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, 2002
[ ] 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)
2500 Silverstar Road, Suite 500, Orlando, Florida 32804
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (866) 777-7777
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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 disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be 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. $6,005,260
As of April 1, 2003, the issuer had outstanding 5,821,211 shares of its common
stock (including 60,000 subscribed shares).
As of April 1, 2003, the aggregate market value of the issuer's common stock
held by non-affiliates was $927,043 (based upon the price at which the common
stock was sold on such date).
DOCUMENTS INCORPORATED BY REFERENCE
Part Item
1. Proxy Statement for the 2003 Annual Meeting of Stockholders III 9, 10, 11, 12, 15
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]
TABLE OF CONTENTS
Page
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PART I
Item 1. Description of Business 1
Item 2. Description of Property 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 8
Item 6. Management's Discussion and Analysis or Plan of Operation 8
Item 7. Financial Statements 13
Item 8. Changes in and Disagreements with Accountants on Accounting 14
and Financial Disclosure
PART III
Item 9. Directors and Executive Officers of the Registrant 15
Item 10. Executive Compensation 15
Item 11. Security Ownership of Certain Beneficial Owners and Management and 15
Related Stockholder Matters
Item 12. Certain Relationships and Related Transactions 15
Item 13. Exhibits and Reports on Form 8-K 15
Item 14. Controls and Procedures 16
Item 15. Principal Accountant Fees and Services 16
SIGNATURES
CERTIFICATIONS
INDEPENDENT AUDITORS REPORT
i
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; governmental regulations, 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 software systems, 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. However, during 2001, we began developing proprietary software systems
and related outsourced solutions for the telecommunications industry. In
addition, during the second quarter of 2002, we began providing
telecommunications services through our wholly-owned subsidiary, Cordia
Communications Corp.
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. Due to the 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 software 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.
1
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. and began the development of an integrated software system designed to
support providers of telecommunications services. We refer to these software
systems as "Telecom Workspaces" or "Workspaces". During 2002, we began to design
a suite of services that utilize Workspaces to provide outsourced solutions to
telecommunications providers. In addition, during 2002, Cordia Communication
Corp. became a licensed provider of local and long distance telephone services
in multiple states.
We believe recent wholesale price reductions for telephone services
have created significant opportunities to develop a profitable Competitive Local
Exchange Carrier (CLEC) business utilizing a network platform commonly referred
to as unbundled network elements-platform, or UNE-P. With UNE-P, we are able to
lease all of the network elements required to provide local telecommunications
services from the Incumbent Local Exchange Carrier (ILEC) on a month-to-month
basis. UNE-P allows us to avoid the large capital expenditures required to build
an independent network, closely match our network capacity to utilization and
earn significant gross margins.
In order to provide our telecommunications services, we have entered
into interconnection agreements with facilities-based local (ILECs) and long
distance providers. We utilize our Workspaces system as a middleware layer that
connects our employees, agents, wholesale and retail customers through Web
interfaces to the provisioning, repair, billing and enhanced services functions
of our underlying carriers. Through the constant development and improvement of
our Workspaces system, we continually focus on the most efficient and effective
underlying processes in the performance of each core function of the services we
provide and adapt our systems to those processes. We believe this development
strategy is far more favorable than the alternative methodology, in which the
limitations of the software system lead to an adaptation of the process that is
less than optimal in order to work within the confines of the software system.
We have identified the following three strategies that we intend to
utilize, through our Workspaces system in order to profit from these
developments in the domestic telecommunications market.
Retail Telecommunication Services. As of March 31, 2003, Cordia
Communications Corp. was approved to provide local and long distance
telecommunications services in Florida, New York, New Jersey, Illinois and
Pennsylvania. Of these states, Cordia Communications has been actively marketing
retail services to end users primarily in New York and New Jersey. We expect to
expand our retail service offerings into Illinois and Pennsylvania during the
remainder of 2003. We have focused on these states because management believes
they offer the most attractive opportunities due to the relative size of their
telecommunications markets and relatively low wholesale prices as compared to
anticipated average retail revenue, which management believes will provide
significant retail gross margins.
