UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________.
Commission File Number 33-23473
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CORDIA CORPORATION
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(Name of small business issuer as specified in its charter)
Nevada 2917728
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
509 Westport Avenue, Norwalk, Connecticut 06851
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(Address of principal executive offices)
203-750-1000
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(Issuer's telephone number)
CyberOpticLabs, Inc.
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(Former name, former address and former fiscal year,
if changed since last report)
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 [ ]
As of August 1, 2001, there were 27,189,009 shares the issuer's common stock
outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
CORDIA CORP.
FORM 10-QSB
INDEX
PART I. Financial Information
Item 1. Financial Statements: Page no.
Condensed Consolidated Balance Sheets - June 30, 2001 and
December 31, 2001................................... 3
Condensed Consolidated Statements of Operations - Six months
ended June 20, 2000 and 2001........................ 4
Condensed Consolidated Statements of Cash Flows - Six months
ended June 30, 2000 and 2001........................ 5
Notes to Financial Statements.................................. 6
Item 2. Management's Discussion and Analysis or Plan of Operation...... 8
PART II. Other Information:
Item 2. Changes in Securities and Use of Proceeds...................... 12
Item 4. Submission of Matters to a Vote of Security Holders............ 12
Item 6. Exhibits and Reports on Form 8-K............................... 12
Signatures ............................................................ 12
2
ITEM 1. FINANCIAL INFORMATION
CORDIA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2001 2000
--------------- ---------------
ASSETS (Unaudited) (See Note)
Current Assets
Cash $ 61,262 $ 54,635
Accounts receivable, less allowance for doubtful accounts of $10,000 208,938 185,974
Investments 500,665 234,360
Prepaid expenses and other current assets 150,680 2,027
Loans receivable from affiliates -- 1,721
Prepaid Taxes 7,144
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TOTAL CURRENT ASSETS 928,689 478,717
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Property and equipment, at cost
Office equipment 136,462 117,073
Vehicles 19,043 16,743
Furniture and fixtures 129,234 82,777
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284,739 216,593
Less: Accumulated depreciation 75,319 47,517
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NET PROPERTY AND EQUIPMENT 209,420 169,076
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Other Assets
Security Deposits 23,200
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TOTAL ASSETS $ 1,161,309 $ 647,793
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 3,922 $ 3,935
Accounts payable and accrued expenses 551,426 286,690
Unearned income 643,432 30,788
Deferred income taxes -- 56,497
Loans payable to affiliates 559,476 134,568
Other current liabilities -- 2,277
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TOTAL CURRENT LIABILITIES 1,758,256 514,755
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Noncurrent Liabilities
Long-term debt, less current portion -- 1,650
Deferred income taxes -- 17,172
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TOTAL NONCURRENT LIABILITIES -- 18,822
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Stockholders' Equity
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,
27,189,009 (2001) and 25,764,009 (2000) shares issued and outstanding 27,189 25,764
Additional paid-in capital 2,537,103 2,126,063
Accumulated deficit (3,161,239) (2,037,611)
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TOTAL STOCKHOLDERS' EQUITY (596,947) 114,216
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,161,309 $ 647,793
=============== ===============
Note: The balance sheet at December 31, 2000 has been derived from audited
financial statements at that date but does not include all the information and
footnotes required by generally accepted accounting principles.
3
CORDIA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Six Months Ended For the Three Months Ended
June 30, June 30,
2001 2000 2001 2000
--------------- --------------- --------------- ---------------
Revenues $ 1,471,693 $ 672,227 $ 1,031,802 $ 668,876
--------------- --------------- --------------- ---------------
Operating Expenses
Payroll and payroll taxes 1,299,370 537,526 800,243 405,951
Advertising and promotion 144,900 114,987 85,045 82,165
Professional and consulting fees 338,881 49,877 221,259 36,377
Depreciation 27,802 14,528 15,282 12,859
Other selling, general and administrative 772,649 335,951 477,495 295,739
--------------- --------------- --------------- ---------------
2,583,602 1,052,870 1,599,325 833,092
--------------- --------------- --------------- ---------------
Operating Loss (1,111,909) (380,643) (567,523) (164,216)
--------------- --------------- --------------- ---------------
Other Income (Expenses)
Gain (loss) on investments (66,110) (454,160) (4,250) (524,927)
Other Income 85 6,100 85 6,100
Interest income 1,333 -- 6,162 --
Interest expense (27,101) (5,855) (21,769) (5,855)
--------------- --------------- --------------- ---------------
(91,793) (453,915) (19,772) (524,682)
--------------- --------------- --------------- ---------------
