<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1999
Commission File Number 0-16530
-------------------------------------------------------
FINANCIAL PERFORMANCE CORPORATION
-------------------------------------------------------
(Exact name of Registrant as specified in its charter)
New York 13-3236325
- ----------------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
335 Madison Avenue, New York, New York 10017
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 557-0401
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [ X ] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 11, 1999
- -------------------------------- -----------------------------------------
Common Stock 9,471,534 Shares
<PAGE> 2
Financial Performance Corporation
Report on Form 10-QSB for the Quarter ended September 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I. Page
----
<S> <C>
Item 1. Financial Statements (Unaudited)................................................................1
Consolidated Balance Sheets
September 30, 1999 and September 30,1998...............................................2
Consolidated Statements of Operations
For the Nine Months Ended
September 30, 1999 and September 30, 1998..............................................3
Consolidated Statements of Operations
For the Three Months Ended
September 30, 1999 and September 30, 1998..............................................4
Consolidated Statements of Changes in Stockholders' Equity
for the Nine Months Ended
September 30,1999 and September 30, 1998...............................................5
Consolidated Statements of Cash Flows
for the Nine Months Ended
September 30,1999 and September 30, 1998...............................................6
Notes to Consolidated Financial Statements......................................................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................................14
Part II
Item 6. Exhibits and Reports on Form 8-K...............................................................24
</TABLE>
-ii-
<PAGE> 3
PART I
Item 1. Financial Statements
The financial statements of Financial Performance Corporation (the
"Company") begin on page 2.
<PAGE> 4
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
- ------ ----------- ----------
(Unaudited) (Unaudited)
(Restated)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 4,132,918 $ 3,456,266
Accounts receivable 2,180,924 3,238,363
Prepaid expenses and other current assets 73,309 118,227
------------ -----------
Total current assets 6,387,151 6,812,856
Property and equipment, net of accumulated depreciation 222,511 193,690
Software development costs - 135,605
Investment in subsidiary 771,608 610,942
Other assets 297,735 311,163
------------ -----------
$ 7,679,005 $ 8,064,256
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 1,940,992 $ 4,053,288
------------ -----------
Total current liabilities 1,940,992 4,053,288
------------ -----------
Minority interest in consolidated subsidiaries 1,021,046 684,046
------------ -----------
Stockholders' equity
Common stock - authorized 50,000,000 shares
of $.01 par value per share: issued and outstanding
9,471,534 as of September 30, 1999 and 9,421,534
as of September 30, 1998 94,715 94,215
Additional paid in capital 7,756,261 7,746,761
Accumulated (deficit) (3,134,009) (4,516,054)
------------ -----------
Total stockholders' equity 4,716,967 3,324,922
------------ -----------
$ 7,679,005 $ 8,064,256
============ ===========
</TABLE>
See accompanying notes to the financial statements.
-2-
<PAGE> 5
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- ----------
(Unaudited) (Unaudited)
(Restated)
<S> <C> <C>
Revenues $ 11,294,200 $ 16,273,508
------------ ------------
Costs and expenses
Cost of revenues 8,282,916 12,222,532
Salaries and related expenses 928,127 1,393,730
Selling, general and administrative 1,155,297 853,743
------------ ------------
10,366,340 14,470,005
------------ ------------
Operating income 927,860 1,803,503
------------ ------------
Other income (expense):
Interest income 73,095 57,150
Minority interest in income of consolidated
subsidiaries (339,000) (432,000)
------------ ------------
(265,905) (374,850)
------------ ------------
Income before income taxes 661,955 1,428,653
Income taxes 106,814 147,850
------------ ------------
Net income $ 555,141 $ 1,280,803
============ ============
Earnings per common share:
Basic $ .059 $ .146
Diluted .056 .145
</TABLE>
See accompanying notes to the financial statements.
-3-
<PAGE> 6
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-------------- ---------
(Unaudited) (Unaudited)
(Restated)
<S> <C> <C>
Revenues $ 3,210,987 $ 7,066,252
----------- -----------
Costs and expenses
Cost of revenues 2,312,723 5,498,127
Salaries and related expenses 275,662 472,223
Selling, general and administrative 422,899 345,795
----------- -----------
3,011,284 6,316,145
----------- -----------
Operating income 199,703 750,107
----------- -----------
Other income (expense):
Interest income 28,703 27,660
Minority interest in income of consolidated
subsidiaries (99,000) (235,000)
----------- -----------
(70,297) (292,340)
----------- -----------
Income before income taxes 129,406 542,767
Income taxes 30,675 62,427
----------- -----------
Net income $ 98,731 $ 480,340
=========== ===========
Earnings per common share:
Basic $ .01 $ .05
Diluted .01 .05
</TABLE>
See accompanying notes to the financial statements.