Wholesale Telecommunications Services. During November 2002, Cordia
Communications began to offer wholesale telecommunications services to other
telecommunications providers. Taking advantage of our Workspaces software
system, Cordia Communications is able to provide wholesale customers with
internet access to our systems and data. We believe our systems and our focus on
process engineering have created outsourced solutions and services that will
greatly facilitate the entry of our wholesale customers into the CLEC business.
We believe our wholesale customers will be able to provide telecommunications
services with less investment and greater efficiency and expertise then may be
possible for most CLECs who lack our systems capabilities and the knowledge of
our employees.
2
Outsourced Telecommunications Systems and Solutions. During the first
quarter of 2003, we began to market a suite of outsourced services to
telecommunications providers. These outsourced services are designed around our
Workspaces systems. The services we offer include Billing, New Order
Provisioning, Repair, Level I Customer Service, Secondary Provisioning,
Collections and Regulatory services. Customers for these services are required
to subscribe to Workspaces systems, usually hosted within our facilities. Once a
customer is using Workspaces, we are able to provide all or some of these
specialized functions on an outsourced basis. We believe customers will be
attracted to these services and adopt and utilize those functions that they
believe are deficient within their own organizations. In addition to long term
outsourcing service, we will also be offering emergency backup and transitional
services that will allow our customers to outsource these functions during times
of unplanned facilities outages, loss of key personnel or rapid growth.
Cordia Communications reported revenues of approximately $548,000 for
the year ended December 31, 2002. It reported no revenues for the year ended
December 31,2001. Of the revenues reported for the year ended December 2002,
approximately $506,000 was generated from retail telecommunications services and
approximately $42,000 was generated from wholesale services. As of March 31,
2003, Cordia Communications annual revenue run rate was approximately
$2,000,000, of which approximately $1,500,000 would be generated from retail
services and the remaining $500,000 would be generated from wholesale and
outsourced services. We expect to experience continued growth in our
telecommunications businesses during the remainder of 2003.
Insurance Solutions Group
We operated our insurance services business primarily through ISG
Group, Inc., our wholly-owned subsidiary that conducted business under the name
Insurance Solutions Group ("ISG"). As discussed below, we sold all of our equity
interests in ISG in March 2003. ISG provided 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.
Subrogation Partners. Subrogation Partners provided 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 actively served over 40 insurance carriers.
During 2001, our technical development group developed and launched an
integrated proprietary subrogation system called SubroAGS, which increased the
productivity of Subrogation Partners' staff of adjusters. Subrogation Partners
believed that SubroAGS significantly decreased 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
expected to utilize SubroAGS to bond electronically with its customers by
automating reporting and data transfer. Subrogation Partners believed these
capabilities would provide it with a competitive advantage, which would be
utilized in the marketing and sales of its services.
3
Subrogation Partners earned revenue under written contracts with its
customers that generally provided for the payment of contingency fees upon
recoveries. In the year ended December 31, 2002, Subrogation Partners had net
revenues of approximately $2.8 million, as compared to net revenues of
approximately $1.8 million in the year ended December 31, 2001.
Claim Partners. Claim Partners was a claims administrator that provided
claim management solutions to insurance companies. ISG launched the Claim
Partners business during 2001, which generated revenues of approximately $2.6
million in the year ended December 31, 2002 as compared to approximately $1.9
million in year ended December 31, 2001.
During the year ended December 31, 2002, Subrogation Partners had over
40 client insurance companies with only one representing more than 10% of net
revenues (28% of net revenues), as compared to the year ended December 31, 2001
in which two customers accounted for approximately 48% of its subrogation net
revenues. At December 31, 2002, Subrogation Partners had a gross revenue backlog
of approximately $28.1 million.
During the first quarter of 2003, we undertook an evaluation of the
relative potential opportunities of our communications and insurance businesses.
As part of this evaluation, we took into consideration the limited capital
resources available to our company and the continued losses of ISG despite its
rapid growth over the last two years, as well as ISG's negative equity and
working capital position. As a result of this evaluation, we determined that it
was in the best interest of our shareholders to exit the operating portions of
our insurance-related subsidiaries and to reduce the significant infrastructure
and operating costs associated with those businesses. On March 3, 2003, we sold
our equity interest in ISG to West Lane Group Inc. for a selling price of
$750,000. In addition, we entered into a licensing and services agreement for
our SubroAGS software with the buyer of ISG that is expected to generate for us
a minimum of $250,000 in revenue over the next two years. The transaction is
discussed in Note 12 to our audited financial statements for the year ended
December 31, 2002.
