SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1996
Commission File Number 0-16530
-------------------------------------------------------
FINANCIAL PERFORMANCE CORPORATION
-------------------------------------------------------
(Exact name of Registrant as specified in its charter)
New York 13-3236325
- ------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
335 Madison Avenue, New York, New York 10017
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 557-0401
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES |X| NO |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at February 7, 1997
- ------------------------------ --------------------------------
Common Stock 8,005,532 Shares
<PAGE>
Financial Performance Corporation
First Quarter Report on Form 10-QSB
TABLE OF CONTENTS
Part I. Page
----
Item 1. Financial Statements (Unaudited)............................ 1
Accountants' Compilation Report............................. 2
Consolidated Balance Sheets
December 31, 1996 and December 31, 1995............... 3
Consolidated Statement of Changes in
Stockholders' Equity For the Three Months
Ended December 31, 1996 and December 31, 1995............. 4
Consolidated Statements of Operations
For the Three Months Ended
December 31, 1996 and December 31, 1995............... 5
Consolidated Statements of Cash Flows
For the Three Months Ended December 31, 1996
and December 31, 1995................................. 6
Notes to Consolidated Financial Statements.................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 15
Part II
Item 6. Exhibits and Reports on Form 8-K............................ 20
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<PAGE>
Part I
Item 1. Financial Statements
The financial statements of Financial Performance Corporation (the
"Company") begin on page 3.
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<PAGE>
To the Board of Directors and Shareholders
Financial Performance Corporation and Subsidiaries
New York, New York
We have compiled the accompanying consolidated balance sheet of Financial
Performance Corporation and Subsidiaries as of December 31, 1996 and 1995 and
the related consolidated statements of operations and cash flows for the three
months then ended in accordance with Statements on Standards for Accounting and
Review Services issued by the American Institute of Certified Public
Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
February 11, 1997
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<PAGE>
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996
1995
(Unaudited) (Unaudited)
<S> <C> <C>
Current assets
Cash $ 1,644,740 $ 413,796
Accounts receivable 1,097,558 653,014
Prepaid expenses and other current assets 161,697 41,911
----------- -----------
Total current assets 2,903,995 1,108,721
Computer equipment, net of accumulated depreciation
of $55,573 and $24,097 (Note B (6)) 102,472 121,462
Software development costs (Note B (3)) 479,720 305,070
Goodwill (Note B (8)) 143,938 164,500
Security deposits 16,318 -
----------- -----------
$ 3,646,443 $ 1,699,753
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 1,205,883 $ 817,589
Current portion of long-term debt (Note D) - 34,137
Short-term borrowings (Note C) - 425,000
----------- -----------
Total current liabilities 1,205,883 1,276,726
----------- -----------
Long-term debt, net of current maturities (Note D) - 1,310,394
----------- -----------
Minority interest in consolidated subsidiaries 266,446 173,846
----------- -----------
Stockholders' equity (capital deficiency)
Common stock - authorized 50,000,000 shares
of $.01 par value per share: issued and
outstanding 7,850,782 and 3,500,617 as of
December 31, 1996 and 1995, respectively 78,508 35,006
Additional paid in capital 7,341,725 4,142,732
Accumulated (deficit) (5,246,119) (5,238,951)
----------- -----------
Total stockholders' equity (capital deficiency) 2,174,114 (1,061,213)
----------- -----------
$ 3,646,443 $ 1,699,753
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Common Stock Additional
-------------------- Paid In
Shares Par Value Capital Deficit Total
--------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE -
SEPTEMBER 30, 1995 3,500,617 $ 35,006 $ 4,142,732 $(5,027,664) $( 849,926)
Net income (loss) - - - ( 211,287) ( 211,287)
--------- -------- ----------- ----------- -----------
BALANCE -
DECEMBER 31, 1995 3,500,617 $ 35,006 $ 4,142,732 $(5,238,951) $(1,061,213)
