<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From October 1, 1997 to December 31, 1997
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 19, 1998
Common Stock 8,021,534 Shares
-i-
<PAGE> 2
Financial Performance Corporation
Transition Report on Form 10-QSB for the Period Commencing
October 1, 1997 and ending December 31, 1997
TABLE OF CONTENTS
Part I. Page
Item 1. Financial Statements (Unaudited).............................1
Consolidated Balance Sheets
December 31, 1997 and December 31, 1996.............2
Consolidated Statement of Operations
For the Three Months Ended
December 31, 1997 and December 31, 1996.............3
Consolidated Statement of Changes in Stockholders' Equity
for the Three Months Ended
December 31, 1997 and December 31, 1996.............4
Consolidated Statement of Cash Flows
For the Three Months Ended
December 31, 1997 and December 31, 1996.............5
Notes to Consolidated Financial Statements...................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................14
Part II.
Item 6. Exhibits and Reports on Form 8-K............................19
-ii-
<PAGE> 3
PART I
Item 1. Financial Statements
The financial statements of Financial Performance Corporation (the
"Company") begin on page 2.
<PAGE> 4
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 2,256,218 $ 1,644,740
Accounts receivable 720,616 1,097,558
Prepaid expenses and other current assets 79,110 161,697
----------- -----------
Total current assets 3,055,944 2,903,995
Computer equipment, net of accumulated depreciation 198,963 102,472
Software development costs (Note B (3)) 135,605 479,720
Investment in subsidiary 426,000 --
Other assets 303,806 160,256
----------- -----------
$ 4,120,318 $ 3,646,443
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 1,908,153 $ 1,205,883
----------- -----------
Total current liabilities 1,908,153 1,205,883
----------- -----------
Minority interest in consolidated subsidiaries 448,046 266,446
----------- -----------
Stockholders' equity
Common stock - authorized 50,000,000 shares of
$.01 par value per share: issued and
outstanding 8,021,534 as of December 31, 1997 and
7,850,782 as of December 31, 1996 80,215 78,508
Additional paid in capital 7,480,761 7,341,725
Accumulated (deficit) (5,796,857) (5,246,119)
----------- -----------
Total stockholders' equity 1,764,119 2,174,114
----------- -----------
$ 4,120,318 $ 3,646,443
=========== ===========
</TABLE>
See the accompanying notes to the financial statements.
-2-
<PAGE> 5
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $ 1,970,312 $ 1,372,395
----------- -----------
Costs and expenses
Cost of revenues 1,504,249 1,080,456
Salaries and related expenses 141,397 71,601
Selling, general and administrative 243,818 192,045
----------- -----------
1,889,464 1,344,102
----------- -----------
Operating income 80,848 28,293
----------- -----------
Other income (expense):
Interest income 12,414 13,459
Interest expense -- (2,981)
Minority interest in loss (income) of
consolidated subsidiaries (67,000) (10,400)
----------- -----------
(54,586) 78
----------- -----------
Income before income taxes 26,262 28,371
Income taxes 15,558 11,777
----------- -----------
Net Income $ 10,704 $ 16,594
=========== ===========
Per share data:
Net income $ .001 $ .002
=========== ===========
</TABLE>
See the accompanying notes to the financial statements.
-3-
<PAGE> 6
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Additional
Common Stock Paid In
Shares Par Value Capital Deficit Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
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 common
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
=========== =========== =========== =========== ===========
BALANCE -
SEPTEMBER 30, 1997 8,021,534 $ 80,215 $ 7,480,761 $(5,807,561) $ 1,753,415
Net Income -- -- -- 10,704 10,704
----------- ----------- ----------- ----------- -----------
BALANCE -
DECEMBER 31, 1997 8,021,534 $ 80,215 $ 7,480,761 $(5,796,857) $ 1,764,119
=========== =========== =========== =========== ===========
</TABLE>
See the accompanying notes to the financial statements.