RiderPoint, Inc., a subsidiary in which we had owned an approximate 80%
interest, marketed insurance products through its RiderPoint.com web site.
During 2002, RiderPoint and its subsidiary, RP Insurance Agency, Inc. generated
revenues of approximately $4,000 as compared to revenues of approximately
$82,000 in 2001. We decided to cease operations of RP Insurance Agency during
2001. During 2002, we sold our equity interest in RiderPoint, Inc. and its
subsidiary, RP Insurance Agency, Inc., as discussed in Note 3 to our audited
financial statements for the year ended December 31, 2002.
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.
Our intentions are to pursue our on-going growth strategy. 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.
4
With respect to our telecommunications business, Cordia Communications
Corp., we intend to focus on growing a retail customer base, while leveraging
our systems and expertise to generate outsourcing and wholesale services revenue
from other telecommunications providers. 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 our retail telecommunications service
offerings through three channels. The first includes utilizing third party
telemarketing firms to solicit customers. These firms are paid on a per sale
basis that varies by the type, size and location of the customers sold. We are
also seeking to develop a network of independent sales agents to sell our
telecommunications services. We have developed an agent module to our Workspaces
systems and a related internet site located at agents.cordia.us to assist us in
attracting and maintaining a network of qualified independent sales agents.
Through agents.cordia.us, our agents can track all customer activities on a real
time basis. These activities include order tracking, billing, payments and
ticketing systems that allow an agent to actively participate in our mutual
customer's telecommunications status and requirements. We generally pay our
independent agents both initial upfront commissions and residual commissions
based on customer payments. Finally, we have hired a small internal staff to
market our retail and wholesale telecommunications services. 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 telecommunications services.
Competition
The telecommunications industry is highly competitive and many of our
competitors in the various business sectors in which we compete have
substantially greater financial resources, larger sales forces and larger and
more sophisticated network capabilities. 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 the effect, if any, such changes may have
on our operations.
In our software and outsourced services business, we compete with the
internal departments of potential customers and others that provide similar
services. There are participants in the telecommunications, transaction
processing and software development industries that possess sufficient capital,
and managerial and technical expertise, to develop competitive services.
Government Regulation
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
5
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.
Employees
As of March 31, 2003, we had 15 employees, nine of whom were employed
on a full-time basis. At such date, nine of our employees were located at our
offices in New Rochelle, New York and six were located at our executive office
located in Orlando, Florida. None of our employees is represented under a
collective bargaining agreement. We believe our relations with our employees to
be good.
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 4,330,200 shares of our common stock. 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.
6
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. In July 2001, we formed Cordia
Communications Corp., which commenced operations during the second quarter of
fiscal 2002.
On March 3, 2003, we sold all of our equity interests in ISG and its
operating subsidiaries.
Item 2. Description of Property.
As of March 31, 2003, we leased property at the following two
locations: (1) approximately 3,500 square feet of office space for our offices
in New Rochelle, New York at a rental price of $2,500 per month and (2)
approximately 2,000 square feet at our executive offices in Orlando, Florida at
a rental price of $1,597.50 per month plus utilities. Each of our leases is on a
month-to-month basis. 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.
None.
7
Part II
Item 5. Market for Common Equity and Related Stockholder Matters.
Since June 7, 2002, our common stock has been listed on the OTC
Bulletin Board under the symbol "CORG." From June 5, 2001 to June 6, 2002, our
common stock was listed on the OTC Bulletin Board under the symbol "CORC", and
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 2002 and 2001. Such high and low bid information reflects inter-dealer
quotes, without retail mark-up, mark down or commissions and may not represent
actual transactions. All share prices reflect the one-for-five reverse stock
split of common stock effected on June 6, 2002.
Year Ended 2002 Year Ended 2001
--------------- ---------------
High Low High Low
---- --- ---- ---
Quarter ended March 31 $2.80 $0.75 $3.75 $0.51
Quarter ended June 30 7.00 0.52 4.50 1.95
Quarter ended September 30 6.50 2.02 3.40 1.25
Quarter ended December 31 4.40 2.50 2.00 0.53
As of April 1, 2003, there were 5,821,211 shares of our common stock
outstanding (including 60,000 subscribed shares) held by approximately 108
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.