========= ======== =========== =========== ===========
BALANCE,
SEPTEMBER 30, 1996 7,192,562 $ 71,926 $ 7,043,986 $(5,262,713) $ 1,853,199
Issuance of common
shares on exercise
of warrants 49,414 494 24,213 - 24,707
Issuance of shares in
private placement,
net of costs 44,192 442 39,185 - 39,627
Issuance of common
shares on
conversion of
convertible note
and short-term debt 564,614 5,646 234,341 - 239,987
Net income - - - 16,594 16,594
--------- -------- ----------- ----------- -----------
BALANCE -
DECEMBER 31, 1996 7,850,782 $ 78,508 $ 7,341,725 $(5,246,119) $ 2,174,114
========= ======== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
----------- -----------
(Unaudited) (Unaudited)
Revenues $ 1,372,395 $ 1,062,077
----------- -----------
Costs and expenses
Cost of revenues 1,080,456 915,948
Salaries and related expenses 71,601 45,539
Selling, general and administrative 192,045 93,575
----------- -----------
1,344,102 1,055,062
----------- -----------
Operating income 28,293 7,015
----------- -----------
Other income (expenses):
Interest income 13,459 32
Interest expense ( 2,981) ( 31,194)
Minority interest in income of
consolidated subsidiary ( 10,400) ( 18,800)
----------- -----------
78 ( 49,962)
----------- -----------
Income (loss) from continuing operations
before income taxes 28,371 ( 42,947)
Provision for income taxes 11,777 -
----------- -----------
Income (loss) from continuing operations 16,594 ( 42,947)
Loss from discontinued operations (Note K) - ( 168,340)
----------- -----------
Net income (loss) $ 16,594 $( 211,287)
=========== ===========
Net income (loss) per share $ .002 $(.038)
=========== ===========
The accompanying notes are an integral part of these financial statements.
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<PAGE>
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
----------- ---------
(Unaudited) (Unaudited)
Cash flows provided by operating activities:
Net income (loss) $ 16,594 $(211,287)
Adjustments to reconcile net (loss) to net
cash used for operating activities:
Depreciation and amortization 28,071 5,580
Minority interest in income of consolidated
subsidiary 10,400 18,800
Changes in operating assets and liabilities:
Increase in accounts receivable ( 195,042) (425,627)
Increase in prepaid expenses and other
current assets ( 104,357) ( 4,613)
Decrease in deposits 100,000 -
Increase (decrease) in accounts payable
and other current liabilities ( 165,689) 491,474
----------- ---------
Net cash used for operating activities ( 310,023) (125,673)
----------- ---------
Cash flows from investing activities:
Purchase of equipment - ( 55,423)
Software development costs ( 42,000) ( 69,000)
----------- ---------
Net cash used for investing activities ( 42,000) (124,423)
----------- ---------
Cash flows from financing activities:
Exercise of warrants 24,707 -
Repayments on notes payable to stockholders - ( 10,557)
Proceeds from notes payable - 25,694
Proceeds from short-term borrowings - 300,000
----------- ---------
Net cash provided by financing activities 24,707 315,137
----------- ---------
Net increase (decrease) in cash ( 327,316) 65,041
Cash, beginning of period 1,972,056 348,755
----------- ---------
Cash, end of period $ 1,644,740 $ 413,796
=========== =========
The accompanying notes are an integral part of these financial statements.
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<PAGE>
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND BUSINESS
Financial Performance Corporation (the "Company") currently markets
computer software and specialized consulting services to the financial services
industry. The Company was incorporated in New York on August 14, 1984. The
Company ceased operations from February 1990 through November 1992.
During the fiscal year ended September 30, 1995, the Company established
three eighty percent owned subsidiaries, Michaelson Kelbick Partners Inc.
("MKP"), Aspen Capital Management, LLC ("Aspen"), and FPC Information Corp.
("FPC Information").
MKP was formed and commenced operations in October 1994. MKP is engaged in
providing specialized business and marketing services to the financial services
industry. (See Note B (1)).
Aspen was formed in January 1995 as an international sponsor of cash
management funds and planned to engage in the development, investment management
and administration of such funds. Aspen, which was in the development stage,
ceased operations in September 1996 (See Note L).