Loss Before Income Taxes (1,203,701) (834,558) (587,295) (688,898)
--------------- --------------- --------------- ---------------
Income Tax Expense (Credit)
Current (6,404) 76,573 -- 76,573
Deferred (73,669) (368,522) 69,486 (348,522)
--------------- --------------- --------------- ---------------
(80,073) (291,949) 69,486 (271,949)
--------------- --------------- --------------- ---------------
Net Loss $ (1,123,628) $ (542,609) $ (656,781) $ (416,949)
=============== =============== =============== ===============
Loss per Share $ (0.04) $ (0.03) $ (0.02) $ (0.02)
=============== =============== =============== ===============
Weighted Average Shares Outstanding 26,913,309 20,212,683 27,173,066 20,212,683
=============== =============== =============== ===============
4
CORDIA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months Ended
June 30,
2001 2000
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Cash Flows From Operating Activities
Net loss $ (1,123,628) $ (542,610)
Adjustments to reconcile net loss to net cash
used by operations
(Gain) loss on investments 66,110 454,160
Consulting expense 123,450 10,351
Depreciation expense 27,802 14,528
Deferred income tax (credit) (73,669) (368,523)
(Increase) decrease in assets
Accounts receivable (22,964) 58,071
Prepaid expenses and other current assets (1,203) --
Prepaid income taxes (7,144) --
Security deposits (23,200)
Increase (decrease) in liabilities
Accounts payable and accrued expenses 222,459 34,933
Unearned commission income 612,643 10,219
Other current liabilities -- --
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NET CASH (USED) BY OPERATING ACTIVITIES (199,344) (328,871)
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Cash Flows From Investing Activities
Decrease in loans receivable from affiliates 1,721 (23,185)
Proceeds from sale of investments 186,262 670,820
Purchase of investments (336,311) --
Purchase of property and equipment (68,146) (93,260)
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NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (216,474) 554,375
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Cash Flows From Financing Activities
Payments of notes payable (1,663) (991)
Loans payable to affiliates 424,108 (56,171)
Decrease in other loans payable -- (49,314)
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NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 422,445 (106,476)
--------------- ---------------
Increase in Cash 6,627 119,028
Cash, Beginning 54,635 19,712
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Cash, Ending $ 61,262 $ 138,740
=============== ===============
Non Cash Investing and Financing Activities Issuance of 1,400,000 shares of
common stock:
Increase in Investments In eLEC and Skyclub $ 182,365 $ --
Liabilities assumed in connection with WebQuill (40,000) --
Increase in Common Stock and Paid-In-Capital and
Increase in Prepaid Expenses 146,650 --
5
CORDIA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2001
Note 1: Basis of Presentation
Our unaudited condensed financial statements have been prepared in accordance
with the instructions to Form 10-QSB and do not include all of the information
and disclosures required by generally accepted accounting principles. Therefore,
these financial statements should be read in conjunction with the financial
statements and related footnotes included in our Annual Report on Form 10-KSB
for the most recent year-end. These financial statements reflect all adjustments
that are, in the opinion of management, necessary to fairly state the results
for the interim periods reported. The results of operations for the six months
ended June 30, 2001 are not necessarily indicative of the results to be expected
for the full year.
The consolidated financial statements as at June 30, 2001 and December 31, 2000,
and for the six months ended June 30, 2001, include the accounts of (a) ISG
Group, Inc. and its subsidiaries (Universal Recoveries, Inc. and U.L.A.E., Inc.,
both wholly-owned), (b) U.S. Direct Agency, Inc. ("USD") and its affiliate,
Riderpoint and subsidiary (which USD effectively controls), (c) CyberOpticLabs,
Inc. and (d) WebQuill Internet Services, LLC ("WebQuill") (for the five months
ended June 30, 2001). The consolidated statements of operations and cash flows
at June 30, 2000 include only the accounts of Riderpoint Inc. and subsidiary and
Universal Recoveries, Inc. All material intercompany balances and transactions
have been eliminated.
Note 2: Investments
During February 2001, we sold 1,400,000 shares of our common stock, issued under
Section 4(2) of the Securities Act of 1933, to eLEC Communications Corp. 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 Communications
Holding Corp. ("Skyclub"), (c) all of the outstanding membership interests in
WebQuill, and (d) 200,000 shares of eLEC Communications. Skyclub and WebQuill
are entities under common control with us. Accordingly, these transactions have
been recorded at cost.
At June 30, 2001, we owned 479,000 shares of eLEC Communications Corp. with a
market value of $287,400. The investment in eLEC Communications has been
accounted for at fair market value. Our investment in Skyclub has been recorded
at our cost of $42,365. The remaining balance of investments of $170,900
consists of various marketable equity securities recorded at fair market value.
6
CORDIA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2001
Note 3: Related Party Transactions
We periodically borrow funds from shareholders and affiliates of shareholders.