-4-
<PAGE> 7
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Net Income $ 10,704 $ 16,594
Adjustments to reconcile net income to net cash provided
by (used for) operating activities:
Depreciation and amortization 5,175 28,071
Minority interest in income of consolidated
subsidiaries 67,000 10,400
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 925,302 (195,042)
(Increase) decrease in prepaid expenses and other
current assets (9,773) (104,357)
Decrease in other assets 4,112 (100,000)
Increase (decrease) in accounts payable and 174,505 (165,689)
accrued expenses ----------- -----------
Net cash provided by (used for)
operating activities 1,177,025 (310,023)
----------- -----------
Cash flows from investing activities:
Acquisition of equipment (32,000) (39,627)
Software development costs (20,781) (42,000)
Investment in subsidiary (8,000) --
----------- -----------
Net cash used for investing activities (60,781) (81,627)
----------- -----------
Cash flows from financing activities:
Proceeds from sale of common shares and
exercise of warrants -- 64,334
----------- -----------
Net cash provided by financing activities -- 64,334
----------- -----------
Net increase (decrease) in cash 1,116,244 (327,316)
Cash, beginning of period 1,139,974 1,972,056
----------- -----------
Cash, end of period $ 2,256,218 $ 1,644,740
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ -- $ 2,981
Income taxes $ 23,000 $ --
</TABLE>
See the accompanying notes to the financial statements.
-5-
<PAGE> 8
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND BUSINESS
Financial Performance Corporation (the "Company") through its
subsidiaries currently markets merger communications services and computer
software 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"), FPC Information Corp. ("FPC Information") and Aspen Capital
Management, LLC ("Aspen").
MKP was formed and commenced operations in October 1994. MKP is engaged
in providing specialized merger communications and marketing services to the
financial services industry (see Note B (1)).
FPC Information was formed in November 1994 for the purpose of
marketing the Company's software products.
In October 1997, the Company's investment in FPC Information Corp. was
reduced from eighty percent to fifty percent, as a result of a $225,000
additional investment by the minority shareholder. The Company has the option to
repurchase a thirty percent equity interest in FPC Information Corp. exercisable
at any time prior to September 30, 1999 at the fair market value of such
interest, but in no event less than $225,000.
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.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(1) Principles of Consolidation
The consolidated financial statements include the accounts of Financial
Performance Corporation and Subsidiaries. All significant intercompany accounts
and transactions have been eliminated. Investments in FPC Information Corp. in
which the Company does not have control is accounted for by the equity method.
-6-
<PAGE> 9
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(1) Principles of Consolidation (continued)
Condensed financial information of its eighty percent owned subsidiary,
M.K.P., excluding intercompany eliminations, as of December 31, 1997 and 1996
and for the three months ended, is as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Cash $2,103,000 $1,502,000
Accounts receivable 721,000 1,098,000
Other assets 166,000 42,000
Accounts payable 1,576,000 1,077,000
Revenues 1,970,000 1,372,000
Operating costs 1,740,000 1,187,000
Net income 230,000 187,000
</TABLE>
Condensed financial information for the Company's other subsidiaries,
Aspen Capital Management, LC and FPC Information Corp. for the three months
ended December 31, 1997 and 1996, has not been separately disclosed. These
entities had no revenues and their assets and liabilities are immaterial.
(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, 1997 and 1996.
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.
-7-
<PAGE> 10
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) Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(7) 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.
Amortization of an intangible asset, a customer list of $164,000,
included on the balance sheet under the caption, other assets, is being
amortized on the straight line basis, over ten years.
(8) 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.
-8-
<PAGE> 11
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(8) Income taxes (continued)
At September 30, 1997, the Company had net operating loss carry
forwards of approximately $1,150,000, which would expire by 2012. Certain
provisions of the tax law may limit the net operating loss carry forwards
available for use in any given year in the event of a significant change in
ownership interest. At September 30, 1997, the Company had a deferred tax asset
amounting to approximately $460,000. The deferred tax asset consisted primarily
of net operating loss carry forwards and has been fully offset by a valuation
allowance of the same amount.
The income tax expense for the three months ended December 31, 1997 and
1996 represents state and local income taxes on the income of MKP.
NOTE C - SIGNIFICANT CUSTOMERS
For the three months ended December 31, 1997 three customers of the
Company's subsidiary, MKP, accounted for 81% of the Company's consolidated
revenues in the following respective percentages:
<TABLE>
<S> <C> <C>
Customer A 16%
Customer B 16%
Customer C 49%
--
81%
==
</TABLE>
The total accounts receivable from these customers at December 31, 1997
amounted to 59% of the total accounts receivable balance.