-4-
<PAGE> 7
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Paid In
Shares Par Value Capital Deficit Total
--------- ---------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1999 9,471,534 $ 94,715 $ 7,756,261 $ (3,689,150) $ 4,161,826
Net income - - - 555,141 555,141
--------- --------- ----------- ------------ -----------
Balance, September 30, 1999 9,471,534 $ 94,715 $ 7,756,261 $ (3,134,009) $ 4,716,967
========= ========= =========== ============= ===========
Balance, January 1, 1998 8,021,534 $ 80,215 $ 7,480,761 $ (5,796,857) $ 1,764,119
Issuance of shares in private
placement, net of costs 1,400,000 14,000 266,000 - 280,000
Net income - - - 1,280,803 1,280,803
--------- --------- ----------- ------------ -----------
Balance, September 30, 1998 9,421,534 $ 94,215 $ 7,746,761 $ (4,516,054) $ 3,324,922
========= ========= =========== ============= ===========
</TABLE>
See accompanying notes to the financial statements.
-5-
<PAGE> 8
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- ----------
(Unaudited) (Unaudited)
(Restated)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 555,141 $ 1,280,803
Adjustments to reconcile to net cash provided by (used in)
operating activities:
Depreciation and amortization 92,043 55,631
Minority interest in income of consolidated subsidiaries 339,000 432,000
Increase (decrease) in cash flows from operating activities
resulting from changes in:
Accounts receivable (1,838,141) (2,517,747)
Prepaid expenses and other current assets (42,034) (39,117)
Other assets (3,667) (7,357)
Accounts payable and accrued expenses (900,196) 2,145,135
------------- ------------
Net cash provided by (used in) operating activities (1,797,854) 1,349,348
------------ ------------
Cash flows from investing activities:
Acquisition of property and equipment (84,486) (50,114)
Investment in subsidiary (271,890) (379,186)
------------- -------------
Net cash used in investing activities (356,376) (429,300)
------------- -------------
Cash flows from financing activities:
Proceeds from sale of common shares and exercise of
warrants - 280,000
------------- -------------
Net increase (decrease) in cash (2,154,230) 1,200,048
Cash, beginning of period 6,287,148 2,256,218
------------ ------------
Cash, end of period $ 4,132,918 $ 3,456,266
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 26,000 $ 24,000
============= =============
</TABLE>
See accompanying notes to the financial statements.
-6-
<PAGE> 9
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.
In October 1997, the Company's investment in FPC Information Corp. was
reduced from eighty percent to fifty percent, as a result of a $225,000
additional investment by the minority shareholder.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(1) Principles of Consolidation
The consolidated financial statements include the accounts of
Financial Performance Corporation and Subsidiaries. All significant
intercompany accounts and transactions have been eliminated. Investments in
FPC Information Corp. in which the Company does not have control are accounted
for by the equity method.
Condensed financial information of its eighty percent owned
subsidiary, MKP, excluding intercompany eliminations, as of September 30, 1999
and 1998 and for the nine months then ended, is as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash $ 3,638,000 $ 3,243,000
Accounts receivable 2,181,000 3,238,000
Other assets 180,000 180,000
Accounts payable 1,673,000 3,757,000
Revenues 11,294,000 16,274,000
Operating expenses 10,395,000 14,995,000
Net income 865,000 1,188,000
</TABLE>
-7-
<PAGE> 10
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(1) Principles of Consolidation (continued)
Intercompany management fees of $732,000 and $1,013,000 were
included in operating costs for the nine months ended September 30, 1999 and
1998, respectively. These amounts were eliminated upon consolidation.
(2) Restatement of Certain items
Certain items in the Company's financial statements for the nine
months and three months ended September 30, 1998 have been restated to conform
the presentation of such financial statements with the Company's financial
statements for the nine months and three months ended September 30, 1999.
(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 nine
months ended September 30, 1999 and 1998.