FPC Information was formed in November 1994 for the purpose of marketing
the Company's software products.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(1) Consolidated financial statements
The consolidated financial statements include the accounts of Financial
Performance Corporation and Subsidiaries (its three eighty percent owned
subsidiaries). The Company's investment in the subsidiaries is accounted for by
the equity method. All significant intercompany accounts and transactions have
been eliminated.
Condensed financial information of its eighty percent owned subsidiary,
MKP, excluding intercompany eliminations, as of December 31, 1996 and 1995 and
for the three months then ended, is as follows:
1996 1995
---- ----
Cash $ 1,502,000 $ 363,000
Accounts receivable 1,098,000 653,000
Other assets 42,000 1,100
Accounts payable 1,077,000 531,000
Revenues 1,372,000 1,062,000
Operating costs 1,187,000 969,000
Net income 187,000 93,000
-7-
<PAGE>
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(1) Consolidated financial statements (continued)
Condensed financial information for the Company's other two eighty percent
subsidiaries, Aspen Capital Management, LLC and FPC Information Corp., have not
been separately disclosed. These entities had no revenues and their assets and
liabilities are immaterial.
Aspen, whose operations commenced in March 1995, suspended its operations
in September 1996 (See Note L). Aspen had no revenues and incurred losses of
$168,340 for the three months ended December 31, 1995. FPC Information Corp. had
no revenues and incurred losses of $50,836 and $63,786 for the three months
ended December 31, 1996 and 1995, respectively.
(2) Revenue recognition
Revenue from software products is recognized upon delivery to the customer,
provided that no significant vendor obligations remain, and collection of the
resulting receivable is deemed probable.
(3) Software Development Costs and Amortization
Costs associated with software development subsequent to the establishment
of technological feasibility, including enhancements to software products, are
capitalized and amortized as required by Statement of Financial Accounting
Standards No. 86. Costs incurred prior to achieving technological feasibility
are expensed as incurred and classified as research and development costs. There
were no research and development costs incurred for the three months ended
December 31, 1996 and 1995.
Amortization of capitalized software development costs is generally
provided on a product-by-product basis at the greater of the amount computed by
using the ratio that current gross revenue bears to the total current and
anticipated gross revenue of the product or on the straight-line method over the
sixty-month estimated useful life of the product commencing when the product is
available for general release to customers.
Software development costs are summarized as follows:
1996 1995
--------- ---------
Balance - beginning of period $ 452,299 $ 238,289
Additions 42,000 69,000
Amortization ( 14,579) ( 2,219)
--------- ---------
Balance - end of period $ 479,720 $ 305,070
========= =========
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<PAGE>
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(4) Income (loss) per common share
Income (loss) per common share is computed using the weighted average
number of common shares outstanding for each period adjusted for incremental
shares assumed issued for common stock equivalents using the treasury stock
method, provided that the effect is not antidilutive.
(5) Cash and cash equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
(6) Depreciation and amortization
Computer equipment is stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets.
(7) Income Taxes
Income taxes are computed in accordance with the provisions of Financial
Accounting Standards Board Statement No. 109, "Accounting for Income Taxes"
("SFAS 109"), which requires, among other things, a liability approach to
calculating deferred income taxes. SFAS 109 requires a company to recognize
deferred tax liabilities and assets for the expected future tax consequences of
events that have been recognized in a company's financial statements or tax
returns. Under this method, deferred tax liabilities and assets are determined
based on the difference between the financial statement carrying amounts and tax
basis of assets and liabilities using enacted tax rates in effect in the years
in which the differences are expected to reverse.
At September 30, 1996, the Company had net operating loss carryforwards of
approximately $487,000, which would expire in 2011. Certain provisions of the
tax law may limit the net operating loss carryforwards available for use in any
given year in the event of a significant change in ownership interest. At
September 30, 1996, the Company had a deferred tax asset amounting to
approximately $195,000. The deferred tax asset consisted primarily of net
operating loss carryforwards and has been fully offset by a valuation allowance
of the same amount.
The income tax expense for the three months ended December 31, 1996 of
$11,777 represents state and local income taxes on the income of MKP.
(8) Goodwill
The Company's goodwill arises from the establishment of MKP, which is
included in the Company's consolidated financial statements. Goodwill is
amortized over a ten-year period utilizing the straight-line method.
