two separate Contribution and Exchange
Agreements with ISG and US Direct, effective as of November 30, 2000, we
acquired all of the issued and outstanding capital stock of ISG and US Direct
for an aggregate of approximately 21,651,000 shares of our common stock.
Following these acquisitions, there was a total of 25,764,009 shares of our
common stock issued and outstanding. All of our former management resigned at
the closing of these transactions and the businesses of each of ISG and US
Direct became our ongoing businesses. The shareholders of ISG received
approximately 10,540,000 shares of our common stock and the shareholders of US
Direct received approximately 11,111,000 shares of our common stock upon the
closing of these acquisitions. The acquisitions were approved at a meeting of
our shareholders on December 14, 2000 and were completed on November 30, 2000.
Universal Recoveries Inc. was incorporated under the laws of the State
of New York on March 25, 1997 and commenced operations during May 1997. ISG was
incorporated under the laws of the State of New York on December 21, 1999 and
commenced operations during January 2000. US Direct was incorporated under the
laws of the State of New York on October 24, 1997 and commenced operations
during November 2000. Claim Partners was incorporated under the laws of the
State of New York on October 20, 1999 and commenced operations in January 2000.
8
On May 25, 2001 our stockholders approved a resolution to amend Article
First of our Articles of Incorporation to change our corporate name from
CyberOpticLabs, Inc. to Cordia Corporation.
Item 2. Description of Property.
As of March 15, 2002, we leased property at the following two
locations: (1) approximately 1,500 square feet of office space for our executive
offices in Norwalk, Connecticut under a lease expiring on March 31, 2002 at a
rental price of $2,000 per month; and (2) approximately 9,000 square feet in
Farmingville, New York under a lease expiring on May 15, 2004 at a rental price
of $12,440 per month. We believe our existing facilities are sufficient for our
current operations.
Item 3. Legal Proceedings.
We are not currently a party to any legal proceedings that we believe
will have a material adverse effect on our financial condition or results of
operations.
Item 4. Submission of Matters to a Vote of Security Holders.
On May 25, 2001, we held a special meeting of our stockholders. Only
stockholders of record of shares of our common stock as of April 25, 2001 were
entitled to vote at the meeting. On April 25, 2001, there were 27,164,009 shares
of common stock outstanding. At the meeting, the shareholders ratified and
approved the change in the company's name from CyberOpticLabs, Inc. to Cordia
Corporation, the Company's Equity Incentive Plan and the reservation of up to
5,000,000 shares of common stock for issuances thereunder and elected John
Scagnelli, Wesly Minella and Craig Gironda as directors by a vote of 22,873,764
to 2,050.
9
Part II
Item 5. Market for Common Equity and Related Shareholder Matters.
Since June 5, 2001, our common stock has been listed on the OTC
Bulletin Board under the symbol "CORC." From May 8, 2000 to June 4, 2001, our
common stock was listed on the OTC Bulletin Board under the symbol "CYOL." The
following table represents the high and low per share bid information for our
common stock for each quarterly period in fiscal 2001 and 2000. Such high and
low bid information reflects inter-dealer quotes, without retail mark-up, mark
down or commissions and may not represent actual transactions.
Year Ended 2001 Fiscal 2000
--------------- -----------
High Low High Low
---- --- ---- ---
Quarter ended March 31 $3.75 $0.51 $4.00 $.75
Quarter ended June 30 4.50 1.95 1.89 .87
Quarter ended September 30 3.40 1.25 1.89 .97
Quarter ended December 31 2.00 0.53 1.63 .50
As of April 1, 2002, there were 27,454,009 shares of our common stock
outstanding held by approximately 114 shareholders of record.
We do not currently pay dividends on our common stock. We do not intend
to declare or pay dividends on our common stock, but to retain earnings, if any,
for the operation and expansion of our business.
10
Item 6. Management's Discussion and Analysis or Plan of Operation.
Certain statements set forth below under this caption constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Please refer to the first page of this Report for
additional factors relating to such statements.
During the period from our formation on June 22, 1988 to November 30,
2000, we did not generate any significant revenue, and accumulated no
significant assets, as we explored various business opportunities. On November
21, 2000, in exchange for a controlling interest in our publicly-held "shell"
corporation, we acquired all of the issued and outstanding capital stock of ISG
and US Direct. This transaction is commonly referred to as a "reverse
acquisition." For financial reporting purposes, ISG and US Direct were
considered the acquirers in such transaction. As a result, our historical
financial statements for any period prior to November 30, 2000 are those of ISG
and US Direct combined.
Year Ended 2001 Compared to Fiscal Year 2000
Revenues for the year ended December 31, 2001 increased by
approximately $2,952,000, or approximately 173%, to approximately $4,659,000 as
compared to approximately $1,707,000 reported during the year ended December 31,
2000. The increase in revenues was attributable to increased revenues reported
by ISG of approximately $2,900,000, or approximately 176%, to approximately
$4,544,000 during fiscal 2001, from approximately $1,644,000 during fiscal 2000.
Subrogation Partners revenues and financial results were for only nine months of
Subrogation Partners activities in fiscal 2000 as compared to a full twelve
months of activity for 2001. We anticipate that revenues will continue to
increase in fiscal 2002, as we expand our services in healthcare subrogation,
third party claims administration and telecommunication services.