The loans bear interest at the rate of 12% per annum and are payable on demand.
At June 30, 2001, outstanding principle on affiliated loans was $557,868. For
the six months ended June 30, 2001, interest expense incurred on affiliated
loans was $27,101.
Note 4: Commitments
We are committed for annual rentals under noncancelable operating leases for our
office space, office equipment and a vehicle that expire at various times
through February 2005. Effective May 15, 2001, a subsidiary of the Company, ISG
Group, Inc., entered into a new lease for additional office space with a minimum
annual rental rate of $139,200. Future minimum rental commitments under these
leases for years subsequent to December 31, 2000 are as follows:
Year Ending
December 31
2001 $ 186,515
2002 185,506
2003 185,548
2004 89,101
2005 96
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Total $ 646,766
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Rent expense for the six months ended June 30, 2001 and 2000 was $52,911 and
$35,523, respectively.
Note 5: Stockholders' Equity
On May 11, 2001, we entered into a consulting agreement with a one-year term. In
connection with the consulting agreement, we issued non-employee stock options;
40,000 options were granted to acquire our common stock at $1.25 per share, and
60,000 options were granted to acquire our common stock at $3.00 per share. All
stock options were fully vested when issued. The total cost of the agreement was
$167,600, of which $20,950 has been charged to consulting expense through June
30, 2001 and the balance of $146,650 allocated to prepaid expense. During July
2001, we received $50,000 upon exercise of 40,000 options.
7
On May 28, 2001, we issued 25,000 shares of common stock under a separate
agreement, which was subsequently terminated on June 7, 2001. Accordingly, we
recognized consulting expense of $102,500 based on the fair market value of the
shares on May 28, 2001.
Item 2. Management's Analysis and Discussion of Financial Condition and Results
of Operations
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.
Overview
Cordia Corporation is a business services holding company that provides
Internet-enabled outsourcing solutions and services to businesses and
organizations. We currently focus substantially all of our efforts and resources
on providing outsource solutions for the insurance industry.
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 non-core 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 outsource 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 will give us a competitive
advantage over expert organizations that seek to provide their services through
traditional means.
8
Insurance Solutions Group
We operate 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 Insurance Agency,
Inc., doing business as Premium Partners ("Premium Partners").
Three and Six Months Ended June 30, 2001 vs. June 30, 2000
Continuing operations
Our net revenues for the three and six-months periods ended June 30, 2001
increased by approximately $363,000 and $799,000, respectively, or approximately
54% and 119%, respectively, to approximately $1,032,000 and $1,472,000,
respectively, as compared to approximately $669,000 and $672,000 reported for
the same periods ended June 30, 2000.
The increase was primarily attributable to increased revenues reported by our
ISG Group, Inc. ("ISG") subsidiary of approximately $368,000 and $790,000 for
the three and six-month periods ended June 30, 2001, respectively, or
approximately 57% and 122%, respectively, to approximately $1,013,000 and
$1,435,000, respectively, from approximately $645,000 and $645,000 for the three
and six- month periods ended June 30, 2000. ISG, which does business as
Subrogation Partners and Claim Partners, provides outsource claims management
and subrogation services to insurance providers. The increase in revenues
reported for both the three and six-month periods was primarily attributable to
increased outsourced claims management revenues.
Net revenues of our Riderpoint, Inc. subsidiary decreased by approximately
$7,000, or approximately 30%, to approximately $16,000 for the three-month
period. For the six-month period, Riderpoint's net revenues increased by
approximately $5,000, or approximately 20%. The decrease in the three-month
period was directly attributable to management's decision to significantly
reduce the cost of the operations of Riderpoint and shift its short-term focus
to the Company's subrogation and claims administration operations.
Operating expenses increased by approximately $766,000 and $1,531,000 for the
three and six-month periods ended June 30, 2001, respectively, or approximately
92% and 145%, respectively, to approximately $1,599,000 and $2,584,000,
respectively, from approximately $833,000 and $1,053,000, respectively, reported
for the corresponding prior year periods ended June 30, 2000. This increase in
expense is primarily related to the operations of Subrogation Partners and
Claims Partners, which reported increased operating expenses of approximately
$607,000 and $1,352,000 for the three and six-month periods ended June 30, 2001,
respectively, as compared to the corresponding periods ended June 30, 2000.
Corporate overhead and related expenses also increased by approximately $299,000
and $365,000 for the three and six-month periods ended June 30, 2001,
respectively, as compared to the corresponding periods ended June 30, 2000.