NOTE D - WARRANTS TO PURCHASE COMMON STOCK
At December 31, 1997, the Company had outstanding warrants as follows:
<TABLE>
<CAPTION>
Number of Exercise Expiration
Shares Price Date
- --------- -------- ----------
<S> <C> <C>
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
250,000 .50 November 30, 1999
20,000 1.00 September 16, 2006
</TABLE>
-9-
<PAGE> 12
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE E - 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, 1997, are as follows:
<TABLE>
<CAPTION>
Number of Exercise Exercisable at
Shares Price December 31, 1997
------ ----- -----------------
<S> <C> <C>
40,000 $ .4375 40,000
30,000 4.8125 30,000
</TABLE>
NOTE F - EMPLOYEE BENEFIT PLANS
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 plan was terminated in March, 1997.
In January, 1997, the Company established a 401(k) salary deferred
benefit plan covering substantially all employees who have met certain
requirements. The plan requires Company contributions equal to 50% to a maximum
of 3% of each participant's contribution percentage.
In September, 1997, the Company amended its 401(k) plan to provide a
provision for discretionary profit sharing plan contributions.
NOTE G - 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.
-10-
<PAGE> 13
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE G - COMMITMENTS (continued)
Minimum payments for the leased properties for subsequent years are as
follows:
<TABLE>
<CAPTION>
Years Ending
September 30,
<S> <C>
1998 $ 281,000
1999 281,000
2000 281,000
2001 374,000
2002 415,000
Thereafter 1,711,000
----------
$3,343,000
==========
</TABLE>
Rent and equipment leasing expense for the three months ended December
31, 1997 and 1996 was $88,000 and $100,000, respectively.
NOTE H - EMPLOYMENT AGREEMENTS
On September 1, 1995, the Company entered into a five year employment
agreement with Mr. Finley which expired on August 31, 2000. Under the agreement,
Mr. Finley's initial annual salary was $125,000, subject to increases as
determined by the Company's Board of Directors, and Mr. Finley's salary was
subsequently increased to $150,000.
Effective as of October 1, 1997, the Company entered into a new three
year employment agreement with Mr. Finley which expires on September 30, 2000.
Under the new employment agreement, Mr. Finley's initial salary is $150,000 per
annum, subject to periodic increases as shall be determined by the Company's
Board of Directors. In the event of the termination of Mr. Finley's employment
by reason of a "change in control" (as such term is defined in the employment
agreement) of the Company or certain other events, then in addition to paying
Mr. Finley's salary and accrued benefits through the date of termination of
employment, the Company shall be obligated to pay to Mr. Finley, as severance
pay, an amount equal to 200% of Mr. Finley's annual base salary rate as of the
effective date of termination and to maintain through the remaining balance of
the term of the employment agreement (but not less than two years from the date
of termination of Mr. Finley's employment agreement) all employee benefit plans
and programs in which Mr. Finley was entitled to participate. The Company agreed
to pay reasonable travel and entertainment expenses incurred by Mr. Finley on
behalf of the Company and to provide Mr. Finley with a leased automobile. If Mr.
Finley does not elect not to renew his employment agreement at the expiration of
the term and the Company does not elect to renew Mr. Finley's employment upon
the expiration of the term thereof, then Mr. Finley shall be entitled to receive
a severance payment of $100,000.
-11-
<PAGE> 14
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE H - EMPLOYMENT AGREEMENTS (continued)
In October, 1994, MKP entered into executive employment agreements with
each of Ms. Michaelson and Ms. Kelbick for a term of three years ending October
17, 1997. Under the terms of the agreements, the initial annual salary of Ms.
Michaelson and Ms. Kelbick was $80,000. The annual base salary payable to each
of Ms. Michaelson and Ms. Kelbick was subsequently increased to $115,000.
Effective as of September 11, 1997, MKP entered into a new three year employment
agreement with each of Ms. Michaelson and Ms. Kelbick which expires on September
10, 2000. Under the new agreements, the initial annual base salary payable to
each of Ms. Michaelson and Ms. Kelbick is $150,000, subject to periodic
increases as shall be determined by MKP's Board of Directors. The employment
agreements further provide for an annual incentive compensation payment for each
of Ms. Michaelson and Ms. Kelbick equal to a percentage not to exceed 30%,
determined annually by the Board of Directors, (such percentage initially
established at 30%) of the net income before taxes of MKP as if MKP was not a
member of the Company's consolidated group. Ms. Michaelson and Ms. Kelbick have
the option to take all or a portion of the bonus in the Company's securities.