Operating expenses increased by approximately $3,458,000, or
approximately 128%, to approximately $6,158,000 during fiscal 2001 as compared
to approximately $2,700,000 during fiscal 2000. This increase in expense is
primarily related to Subrogation Partners and Claims Partners operations, which
reported increased operating expenses of approximately $3,531,000 for the year
ended December 31, 2001 as compared to the year ended December 31, 2000. Those
increases were partially offset by a decrease in expenses related to RiderPoint
operations of approximately $741,000 for the year ended December 31, 2001. The
increase in operating expenses and corporate overhead are primarily attributable
to our increased investment during fiscal 2001 in the development and deployment
of proprietary software systems; the opening of a new facility for Subrogation
Partners and Claims Partners operations and costs associated with increased
claims management revenues as compared to fiscal 2000. The components of
operating expenses are payroll and payroll taxes; advertising and promotion;
professional and consulting fees; depreciation; research and development; and
selling, general and administrative expenses
During fiscal 2001, payroll and payroll taxes increased by
approximately $1,483,000, or 99%, to approximately $2,981,000. This compares
with payroll and payroll taxes of $1,499,000 incurred during fiscal 2000.
Payroll and payroll taxes increased during fiscal 2001 principally as a result
of our efforts to expand our Subrogation Partners and Claim Partners operations.
11
Advertising and promotion expenses increased during fiscal 2001 to
approximately $437,000 from approximately $255,000 during fiscal 2000. This
increase of approximately $183,000, or 72%, resulted from the expansion of our
marketing programs, principally in connection with our subrogation line of
business.
Professional and consulting expenses aggregated approximately $538,000
during fiscal 2001 as compared with approximately $121,000 during fiscal 2000,
an increase of approximately $418,000, or approximately 345%. This increase
resulted of principally non-cash expenses related to options granted to
non-employees for consulting services.
There were no research and development expenses recorded during fiscal
2001 as compared to approximately $65,000 during fiscal 2000.
Selling, general and administrative expenses aggregated approximately
$2,116,000 during fiscal 2001 and approximately $728,000 during fiscal 2000, an
increase of approximately $1,388,000, or 191%. This increase was primarily
attributable to our increased investment during 2001 in the development and
deployment of proprietary software systems, the opening of a new facility for
Subrogation Partners and Claims Partners operations and costs associated with
increased claims management revenues as compared to fiscal 2000.
Interest expense amounted to approximately $64,000 during fiscal 2001,
as compared to approximately $7,000 during fiscal 2000. The increased interest
expense was primarily the result of higher borrowing levels during fiscal 2001.
Liquidity and Capital Resources
At December 31, 2001, we had cash and cash equivalents of approximately
$185,000, an increase of approximately $130,000 from amounts reported at
December 31, 2000, and a working capital deficit of approximately ($1,066,000),
a decrease in working capital of approximately $1,030,000 from amounts reported
at December 31, 2000.
Net cash used in operating activities aggregated approximately
($382,000), a decrease of approximately $466,000 used during year ended December
31, 2000. The principal use of cash during the year ended December 31, 2001 and
December 31, 2000 was approximately $1,679,000 and $1,181,000, respectively,
relating to the losses for those periods. Unearned income of approximately
$325,000 during the year ended December 31, 2001 offset the higher losses in the
2001 period.
Net cash provided by investing activities aggregated approximately
$13,000 and $791,000 in fiscal 2001 and 2000, respectively. The principal source
of cash from investing activities in fiscal 2001 and 2000 was approximately
$465,000 and $880,000 from the sale of investments for the respective periods.
12
Net cash provided by financing activities aggregated approximately
$499,000 and $93,000 in fiscal 2001 and 2000, respectively. The source of net
cash provided by financing activities in the year ended December 31, 2001
resulted primarily from proceeds of borrowings from affiliates of approximately
$326,000. In November 2001, we repaid approximately $338,000 of our borrowings
through the exchange of 160,000 shares of eLEC stock having a market value of
$100,800 (see Note 3 to the financial statements). In fiscal 2000, net cash of
approximately $96,000 was generated by financing activities that resulted from
the private placement of our common stock.
We believe the working capital and cash flow from operations of our
Subrogation Partners division will be sufficient to meet the cash and capital
requirements of our Subrogation Partners and Claims Partners divisions for the
next 12 months. We will, however, need to expend cash and incur additional
losses before we are able to grow our Cordia Communications division to a
profitable level. We believe our cash and cash equivalent assets at April 1,
2002 may not provide us with sufficient liquidity to grow our business and carry
out many of our expansion plans. In addition, the report of the independent
auditors on our 2001 financial statements indicates there is substantial doubt
about our ability to continue as a going concern. In recognition of the
potential need for additional working capital, management intends to seek
additional sources of capital, which sources may include public and private
sales of our securities and additional borrowings from both affiliates and
non-affiliates. Given current market conditions, there can be no assurance that
we will be able to obtain such funding when needed, or that such funding, if
available, will be obtainable on acceptable terms. Our inability to obtain
sufficient working capital may restrict our ability to carry out our operating
plans resulting in the continuance of unprofitable operations, which would
adversely affect our financial condition and results of operations.