Amortization of capitalized software development costs is
generally provided on a productby-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>
1999 1998
----------- ----------
<S> <C> <C>
Balance, beginning of period $ - $ 135,605
Additions - -
Amortization - -
----------- ----------
Balance, end of period $ - $ 135,605
=========== ==========
</TABLE>
-8-
<PAGE> 11
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(4) Earning per common share
Basic earnings per common share was calculated by dividing net
income by the weighted average number of common shares outstanding during the
year. Diluted earnings per share was calculated by dividing net income by the
sum of the weighted average number of common shares outstanding plus all
additional common shares that would have been outstanding if potentially
dilutive common shares had been issued.
(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
Property and equipment are stated at cost. Depreciation is
provided using the straight-line method over the estimated useful lives of the
assets, 5 to 7 years. When assets are retired or otherwise disposed of, the
cost and related accumulated depreciation are removed from the accounts and any
resulting gain or loss is reflected in operations for the period. The cost of
maintenance and repairs is charged to operations as incurred. Significant
renewals and betterments are capitalized.
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.
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Computer equipment $ 245,822 $ 156,520
Furniture and fixtures 191,157 155,581
Leasehold improvements 33,977 33,977
---------- ----------
470,956 346,078
Less: accumulated depreciation and amortization 248,445 152,388
---------- ----------
$ 222,511 $ 193,690
========== ==========
</TABLE>
-9-
<PAGE> 12
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(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.
At December 31, 1998, the Company had net operating loss carry
forwards of approximately $3,567,000, which would expire by 2012, available to
offset future taxable income. Certain provisions of the tax law may limit the
net operating loss carry forwards available for use in any given year in the
event of a significant change in ownership interest. At December 31, 1998, the
Company had a deferred tax asset amounting to approximately $1,700,000. The
deferred tax asset considered primarily of net operating loss carry forwards
and has been fully offset by a valuation allowance of the same amount.
The income tax expense represents state and local income taxes on the
income of MKP.
NOTE C - SIGNIFICANT CUSTOMERS
For the nine months ended September 30, 1999, one customer of the
Company's subsidiary, MKP, accounted for 92% of the Company's consolidated
revenues.
The total accounts receivable from this customer at September 30,
1999 amounted to 93% of the total accounts receivable balance.
NOTE D - WARRANTS TO PURCHASE COMMON STOCK
At September 30, 1999, the Company had outstanding warrants as follows:
<TABLE>
<CAPTION>
Number of Exercise Expiration
Shares Price Date
---------- ----------- --------------
<S> <C> <C>
250,000 $ .50 November 30, 1999
550,000 .50 October 31, 2001
725,000 1.00 September 15, 2006
20,000 1.00 September 16, 2006
200,000 .50 September 15, 2010
</TABLE>
-10-
<PAGE> 13
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE E - INCENTIVE STOCK OPTION PLAN (continued)
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. The plan expired by its terms in October 1998.
Presented below is a summary of the status of the Company's stock options
for the nine months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
--------------------- -------------------------
Weighted Weighted
Shares Average Shares Average
under Exercise under Exercise
Options Price Options Price
------- --------- -------- ---------
<S> <C> <C> <C> <C>
Balance, beginning of period - $ - 70,000 $ 2.31
- -
Granted - - - -
Exercised - - - -
Expire - - - -
------- ---------- -------- --------
Balance, end of period $ - $ - 70,000 $ 2.31
======= ========== ======== ========
</TABLE>
NOTE F -EMPLOYEE BENEFIT PLANS
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% of a participant's
contribution, to a maximum of 3% of each participant's contribution.
In September, 1997, the Company amended its 401(k) plan to provide for
discretionary profit sharing plan contributions. Total contributions to the
plans, (401(k) and profit sharing), were $127,000 and $82,000 for the years
ended December 31, 1998 and 1997, respectively.
-11-
<PAGE> 14
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE G - COMMITMENTS
The Company has commitments under non-cancelable operating leases for
office space and equipment, which expire on October 31, 2006 and September 30,
2000, respectively. The office lease includes provisions requiring the Company
to pay a proportionate share of increases in real estate taxes and operating
expenses over base period amounts.
Minimum payments for the leased properties for subsequent years are as
follows:
<TABLE>
<CAPTION>
Years Ending
December 31,
------------
<S> <C>
1999 $ 281,000
2000 281,000
2001 374,000
2002 415,000
2003 419,000
Thereafter 1,292,000
------------
$ 3,062,000
============
</TABLE>
Rent and equipment leasing expense was $270,000 for the nine months ended
September 30, 1999 and 1998.
