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AMENDMENT NO. 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
(Mark One)
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended September 30, 1997
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
COMMISSION FILE NO. 0-16530
FINANCIAL PERFORMANCE CORPORATION
(Name of small business issuer 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, including zip code)
(212) 557-0401
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $0.01 PAR VALUE
(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 there is no 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 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. /X/
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Issuer's revenue for the fiscal year ended September 30, 1997 were
$7,785,250.
The aggregate market value of the voting stock (Common Stock) held by
non-affiliates of the registrant on December 30, 1997 was approximately
$1,754,710, based on the volume-weighted average price of such stock on such
date, as reported by the OTC Bulletin Board.
The number of shares outstanding of each of the issuer's classes of
common equity, as of January 5, 1998, was: 8,021,534 shares of Common Stock,
$0.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE None.
Transitional Small Business Disclosure Format: Yes / / No /X/
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The following Items set forth in the Report on Form 10-KSB of Financial
Performance Corporation for the fiscal year ended September 30, 1997 are amended
in their entirety as follows:
ITEM 1 -- DESCRIPTION OF BUSINESS
INTRODUCTION
Financial Performance Corporation and its subsidiaries (the "Company")
market specialized merger communications consulting services and computer
software to the financial services industry. The Company's services and software
are designed to identify and analyze the financial impact and competitive
position of its customer's products and services and assist its customers in
developing and analyzing marketing and communications strategies.
The Company's principal business is merger communications and marketing
services to financial institutions. The Company has developed a particular
expertise in providing services to banks with respect to communications
concerning mergers and other business combinations, marketing and financial
information software.
The Company's software, referred to as MARS(TM) (Managing Account
Relationships), functions as an integrated planning and sales management system
designed to coordinate the user's marketing activity and analyze the results of
its sales efforts and the profitability of its products. The Company believes
that MARS(TM) enables its users to monitor the income and new business
contributions of each department, branch, sector or group within a business
enterprise faster and more efficiently than current applications. The Company
also believes that future projections by a business enterprise using MARS(TM)
will be easier since the software regularly maintains information regarding
pending sales.
HISTORY
The Company was incorporated in New York in August 1984 under the name
Performance Services Group, Inc. and changed its name to Financial Performance
Corporation in June 1986. In January 1987, the Company consummated an initial
public offering of its Common Stock and in July 1989, the Common Stock was
delisted from the Nasdaq over-the-counter market for failure to maintain
Nasdaq's minimum capital requirements. In February 1990, the Company became
insolvent and was thereby constrained to cease its day-to-day operations. The
Company was inactive from February 1990 to November 1992.
The Company resumed operations in January 1993. At that time, the
Company raised working capital through private debt and equity issuances. 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"),
FPC Information Corp. ("FPC Information") and Aspen Capital Management, LLC
("Aspen")). 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. For further information
concerning these subsidiaries, see "--Subsidiaries" and "Item 6 -- Management's
Discussion and Analysis of Financial Condition and Results
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of Operations."
The Company incurred losses in each of the three fiscal years ended
September 30, 1995. For the year ended September 30, 1996, the Company generated
approximately $8,780,000 in revenues, $278,000 in operating income, a loss of
approximately $15,000 from continuing operations, and a net loss of
approximately $235,000. For the year ended September 30, 1997, the Company
generated approximately $7,785,000 in revenues, had an operating loss of
approximately $569,000, a loss from continuing operations of approximately
$545,000 and a net loss of approximately $545,000. For the year ended September
30, 1997, two customers of MKP accounted for approximately 72% of the Company's
total revenue, with one customer accounting for 56% of the Company's total
revenue.
As of November 27, 1996, the Company's Common Stock resumed trading on
the OTC Bulletin Board under the symbol "FPCX". The high and low sale price of
the Common Stock for the period from November 29, 1996 to January 5, 1998 were
$2.75 and $0.22, respectively.
The Company's offices are located at 335 Madison Avenue, New York, New
York 10017. The Company's telephone number is (212) 557-0401. Unless the context
is otherwise, the term the "Company" shall mean Financial Performance
Corporation and its subsidiaries.
SUBSIDIARIES
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. In October 1994, the Company, together
with Susan Michaelson and Hillary Kelbick, formed Michaelson Kelbick Partners
Inc. ("MKP"). The Company owns 80% of the outstanding equity of MKP and each of
Ms. Michaelson and Ms. Kelbick own 10% of the outstanding equity of MKP. MKP is
engaged in providing specialized business and marketing services to the
financial services industry. MKP has developed particular expertise in providing
advice to its customers with respect to communications concerning mergers and
other business combinations and sales promotions. During the Company's three
most recent fiscal years ended September 30, 1995, September 30, 1996 and
September 30, 1997, MKP accounted for approximately 100% of the Company's
consolidated revenues.
Ms. Michaelson and Ms. Kelbick have over 32 years of combined
experience in financial services marketing. They were both formerly employed as
Senior Vice Presidents by Wilcox Associates, in New York, New York, where they
were primarily responsible for the planning, development and execution of
marketing communications projects for numerous financial institutions. See "Item
9 -- Directors, Executive Officers, Promoters and Control Persons."
FPC INFORMATION CORP. In November 1994, the Company, together with
Robert S. Trump, formed FPC Information Corp. ("FPC Information"). Mr. Trump
furnished $150,000 to the Company in connection with the establishment and
initial operations of FPC Information in exchange for a 20% equity interest in
FPC Information. In October, 1997, Mr. Trump acquired an additional 30% equity
interest in FPC Information in exchange for an additional investment of
$225,000.
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Accordingly, as of January 5, 1998, Mr. Trump owns 50% of the outstanding equity
of FPC Information. However, the Company has the option to repurchase a 30%
equity interest in FPC Information from Mr. Trump 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.
The MARS(TM) software and any rights associated therewith and related
liabilities have been transferred by the Company to FPC Information Corp.
Accordingly, the Company functions as a holding company and will continue to
seek investment and acquisition opportunities in the financial services
industry. As of January 5, 1998, Mr. Trump beneficially owned approximately
60.93% of the Company's shares of Common Stock. See "Item 11 -- Security
Ownership of Certain Beneficial Owners and Management."
ASPEN CAPITAL MANAGEMENT, LLC. In January 1995, the Company, together
with Messrs. Richard Loos and Sean Brennan, formed Aspen Capital Management, LLC
("Aspen"). Aspen was established to operate as an international sponsor of cash
management funds. In February 1995, Aspen was converted to a New York limited
liability company.
In connection with Aspen's formation and operation, the Company entered
into shareholders' and executive employment agreements with Richard Loos and
Sean Brennan. Richard J. Loos previously was Managing Director and a member of
the Board of Directors of HSBC Asset Management Americas Inc., a global asset
management group, and Sean P. Brennan previously was affiliated with CS First
Boston Investment Management Group. The Company owns 80% of the outstanding
equity of Aspen and each of Messrs. Loos and Brennan own 10% of the outstanding
equity of Aspen. Through the efforts and expertise of Mr. Loos, the Aspen
Worldwide Dollar Fund (the "Fund") was established, ABN--Ambro Bank N.V. was
procured to act as the custodian of the Fund, ABN--Ambro Trust Company (Cayman)
Limited was procured to act as the administrator of the Fund and Lehman Brothers
Global Asset Management Limited was to have acted as investment advisor for the
Fund. Mr. Brennan was retained by Aspen to act as the principal salesperson for
the Fund.