Item 7. Financial Statements
13
CORDIA CORPORATION AND SUBSIDIARIES
DECEMBER 31, 2001 AND 2000
CONTENTS
Page
----
Independent Auditors' Report F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Financial Statements F-6 - F-15
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Cordia Corporation
We have audited the accompanying consolidated balance sheets of Cordia
Corporation (formerly CyberOpticLabs, Inc.) and subsidiaries as of December 31,
2001 and 2000, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cordia Corporation
and subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
which raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ CIPOLLA SZIKLAY ZAK & CO., L.L.C.
West Orange, New Jersey
April 11, 2002
F-1
CORDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
-----------------------------
2001 2000
----------- -----------
ASSETS
Current Assets
Cash $ 185,348 $ 54,635
Accounts receivable, less allowance for doubtful accounts of
$45,000 (2001) and $10,000 (2000) 211,761 185,974
Investments 111,019 234,360
Prepaid expenses and other current assets 13,457 2,027
Loans receivable from affiliates 15,070 1,721
----------- -----------
TOTAL CURRENT ASSETS 536,655 478,717
----------- -----------
Property and equipment, at cost
Office equipment 141,001 117,073
Equipment - capital leases 58,567 -
Vehicles 16,743 16,743
Furniture and fixtures 153,134 82,777
----------- -----------
369,445 216,593
Less: Accumulated depreciation 132,661 47,517
----------- -----------
NET PROPERTY AND EQUIPMENT 236,784 169,076
----------- -----------
Other Assets
Security Deposits 27,139 -
----------- -----------
TOTAL ASSETS $ 800,578 $ 647,793
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable and accrued expenses $ 887,886 $ 286,690
Securities sold but not purchased 50,229 -
Obligation under capital lease,current portion 18,822 -
Current portion of long-term debt 1,650 3,935
Unearned income 355,876 30,788
Loans payable to affiliates 46,297 134,568
Loans payable-other 242,131 -
Deferred income taxes - 56,497
Other current liabilities - 2,277
----------- -----------
TOTAL CURRENT LIABILITIES 1,602,891 514,755
----------- -----------
Noncurrent Liabilities
Obligation under capital lease, less current portion 28,198 -
Long-term debt, less current portion - 1,650
Deferred income taxes - 17,172
----------- -----------
TOTAL NONCURRENT LIABILITIES 28,198 18,822
----------- -----------
Stockholders' Equity (Deficit)
Preferred stock, $.001 par value; 5,000,000 shares authorized,
no shares issued and outstanding - -
Common stock, $.001 par value; 100,000,000 shares authorized,
27,229,009 (2001) and 25,764,009 (2000) shares issued and outstanding 27,229 25,764
Additional paid-in capital 2,858,655 2,126,063
Accumulated deficit (3,716,395) (2,037,611)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (830,511) 114,216
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 800,578 $ 647,793
=========== ===========
See notes to consolidated financial statements.
F-2
CORDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended
December 31,
-----------------------------
2001 2000
----------- -----------
Revenues $ 4,659,218 $ 1,707,259
----------- -----------
Operating Expenses
Payroll and payroll taxes 2,981,123 1,498,549
Advertising and promotion 437,300 254,743
Professional and consulting fees 538,198 120,557
Depreciation 85,144 33,529
Research and development - 64,747
Other selling, general and administrative 2,116,413 727,987
----------- -----------
6,158,178 2,700,112
----------- -----------
Operating Loss (1,498,960) (992,853)
----------- -----------
Other Income (Expenses)
Gain (loss) on investments (194,208) (618,300)
Other income 4,323 -
Interest income 267 1,688
Interest expense (63,875) (6,571)
(253,493) (623,183)
----------- -----------
Loss Before Income Taxes (1,752,453) (1,616,036)
----------- -----------
Income Tax Expense (Credit)
Current - 10,735
Deferred (73,669) (445,585)
----------- -----------
(73,669) (434,850)
----------- -----------
Net Loss $(1,678,784) $(1,181,186)
=========== ===========
Loss per Share $ (0.06) $ (0.06)
=========== ===========
Weighted Average Shares Outstanding 27,017,469 20,212,683
=========== ===========
See notes to consolidated financial statements.
F-3
CORDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 2001 AND 2000
Common Stock
------------------------ Additional
Number of Paid-In Accumulated
Shares Amount Capital Deficit Total
------------ ------ ---------- ------------ -----------
Balance, January 1, 2000 20,212,683 $20,213 $1,814,381 $ (856,425) $ 978,169
Capital Contributions
Marketable securities contributed 1,438,317 1,438 193,562 - 195,000
Contribution of general and administrative expenses - - 26,702 - 26,702
Reverse acquisition 4,113,009 4,113 91,218 - 95,331
Other contributions - - 200 - 200
-
Net (loss) - - - (1,181,186) (1,181,186)
---------- ------- ---------- ----------- -----------
Balance, December 31, 2000 25,764,009 25,764 2,126,063 (2,037,611) 114,216
Capital Contributions
Increase in investments 1,400,000 1,400 240,965 - 242,365
Related party debt forgiveness - - 236,800 - 236,800
Common stock issued for consulting services 25,000 25 102,475 - 102,500
Stock options issued for consulting services - - 102,392 - 102,392
Exercise of stock options 40,000 40 49,960 - 50,000
Net (loss) - - - (1,678,784) (1,678,784)
---------- ------- ---------- ----------- -----------
Balance, December 31, 2001 27,229,009 $27,229 $2,858,655 $(3,716,395) $ (830,511)
========== ======= ========== =========== ===========
See notes to consolidated financial statements.