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<PAGE>
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE C - SHORT-TERM BORROWINGS
During the fiscal year ended September 30, 1996, $675,000 of short-term
financing was advanced to the Company by a principal shareholder. These advances
plus prior short-term borrowings which aggregated $425,000 at December 31, 1995
totaled $800,000. This aggregate amount ($800,000) was converted into 800,000
shares of the Company's common stock on March 29, 1996 and June 20, 1996.
Subsequent to the conversion, an additional $113,000 was advanced to the Company
by the same principal shareholder. In November 1996, the short-term debt of
$113,000 was converted into 113,000 shares of the Company's common stock, at a
conversion price of $1.00 per share.
NOTE D - LONG-TERM DEBT
Long-term debt as of December 31, 1996 and 1995 consists of the following:
1996 1995
------- -----------
Note payable, stockholders, matured on
October 1, 1996 and required monthly payments
of $3,575 including interest at 9% per annum. $ - $ 34,137
Amended and restated secured convertible note
payable to a principal shareholder, matures
on December 31, 1997 with accrued interest
from January 1, 1995 at 8% per annum, see
Note D (1) and (2). - 157,888
Amended and restated secured note payable to
a principal shareholder, matures on December
31, 1997 with accrued interest from January
1, 1995 at 8% per annum, see Note D (2). - 165,962
Secured notes payable to a principal
shareholder, matures on December 31, 1997 and
bear interest at 8% per annum, see Note D
(2). - 986,544
------- -----------
- 1,344,531
Less: current portion due within one year - 34,137
------- -----------
$ - $ 1,310,394
======= ===========
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<PAGE>
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE D - LONG-TERM DEBT - (Continued)
(1) The note was converted in November 1996 into 400,000 shares of the Company's
common stock.
(2) Until such time as the convertible note was paid, the Company was obligated
to cause an amount equal to 30% of the pre-tax income of all of the operating
income of the Company and its subsidiaries to be paid to the holder of the note
annually in arrears, on or before the 60th day following the end of the
Company's fiscal year commencing with the fiscal year ending September 30, 1995.
Such payments were to be applied first to accrued interest with the balance
applied to principal. The note was secured by the Company's accounts receivable,
contract rights, patents, trademarks and any other rights in computer software.
In November 1996, the outstanding amount due under this note, was converted into
shares of the Company's common stock at a conversion rate of $1.00 per share.
Accordingly, the Company's obligations under the note and the security interests
granted as collateral therein are no longer in effect.
NOTE E - SIGNIFICANT CUSTOMERS
For the three months ended December 31, 1996, four customers of the
Company's subsidiary, MKP, accounted for 88% of the Company's consolidated
revenues in the following respective percentages:
Customer A 12%
Customer B 15%
Customer C 7%
Customer D 54%
---
88%
===
The total accounts receivable from these customers at December 31, 1996
amounted to 85% of the total accounts receivable balance.
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<PAGE>
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE F - WARRANTS TO PURCHASE COMMON STOCK
At December 31, 1996, the Company had outstanding warrants as follows:
Number of Exercise Expiration
Shares Price Date
--------- -------- -----------
330,586 $ .50 August 31, 1998
427,063 .50 September 30, 1998
200,000 .50 September 15, 2010
725,000 1.00 September 15, 2006
300,000 .50 November 30, 1999
20,000 1.00 September 16, 2006
NOTE G - INCENTIVE STOCK OPTION PLAN
In March 1988, the Company adopted a stock option plan. The plan provides
for the granting of options to purchase up to 140,000 shares of common stock to
key employees, officers and directors at an exercise price equal to fair market
value at the date of grant. The right to exercise options granted under the plan
commences one year from the date of the grant and such options are exercisable
in increments of 25% each year provided employment with the Company is
continuous.