During the period from January through April 1995, Robert S. Trump, one
of the principal stockholders of the Company, loaned the Company an aggregate of
$500,000, which was utilized in connection with the funding and the initial
operations of Aspen. Mr. Trump's loans to the Company were subsequently
converted to shares of the Company's common stock at a conversion price of $1.00
per share. See "Item 12 - Certain Relationships and Related Transactions".
In August 1995, Aspen officially commenced operations with the formation of the
Fund. The Fund was administered by ABN--Ambro Trust Company (Cayman) Limited.
The Fund received approximately $5,000,000 through initial subscriptions
provided by persons associated with Mr. Trump and raised with Mr. Trump's
assistance. Although Aspen received indications from ABN--Ambro and other
institutions that they intended to invest in the Fund, the Fund never received
any additional subscriptions. The Company believes that strong equity markets
and the performance of equity-based mutual funds during the period that the Fund
was soliciting investments were a significant factor in the Fund's inability to
attract additional subscriptions. During the fiscal year ended September 30,
1996, the initial investors redeemed all of their interests in the Fund in order
to fulfill such investors' cash requirements at that time. Consequently, the
Fund became and is currently inactive.
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In July and September 1996, in view of the Fund's inability to attract
subscribers, Messrs. Brennan and Loos, respectively, were asked by the Company
to resign as employees and officers of Aspen. Such individuals have no
continuing affiliation with the Fund. In view of the resignations of Messrs.
Loos and Brennan, the Company was no longer able to continue the operations of
Aspen. There can be no assurance that the Company will retain an investment
advisor for the Fund or that the Fund or Aspen will recommence operations.
MERGER COMMUNICATIONS SERVICES
Since the resumption of the Company's operations, substantially all of
the Company's revenues have been generated by MKP. MKP's primary business is
bank merger communications, which accounts for approximately 85% of MKP's
revenues. MKP also specializes in marketing planning and communications
strategies, sales promotion and direct mail. The principals of MKP have managed
over 50 merger communications and other projects for banks, including Bank of
Boston/Bay Bank, The Bank of New York, Citibank, First Union National Bank,
First National Bank of Maryland, Nat West Bank, Fleet Bank, The Dime Savings
Bank of New York, Great Western, First Fidelity, CIT Group, PNC and Chemical
Bank (now The Chase Manhattan Bank).
The merger communications projects which are undertaken by MKP involve
planning, strategizing, managing and executing customer communications in
support of the merger related events, including:
- Systems conversions
- Product consolidations
- Price changes
- Branch Closings
MERGER COMMUNICATIONS SERVICES
MKP's merger communications services include:
- Business Strategies and Marketing Planning
- Advisory Services: impact assessments by product, service and
customer group
- Data Processing: data sources, customer account file
integration
- Proprietary methodologies for Matrix programming instructions
for customized copy block messaging
- Communications Development and Execution: Comprehensive
layouts, pre-press production, mail file development, print
and mail production
- Project Management including milestones and budgets
- Communications Recommendations: vehicles, audiences, timing
- File Collapse Methodology (definition of the customer)
- Regulatory requirements for disclosure
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DATA MANAGEMENT
MKP's data management services include:
- PLANNING. Includes defining the communications requirements,
including product/account types, file integration and
merge/purge requirements and level of personalization
required.
- DATA SOURCE(S) AND EXTERNAL SUPPLIERS. MKP advises on the most
advantageous data source(s) for each project (i.e., operating
systems, CIF or a combination thereof). In addition, MKP can
assist in assessing internal and external data processing
requirements.
- TAPE SPECIFICATIONS. Includes definition of tape formats,
record information, and all file coding required for data
integration and the customization of messages.
- CUSTOMER MAIL FILE DEVELOPMENT. Includes development of
specifications and procedures for record selection, file
clean-up programming, merge/purge and file verification.
- VERIFICATION/QUALITY CONTROL. Includes development of detailed
procedures to ensure that counts are correct (all records are
accounted for), established procedures are followed, all
programming steps are verified and exceptions are identified
and properly handled. A key step includes the creation of a
test file including all copy blocks and block assignment
criteria existing in the main file.
MKP QUALITY CONTROL
MKP's premise is that quality control begins with the initial steps in
planning a project. As MKP works to develop concepts and strategies for its
clients, MKP confirms that the concepts and strategies which are developed can
be properly executed. MKP adheres to strict quality control procedures and uses
numerous quality control/verification checks in this process, including the
following:
- Developing tape specifications and mail house instructions
(before tape is cut)
- Initial tape verification (immediately upon receipt of type)
- File clean-up verification
- Merge/Purge verification
- Verification of programmed data, including copy block
assignment and line count
- Account number verifications
- Verification of live laser proofs
- Laser printing quality control
- Lettershop quality control
- Postal receipts
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DATA MANAGEMENT/QUALITY CONTROL
MKP has significant experience in developing systems for customizing
data processing and programming verification in order to ensure quality control
integrity of each merger project. MKP must often operate under tight time frames
and legal deadlines that generally accompany merger projects. MKP assembles and
manages both internal and external resources in support of large-scale, complex
projects.
CROSS-SELLING POTENTIAL
The banking institutions which are MKP's clients are potential
customers for the Company's MARS(TM) software marketed by the Company's
subsidiary, FPC Information Corp. The Company believes that after a banking
client of MKP has completed a merger, such bank will be in a position to benefit
substantially from a software product such as MARS(TM) which will provide
detailed, on-line information concerning the performance and profitability of
the bank's products and services and the productivity of the bank's account
officers. In that regard, the Company believes that services furnished by MKP to
its banking clients could provide a significant opportunity for FPC Information
Corp. to introduce its MARS(TM) software and related services to these
institutions. The Company also believes that the type of analysis generally
performed by MKP for its bank clients in connection with its merger
communications services can often be instrumental in planning the foundation for
a more efficient MIS gathering system for such clients. In the Company's view,
with this type of information about potential clients, FPC Information could
have certain advantages over its competitors when making proposals to implement
system-wide computer software improvements in such banking institutions.
FINANCIAL INFORMATION SOFTWARE
MARS(TM) (MANAGING ACCOUNT RELATIONSHIPS)
GENERAL. The Company has developed a software program referred to as
MARS(TM) (Managing Account Relationships). MARS(TM) functions as an integrated
planning and sales management system designed to coordinate the user's sales and
marketing activity and analyze the results of its sales efforts and the
profitability of its products. MARS(TM) was designed to allow management at
banks to analyze in greater detail the products it offers in light of an
increasingly competitive industry environment. The Company believes that
MARS(TM) enables its users to monitor income and new business contributions of
each department, branch, sector or group within a business enterprise faster and
more efficiently than current applications. The Company also believes that
future projections by a business enterprise using MARS(TM) will be easier since
the software regularly maintains information regarding pending sales.