F-4
CORDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended
December 31,
----------------------------------
2001 2000
-------------- --------------
Cash Flows From Operating Activities
Net loss $ (1,678,784) $ (1,181,186)
Adjustments to reconcile net loss to net cash
used by operations
(Gain) loss on investments 194,208 618,300
Consulting expense 204,892 -
Depreciation expense 85,144 33,530
Deferred income tax (credit) (73,669) (445,585)
Contributed general and administration services - 26,702
(Increase) decrease in assets
Accounts receivable (25,787) 53,432
Prepaid expenses and other current assets (11,430) 16,870
Security deposits (27,139) -
Increase (decrease) in liabilities
Accounts payable and accrued expenses 627,694 5,971
Unearned commission income 325,088 21,299
Other current liabilities (2,277) 2,277
------------ ------------
NET CASH (USED) BY OPERATING ACTIVITIES (382,060) (848,390)
------------ ------------
Cash Flows From Investing Activities
Proceeds from increase in loans receivable from affiliates 86,651 -
Decrease in loans receivable from affiliates (100,000) 14,894
Proceeds from sale of investments 465,347 879,820
Proceeds from increase in investments sold but not purchased 45,648 -
Purchase of investments (390,068) -
Purchase of property and equipment (94,285) (104,176)
------------ ------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 13,293 790,538
------------ ------------
Cash Flows From Financing Activities
Proceeds from issuance of common stock 50,000 95,531
Payments of notes payable (3,935) (2,927)
Payments of obligations under capital lease (11,547) -
Proceeds from loans payable to affiliates 326,399 49,485
Proceeds from loans payable - other 138,563 -
Payments of loans payable - other - (49,314)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 499,480 92,775
------------ ------------
Increase in Cash 130,713 34,923
Cash, Beginning 54,635 19,712
------------ ------------
Cash, Ending $ 185,348 $ 54,635
============ ============
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest $ 37,908 $ 29,602
============ ============
Income taxes $ - $ 117,808
============ ============
Non Cash Investing and Financing Activities
Issuance of 1,400,000 shares of common stock:
Increase in Investments In eLEC and Skyclub $ 242,365 $ -
eLEC securities exchanged in satisfaction of :
Loans payable to affiliates 74,302 -
Interest payable on loans payable to affiliates 26,498 -
Related party debt forgiveness 236,800 -
Capital lease obligations incurred to finance the purchase of equipment 58,567 -
During 2001, a loan payable to affiliate was transferred by the creditor
to a third party. 103,568 -
See notes to consolidated financial statements.
F-5
CORDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
The Company
Cordia Corporation (formerly CyberOpticLabs, Inc.) ("Cordia") was
organized on June 22, 1988 and consummated an Initial Public Offering
of its common stock on March 15, 1989. On February 26, 1992, Cordia
filed a current report on Form 8-K reporting that it had ceased
operations and was liquidating its assets to pay off existing
liabilities due to a lack of working capital.
On November 30, 2000, Cordia acquired all of the outstanding common
stock of ISG Group, Inc. ("ISG") and U.S. Direct Agency, Inc. ("USD")
in exchange for 21,651,000 shares of Cordia's common stock
(approximately 84 percent of Cordia's common shares issued and
outstanding). For accounting purposes, the transaction has been treated
as the acquisition of Cordia by ISG and USD, with ISG and USD as the
acquirer (reverse acquisition). The historical financial statements
presented prior to November 30, 2000 are those of ISG and USD combined.
The acquisition of Cordia has been accounted for as a series of capital
stock transactions by ISG and USD. Accordingly, no goodwill has been
recorded and no pro-forma information has been provided.
During February 2001, Cordia increased its ownership interest in
RiderPoint, Inc. to approximately 80% and acquired 100% of the
membership interests in Webquill Internet Services, LLC and
approximately 19% of the outstanding common stock of Skyclub
Communications Holding Corp.
Operations
Cordia conducts its operations through the subsidiaries and affiliates
of ISG (Universal Recoveries, Inc. and U.L.A.E., Inc., both
wholly-owned) and USD (RiderPoint, Inc., which is owned 43% by USD and
37% by Cordia).
Universal Recoveries, Inc., doing business as Subrogation
Partners, provides insurance recovery and collections
services, including subrogation, salvage and deductible
collections.
U.L.A.E., Inc., doing business as Claims Partners, is a
third-party claims administrator that provides claim
management solutions to insurance companies.
RiderPoint, Inc. ("RiderPoint") has been focusing on the
development of technological systems, solutions and processes
that will allow it to become a nationwide distributor of
insurance products through the internet and traditional
insurance agents.
RiderPoint's wholly-owned subsidiary, RP Insurance Agency
Inc., acts as an insurance broker for individuals purchasing
property and liability insurance for power sports vehicles.
During 2001, RP Insurance Agency Inc. ceased operations.
Webquill Internet Services, Inc. ("Webquill") provides
Internet hosting services to businesses and individuals.
During 2001, Webquill generated less than $10,000 in revenue.
Cordia Communications Corp., a wholly-owned subsidiary, is a
competitive local exchange carrier that intends to provide
local and long distance telecommunications services to
businesses and individuals. Cordia Communications Corp was
formed during 2001 and expects to commence selling services
during 2002.