Outstanding options granted pursuant to the stock option plan, as of
December 31, 1996, are as follows:
Number of Exercise Expiration
Shares Price Date
--------- -------- -----------
40,000 $ .4375 40,000
30,000 4.8125 30,000
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<PAGE>
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE H - PENSION AND PROFIT SHARING PLAN
In September 1996, the Company established a non-contributory pension and
profit sharing plan for the benefit of eligible full-time employees. The plan
provides for annual contributions to a trust fund, which are based upon a
percentage of qualifying employees' annual compensation. Total contributions are
limited to the maximum amount deductible for federal income tax purposes.
The Company did not contribute any amounts to this plan for the quarter ended
December 31, 1996.
NOTE I - STOCKHOLDERS' EQUITY
In September 1996, the Company effectuated a one-for-five reverse stock
split of its common stock. All share and price per share information in the
consolidated financial statements and related notes have been adjusted to give
retroactive effect for this reverse stock split.
NOTE J - COMMITMENTS
The Company has commitments under non-cancelable operating leases for
office space and equipment, which expire on October 31, 2006 and September 30,
2000, respectively. The office lease includes provisions requiring the Company
to pay a proportionate share of increases in real estate taxes and operating
expenses over base period amounts.
Minimum payments for the leased properties for subsequent years are as
follows:
Years Ending
September 30,
-------------
1997 $ 198,000
1998 292,000
1999 292,000
2000 292,000
2001 281,000
Thereafter 2,095,000
-----------
$ 3,450,000
===========
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<PAGE>
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE K - EMPLOYMENT AGREEMENTS
The Company has entered into a five-year employment agreement with the
Company's Chairman of the Board, Chief Executive Officer, Chief Financial
Officer and President commencing September 1, 1995, subject to prior
termination. At the conclusion of the five-year term, the agreement provides for
an automatic one year renewal, subject to prior termination. Under the
agreement, Mr. Finley's initial annual salary was $125,000, subject to increases
determined by the Board of Directors. Mr. Finley's current annual salary is
$150,000. In the event Mr. Finley's employment is terminated for any reason, he
is entitled to receive all accrued salary and vacation due through the date of
termination plus a severance payment of $100,000.
The Company's subsidiary, MKP, entered into two three-year employment
agreements with the Managing Directors commencing October 18, 1994, subject to
prior termination. At the conclusion of the initial three-year term, the
agreements provide for an automatic one year renewal, subject to prior
termination. Under the agreements, the initial annual salary to each Managing
Director, was $80,000. Such agreements were amended to provide the Managing
Directors with an annual salary of $115,000. The employment agreements also
provide for the establishment of an annual compensation pool payable to the
Managing Director equal to a percentage, determined annually by the Board of
Directors (initiallly 30%), of the net income before taxes of MKP as if MKP was
not a member of the Company's consolidated group. The Company has issued these
Managing Directors an aggregate of 200,000 and 20 shares of the Company's common
stock and of MKP's common stock, respectively. If both MKP and a Managing
Director elect not to renew the agreement by June 1, 1997, the individual will
be entitled to receive a severance payment in the amount of $30,000.
NOTE L - DISCONTINUED OPERATIONS
Effective September 1996, the Company elected to suspend operations of
Aspen. Accordingly, Aspen, which was in the development stage, was reported as a
discontinued operation at September 30, 1996. The net assets and liabilities
relating to the disposal of the discontinued operation is immaterial. Aspen had
no revenues and incurred losses of $168,340 for the three months ended December
31, 1995. Prior year consolidated financial statements have been restated to
present Aspen as a discontinued operation.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
History. The Company from its inception in 1984 through February 1990 was
primarily engaged in offering banking institutions a range of proprietary sales
and marketing products, strategic planning and product consulting services and
financial software products. In July 1989, the Company's Common Stock was
delisted from the Nasdaq over-the-counter market and from February 1990 to
November 1992 the Company was inactive.
In January 1993, the Company recommenced its operations and raised working
capital through private debt and equity issuances, including issuances to one of
the Company's principal stock holders. In 1994, the Company began implementing a
business strategy of establishing subsidiary companies to engage in related or
complementary areas of the financial service industry. As a result, the Company,
together with other parties, formed three subsidiaries (Michaelson Kelbick
Partners Inc. ("MKP"), Aspen Capital Management, LLC ("Aspen") and FPC
Information Corp. ("FPC Information")). MKP is engaged in providing specialized
business and marketing services to the financial services industry. FPC
Information was formed to market the Company's software and Aspen was formed to
operate as an international sponsor of cash management funds. Although the
Company generated revenues for each of the last three fiscal years ended
September 30, 1996, it incurred losses of $146,036, $801,296 and $235,049 for
the fiscal years ended September 30, 1994, 1995 and 1996, respectively.