The Company believes that the sales management aspect of MARS(TM) can
also provide management with extensive "on line" information to enable fast and
informed decisions to be made based upon total customer sales and other
financial information. MARS(TM) can retrieve data directly from the customer's
mainframe computers, access overall sales information and match the retrieved
data to targets previously set by the customer. Reporting can be done by
customer, product, account officer, department or division.
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In addition to the capability of MARS(TM) to coordinate sales and
marketing activities, individual department managers can use MARS(TM) to measure
productivity of each employee on a daily, weekly, monthly or annual basis. The
overall performance of a business enterprise can be evaluated and compared
against the contributions of each employee. Planning and performance results can
be accessed instantly through standard reports or by means of customized
reporting formats.
Another way of describing MARS(TM) is in the context of the emerging
trend toward Sales Force Automation (SFA) which is beginning to have a major
impact in the business world. SFA involves the use of computers, armed with a
sophisticated software program, which allows an organization to more efficiently
and effectively manage the sales function with the objective of enhancing
profitability. The Company believes that the necessity for SFA techniques is
particularly important to the banking industry, which is currently faced with
acute competitive pressures and the necessity to more effectively cross-sell
products to customers. The Company's research suggests that the banking industry
is in serious need of applications that will complement the goal of executing
successful selling strategies. The senior management of the Company, with its
experience in the banking area, recognized the acute need for SFA early in the
development stage for the MARS(TM) product. Accordingly, the MARS(TM) system was
targeted specifically to the banking and financial services community.
In the Company's view, a primary reason that banks and other financial
institutions are in need of a SFA program is represented by the so-called
"80-20" rule, a measure of profitability used in the banking industry which
suggests that, as a general rule of thumb, approximately 80% of a business
enterprise's profits come from approximately 20% of its customers, on average.
Additionally, the wide range of products offered by the typical large bank makes
cross-selling strategies extremely complex. For example, corporate banking
relationships encompass many product categories ranging from loans to cash
management. Larger banks, in particular, have had a difficult time assembling a
company-wide view of what products and services have been sold, or could be
sold, to an established client base. Because banks are usually organized on a
very structured departmental basis, each department operating with its own
systems and sales force, information that would be useful in the cross-selling
of products is often dispersed among a myriad of confusing systems. MARS(TM) is
designated to allow the integration of vital relationship information on a firm
(bank) wide basis, while at the same time providing the tools for enhanced
productivity. The Tower Group, which provides technology consulting services to
financial institutions, has stated in a May 1995 report titled "Sales
Applications for Wholesale Banking" that "successful cross-selling is one of the
keys to bank profitability, as it maximizes the return on each relationship. An
additional component to successful relationship management in the banking
industry is the continuous delivery of high quality customer service, which is
also enhanced by multi-user access to a database which describes a customer
relationship". The Tower Group report also estimates that "85% of the top 100
banks and 20% of all other banks will have installed at least departmental sales
and relationship management application for users on the wholesale side of the
bank by the year 2000. Of the larger banks, half will have extended these
systems beyond a single functional department by that time". The Company
believes that the MARS(TM) product is well suited to meet the SFA needs of both
larger and smaller banking institutions.
The Company is in the process of completing all necessary programming
with regard to the MARS(TM) software in order to address all "Year 2000" issues
and expects this programming to be completed well in advance of January 1, 2000.
The Company does not anticipate that the cost of this programming will be
material.
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MARKETING STRATEGIES RELATING TO MARS(TM)
In the Company's view, the senior management of the Company's
subsidiary, FPC Information Corp., in addition to developing the MARS(TM)
software, has developed an excellent reputation within the banking community for
its ability to provide quality, high level consultation in the areas of
strategic business planning and product management. Moreover, the Company's 80%
owned subsidiary, MKP, specializes in market and communications strategies for
the financial services community involving a wide array of services. The Company
believes that the natural synergy of these closely connected organizations
allows for a cross-selling opportunity with which to successfully launch the
MARS(TM) product. In fact, the MARS(TM) product is currently under evaluation at
four banks. The Company believes that by the end of calendar year 1998, at least
one highly recognizable banking institution will have committed to MARS(TM),
thereby providing a valuable reference from which to pursue future
installations.
If reliable references MARS(TM) are developed, the Company will seek to
build a channel of product distribution to augment its own direct selling
efforts. In this regard, the banking industry is served by a large number of
consulting firms specializing in financial services industry information
technology. For example, the "Big Six" accounting firms and most of the second
tier accounting firms provide information technology services to banks. The
Company believes that the MARS(TM) product is the best available solution for
SFA to the banking and financial services community and that certain accounting
firms could have a substantial interest in representing MARS(TM) to their
clients as part of the services such firms can offer.
In addition to these potential business partners, the Company believes
that the opportunity exists for possible alliances with over a dozen regional
systems integrators whose businesses are primarily concerned with the
installation and modification of banking and financial services applications.
The third group which the Company intends to target in the channel strategy is
software product companies with banking specific applications which would
complement MARS(TM). The Company also intends to explore a less formal lead
sharing relationship with hardware providers who have relationships with the
banking market. The Company believes in the possibility that a MARS(TM) sale
could justify the purchase of a large number of both PC's and laptops. The
Company expects these channel development efforts to result in a number of
product relationships over the course of the next twelve to eighteen months.
If MARS(TM) becomes well accepted within the banking community, the
Company plans to modify the product in a second version which would be suitable
for the insurance industry. A third version of MARS(TM) for the brokerage
community could then be developed. In the view of the Company's management, both
of these industries, like the banking industry, could benefit from effective
cross selling, but until now have lacked the proper computer software to achieve
this goal. The Company cannot currently project a timetable for the development
of the contemplated additional versions of MARS
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SPECIFIC PRODUCT DESCRIPTION. The MARS(TM) program contains modules for
key areas, including customer information, product information, customization,
management reports, report writer, SOL (Structured Query Language) Support and
MARS(TM) Remote.
- CUSTOMER AND PRODUCT INFORMATION. The customer and product
information modules of MARS(TM) allow a user to retrieve in
real time its client's record and select marketing and
technical information on its products, programs and services.
The customer and product information modules are designed to
enable the user's sales team to offer the most suitable
products to its clients. The product files contain pricing and
competitive information and textual descriptions of features,
benefits and various terms and conditions of the products
offered.
- MARS-TM- CUSTOMIZATION. MARS(TM) customization allows a user
to set system capabilities for office automation, passwords
and access paths to customer information and product
databases. Additionally, it provides the user with the ability
to pre-load the system with text and terminology for windows
and menus so that the particular culture and methodology of
the user is replicated throughout the system.