If either Ms. Michaelson or Ms. Kelbick does not elect to renew her
respective employment agreement with MKP at the expiration of the term and MKP
elects not to renew the employment agreement, the respective executive will be
entitled to receive a severance payment in the amount of $250,000. The
employment agreements provide each of Ms. Michaelson and Ms. Kelbick with a
clothing expense allowance of $10,000 for each year of the term of the agreement
and a leased automobile throughout the term. In the event of the termination of
employment of either Ms. Michaelson or Ms. Kelbick by reason of a "change in
control" (as such term is defined in the employment agreement) of MKP or the
Company, or certain other events, then in addition to paying all salary and
accrued benefits through the date of termination of employment, MKP shall be
obligated to pay to the employee, as severance pay, an amount equal to 200% of
the employee's annual base salary rate in effect as of the date of termination
and to maintain through the remaining balance of the term of the employment
agreement (but not less than two years from the date of termination of the
employee's employment agreement) all employee benefit plans and programs in
which the employee was entitled to participate. The Company has issued 20 shares
of MKP and 200,000 shares of the Company, in the aggregate, to Ms. Michaelson
and Ms. Kelbick.
NOTE I - RESTRICTED CASH AND CONTINGENCIES
At December 31, 1997 $160,000 was invested in a Certificate of Deposit
and is pledged as security for a letter of credit issued in connection with the
lease for office space (see Note G). The $160,000 Certificate of Deposit is
included on the balance sheet under the caption, other assets. This exceeds the
federally insured limit.
-12-
<PAGE> 15
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE J - CONCENTRATION OF CREDIT RISK
The Company maintains it's cash in bank deposit accounts at one
financial institution. The balance at times, may exceed federally insured
limits. At December 31, 1997 and 1996, the Company exceeded the insured limit by
approximately $2,003,000 and $1,402,000, respectively.
NOTE K - CHANGE IN FISCAL YEAR
In February 1998, the Company's Board of Directors unanimously approved
a resolution to change the Company's fiscal year end from September 30 to
December 31.
-13-
<PAGE> 16
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
History. The Company was incorporated in New York in 1984 under the
name Performance Services Group, Inc. and at that time 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. The Company's Common Stock recommenced trading on the OTC
Bulletin Board in November 1996.
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 stockholders. In 1994, the Company began
implementing a business strategy of establishing subsidiary companies to engage
in related or complementary areas of the financial services 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 merger communications 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 four fiscal years
ended September 30, 1997, it incurred losses of $146,036, $801,296, $235,049 and
$544,848 for the fiscal years ended September 30, 1994, 1995, 1996 and 1997,
respectively.
Revenues. The Company's revenues historically have been derived from a
limited number of customers, due principally to the nature of the merger
communications business which has generally required concentration of the
Company's personnel and resources on a limited number of large projects from
different merger clients during any particular period. For the year ended
September 30, 1997, two customers accounted for approximately 72% for the
Company's revenues, with one customer accounting for approximately 56% of its
revenues. In view of the nature of the merger communications business as
aforesaid, the Company anticipates that a substantial amount of its revenues
will continue to be derived 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.
Subsidiaries. The Company's consolidated financial statements include
the accounts of Financial Performance Corporation and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
Summary financial information concerning MKP, excluding intercompany
eliminations, as of December 31, 1997 and 1996 and for the three months then
ended, is as follows:
-14-
<PAGE> 17
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Cash ............................. $2,103,000 $1,502,000
Accounts receivable .............. $ 721,000 $1,098,000
Other assets ..................... $ 166,000 $ 42,000
Accounts payable ................. $1,576,000 $1,077,000
Revenues ......................... $1,970,000 $1,372,000
Operating costs .................. $1,740,000 $1,187,000
Net income ....................... $ 230,000 $ 187,000
</TABLE>
Summary financial information concerning the Company's other two
subsidiaries, Aspen and FPC Information, as of December 31, 1997 and 1996 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.
Change in Fiscal Year. On February 23, 1998, the Company's Board of
Directors unanimously approved a resolution to change the Company's fiscal year
end from September 30 to December 31. This Transition Report on Form 10-QSB is
being filed by the Company for the transition period commencing October 1, 1997
through December 31, 1997 pursuant to Rule 15d-10 of the Securities Exchange
Act of 1934.
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, 1997, the Company had net operating loss carryforwards
of approximately $1,150,000, which will expire in 2012. Certain provisions of
the tax law may 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, 1997, the Company had a deferred tax asset of
approximately $460,000. 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 $15,558 and $11,777 for the three months
ended December 31, 1997 and 1996, respectively, represents state and local
income taxes on the income of MKP.