F-6
CORDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (cont'd)
Basis of Presentation
These consolidated financial statements have been prepared assuming
that Cordia and its subsidiaries ("the Company") will continue as a
going concern. The Company has incurred substantial losses since its
inception and expects to incur additional losses to complete the
commercialization of its technologies. The Company also had a
deficiency in stockholders' equity as of December 31, 2001. These
conditions raise substantial doubt about the Company's ability to
continue as a going concern. The Company's ability to continue as a
going concern is dependent upon generating sufficient cash flow to meet
its obligations as they come due. Management of the Company intends to
seek additional sources of capital, which sources may include public
and private sales of the Company's securities and additional borrowings
from affiliates and non-affiliates. Given current market conditions,
there is no guarantee that the Company will be able to obtain such
funding when needed, or that such funding, if available, will be
obtainable on acceptable terms. The Company's inability to obtain
sufficient working capital would adversely affect the Company's
financial condition and results of operations. These financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
Principles of Consolidation
The consolidated financial statements include the accounts of (a) ISG
and its subsidiaries for the nine months ended December 31, 2000 and
the year ended December 31, 2001, (b) USD and its affiliate, RiderPoint
(which USD effectively controls), for the years ended December 31, 2000
and 2001, (c) Cordia for the one-month period ended December 31, 2000
and the year ended December 31, 2001, and (d) Webquill for the ten
months ended December 31, 2001. All material intercompany balances and
transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
The Company classifies as cash and cash equivalents amounts on deposit
in banks and cash invested temporarily in various instruments with
maturities of three months or less at time of purchase (see Note 9).
Investments
The Company's investments in marketable equity securities have been
recorded at fair value, and are classified as trading securities.
Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation. For financial reporting purposes, depreciation is
provided using straight-line and accelerated methods over useful lives
ranging from three to seven years. Expenditures that significantly
increase value or extend useful asset lives are capitalized.
Expenditures for maintenance, repairs and renewals of a minor nature
are charged against operations as incurred.
Revenue Recognition
Revenues are primarily earned from subrogation services and fees,
claims management services and insurance brokerage commissions.
Subrogation service and fee income is recognized when funds are
collected from third parties and the respective insurance files are
closed. Commission income is recognized as commissions are earned over
the lives of the respective policies. Funds received from insurance
companies in advance of being earned are credited to unearned income
(see Note 10).
F-7
CORDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (cont'd)
Advertising and Promotion
Advertising and promotion costs are expensed as incurred.
Research and Development
Research and development costs consist of outside consulting costs in
connection with the development of a web site and purchased
technologies. Research and development costs are expensed as incurred.
Stock-Based Compensation
The Company accounts for employee stock options in accordance with
Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for
Stock Issued to Employees." The Company has not recognized any
compensation expense related to employee stock options in accordance
with APB 25 because no options were granted at a price below the market
price on the day of grant.
In 1996, FAS No. 123, "Accounting for Stock-Based Compensation,"
prescribed the recognition of compensation be based on the fair value
of options on the grant date, and allowed companies to continue
applying APB 25 if certain pro forma disclosures are made assuming
hypothetical fair value method application. See Note 5 for pro forma
disclosures required by FAS No. 123 plus additional information on the
Company's stock options.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in
the Company's financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on temporary
differences between the financial statement carrying amounts and the
tax bases of assets and liabilities using enacted tax rates in effect
for the years in which the differences are expected to reverse.
Loss Per Share
Loss per share is computed based on the weighted average number of
shares outstanding during each year (27,070,354 during 2001 and
20,682,877 during 2000). No changes in the computations of diluted
earnings per share amounts are presented because there were no capital
stock transactions that would serve to dilute common shares.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and
Other Intangible Assets." SFAS No. 141 revises the guidance for
business combinations, eliminates the pooling method and is effective
for business combinations occurring after June 15, 2001. SFAS No. 142
eliminates the amortization requirement for goodwill and certain other
intangible assets and requires that such assets be reviewed
periodically for impairment. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. Neither of these standards is
anticipated to have a material impact on the Company's financial
position or results of operations.
F-8
CORDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (cont'd)
Recent Accounting Pronouncements (continued)
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which addresses financial accounting and
reporting for obligations associated with the retirement of tangible
long-lived assets and their associated retirement costs. The standard
applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction,
development and (or) normal use of the asset. This standard is
effective for fiscal years beginning after June 15, 2002. This standard
is not anticipated to have a material impact on the Company's financial
position or results of operations.
In October 2001, the FASB issued SFAS No. 144, "Accounting for
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets. This statement also extends the reporting
requirements to report separately, as discontinued operations,
components of an entity that have either been disposed of or are
classified as held-for-sale. SFAS No. 144 is effective for fiscal years
beginning after December 15, 2001. It is not practicable at this time
for management to estimate the impact of adopting this Statement at the
date of this report.
NOTE 2 - INVESTMENTS
At December 31, 2001 and 2000, investments included common shares of
eLEC Communications Corp. ("eLEC"). At December 31, 2001, the Company
held a short position in the equity securities of McData Corp. of
$50,229. All investments are classified as trading securities and
accordingly, stated at fair value, which is based on market quotes.
Adjustments to fair value of the equity securities are recorded as an
increase or decrease in investment income in the accompanying
statements of operations.