- MANAGEMENT REPORTS. MARS(TM) allows the user to generate
management reports on officer performance, sales in process
and other sales information by month and quarter. These
reports can be accessed by the user at any time and viewed
on-line or in a printed report. Management can access a
complete picture of the activities of each employee by task,
account or as a calendar of activities. Many of the major
reports of the system are also presented graphically as pie or
bar charts, allowing for alternative presentations of complex
relationships.
- REPORT WRITER. In addition to the standard reports provided by
MARS(TM), the system supports the popular report writer called
"Crystal Reports," which is considered by the Company and
others as virtually an industry standard. Through the use of
this third party product, the Company believes the user can
easily add new reports to its MARS(TM) installation, thereby
potentially increasing the value of the data provided.
- SOL SUPPORT. The Company expects to complete shortly a module
for MARS(TM) which will include SOL (Structured Query
Language) support thus enabling MARS(TM) to be used as a
single desk top sales support system or a system that is
implemented throughout an organization.
- E-MAIL SUPPORT. The Company is currently designing a module to
the MARS(TM) system to include its own E-Mail capability,
thereby connecting all users and enabling effective data
sharing for management communication or team selling efforts.
Alternatively, the system could be supported by connections to
popular E-Mail products such as Microsoft Mail and Lotus
Notes.
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- ADVANCED SOFTWARE TECHNOLOGY. MARS(TM) is fully compliant with
the Microsoft Windows user interface. MARS(TM) system
navigation is mouse driven requiring minimum keying by the
user. A simple export of MARS(TM) files to Microsoft Word or
spread sheets tools, such as EXCEL, allows the user to quickly
gather, sort, and combine information from multiple sources
into one format.
- MARS-TM- REMOTE. MARS(TM) permits mobile computing by the
exchange and synchronization of information between the
computer of the remote user and the server data base. The
system supports both direct or Internet connections, thereby
providing its users with greater availability and flexibility.
TECHNICAL INFORMATION. The MARS(TM) system can produce over 30 on-line
reports to assist the user and management in recommending appropriate products
to customers in a short period of time. Each transaction can be monitored in
real time.
The Company provides a wide range of delivery options for MARS(TM),
including installation of a fully-configured workstation. MARS(TM) is a
client/server application implemented with state-of-the-art technologies.
MARS(TM) requires an IBM compatible PC with a 386 or higher processor, 8MB RAM
and a 20 MB hard drive. The front-end windows-based application provides a
user-friendly, easy-to-access graphic user interface and is consistent to all
users with different desktop or laptop operating systems, such as Windows, OS/2,
Windows 95 or Windows NT. The back-end server can be implemented with a wide
range of relational database systems such as MS Access, MS Fox-Pro, NS SQL
Server for Windows NT, Sybase Infomix, or Oracle, which also may reside on a
variety of platforms.
MARS(TM) ran be used in a wide range of working environments, ranging
from a single PC or a workstation, or a small LAN, to a large corporate setting
with multiple sites connected by Wide Area Network. MARS(TM) supports a variety
of networking communication environments including Novell NetWare, Microsoft
Windows for Workgroups, Microsoft Windows NT, IBM LAN Manager, the TCP/IP
Networks (UNIX bases networks) and remote dial-up.
SOFTWARE LICENSING
The Company expects to license MARS(TM) to customers under nonexclusive
license agreements. Under a standard Company licensing arrangement, the Company
anticipates that the customer will pay a fixed license fee and acquire the
nontransferable and nonexclusive right to use MARS(TM) at one or more designated
sites. The Company anticipates that additional license fees can be negotiated
between the parties depending upon the number of sites at which the customer
intends to use the Company's software. As part of the fixed license fee for
MARS(TM), customers will receive, for a period of one year after installation,
all announced software enhancements to the licensed software at the latest
standard release level being offered for license by the Company, including all
software and documentation updates. The Company has not derived any revenues
from MARS(TM) since the recommencement of its operations in November 1992 and
there can be no assurance it will generate any such revenues in the future.
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The Company expects to recognize revenue from license fees after
delivery of the documentation and the software components to the customer and
upon final customer acceptance, provided that no significant Company 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 and 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 revenue from the
Company's software licensing fees.
CUSTOMER SUPPORT; SOFTWARE MAINTENANCE AND SERVICE
In connection with MARS(TM), the Company expects to provide support
services such as project planning, system installation, software implementation,
user training and ongoing technical support and documentation. In addition, the
Company expects to offer a full range of consulting services, including
planning, research and custom design for modifications to meet the specific
needs of a customer. Support services will be provided either by Company
personnel or independent subcontractors.
The Company anticipates that it will offer software maintenance
services to its customers for a period of time following the installation of
MARS(TM). The Company expects that its software maintenance agreements will
generally provide for the maintenance of Company-licensed software at a specific
site for a specified period of time. The Company will be required to remedy
significant programming errors, as well as provide the customer with certain
improvements, revisions or modifications.
There have been no revenues from customer support, software maintenance
and service fees since the recommencement of operations by the Company in
November 1992. While it is expected that the Company will recognize revenues
from such activities, there can be no assurance that any such revenues will be
generated.
FINANCIAL SERVICES INDUSTRY
Consulting services currently provided to the financial services
industry are rendered by a diverse group of companies or firms, substantially
all of which are privately-held. These companies or firms range in size from
large firms which are divisions or subsidiaries of major accounting firms or
Fortune 100 companies to organizations which are smaller than the Company.
The Company believes that the recent increase of mergers and
acquisitions in the financial services industry has generated an increase in
demand for related consulting services. The Company believes that this increased
demand includes a trend towards outsourcing certain services and a greater focus
on product and sales analyses and marketing and communications strategies used
in connection with business combinations.
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<PAGE> 14
The Company believes that the industry will continue to consider
methods to analyze the financial impact and competitive position of its products
and reduce in-house corporate functions which may be more efficiently
effectuated by outside resources. The Company believes it can capitalize on this
trend.
COMPETITION
Competition among enterprises which render merger communications
services and software products to financial institutions and other business
organizations is intense. Bank merger communications services are generally
rendered by a relatively small number of specialized firms and require
sophisticated and time critical support services, such as data processing and
printing which are sometimes (as in the case of MKP) provided by outside firms.
The Company faces competition from other companies which offer services or
products similar to those offered by the Company and which have greater
financial resources, more technical personnel and more extensive service
capabilities than the Company. For example, MKP competes against larger and more
established companies such as Harte-Hanks Communication, Dimac Corporation and
Arthur Anderson LLP.
The Company is aware of several competitors which offer computer
software products as comprehensive as MARS(TM) as well as other competitors. The
Company believes that the software products which most directly compete with
MARS(TM) are Lotus NOTES, Siebel Systems SALES ENTERPRISES, Aurum Software SALES
TRAK and Borealis ARSENAL. In particular, Lotus Development Corp. markets the
Notes product as a universal information sharing tool for collaborative work
groups. The Company believes that the flexibility and workflow components of
NOTES makes that product a viable competitor, although at a significantly higher
cost than MARS(TM).