Revenues. The Company's revenues historically have been derived from a
limited number of customers. For the year ended September 30, 1996, six
customers accounted for approximately 98% for the Company's revenues, with one
customer accounting for approximately 75% of its revenues. The Company
anticipates that a substantial amount of its revenues will continue to be
concentrated from a limited number of customers. As a result, the Company's
sales and operating results are subject to substantial variations in any given
year and from quarter to quarter. The Company's sales and net income (if any) in
a particular quarter may be lower than the sales and net income (if any) of the
Company for the comparable quarter in the prior year. In addition, sales and net
income (if any) of the Company in any particular quarter may not necessarily
reflect the results of operations for the Company for the full year.
Revenues from software products are recognized upon delivery to the
customer provided that no significant vendor obligations remain and collection
of the resulting receivable is deemed probable. Because of the nature of the
Company's software and the overall commitment to a software based, integrated
sales marketing approach, the Company anticipates that the installation of
MARS(TM) can take from up to several months for a single customer and up to
twelve months for an entire integrated system. The period of installation is
also dependent upon the level of commitment made by the customer to installation
as well as the learning speed of the customer's personnel. Lengthy installation
periods can delay the recognition of revenues related to the Company's software.
-15-
<PAGE>
Subsidiaries. The Company's consolidated financial statements include the
accounts of Financial Performance Corporation and its three 80% owned
subsidiaries. The Company's investment in the subsidiaries is accounted for by
the equity method. All significant intercompany accounts and transactions have
been eliminated.
Summary financial information concerning MKP, excluding intercompany
eliminations, as of December 31, 1996 and 1995 and for the three months then
ended, is as follows:
1996 1995
Cash...................................... $1,502,000 $ 363,000
Accounts receivable....................... $1,098,000 $ 653,000
Other assets.............................. $ 42,000 $ 1,100
Accounts payable.......................... $1,077,000 $ 531,000
Revenues.................................. $1,372,000 $1,062,000
Operating costs........................... $1,187,000 $ 969,000
Net income (loss)......................... $ 187,000 $ 93,000
Summary financial information concerning the Company's other two 80% owned
subsidiaries, Aspen and FPC Information, as of December 31, 1996 and 1995 and
for the three months then ended, is not separately set forth as these entities
had no revenues for such periods and their assets and liabilities during such
periods were immaterial.
Aspen, whose operations commenced in March 1995, suspended its operations
in September 1996. Aspen was reported as a discontinued operation at September
30, 1996.
FPC Information had no revenues and incurred losses of $50,836 and $63,786
for the three months ended December 31, 1996 and 1995, respectively.
Other. Income taxes are computed in accordance with the provisions of
Financial Accounting Standards Board Statement No. 109, "Accounting for Income
Taxes" ("SFAS 109"), which requires, among other things, a liability approach to
calculating deferred income taxes. SFAS 109 requires a company to recognize
deferred tax liabilities and assets for the expected future tax consequences of
events that have been recognized in a company's financial statements or tax
returns. Under this method, deferred tax liabilities and assets are determined
based on the difference between the financial statement carrying amounts and tax
basis of assets and liabilities using enacted tax rates in effect in the years
in which the differences are expected to reverse.
At September 30, 1996, the Company had net operating loss carryforwards of
approximately $487,000, which will expire in 2001. Certain provisions of the tax
law may
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<PAGE>
limit the net operating loss carryforwards available for use by the Company in
the event of a significant change in the ownership interest of the Company. At
September 30, 1996, the Company had a deferred tax asset of approximately
$195,000. The deferred tax asset consisted primarily of net operating loss
carryforwards and was fully offset by a valuation allowance of the same amount.
The income tax expense of $11,777 for the three months ended December 31,
1996 represents state and local income taxes on the income of MKP.