Recent Sales of Unregistered Securities
On November 26, 2002, we sold to an unaffiliated third party in a
private offering pursuant to Regulation D under the Securities Act of 1933, as
amended, 60,000 shares of our common stock at a purchase price of $1.00 per
share. On February 15, 2003, we sold to an unaffiliated third party in a private
offering pursuant to Regulation D under the Securities Act of 1933, as amended,
60,000 shares of common stock at a purchase price of approximately $0.75 per
share.
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.
8
Results of Operations
Year Ended 2002 Compared Year Ended 2001
Operating Revenues
Years Ended December 31
-----------------------
2002 2001
---- ----
Subrogation services, net $ 2,837,000 $ 1,834,000
Claims administration income 2,597,000 1,949,000
Telecommunications revenue 548,000 -
Other 23,000 34,000
------------ -----------
$ 6,005,000 $ 3,817,000
=========== ===========
Revenues for the year ended December 31, 2002 increased by
approximately $2,188,000, or approximately 57%, to approximately $6,005,000 as
compared to approximately $3,817,000 reported during the year ended December 31,
2001.
Subrogation Services
=========================================
2002-2001 $1,002,000 54% increase
=========================================
Subrogation service revenue consisted of the contingency fees of our
Subrogation Partners business that we recognized when funds were collected from
third parties and the respective insurance files we closed. Revenue increases
were primarily due to our more focused efforts on collecting a significant
portion of the backlog of our prior years inventory. Aided by SubroAGS, our
recently-implemented online software recovery application, we were able to
significantly increase our productivity in the recovery process. As the
Subrogation Partners business was sold in connection with our sale of ISG on
March 3, 2003, no additional subrogation services revenue was received, or will
be received, subsequent to March 3, 2003.
Claims Administration Income
=========================================
2002-2001 $ 649,000 33% increase
=========================================
Claims administration income was service revenue in our Claims Partners
business that was recognized as earned over the lives of the respective
policies. The increase in Claim Partners revenue was primarily due to updated
contract changes with clients that changed the rate at which revenue was deemed
earned and recognized. As the Claims Partners business was sold in connection
with our sale of ISG on March 3, 2003, no additional claims administration
income was received, or will be received, subsequent to March 3, 2003.
Telecommunications Revenue
=========================================
2002-2001 $ 548,000 -N/A% change
=========================================
Telecommunications revenue is earned from the provisioning of services
to business, residential and wholesale customers for basic telephone service,
including local and long distance service, as well as ancillary services such as
voice messaging and call waiting. As we reported no telecommunications revenue
for the year ended December 31, 2001, all of our 2002 revenue was derived from
our efforts to grow our customer base. We anticipate a steady and continued
growth rate in the customer base of our telecommunications operations.
9
Other Revenue
=========================================
2002-2001 ($11,000) (32%) decrease
=========================================
Other revenue consists primarily of revenue earned through our
outsourcing services of data and website technology. The decrease is primarily
due to the shift in our concentration of time and resources toward the growth of
our telecommunications business during 2002. We intend, however, to continue to
offer technology outsourcing to current and potential customers.
Operating Expenses
Years Ended December 31
-----------------------
2002 2001
---- ----
Resale and Wholesale Line Changes $ 306,000 $ -
Payroll and Payroll Taxes 3,809,000 2,813,000
Advertising and Promotion 417,000 435,000
Professional and Consulting Fees 885,000 503,000
Depreciation 74,000 42,000
Insurance 172,000 122,000
Office Expense 204,000 278,000
Telephone 225,000 92,000
Rent and Building Maintenance 343,000 153,000
Outside Services 621,000 296,000
Other Selling, General and Administrative 316,000 331,000
---------- ----------
$7,372,000 $5,065,000
========== ==========
Consolidated operating expenses increased by approximately $2,307,000,
or approximately 45%, to approximately $7,372,000 during fiscal 2002 as compared
to approximately $5,065,000 during fiscal 2001.