The Company endeavors to distinguish its services and software from
those of its competitors based upon the following factors: (i) its services and
software are specifically designed for application in financial institution
environments, unlike most competitive products which are designed for more
general applications and require modification for effective utilization by
financial institutions; and (ii) the experience of the Company's management in
the financial services industry.
There can be no assurances that the Company will be successful in its
efforts to distinguish the qualities of its services and software in the
marketplace. Other entities, with substantially greater resources than the
Company, compete directly with the Company, by offering services and/or software
to the same industry.
The Company believes, however, that MKP possesses certain competitive
advantages in the merger communications field. Specifically, the principals of
MKP, Susan Michaelson and Hillary Kelbick, have over 32 years of combined
experience and have successfully completed more than 50 merger projects. Prior
to the establishment of MKP in 1994, while employed by another bank merger
communications firm, Ms. Michaelson and Ms. Kelbick were the principal employees
involved in working on and completing the NationsBank merger which created the
then third largest banking organization in the United States. MKP's first two
major merger assignments were the First Union/First Fidelity merger and the Bank
of Boston/Bay Bank merger. MKP was the sole merger communications firm involved
in these mergers. Since its formation, MKP has also performed services for
various other banking institutions, including Chemical Bank (now The Chase
Manhattan Bank), The
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<PAGE> 15
Bank of New York, Citibank, First National Bank of Maryland, The Dime Savings
Bank of New York, Fleet Bank, CIT Group and PNC National Bank. MKP was recently
awarded the First Union/Signet Bank merger and has received a "Future Bank
Initiative" assignment from First Union National Bank. This assignment was
awarded to MKP by First Union National Bank based upon MKP's expertise in the
banking industry and involves designing and implementing communications with the
Bank's customers which describe the Bank's products and services. In 1997, MKP
received the Vendor of the Year Award from First Union National Bank. The Vendor
of the Year award is presented to the vendor that has had a major positive
impact on First Union National Bank for the year in question. Only one such
award was presented by First Union National Bank in 1997.
MARKETING
The Company's founder and principal executive officer, together with
the Company's other executive officers, are primarily responsible for marketing
its services and software. In the past, the Company conducted its marketing
activities primarily through advertising in selected financial institution trade
media and at professional financial institution conventions. The Company
currently markets its services and software primarily through direct sales
calls, referral business and personal contacts.
The Company markets primarily to domestic and foreign banks. The
Company believes that there are approximately 500 banks in the United States
engaged in activities which may require services and/or software offered by the
Company. The Company also believes that significant opportunities exist for it
to sell its services and/or software in Europe and the Far East, where it
believes that market conditions have made financial institutions acutely aware
of the necessity to develop sales, marketing and business development
priorities.
The Company's overall marketing strategy includes internal as well as
external channels of distribution. The Company believes that cross-selling its
services and software will provide it with greater opportunities. For example,
the Company believes that it can build a channel of product distribution for
MARS(TM) through its consulting services to augment its own direct selling
efforts. The Company intends to develop relationships with accounting firms
which sponsor information technology services to banks. In addition, the Company
believes that there are additional opportunities for alliances with regional
system integrators whose business is composed entirely of the installation and
modification of banking and financial services applications.
The Company anticipates that bank merger activity will continue at a
rapid pace for at least the next five years. Additionally, MKP plans to explore
expansion into merger communications for other industries, such as insurance and
brokerage, as a means to increase MKP's revenues and reduce its current
dependence on bank merger communications.
In general, the Company is primarily retained to fulfill specific needs
of its customers. Accordingly, the success of the Company is dependent upon its
ability to attract a flow of new customers as well as new assignments from past
customers. The solicitation of new assignments from past customers has been and
is expected to be an integral part of the Company's marketing strategy.
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<PAGE> 16
INTELLECTUAL PROPERTY RIGHTS AND PROTECTION
Like many software companies, the Company does not hold any patents and
relies upon a combination of copyright and trade secret laws and contractual
restrictions to protect its rights in its software, technology and trade
secrets. There can be no assurance that the Company's proprietary technology
will remain a secret or that others will not develop similar technology and use
such technology to compete with the Company.
Although there can be no assurance, the Company believes that its
software and related technology are proprietary and protected by copyright law,
license agreements and non-disclosure agreements. The Company intends to require
its customers to sign license agreements. Although there can be no assurance,
the Company believes that copyright protection, regardless of whether a written
license agreement exists, is sufficient to protect the Company's rights in its
software and technology, since copyright laws protect the holder of the
copyright against third party infringements. Certain protections, such as
limitations on use of a product and limitations on warranties and liability, are
not afforded by copyright law and may not be available without an enforceable
license agreement. The ability of software companies to enforce its licenses has
not been clearly defined and there can be no assurances that the Company will be
successful in any enforcement proceedings. In addition, there can be no
assurance that the Company will have the ability or the resources necessary to
enforce its rights under such licenses or agreements or defend any action
commenced by another party for infringement or any other similar claim.
Pursuant to the indemnification provisions included in its license
agreements, the Company generally will agree to indemnify its customers from
losses resulting from any third-party claims that the Company's software
infringes upon proprietary rights of such third parties. The amount of such
indemnification is generally limited to the amount of the license fee paid by
the customer to the Company. To date, the Company has not received any written
claims of infringement.
The Company also owns exclusive rights to videotapes, manuals and
workbooks utilized in its sales, marketing and business programs and seeks to
protect its proprietary rights therein through restrictions in its license
agreements. The licenses for videotapes, manuals and workbooks generally have a
term of one year. To date, the Company has not been required to enforce these
contractual safeguards relating to the use of its videotapes, manuals and
workbooks. There can be no assurance that the Company would have the ability or
the resources necessary to enforce its rights under such licenses.
EMPLOYEES
As of January 5, 1998, the Company had 17 full-time employees. The
Company also engages independent contractors and consultants from time to time
in connection with certain projects. The Company expects to employ additional
personnel as needed in connection with its operations. The Company believes that
it has good relations with its employees and independent contractors.
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<PAGE> 17
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report on Form 10-KSB,
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 Annual Report on Form 10-KSB,
including without limitation, under the caption "Item 6 --Management's
Discussion and Analysis of Financial Condition and Results of Operations."
ITEM 6 -- 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. From its inception in 1984 through February 1990, it incurred
continuous losses and working capital deficiencies which limited its marketing
efforts and operations. 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 stockholders. 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. In addition,
the report of the Company's independent accountants for its balance sheet as of
September 30, 1995 and 1994 and the results of operations, stockholders' equity
and cash flows for the years then ended included an explanatory paragraph which
referred to the Company's substantial losses and concluded that such results
raised substantial doubt about its ability to continue as a going concern.
REVENUES. The Company's revenues historically have been derived from a
limited number of customers. 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. The Company
anticipates that a substantial amount of its revenues will continue to be
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<PAGE> 18
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.
SUBSIDIARIES. The Company's consolidated financial statements include
the accounts of Financial Performance Corporation and its three subsidiaries.
All significant intercompany accounts and transactions have been eliminated.