Costs associated with software development subsequent to the establishment
of technological feasibility, including enhancements to software products, are
capitalized and amortized as required by Statement of Financial Accounting
Standards No. 86. Costs incurred prior to achieving technological feasibility
are expensed as incurred and classified as research and development costs. There
were no research and development costs incurred by the Company for the three
months ended December 31, 1996 and 1995.
Amortization of capitalized software development costs is generally
provided on a product-by-product basis at the greater of the amount computed by
using the ratio of current gross revenue to total current and anticipated gross
revenue of the product or on the straight-line method over the sixty-month
estimated useful life of the product, commencing when the product is available
for general release to customers.
Forward-Looking Statements. Certain statements contained in this Quarterly
Report on Form 10-QSB, including, without limitation, statements containing the
words "believes," "anticipates," "may," "intends," "expects" and words of
similar import, 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 that
may cause the actual results, performance or achievements of the Company or
industry results to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general economic and business
conditions, both nationally and in the regions in which the Company operates;
competition; changes in business strategy or development plans; the development
or testing of the Company's software; technological, engineering, manufacturing,
quality control or other problems which could delay the sale of the Company's
software; the Company's ability to obtain appropriate licenses from third
parties, protect its trade secrets, operative without infringing upon the
proprietary rights of others and prevent others from infringing on the
proprietary rights of the Company; and the Company's ability to obtain
sufficient financing to continue operations. Certain of these factors are
discussed in more detail elsewhere in this Quarterly Report on Form 10-QSB.
-17-
<PAGE>
Results of Operations
Three Months Ended December 31, 1996 vs. Three Months Ended December 31, 1995
Revenues. Total revenues increased by $310,318 or 29.2% to $1,372,395 for
the three months ended December 31, 1996 from $1,062,077 for the three months
ended January 31, 1995. This increase was attributable to revenues generated by
MKP. During this period, MKP was awarded a contract to work on merger and
marketing communications for two major banking institutions. MKP generated 100%
of the consolidated revenues of the Company for the quarter ended December 31,
1996.
Cost of Revenues. Cost of revenues increased by $164,504 or 18.0% to
$1,080,456 for the three months ended December 31, 1996 from $915,948 for the
three months ended December 31, 1995. This increase resulted primarily from a
substantial increase in revenues. However, the cost of revenues as a percentage
of revenues decreased for the three months ended December 31, 1996 for the same
period in the prior year due to a decrease in outsourcing expenses and fees for
independent contractors retained by MKP in connection with its increased
business during such period.
Salaries and Related Expenses. Payroll expenses increased by $26,062 or
57.2% to $71,601 for the three months ended December 31, 1996 from $45,539 for
the three months ended December 31, 1995. This increase was primarily due to the
increase in staff employed by MKP.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $98,470 or 105.2% to $192,045 for the three
months ended December 31, 1996 from $93,575 for the three months ended December
31, 1995. This increase was due primarily to increased expenditures related to
additional Company personnel and independent contractors.
Operating Profit. The Company had an operating profit of $28,293 for the
three months ended December 31, 1996 compared to an operating profit of $7,015
for the three months ended December 31, 1995.
Net Income (Loss). The Company had net income of $16,594 for the three
months ended December 31, 1996 as compared to a net loss of $211,287 for the
three months ended December 31, 1995.
Liquidity and Capital Resources
In the past, the Company required continuous capital to fund its operating
losses which were primarily attributable to expenses in connection with
marketing activities, research and development costs and other expenses
including salaries and related expenses and selling, general and administrative
expenses. The Company has financed its operations to date primarily through
public and private sales of its debt and equity securities, including
significant sales to one of its
-18-
<PAGE>
principal stockholders, and more recently revenues generated by the Company's
subsidiary, MKP.