During the year ended December 31, 2000, eLEC exchanged 300,000 shares
of its publicly-traded common stock, having a fair market value of
$195,000, for 600,000 shares of RiderPoint's common stock. During
February 2001, Cordia exchanged 1,400,000 shares of its common stock,
issued under Section 4(2) of the Securities Act of 1933, for:
(a) Approximately 37% of the common stock of RiderPoint not owned
by USD;
(b) 600,000 shares (approximately 19%) of the common stock of
Skyclub;
(c) 100% of the outstanding membership interests in WebQuill; and
(d) 200,000 restricted common shares of eLEC.
The February 2001 purchase of RiderPoint's common stock has been
accounted for as a recapitalization of the Company's stockholders'
equity.
Skyclub and Webquill are entities under common control with the
Company. Accordingly, these transactions have been recorded by the
Company at Skyclub's and Webquill's historical cost.
F-9
CORDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
NOTE 2 - INVESTMENTS (continued)
The cost of securities sold is based on the specific identification
method. The following is a reconciliation of gain (loss) on investments
during the years ended December 31, 2001 and 2000.
2000 2001
Net change in unrealized gains (losses) $ (77,514) $ (470,620)
Realized (gains) losses (116,694) (147,680)
---------- ----------
Total $ (194,208) $ (618,300)
========== ==========
During the years ended December 31, 2001 and 2000, the Company realized
proceeds of $611,895 ($511,095 cash and $100,800 non-cash) and
$879,820, respectively, from the sale of investments.
NOTE 3 - RELATED PARTY TRANSACTIONS
During the year ended December 31, 2000, eLEC provided $26,702 of
administrative services, including bookkeeping and office space, to
RiderPoint. Such services, which were not billed by eLEC, have been
recorded at their fair market value and credited to additional paid-in
capital in the accompanying financial statements. During 2001, the
Company paid $24,000 to eLEC for office rent.
The Company periodically borrows funds from shareholders and affiliates
of shareholders. The loans bear interest at the rate of 12% per annum
and are payable on demand. Interest expense resulting from related
party loans totaled $60,023 and $6,011 during the years ended December
31, 2001 and 2000, respectively.
During 2001, the Company repaid $311,102 of loans payable to an
affiliate of one of its officer/shareholders and related accrued
interest of $26,498 in exchange for shares of eLEC common stock having
a fair market value of $100,800. The excess of the obligations
extinguished over the value of the eLEC common stock has been accounted
for as a $236,800 contribution of capital.
F-10
CORDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following at December 31, 2001 and 2000:
2001 2000
---- ----
The Company financed the purchase of a
vehicle with a note that bears interest
at the rate of 9% per annum, final
payment due in 2002. $ 1,650 $5,585
During 2001, the Company leased office
equipment ($58,567, less accumulated
depreciation of $11,388 at December 31,
2001) under a non-cancelable capital
lease. The lease expires during 2004,
bears interest at the rate of 10% per
annum and provides for aggregate monthly
payments of $1,890. The lease is secured
by the acquired asset. 47,021 -
------- ------
48,671 5,585
Less: Current portion 20,473 3,935
------- ------
$28,198 $1,650
======= ======
Annual payments under the capital lease
obligation are due as follows:
Years ending
December 31,
------------
2002 $22,677
2003 22,677
2004 7,559
---- -------
Total 52,913
Less: Deferred interest 5,892
-------
$47,021
=======
NOTE 5 - STOCKHOLDERS' EQUITY
Effective April 30, 2000, Cordia approved a 40-to-1 reverse split of
its common stock with no change in its par value of $.001. At the same
time, Cordia authorized the issuance of (a) 100,000,000 shares of
common stock with a par value of $.001 per share, and (b) 5,000,000
shares of preferred stock with a par value of $.001 per share. All
references in the consolidated financial statements and in the notes to
consolidated financial statements to the number of common shares and
per share amounts have been restated to reflect the stock split.
During September 2000, prior to the reverse acquisition transaction
described in Note 1, Cordia issued warrants to purchase 112,000 shares
of its common stock. The warrants have an exercise price of $2.50 per
share and expire during the period from July through September 2002. No
warrants were exercised during 2000 or 2001; all 112,000 warrants were
outstanding at December 31, 2001 and 2000.
F-11
CORDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
NOTE 5 - STOCKHOLDERS' EQUITY (continued)
Effective January 5, 2001, the Company established the 2001 Equity
Incentive Plan (the "Plan"). The total number of shares of Cordia's
common stock issuable under the Plan is 5,000,000, subject to
adjustment for events such as stock dividends and stock splits. The
Plan is administered by a Committee having full and final authority and
discretion to determine when and to whom awards should be granted. The
Committee will also determine the terms, conditions and restrictions
applicable to each award. Transactions under the Plan are summarized as
follows:
Stock Options Exercise Price
------------- --------------
Balance, January 1, 2001 -0- $ -0-
Granted: With 3-year vesting 1,105,000 1.50
With immediate vesting 830,000 .50 to 3.00
Exercised and forfeited: (40,000) 1.25
---------
Balance, December 31, 2001 1,895,000
=========
In electing to follow APB 25 for expense recognition purposes, the
Company is obliged to provide the expanded disclosures required under
FAS No. 123 for stock-based compensation granted in 1996 and
thereafter. The fair value of the employee stock options granted during
2001 was estimated to be $1,613,550 based on the Black-Scholes option
valuation model. For purposes of pro forma disclosures, stock-based
compensation is amortized to expense on a straight-line basis over the
vesting period.