Summary financial information concerning MKP, excluding intercompany
eliminations, as of September 30, 1997 and 1996 and for the years then ended, is
as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Cash ............................. $1,091,000 $1,685,000
Accounts receivable .............. 1,646,000 903,000
Other assets ..................... 47,000 14,000
Accounts payable ................. 1,435,000 1,705,000
Revenues ......................... 7,785,000 8,784,000
Operating costs .................. 7,167,000 8,178,000
Net income ....................... 642,000 504,000
</TABLE>
Summary financial information concerning the Company's other two
subsidiaries, FPC Information and Aspen, as of September 30, 1997 and 1996 and
for the years 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 had no revenues and incurred losses of $219,872 and $530,644 for
the years ended September 30, 1996 and 1995, respectively. Aspen, whose
operations commenced in March 1995, suspended its operations in September 1996.
Aspen 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.
FPC Information had no revenues and incurred losses of $340,540 and
$428,245 for the fiscal years ended September 30, 1997 and 1996, 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
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<PAGE> 19
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 $25,397 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 expenses as incurred and classified as research and development
costs. There were no research and development costs incurred by the Company for
the years ended September 30, 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.
The Company's consolidated financial statements listed under "Item 7
- -Financial Statements" should be read in connection herewith.
FORWARD-LOOKING STATEMENTS. Certain statements contained in this Annual
Report on Form 10-KSB, 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 Annual Report on Form 10-KSB,
including without limitation, under the caption "Item 1 -- Description of
Business."
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<PAGE> 20
RESULTS OF OPERATIONS
FISCAL YEARS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
REVENUES. Revenues for the fiscal year ended September 30, 1997
decreased by $998,887 or approximately 11.4% to $7,785,250 from $8,784,137 for
the fiscal year ended September 30, 1996. This decrease was attributable to a
decrease in revenues generated by MKP, resulting principally from the reduced
size of the merger projects for which MKP was engaged during this period. The
amount of revenues generated from each of the merger projects for which MKP is
retained, as well as the cost of generating such revenues, vary depending upon
various factors, including the size of the merger and the number of products and
services offered by the merged entity. MKP accounted for approximately 100% of
the consolidated revenues of the Company for the fiscal year ended September 30,
1997.
COST OF REVENUES. Cost of revenues decreased by $788,572 or
approximately 10.8% to $6,482,542 for the fiscal year ended September 30, 1997
from $7,271,114 for the fiscal year ended September 30, 1996. This decrease was
attributable primarily to the reduced size of the merger projects for which MKP
was engaged during this period.
SALARIES AND RELATED EXPENSES. Payroll expenses increased by $80,187 or
approximately 15.3% to $605,864 for the fiscal year ended September 30, 1997
from $525,677 for the fiscal year ended September 30, 1996. This increase was
attributable primarily to the increase in staff employed by MKP and FPC
Information. MKP increased its staff during this period due to the increased
complexity of certain merger-related work undertaken by MKP as well as to
improve its ability to respond to various time-sensitive work requirements of
its customers. FPC Information increased its staff in order to accelerate the
completion of various upgrades and enhancements to the Company's MARS(TM)
software product.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $556,685 or approximately 78.5% to
$1,265,803 for the fiscal year ended September 30, 1997 from $709,118 for the
fiscal year ended September 30, 1996. This increase was attributable primarily
to increased expenditures relating to the Company's new lease for expanded
premises, increased professional fees as well as additional Company personnel
and independent contractors retained in connection with MKP's business
operations. MKP increased the number of independent contractors retained during
this period due to the increased complexity of certain merger-related work
undertaken by MKP as well as to improve its ability to respond to various
time-sensitive work requirements of its customers.
OPERATING LOSS. The Company had an operating loss of $568,959 for the
fiscal year ended September 30, 1997 as compared to an operating profit of
$278,228 for the fiscal year ended September 30, 1996.
NET LOSS. The Company had a net loss of $544,848 for the fiscal year
ended September 30, 1997 as compared to a net loss of $235,049 for the fiscal
year ended September 30, 1996.
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<PAGE> 21
FISCAL YEARS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
REVENUES. Revenues during the fiscal year ended September 30, 1996
increased by $7,468,537 or approximately 567.7% to $8,784,137 from $1,315,600
for the prior year. This increase was attributable to substantially increased
revenues generated by MKP. During the fiscal year ended September 30, 1996, MKP
was awarded a contract to work on merger and marketing communications for two
major banking institutions. MKP generated approximately 100% of the consolidated
revenues of the Company for the fiscal year ended September 30, 1996.
COST OF REVENUES. Cost of revenues increased by $6,454,999 or
approximately 790.9% to $7,271,114 for the fiscal year ended September 30, 1996
from $816,115 for the fiscal year ended September 30, 1995. This increase
resulted primarily from a substantial increase in outsourcing expenses and fees
for independent contractors retained by MKP in connection with its substantially
increased business during the fiscal year ended September 30, 1996 and year-end
bonuses paid to the two Managing Directors of MKP in the aggregate amount of
approximately $344,000.
SALARIES AND RELATED EXPENSES. Payroll expenses increased by $161,497
or approximately 44.3% to $525,677 for the fiscal year ended September 30, 1996
from $364,180 for the fiscal year ended September 30, 1995. This increase was
primarily due to the increase in staff employed by MKP as well as the payment of
year-end bonuses to the two Managing Directors of MKP during the fiscal year
ended September 30, 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $312,230 or approximately 103.1% to
$615,106 for the fiscal year ended September 30, 1996 from $302,876 for the
fiscal year ended September 30, 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 $278,228 for
the fiscal year ended September 30, 1996 compared to an operating loss of
$284,898 for the fiscal year ended September 30, 1995.
NET INCOME (LOSS). The Company had a net loss of $235,049 for the
fiscal year ended September 30, 1996 as compared to a net loss of $801,296 for
the fiscal year ended September 30, 1995. The Company's operating loss from
continuing operations after income taxes for the fiscal year ended September 30,
1996 was $15,177. Without giving effect to payments made to two of the Company's
executive officers (the two Managing Directors of MKP) in the aggregate of
approximately $430,000, the Company would have had net income of approximately
$155,000 for the fiscal year ended September 30, 1996. These payments were made
in connection with annual incentive pool provisions contained in such
executives' employment agreements with the Company. See "Item 10 --Executive
Compensation -- Employment Agreements."
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
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<PAGE> 22
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
through revenues generated by the Company's subsidiary, MKP. See "Item 1
- --Description of Business" and "Item 12 -- Certain Relationships and Related
Transactions -Transactions with Principal Stockholders."
As of September 30, 1997, the Company had working capital of
$1,121,581, stockholders' equity of $1,753,415 and a working capital ratio
(current assets to current liabilities) of 1.65:1. As of September 30, 1997 and
1996, the Company had cash and cash equivalents of $1,139,974 and $1,972,056 ,
respectively. The reduction in cash and cash equivalents of $832,082 or
approximately 42.2% was attributable primarily to differences in the timing of
MKP's billing and resultant receipt of revenues and its payment of operating and
other expenses.