As of December 31, 1996, the Company had working capital of $1,698,000
stockholders' equity of $2,174,114 and a working capital ratio (current assets
to current liabilities) of 2.4:1. As of December 31, 1996 and 1995, the Company
had cash and cash equivalents of $1,644,740 and $413,796, respectively. For the
three months ended December 31, 1996 and 1995, the Company used cash for
operations of $310,023 and $125,673, respectively, primarily as a result of an
increase in revenues and utilized $42,000 and $124,423 for investing activities
during the three months ended December 31, 1996 and 1995, respectively. Net cash
provided by the Company's financing activities for the three months ended
December 31, 1996 and December 31, 1995 were $24,707 and $315,137, respectively.
Based on the Company's current plan of operations, it is anticipated that
the Company's existing working capital and expected operating revenues will
provide sufficient working capital for operations through September 30, 1997.
However, there can be no assurance that the Company will not require additional
financing prior to that time. For the years ended September 30, 1997, 1998, 1999
and 2000, the Company's minimum payments in connection with the leases are
$198,000 $292,000, $292,000 and $292,000, respectively. The Company anticipates
that it will require additional capital to fund its operations. The Company's
capital requirements depend on, among other things, whether the Company is
successful in generating revenues and income from its marketing efforts,
including those related to MARS(TM), the progress and costs of the Company's
research and development programs, the ability of the Company to successfully
market its software and services and the effect of such efforts on the Company's
operations, competing technological and market developments, the costs involved
in protecting and enforcing its proprietary rights and any litigation related
thereto and the cost and availability of third-party financing.
The Company may also seek additional financing in connection with the
acquisition of one or more products (or rights related thereto) or entities or
the consummation of other business combinations. Although the Company has
engaged in discussions with third parties from time to time concerning potential
acquisitions and other business combinations and anticipates continuing such
activities in the future, the Company has no current commitments regarding such
acquisitions or other business combinations.
Financing may be raised by the Company through additional equity
offerings, joint ventures or other collaborative relationships, borrowings and
other transactions. The Company may seek additional funding through any such
transaction or a combination thereof. There can be no assurance that additional
financing will be available to the Company or, if available, that such financing
will be available on acceptable terms.
-19-
<PAGE>
Part II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
11 Statements Re Computation of Per Share Earnings
27 Financial Data Schedule
b) Reports on Form 8-K.
None
-20-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: February 19, 1997
FINANCIAL PERFORMANCE CORPORATION
By: /s/ William F. Finley
-------------------------------
William F. Finley
Chief Executive Officer and
President
(Principal Executive Officer and
Principal Financial and Accounting
Officer and Officer Duly Authorized
to Sign on Behalf of Registrant)
-21-
<PAGE>
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE THREE MONTHS ENDED
DECEMBER 31,
----------------------
1996 1995
--------- ---------
AVERAGE NUMBER OF SHARES USED IN PRIMARY AND FULLY
DILUTED CALCULATI0N:
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 7,302,285 3,500,817
INCREMENTAL SHARES AFTER APPLICATION OF TREASURY
STOCK METHOD, OF STOCK OPTIONS AND WARRANTS 2,073,000 2,077,063
--------- ---------
SHARES USED IN CALCULATION OF PRIMARY AND FULLY
DILUTED INCOME (LOSS) PER COMMON SHARE 9,375,265 5,577,680
========= =========
PRIMARY AND FULLY DILUTED INCOME PER SHARE OF
COMMON STOCK:
NET INCOME (LOSS) PER SHARE 0.002 (0.038)
========= =========
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,644,740
<SECURITIES> 0
<RECEIVABLES> 1,097,558
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,903,995
<PP&E> 696,178
<DEPRECIATION> 113,986
<TOTAL-ASSETS> 3,646,443
<CURRENT-LIABILITIES> 1,205,883
<BONDS> 0
0
0
<COMMON> 78,508
<OTHER-SE> 2,095,606
<TOTAL-LIABILITY-AND-EQUITY> 3,646,443
<SALES> 1,372,395
<TOTAL-REVENUES> 1,385,854
<CGS> 1,080,456
<TOTAL-COSTS> 1,080,456
<OTHER-EXPENSES> 269,646
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,981
<INCOME-PRETAX> 28,371
<INCOME-TAX> 11,777
<INCOME-CONTINUING> 16,594
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,594
<EPS-PRIMARY> 0.002
<EPS-DILUTED> 0.002
</TABLE>