-15-
<PAGE> 18
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, 1997 and 1996.
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
Transition 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,
operate 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 Transition
Report on Form 10-QSB.
RESULTS OF OPERATIONS
Three Months Ended December 31, 1997 vs. Three Months Ended December 31, 1996
Revenues. Total revenues increased by $597,917 or 43.6% to $1,970,312
for the three months ended December 31, 1997 from $1,372,395 for the three
months ended December 31, 1996. This increase was attributable principally to an
increase in billings under contract by MKP during this period. MKP generated
approximately 100% of the consolidated revenues of the Company for the three
months ended December 31, 1997.
Cost of Revenues. Cost of revenues increased by $423,793 or 39.2% to
$1,504,249 for the three months ended December 31, 1997 from $1,080,456 for the
three months ended December 31, 1996. This increase is primarily attributable to
the increased level of business of MKP during this period.
-16-
<PAGE> 19
Salaries and Related Expenses. Payroll expenses increased by $69,796 or
97.5% to $100,853 for the three months ended December 31, 1997 from $171,916 for
the three months ended December 31, 1996. This increase is attributable
principally to the timing of payments of certain executive compensation as well
as increased salary levels during this period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $51,773 or 27.0% to $243,818 for the three
months ended December 31, 1997 from $192,045 for the three months ended December
31, 1996. This increase was attributable primarily to increased expenditures
arising out of the increased level of business of MKP during this period.
Other Income (Expense). Other expenses increased by $54,664 to $54,586
for the three months ended December 31, 1997 from other income of $78 for the
three months ended December 31, 1996. This increase was attributable principally
to an increase in the Company's minority interest in income of consolidated
subsidiaries.
Operating Profit. The Company had an operating profit of $80,848 for
the three months ended December 31, 1997 compared to an operating profit of
$28,293 for the three months ended December 31, 1996.
Net Income. The Company had net income of $10,704 for the three months
ended December 31, 1997 as compared to net income of $16,594 for the three
months ended December 31, 1996.
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 principal stockholders, and more recently
revenues generated by the Company's subsidiary, MKP. In addition, in October
1997, the Company sold an additional 30% equity interest in FPC Information to a
principal shareholder for a purchase price of $225,000.
As of December 31, 1997, the Company had working capital of $1,147,791,
stockholders' equity of $1,764,119 and a working capital ratio (current assets
to current liabilities) of approximately 1.6:1. As of December 31, 1997 and
1996, the Company had cash and cash equivalents of $2,256,218 and $1,644,740,
respectively. For the three months ended December 31, 1997 and 1996, the Company
provided cash by operations of $1,177,025 and used cash for operations of
$310,023, respectively, and utilized $60,781 and $81,627 for investing
activities during the three months ended December 31, 1997 and 1996,
respectively. Net cash provided by the Company's financing activities for the
three months ended December 31, 1997 and December 31, 1996 were $0 and $64,334,
respectively.
-17-
<PAGE> 20
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 December 31, 1998.
However, there can be no assurance that the Company will not require additional
financing prior to that time. For the years ending September 30, 1998, 1999,
2000 and 2001, the Company's minimum payments in connection with the leases will
be approximately $281,000, $281,000, $281,000 and $374,000 per year,
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.
-18-
<PAGE> 21
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27 Financial Data Schedule
(b) Reports on Form 8-K.
None
-19-
<PAGE> 22
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 23, 1998
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)
-20-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,256,218
<SECURITIES> 0
<RECEIVABLES> 720,616
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,055,944
<PP&E> 975,500
<DEPRECIATION> 776,537
<TOTAL-ASSETS> 4,120,318
<CURRENT-LIABILITIES> 1,908,153
<BONDS> 0
0
0
<COMMON> 80,125
<OTHER-SE> 1,683,904
<TOTAL-LIABILITY-AND-EQUITY> 4,120,318
<SALES> 1,970,312
<TOTAL-REVENUES> 1,970,312
<CGS> 1,504,249
<TOTAL-COSTS> 1,504,249
<OTHER-EXPENSES> 385,215
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 26,262
<INCOME-TAX> 15,558
<INCOME-CONTINUING> 10,704
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,704
<EPS-PRIMARY> 0.001
<EPS-DILUTED> 0.001
</TABLE>