Resale and Wholesale Line Charges
=========================================
2002-2001 $306,000 -NA% change
=========================================
Resale and wholesale line charges are direct costs associated with our
telecommunications subsidiary, Cordia Communications Corp., and represent our
network access fees paid in order to provide local and long distance telephone
service to our customers. These expenses will rise or fall in direct correlation
to the size of our telecommunications customer base. We reported no resale and
wholesale line charges for the year ended December 31, 2001.
10
Payroll and Payroll Taxes
=========================================
2002-2001 $996,000 35% increase
=========================================
This increase was directly related to the growth in 2002 of our
insurance subrogation and telecommunications companies. With the sale of our
insurance subrogation business on March 3, 2003, we will no longer have payroll
costs, which amounted to approximately $3,355,000 in the year ended December 31,
2002, for this business. However, we expect our payroll costs associated with
Cordia Communications Corp. will continue to increase over the next 12 months as
we continue to expand and grow our customer base.
Advertising and Promotion
=========================================
2002-2001 ($18,000) (4%) decrease
=========================================
Advertising and promotion costs, which consist of advertising,
marketing, travel and telemarketing expenses, decreased slightly for the year
ended December 31, 2002 as compared to 2001. It is not expected that this trend
will continue as our telecommunications business will require the services of
telemarketers to continue to grow our customer base.
Professional and Consulting
=========================================
2002-2001 $382,000 76% increase
=========================================
This increase was principally the result of non-cash expenses related
to options granted to non-employees for consulting services.
Depreciation
=========================================
2002-2001 $33,000 76% increase
=========================================
The increase was primarily due to additions of depreciable office
equipment, which were necessary to facilitate the growth of Cordia
Communications and our Subrogation Partners business.
Insurance
=========================================
2002-2001 $50,000 40% increase
=========================================
This increase was primarily due to our increased staff and equipment
for our Subrogation Partners business, as well as industry-wide insurance cost
increases we experienced in obtaining coverage.
Office Expense
Telephone
Rent and Building Maintenance
=========================================
2002-2001 $249,000 47% increase
=========================================
The consolidated increases of office expense, telephone expenses and
rent and building maintenance were due primarily to our efforts to grow our
telecommunications business and our Subrogation Partners business, as well as
the added expense (approximately $13,300 in 2002) of operating a new facility in
Orlando, Florida for Cordia Communications.
11
Outside Services
=========================================
2002-2001 $325,000 109% increase
=========================================
Outside services expenses consist primarily of contracted services from
outside companies that assist in legal, arbitration, DMV and background checks
and regulatory matters. These increases were related primarily to our
Subrogation Partners business and were directly related to our increased efforts
to close files and process recoveries. With the sale of our Subrogation Partners
business on March 3, 2003, we expect our outside services expenses to decline
significantly in fiscal 2003.
Other Selling, General and Administrative
==========================================
2002-2001 ($15,000) 4% decrease
==========================================
Other selling, general and administrative expenses consist of expenses
such as bad debt, dues and subscriptions, equipment rental, bank and credit card
processing fees, license expense and registration fees, among others. While
these expenses decreased slightly for year ended December 31, 2002 as compared
to year ended December 31, 2001, we expect these expenses to increase in fiscal
2003 as we intend to expand and grow our telecommunications business.
Interest expense amounted to approximately $13,000 during year ended
December 31, 2002, as compared to approximately $33,000 during year ended
December 31,2001. The decrease was primarily due to decreased average
borrowings.
Liquidity and Capital Resources
At December 31, 2002, we had cash and cash equivalents of approximately
$235,000, an increase of approximately $50,000 from amounts reported at December
31, 2001, and a working capital deficit of approximately ($1,193,000), which
represented a decrease in working capital of approximately $127,000 from amounts
reported at December 31, 2001.
Net cash used in operating activities aggregated approximately
($378,000), a decrease of approximately $10,000 from the amount used during the
year ended December 31, 2001. The principal use of cash during the years ended
December 31, 2002 and December 31, 2001 was approximately $1,157,000 and
$1,679,000, respectively, relating to the losses for those periods. Unearned
income of approximately $325,000 during the year ended December 31, 2001
relating to certain claims administration in our Claim Partners subsidiary
offset the higher losses in the 2001 period.