The following table compares 2001 results as reported to the results
had the Company adopted the expense recognition provisions of FAS No.
123:
As reported Pro Forma
----------- ----------
Net loss $1,678,784 $2,312,567
Loss per share .06 .09
The Company also issued 25,000 shares of its common stock under a
separate consulting agreement during 2001. The Company recognized a
consulting expense of $102,500 during 2001 based on the fair market
value of the shares on the date of grant.
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash, accounts
receivable and trading securities. Concentrations with regard to
accounts receivable are limited due to the Company's large customer
base.
The carrying amounts of cash, accounts receivable, trading securities,
accounts payable and accrued expenses approximate fair value due to the
short-term nature of these items. The carrying amount of debt also
approximates fair value since the interest rates on these instruments
approximate market interest rates.
F-12
CORDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
NOTE 7 - INCOME TAXES
The tax effect of the temporary differences that give rise to
deferred tax assets and liabilities as of December 31, 2001 and 2000
was as follows:
2001 2000
---- ----
Deferred income tax assets:
Accounts payable and accrued expenses $ 355,155 $ 93,227
Unearned income 142,350 12,311
Other liabilities - 16,909
Investments 31,006 -
Net operating loss carryover 1,247,502 358,996
Less: Valuation allowance (1,671,997) (364,553)
----------- -----------
104,016 116,890
----------- -----------
Deferred income tax liabilities:
Accounts receivable 83,704 78,348
Investments - 93,741
Prepaid expenses and other current assets 3,412 1,298
Accumulated depreciation 16,900 17,172
----------- -----------
104,016 190,559
----------- -----------
Net deferred income tax liability $ - $ 73,669
=========== ===========
Deferred income tax liability - current portion $ - $ 56,497
Deferred income tax liability - noncurrent portion - 17,172
----------- -----------
Total deferred income tax liability $ - $ 73,669
=========== ===========
The consolidated financial statements have been presented on the
accrual method of accounting. For income tax reporting purposes, the
Company is on the cash method. Accordingly, for income tax purposes,
certain revenues and related assets are recognized when received
rather than when earned, and certain expenses are recognized when
paid rather than when the obligation is incurred.
Cordia and RiderPoint have incurred losses since inception that have
generated net operating loss carryforwards aggregating approximately
$2,500,000 at December 31, 2001 for federal and state income tax
purposes. These carryforwards are available to offset future taxable
income and expire at various dates through 2021 for income tax
purposes. These losses are subject to limitation on future years'
utilization.
In consideration of the uncertainty about the Company's ability to
realize the benefit of their deferred tax assets, the accompanying
financial statements reflect a valuation allowance of $1,671,997 and
$364,553 at December 31, 2001 and 2000, respectively, to fully offset
the deferred tax benefit amount.
F-13
CORDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
NOTE 7 - INCOME TAXES (continued)
The components of income tax expense (benefit) were as follows:
2001 2000
---- ----
Current:
Federal $ - $ 8,385
State - 2,350
--------- ---------
$ - $ 10,735
========= =========
Deferred:
Federal $ (62,619) $(378,747)
State (11,050) (66,838)
--------- ---------
$ (73,669) $(445,585)
========= =========
A reconciliation of the difference between the expected income tax rate
using the statutory federal tax rate and the Company's effective tax
rate was as follows:
2001 2000
---- ----
U.S. Federal income tax statutory rate 34.0% 34.0%
Investments 11.4 (4.1)
Consulting fees expense 11.7 -
Change in valuation allowance, net (74.6) (8.1)
State income taxes, net of federal benefit 6.0 2.6
Other, net 15.7 2.5
----- -----
Effective tax rate 4.2% 26.9%
===== =====
NOTE 8 - EMPLOYEE BENEFIT PLAN
Universal Recoveries, Inc. has a defined contribution (SIMPLE SRA) plan
covering all eligible employees. Universal Recoveries, Inc. matches up
to 3% of eligible employee compensation, up to a maximum of the
respective employee's elective deferral. During the years ended
December 31, 2001 and 2000, employer contributions to the plan amounted
to $9,066 and $4,600, respectively.
F-14
CORDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
NOTE 9 - COMMITMENTS
Operating Leases
The Company is committed for annual rentals under non-cancelable
operating leases for its office space, as well as office and
transportation equipment that expire at various times through 2005.
Future minimum rental commitments under these leases for years
subsequent to December 31, 2001 are as follows:
Year Ending
December 31:
------------
2002 $206,132
2003 190,289
2004 76,412
2005 2,615
--------
Total $475,448
========
Rent expense was approximately $157,000 and $104,000 for the years
ended December 31, 2001 and 2000, respectively.
Cash
The Company maintains its cash in various banks. Accounts at each bank
are guaranteed up to certain insurance limitations. Uninsured cash bank
balances at December 31, 2001 approximated $268,000.