As of September 30, 1997 and 1996, the Company had accounts receivable
of $1,645,918 and $902,516, respectively. The increase in accounts receivable of
$743,402 or approximately 82.4% was attributable primarily to MKP's significant
billing during the last two months of the fiscal year ended September 30, 1997
which generated accounts receivable which were not paid until after the end of
such fiscal year. As of September 30, 1997 and 1996, the Company had accounts
payable and accrued expenses of $1,733,648 and $1,362,571, respectively. The
increase in accounts payable of $371,077 or approximately 27.2% was attributable
primarily to differences in the timing of MKP's receipt of invoices covering
expenses incurred during such periods.
For the years ended September 30, 1997 and 1996, the Company used cash
for operations of $800,432 and generated positive cash flow from operations of
$262,290, respectively, primarily as a result of a decrease in revenues and
utilized $406,727 and $320,076 for investing activities during the years ended
September 30, 1997 and 1996, respectively. Net cash provided by the Company's
financing activities for the years ended September 30, 1997 and 1996 were
$375,077 and $1,681,087, respectively.
As of September 30, 1997, the Company had no short-term debt and no
long-term debt. In November 1996, long and short-term debt plus accrued interest
thereon in the aggregate amount of $289,614 which was due to a principal
stockholder was converted into shares of the Company's common stock.
As of September 30, 1997, the Company has made no material capital
commitments other than those related to non-cancelable operating leases for
office space and equipment. For the years ended September 30, 1998, 1999, 2000
and 2001, the Company's minimum payments in connection with these leases are
approximately $281,000, $281,000, $281,000 and $374,000 per year, respectively.
In addition, the Company expects to spend approximately $100,000 for the fiscal
year ending September 30, 1998 in connection with its research and development
activities.
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, 1998.
However, there can be no assurance that the Company will not require additional
financing prior to that time. For the years ended September 30, 1998, 1999, 2000
and 2001, the Company's minimum payments in connection with the leases are
approximately $281,000, $281,000, $281,000 and $374,000 per year, respectively.
The Company anticipates that it will require
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<PAGE> 23
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.
INFLATION
In general, the Company believes that it will be able to offset any
inflationary pressures by increasing operating efficiency, monitoring and
controlling expenses and increasing prices to the extent permitted by
competitive factors.
ITEM 7 -- FINANCIAL STATEMENTS
[TO BE INSERTED BY BOWNE.]
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<PAGE> 24
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ANNUAL REPORT ON FORM 10-KSB
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1997 AND 1996 F-3
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR F-4
THE YEARS ENDED SEPTEMBER 30, 1997 AND 1996
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED F-5
SEPTEMBER 30, 1997 AND 1996
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED F-6
SEPTEMBER 30, 1997 AND 1996
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7
F-1
<PAGE> 25
[GOLDSTEIN AND MORRIS LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Financial Performance Corporation and Subsidiaries
New York, New York
We have audited the accompanying consolidated balance sheet of Financial
Performance Corporation and Subsidiaries as of September 30, 1997 and 1996 and
the related consolidated statements of changes in stockholders' equity,
operations and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Financial
Performance Corporation and Subsidiaries as of September 30, 1997 and 1996 and
the results of its consolidated operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/Goldstein and Morris
New York, New York
January 8, 1998
F-2
<PAGE> 26
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS
1997 1996
----------- -----------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 1,139,974 $ 1,972,056
Accounts receivable 1,645,918 902,516
Prepaid expenses and other current assets 69,337 57,340
----------- -----------
Total current assets 2,855,229 2,931,912
Computer equipment, net of accumulated depreciation
of $96,505 and $46,193 (Note B (7)) 172,242 111,852
Software development costs (Note B (3)) 574,720 452,299
Other assets 307,918 264,368
----------- -----------
$ 3,910,109 $ 3,760,431
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 1,733,648 $ 1,362,571
Current portion of long-term debt (Note D) -- 7,520
Short-term borrowings (Note C) -- 113,000
----------- -----------
Total current liabilities 1,733,648 1,483,091
----------- -----------
Long-term debt, net of current maturities (Note D) -- 168,095
----------- -----------
Minority interest in consolidated subsidiaries 423,046 256,046
----------- -----------
Stockholders' equity (Note I)
Common stock - authorized 50,000,000 shares
of $.01 par value per share: issued and
outstanding 8,021,534 as of September 30, 1997 and
7,192,562 as of September 30, 1996 80,215 71,926
Additional paid in capital 7,480,761 7,043,986
Accumulated (deficit) (5,807,561) (5,262,713)
----------- -----------
Total stockholders' equity 1,753,415 1,853,199
----------- -----------
$ 3,910,109 $ 3,760,431
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 27
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<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)
Issuance of common
shares in private
placement, net of
costs 879,500 8,795 691,992 -- 700,787
Issuance of common
shares for
compensation and
services 294,971 2,950 216,963 -- 219,913
Issuance of common
shares on exercise
of warrants 1,000,000 10,000 490,000 -- 500,000
Issuance of common
shares on
conversion of
convertible note
and short-term debt 1,517,474 15,175 1,502,299 -- 1,517,474
Net (loss) -- -- -- (235,049) (235,049)
--------- ------- ---------- ----------- -----------
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 198,942 1,989 166,881 -- 168,870
Issuance of common
shares on conversion
of convertible note
and short-term debt 564,614 5,646 234,341 -- 239,987
Sale of common shares 16,002 160 11,340 -- 11,500
Net (loss) -- -- -- (544,848) (544,848)
--------- ------- ---------- ----------- -----------
BALANCE -
SEPTEMBER 30, 1997 8,021,534 $80,215 $7,480,761 $(5,807,561) $ 1,753,415
========= ======= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 28
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Revenues $ 7,785,250 $ 8,784,137
----------- -----------
Costs and expenses
Cost of revenues 6,482,542 7,271,114
Salaries and related expenses 605,864 525,677
Selling, general and administrative 1,265,803 709,118
----------- -----------
8,354,209 8,505,909
----------- -----------
Operating income (loss) (568,959) 278,228
----------- -----------
Other income (expense):
Interest income 49,489 13,081
Interest expense (2,981) (89,424)
Minority interest in loss (income) of
consolidated subsidiaries 3,000 (101,000)
----------- -----------
49,508 (177,343)
----------- -----------
Income (loss) from continuing operations
before income taxes (519,451) 100,885
Income taxes 25,397 116,062
----------- -----------
Income (loss) from continuing
operations (544,848) (15,177)
Loss from discontinued operations (Note L) -- (219,872)
----------- -----------
Net income (loss) $ (544,848) $ (235,049)
=========== ===========
Per share data:
Net (loss) from continuing operations $ (.07) $ (.003)
=========== ===========
Net (loss) $ (.07) $ (.05)
=========== ===========
Weighted average number of common shares
outstanding 7,878,401 4,899,023
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 29
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
Cash flows provided by operating activities:
<S> <C> <C>
Net (loss) $ (544,848) $ (235,049)
Adjustments to reconcile net (loss) to net cash used for
operating activities:
Depreciation and amortization 175,288 80,063
Minority interest in (loss) and income of
consolidated subsidiaries (3,000) 101,000
Issuance of stock for compensation -- 91,309
Changes in operating assets and liabilities:
Increase in accounts receivable (743,402) (675,129)
Increase in prepaid expenses
and other current assets (11,997) (20,042)
Decrease (Increase) in other assets (43,550) (116,318)
Increase in accounts payable 371,077 1,036,456
----------- -----------
Net cash provided by (used for)
operating activities (800,432) 262,290
----------- -----------
Cash flows from investing activities:
Purchase of equipment (175,331) (67,909)
Software development costs (231,396) (252,167)
----------- -----------
Net cash used for investing activities (406,727) (320,076)
----------- -----------
Cash flows from financing activities:
Repayments on notes payable to stockholders -- (37,174)
Proceeds from sale of common shares and
exercise of warrants, net of costs 205,077 857,952
Proceeds from long-term borrowings -- 72,309
Proceeds from short-term borrowings -- 788,000
Subsidiary company stock issued to minority stockholder 170,000 --
----------- -----------
Net cash provided by financing activities 375,077 1,681,087
----------- -----------
Net increase (decrease) in cash (832,082) 1,623,301
Cash, beginning of year 1,972,056 348,755
----------- -----------
Cash, end of year $ 1,139,974 $ 1,972,056
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ -- $ 1,750
=========== ===========
Income taxes $ 116,062 $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 30
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.