Net cash used by investing activities for the year ended December 31,
2002 aggregated approximately $194,000 as compared to net cash provided of
approximately $19,000 for the year ended December 31,2001. Cash applied to
investing activities consisted primarily of purchases of investments of
approximately $67,000 (2002) and $384,000 (2001), purchases of property and
equipment of approximately $136,000 (2002) and $94,000(2001), increases in other
loans receivable of approximately $139,000 (2002) and proceeds from the sale of
investments of approximately $27,000 (2002) and $465,000 (2001).
Net cash provided by financing activities aggregated approximately
$622,000 and $499,000 during the years ended December 31, 2002 and 2001,
respectively. The principle sources of net cash provided by financing activities
in the years ended December 31, 2002 and 2001 were the proceeds from the
issuance of common stock of approximately $607,000 (2002) and $50,000 (2001),
and an increase in other loans payable of approximately $42,000 (2002) and
$139,000 (2001).
12
As discussed above and in detail in Note 12 to our financial statements
for the year ended December 31, 2002, on March 3, 2003, we sold ISG and its
related subsidiaries for a sale price of $750,000. The purchase price was paid
with a $750,000 note bearing interest at 6% per annum with a term of two years.
In addition, we entered into a licensing and services agreement with the
purchasers of ISG, which requires a minimum of $250,000 in cash payments over
the next two years. Upon closing, we received an upfront payment under the
licensing and services agreement of $100,000 in cash and expect to receive
monthly payments of $6,000 for twenty-five months beginning on April 1, 2003.
ISG had a working capital deficit of approximately ($985,000) and a
stockholders' deficit of approximately ($740,000) at December 31, 2002. The sale
of ISG and the receipt of payments under the licensing and services agreements
are expected to improve our working capital position by over $1,000,000 at March
31, 2003.
During 2002, we received aggregate proceeds of approximately $607,000
from the sale of our common stock in connection with the exercise of options and
the issuance of common stock for services. During the fourth quarter of 2002, we
sold in a private placement 60,000 shares of common stock for a purchase price
of $60,000. During the first quarter of 2003, we sold in a private placement an
additional 60,000 shares of common stock for a purchase price of approximately
$45,000.
We believe the sale of ISG will make a significant positive
contribution to the future capital requirements of our continuing operations. As
discussed above, our telecommunications-related revenues have grown to an
annualized rate of approximately $2,000,000 per year, as of March 31, 2003. To
maintain our telecommunications business at its current size, we believe our
telecommunications operations would require little additional capital. However,
we plan to aggressively grow our telecommunications and outsourced service
businesses and believe our cash and cash equivalent assets at March 31, 2003 may
not provide us with sufficient liquidity to do so, although management believes
it will be able to generate sufficient cash flows to meet its obligations as
they come due during 2003. 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, which would result in the
continuance of unprofitable operations.
Item 7. Financial Statements.
The following consolidated financial statements, notes thereto, and the
related independent auditors' report contained on page F-1 to the Company's
consolidated financial statements are herein incorporated:
Consolidated balance sheets - December 31, 2002 and 2001
Consolidated statements of operations - Years ended December 31, 2002
and 2001
Consolidated statements of stockholders' equity deficiency - Years
ended December 31, 2002 and 2001
13
Consolidated statements of cash flows - Years ended December 31, 2002
and 2001
Notes to consolidated financial statements - Years ended December 31,
2002 and 2001
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
14
Part III
Item 9. Directors and Executive Officers of the Registrant.
Directors and Executive Officers.
Information regarding our directors and executive officers is
incorporated by reference to the section entitled "Election of Directors"
appearing in our Proxy Statement for our Annual Meeting of Stockholders to be
filed with the Securities and Exchange Commission (the "Commission") within 120
days after the end of our year ended December 31, 2002.
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 our Annual Meeting of Stockholders to
be filed with the Commission within 120 days after the end of our year ended
December 31, 2002.
Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
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 our Annual Meeting of Stockholders to be
filed with the Commission within 120 days after the end of our year ended
December 31, 2002.
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 our
Annual Meeting of Stockholders to be filed with the Commission within 120 days
after the end of our year ended December 31, 2002.
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.
15
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).