NOTE 10 - SEGMENT INFORMATION AND CONCENTRATIONS
During the years ended December 31, 2001 and 2000, the Company
generated revenues from the following sources:
2001 2000
---------- ----------
Subrogation service and fees $2,594,755 $1,607,119
Claims management services 1,948,903 37,146
Insurance brokerage commissions 73,433 56,716
Web hosting 8,377 -
Outsourcing and other 33,750 6,278
---------- ----------
Total $4,659,218 $1,707,259
========== ==========
Four and two insurance companies accounted for approximately 63% and
64% of total subrogation service and fee revenues during the years
ended December 31, 2001 and 2000, respectively. One insurance company
accounted for approximately 100% of total claims management services
during 2001.
F-15
Part III
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Sections 16(a) of the Exchange Act
Directors and Executive Officers
Information regarding our directors is incorporated by reference to the
section entitled "Election of Directors" appearing in our Proxy Statement for
the Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission (the "Commission") within 120 days after the end of our fiscal year
ended December 31, 2001.
Item 10. Executive Compensation.
Information regarding executive compensation is incorporated by
reference to the information set forth under the caption "Executive
Compensation" in our Proxy Statement for the Annual Meeting of Stockholders to
be filed with the Commission within 120 days after the end of our fiscal year
ended December 31, 2001.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Information regarding security ownership of certain beneficial owners
and management is incorporated by reference to the information set forth under
the caption "Security Ownership of Certain Beneficial Owners and Management
Ownership" in our Proxy Statement for the Annual Meeting of Stockholders to be
filed with the Commission within 120 days after the end of our fiscal year ended
December 31, 2001.
Item 12. Certain Relationships and Related Transactions.
Information regarding certain relationships and related transactions is
incorporated by reference to the information set forth under the caption
"Certain Relationships and Related Transactions" in our Proxy Statement for the
Annual Meeting of Stockholders to be filed with the Commission within 120 days
after the end of our fiscal year ended December 31, 2001.
14
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits. The following exhibits are filed herewith or are
incorporated by reference to exhibits previously filed.
Exhibit No. Description
----------- -----------
2.1 Articles of Incorporation (incorporated by reference to Exhibit
B(1) to our Form 10-Q filed with the Commission on May 16, 2000).
2.2 Revised Bylaws (incorporated by reference to Exhibit B(4) to our
Form 10-Q filed with the Commission on May 16, 2000).
2.3 Articles of Merger of Vestex, Inc. and Cyberopticlabs, Inc.
(incorporated by reference to Exhibit B(2) to our Form 10-Q filed
with the Commission on May 16, 2000).
2.4 Plan of Merger of Vestex, Inc. and CyberOpticLabs, Inc., dated
April 28, 2000 (incorporated by reference to Exhibit B(3) to our
Form 10-Q filed with the Commission on May 16, 2000).
2.5 Contribution and Exchange Agreement, dated November 30, 2000,
between the Company and U.S. Direct Insurance Agency, Inc.
(incorporated by reference to Exhibit 2.01 to our Form 8-K filed
with the Commission on January 5, 2001).
2.6 Contribution and Exchange Agreement, dated November 30, 2000,
between the Company and I.S.G Group, Inc. (incorporated by
reference to Exhibit 2.02 to our Form 8-K filed with the
Commission on January 5, 2001).
4.1 Specimen Common Stock Certificate. (incorporated by reference to
Exhibit 4.1 to our Form 10-KSB filed with the Commission on April
14, 2001).
10.1 Company 2001 Equity Incentive Plan. (incorporated by reference to
Exhibit 10.1 to our Form 10-KSB filed with the Commission on
April 14, 2001).
10.2 Lease, dated December 1, 1998, between the Universal Claim
Recoveries Inc. and Nadia Farber relating to office space in
Medford, New York. (incorporated by reference to Exhibit 10.2 to
our Form 10-KSB filed with the Commission on April 14, 2001).
15
10.3 Lease, dated November 23, 1999, between the RiderPoint, Inc. and
Tower Realty, Frank L. Petrola, M.D. relating to office space in
Steubenville, Ohio. (incorporated by reference to Exhibit 10.3 to
our Form 10-KSB filed with the Commission on April 14, 2001).
10.4 Sublease, dated April 23, 2001, between eLEC Communications, Inc,
and Cordia Corporation relating to office space in Norwalk,
Connecticut. (incorporated by reference to Exhibit 10.4 to our
Form 10-KSB filed with the Commission on April 14, 2001).
10.5 Subrogation Service Agreement, dated June 25, 1999, between the
Company and Empire Insurance Company and Allcity Insurance
Company. (incorporated by reference to Exhibit 10.5 to our Form
10-KSB filed with the Commission on April 14, 2001).
21 Subsidiaries - list of all subsidiaries, jurisdiction of
incorporation and names under which subsidiaries do business.
(incorporated by reference to Exhibit 21 to our Form 10-KSB filed
with the Commission on April 14, 2001).
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
fourth quarter of fiscal 2001.
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 executive officer on
April 15, 2002.
CORDIA CORPORATION
By: /s/ Craig Gironda
--------------------------
Name: Craig Gironda
Title: President, Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities stated on April 15, 2002.
Signature Title
--------- -----
/s/ Craig Gironda President, Director
------------------------
Craig Gironda (Principal Executive Officer, Principal Financial
Officer, and Principal Accounting Officer)
/s/ John Scagnelli Director
------------------------
John Scagnelli
/s/ Wesly Minella Secretary, Director
------------------------
Wesly Minella
17