Those increases where partially offset by
9
a decrease in expenses related to the operations of Riderpoint of approximately
$175,000 and $252,000 for the three and six-month periods ended June 30, 2001,
respectively, as compared to the prior period. The increase in operating
expenses and corporate overhead are primarily attributable to the increased
investment made during 2001 in the development and deployment of proprietary
software systems; the opening of a new facility for the Subrogation Partners and
Claims Partners operations and increased claims management revenues as compared
to the three and six-month periods ended June 30, 2000.
Interest expense for the three and six-month periods ended June 30, 2001
increased by approximately $16,000 and $21,000, respectively, from the amounts
reported for the three and six-months periods ended June 30, 2000 primarily due
to increased average borrowings.
Loss on investments for the three and six-month periods ended June 30, 2001 of
($4,000) and ($66,000), respectively, versus investment losses of approximately
$525,000 and $454,000 for the three and six-month periods ended June 30, 2000,
primarily resulted from the change in market value of eLEC Communications Corp.
common shares held by the Company.
Liquidity and Capital Resources
At June 30, 2001, we had cash and cash equivalents available of approximately
$61,000, an increase of approximately $7,000 from amounts reported at December
31, 2000. At June 30, 2001, we had a working capital deficit of approximately
($829,000), a decrease in working capital of approximately ($793,000) from
amounts reported at December 31, 2000. At June 30, 2001, we owned (a) 479,000
shares of eLEC Communications Corp., at a market value of $287,400, (b) various
other marketable securities with a market value of approximately $170,900 and
(c) a $42,365 investment in Skyclub Communications Holding Corp., which had been
recorded at cost.
Net cash used in operating activities aggregated approximately $199,000 and
$329,000 for the six-month periods ended June 30, 2001 and June 30, 2000,
respectively. The principal use of cash during the six-month periods ended June
30, 2001 and June 30, 2000 related to net losses of approximately $1,124,000 and
$543,000, respectively. Unearned income of approximately $613,000 during the
six-month period ended June 30, 2001 offset the higher losses in the 2001
period.
Net cash provided by (used in) investing activities aggregated approximately
($216,000) and $554,000 for the six-month periods ended June 30, 2001 and June
30, 2000, respectively. The uses of cash in investing activities were primarily
net purchases of investments of approximately ($150,000) and purchases of
property and equipment of approximately ($68,000) during the six-month period
ended June 30, 2001. The source of cash provided from investing activities
during the six-month period ended June 30, 2000 was proceeds of approximately
$671,000 from the sale of investments, which where partially offset by the
purchases of property and equipment of approximately ($93,000).
Net cash provided by (used in) financing activities aggregated approximately
$422,000 and ($106,000) for the six-month periods ended June 30, 2001 and June
30, 2000, respectively. The source of net cash provided by financing activities
in the six-month period endend June 30, 2001 was primarily the proceeds of
borrowings from affiliates of approximately $424,000. For the six-month period
ended
10
June 30, 2000, the use of net cash in financing activities resulted from the
reduction in borrowings from affiliates and others of approximately ($105,000).
At August 13, 2001, we beneficially owned 470,000 shares of common stock of eLEC
Communications Corp. (NASDAQ: ELEC). Of such shares, approximately 270,000
shares are registered and eligible for sale in the public markets. Approximately
200,000 additional shares will not be eligible for sale in the public markets
until February 2002. We anticipate that our shares of eLEC Communications Corp.
may be sold from time to time, primarily to fund our current operating losses
and our growth. We believe that the working capital and cash flow from
operations of our ISG Group, Inc. subsidiary will be sufficient to meet the cash
and capital requirements of our ISG subsidiary for the next 12 months. We
believe our cash and cash equivalent assets at August 13, 2001, although
adequate for the operations of our ISG operations, may not provide us with
sufficient liquidity to execute many of our acquisition and expansion plans. In
addition, as discussed above, a significant portion of our liquid assets consist
of marketable securities. As the market value of such securities could vary
widely during the year, we may ultimately monetize some or all of such
securities at prices that will not generate sufficient cash to enable us to
carry out our fiscal 2001 operating plans. 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. 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.
11
PART II. OTHER INFORMATION:
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At our annual meeting in May 2001, our stockholders (i) elected Craig
Gironda, Wesly Minella and John Scagnelli as directors for the ensuing
year; (ii) approved an amendment to our articles of incorporation to
change our corporate name from CyberOpticLabs, Inc. to Cordia
Corporation; and (iii) adopted an equity incentive plan whereby up to
5,000,000 shares of our common stock was reserved for issuance
thereunder.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K
The Company filed a report of Form 8-K on May 29, 2001 to report the
change in its corporate name from CyberOpticLabs, inc. to Cordia
Corporation.
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, in the City of Norwalk,
Connecticut on August 14, 2001.
CORDIA CORPORATION
By: /s/ Craig C. Gironda
--------------------------
Craig C. Gironda
President and Chief Executive Officer
12