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 Cordia Corporation 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 Promissory Note, dated March 3, 2003, of West Lane Group,
Inc. in favor of our company (incorporated by reference to
Exhibit 10.2 to our Form 8-K filed with the Commission on
March 5, 2003).
10.3 License Agreement, dated March 3, 2003, between I.S.G.
Group, Inc., d/b/a Insurance Solutions Group and our
company (incorporated by reference to Exhibit 10.2 to our
Form 8-K filed with the Commission on March 5, 2003).
21 Subsidiaries - list of all subsidiaries, jurisdiction of
incorporation and names under which subsidiaries do
business.
(b) Reports on Form 8-K.
We filed a Current Report on Form 8-K, dated November 15, 2002,
furnishing under Items 7 and 9 the transmittal letter and certifications of our
Principal Executive Officer, Craig C. Gironda, and our Principal Financial
Officer, Lorie M. Guerrera, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, which accompanied our Quarterly Report on Form 10-QSB filed with the
Commission on November 14, 2002.
We filed a Current Report on Form 8-K, dated January 2, 2003,
furnishing under Items 5 and 7 the letter of resignation of Craig C. Gironda
from his positions as a director and chief executive officer of the Company.
We filed a Current Report on Form 8-K, dated March 3, 2003, furnishing
under Items 2 and 7 the Agreement and Plan of Reorganization and Corporate
Separation, dated March 3, 2003, by and between our company and West Lane Group,
Inc., the Promissory Note, dated March 3, 2003, of West Lane Group, Inc. in
favor of our company and the License Agreement, dated March 3, 2003, between our
company and I.S.G. Group, Inc., d/b/a Insurance Solutions Group.
Item 14. Controls and Procedures.
(a) Based upon an evaluation performed within 90 days of this Report,
our Chief Executive Officer ("CEO") and Chief Accounting Officer ("CAO") have
each concluded that our disclosure controls and procedures are effective to
ensure that material information relating to our Company is made known to
management, including the CEO and CAO, particularly during the period when our
periodic reports are being prepared, and that our internal controls are
effective to provide reasonable assurances that our financial condition, result
of operations and cash flows are fairly presented in all material respects
16
(b) The CEO and CAO each note that, since the date of his/her
evaluation until the date of this Report, there have been no significant changes
in internal controls or in other factors that could significantly affect
internal controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Item 15. Principal Accountant Fees and Services.
Information regarding our principal accountant fees and services is
incorporated by reference to the information set forth under the caption
"Principal Accountant Fees and Services" in our Proxy Statement for the Annual
Meeting of Stockholders to be filed with the Commission within 120 days after
the end of our year ended December 31, 2002.
17
SIGNATURES
In accordance Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CORDIA CORPORATION
Date: April 15, 2003 By: /s/ Patrick Freeman
-------------------------------------
Patrick Freeman
President and Chief Executive Officer
Date: April 15, 2003 By: /s/ Lorie M. Guerrera
-------------------------------------
Lorie M. Guerrera
Chief Accounting Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities
stated on April 15, 2003.
Signature Title
--------- -----
/s/Patrick Freeman President, Director (Principal
---------------------------------- Executive Officer)
/s/John Scagnelli Director
----------------------------------
/s/Wesly Minella Secretary, Director
----------------------------------
18
Certification of Principal Executive Officer
Pursuant to 18 U.S.C. 1350
(Section 302 of the Sarbanes-Oxley Act of 2002)
I, Patrick Freeman, certify that:
1. I have reviewed this annual report on Form 10-KSB of CORDIA
CORPORATION;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have;
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
(c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors, any material
weaknesses in internal controls; and
19
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: April 15, 2003 /s/ Patrick Freeman
-------------------------------------
President and Chief Executive Officer
20
Certification of Principal Financial Officer
Pursuant to 18 U.S.C. 1350
(Section 302 of the Sarbanes-Oxley Act of 2002)
I, Lorie M. Guerrera certify that:
1. I have reviewed this annual report on Form 10-KSB of CORDIA
CORPORATION;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have;
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
(c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors, any material
weaknesses in internal controls; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: April 15, 2003 /s/ Lorie M. Guerrera
--------------------------------
Chief Accounting Officer
21