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).
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(1) Principles of Consolidation
The consolidated financial statements include the accounts of
Financial Performance Corporation and Subsidiaries (its three eighty percent
owned subsidiaries). All significant intercompany accounts and transactions have
been eliminated.
Condensed financial information of its eighty percent owned
subsidiary, MKP, excluding intercompany eliminations, as of September 30, 1997
and 1996 and for the years then ended, is as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Cash $1,091,000 $1,685,000
Accounts receivable 1,646,000 903,000
Other assets 47,000 14,000
Accounts payable 1,435,000 1,705,000
Revenues 7,785,000 8,784,000
Operating costs 7,167,000 8,178,000
Net income 642,000 504,000
</TABLE>
F-7
<PAGE> 31
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 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 $219,872 for the year ended September 30, 1996. FPC Information Corp.
had no revenues and incurred losses of $340,540 and $428,245 for the years ended
September 30, 1997 and 1996, 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 years ended
September 30, 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.
Software development costs are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Balance - beginning of year $ 452,299 $ 238,289
Additions 231,396 252,166
Amortization (108,975) (38,156)
--------- ---------
Balance - end of year $ 574,720 $ 452,299
========= =========
</TABLE>
F-8
<PAGE> 32
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.
F-9
<PAGE> 33
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
carryforwards of approximately $1,150,000, which would expire by 2012. 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, 1997, the Company had a deferred tax asset
amounting to approximately $460,000. 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 years ended September 30, 1997 and
1996 represents state and local income taxes on the income of MKP.
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 $125,000 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. All of the conversions of the Company's
short-term borrowings into shares of the Company's common stock were at the
fair market value of the Company's common stock as of each settlement date.
NOTE D - LONG-TERM DEBT
Long-term debt as of September 30, 1997 and 1996 consists of the
following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Note payable, stockholders, matured on
October 1, 1996 and required monthly
payments of $3,575 including interest at
9% per annum $ -- $ 7,520
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) -- 168,095
-------- --------
-- 175,615
Less: current portion due within one year -- 7,520
-------- --------
$ -- $168,095
======== ========
</TABLE>
F-10
<PAGE> 34
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE D - LONG-TERM DEBT - (Continued)
(1) The original principal amount of 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 principal amount due under this note
($125,000), was converted into 400,000 shares of the Company's common stock at
the effective exchange rate of $0.3125 per share set forth in the convertible
note. At such time, the holder of the convertible note agreed with the Company
to convert the then current remaining principal balance and accrued interest in
respect of the convertible note ($47,154) together with the current principal
balance and accrued interest thereon in respect of all other indebtedness of the
Company then held by the holder of the consolidated note ($117,460) into an
aggregate of $164,614 additional shares of the Company's common stock of the
conversion rate of $1.00 per share. The conversion rate of $1.00 per share
represented the Company's estimate of the then current fair market value of such
shares, as reflected by the most recently effectuated private placements of the
Company's common stock. 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 year ended September 30, 1997 two customers of the Company's
subsidiary, MKP, accounted for 72% of the Company's consolidated revenues in the
following respective percentages:
<TABLE>
<CAPTION>
<S> <C> <C>
Customer A 56%
Customer B 16%
--
72%
==
</TABLE>
The total accounts receivable from these customers at September 30, 1997
amounted to 56% of the total accounts receivable balance.
F-11
<PAGE> 35
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE F - WARRANTS TO PURCHASE COMMON STOCK
At September 30, 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
150,000 .50 November 30, 1999
20,000 1.00 September 16, 2006
</TABLE>
In December, 1997, the Company issued 100,000 warrants to purchase 100,000
shares of the Company's common stock at an exercise price of $.50 per share with
an expiration date of November 30, 1999 to members of the Board of Directors.
This exercise price of $.50 per share exceeded the fair market value for the
Company's common share as of the date of issuance.
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
September 30, 1997, are as follows:
<TABLE>
<CAPTION>
Number of Exercise Exercisable at
Shares Price September 30, 1997
-------- -------- -------------------
<S> <C> <C>
40,000 $ .4375 40,000
30,000 4.8125 30,000
</TABLE>
F-12
<PAGE> 36
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE H -EMPLOYEE BENEFIT PLANS
In September 1996, the Company established a non-contributory defined
contribution 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 contributed $90,000 for the year ended September 30,
1996.
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. Total contributions to the
plan (401(k) and profit sharing) were $82,000 for the year ended September 30,
1997.
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:
<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 years ended September 30, 1997 and
1996 was $347,000 and $112,000 respectively.
F-13
<PAGE> 37
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE K - 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.
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
F-14
<PAGE> 38
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE K - EMPLOYMENT AGREEMENTS (Continued)
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 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 $219,872 for the year ended September 30,
1996.
NOTE M - RESTRICTED CASH AND CONTINGENCIES
At September 30, 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 J). The $160,000 Certificate of Deposit is
included on the balance sheet under the caption, other assets. This exceeds the
federally insured limit.
NOTE N - SUBSEQUENT EVENT
In October 1997, the Company's investment in FPC Information Corp., a
subsidiary, 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.
NOTE O - 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
September 30, 1997 and 1996, the Company exceeded the insured limit by
approximately $1,000,000 and $1,801,000, respectively.
F-15
<PAGE> 39
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: April 6, 1998
FINANCIAL PERFORMANCE CORPORATION
By: /s/ WILLIAM F. FINLEY
---------------------
William F. Finley
Chief Executive Officer
and President
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