NOTE H - RESTRICTED CASH AND CONTINGENCIES
At September 30, 1999, $180,000 was invested in a Certificate of Deposit
and is pledged as security for a letter of credit issued in connection with the
lease for office space (see Note G). The $180,000 Certificate of Deposit is
included on the balance sheet under the caption, other assets. This exceeds the
federally insured limit.
NOTE I - CONCENTRATION OF CREDIT RISK
The Company maintains its cash and cash equivalents with a major financial
institution. The balance exceeds federally insured limits. The Company performs
periodic evaluations of the relative credit standing of this financial
institution in order to limit the amount of credit exposure.
NOTE J - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value amounts of cash and cash equivalents, prepaid expenses
and accrued expenses approximate fair value because of the short maturity of
these items.
-12-
<PAGE> 15
FINANCIAL PERFORMANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE K - EARNINGS PER SHARE INFORMATION
The calculation of basic and diluted earnings per share for the nine
months ended September 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
1999 1998 1999 1998
----------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Net income available to
Common share owners $ 555,141 $1,280,803 $ 98,731 $ 480,340
========== ========== ========== ==========
Average shares outstanding (a) 9,471,534 8,799,309 9,471,534 9,421,534
Dilutive securities
Stock options and warrants 451,286 33,772 451,286 101,316
---------- ---------- ---------- ----------
Average shares outstanding
assuming dilution (b) 9,922,820 8,833,081 9,922,820 9,522,850
========== ========== ========== ==========
</TABLE>
(a) Used to compute basic earnings per share.
(b) Used to compute diluted earnings per share.
NOTE L - CHANGE IN FISCAL YEAR
In February 1998, the Company's fiscal year end was changed from September
30 to December 31.
-13-
<PAGE> 16
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
OVERVIEW
Revenues. The Company's revenues historically have been derived from a
limited number of customers, due principally to the nature of the merger
communications business which has generally required concentration of the
Company's personnel and resources on a limited number of large projects from
different merger clients during any particular period. For the fiscal year ended
September 30, 1997, two customers of the Company's subsidiary, Michaelson
Kelbick Partners Inc. ("MKP"), accounted for approximately 72% of the Company's
-14-
<PAGE> 17
revenues, with one customer accounting for approximately 56% of its revenues.
For the fiscal year ended December 31, 1998, three customers of MKP accounted
for approximately 82% of the Company's revenues, with one customer of MKP
accounting for approximately 55% of its revenues. For the nine months ended
September 30, 1999, one customer of MKP accounted for approximately 92% of the
Company's revenues. The Company anticipates that a substantial amount of its
revenues will continue to be derived from a limited number of customers. As a
result, the Company's sales and operating results are subject to substantial
variations in any given year and from quarter to quarter. 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.
Restatement. Certain items in the Company's financial statements for
the three months and nine months ended September 30, 1998 have been restated to
reflect the quarterly accrual of bonus payments for the fiscal year ended
December 31, 1998, in order to conform the presentation of such financial
statements with the Company's financial statements for the three months and
nine months ended September 30, 1999.
Subsidiaries. The Company's consolidated financial statements include
the accounts of Financial Performance Corporation and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
Summary financial information concerning MKP, excluding intercompany
eliminations, as of September 30, 1999 and 1998 and for the nine months then
ended, is as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Cash...................................................... $ 3,638,000 $ 3,243,000
Accounts receivable....................................... $ 2,181,000 $ 3,238,000
Other assets.............................................. $ 180,000 $ 180,000
Accounts payable.......................................... $ 1,673,000 $ 3,757,000
Revenues.................................................. $11,294,000 $16,274,000
Operating expenses........................................ $10,395,000 $14,995,000
Net income ............................................... $ 865,000 $ 1,188,000
</TABLE>
-15-
<PAGE> 18
Summary financial information concerning the Company's other two
subsidiaries, Aspen Capital Management, LLC ("Aspen") and FPC Information Corp.
("FPC Information"), as of September 30, 1999 and for the nine months then
ended, is not separately set forth as these entities had no revenues for such
periods and their assets and liabilities during such periods were immaterial to
the Company.
Aspen, whose operations commenced in March 1995, suspended its
operations in September 1996. Aspen was reported as a discontinued operation at
September 30, 1996.
Change in Fiscal Year. In February 1998, the Company changed its
fiscal year end from September 30 to December 31.
-16-
<PAGE> 19
Other. Income taxes are computed in accordance with the provisions of
Financial Accounting Standards Board Statement No. 109, "Accounting for Income
Taxes" ("SFAS 109"),
-17-
<PAGE> 20
which requires, among other things, a liability approach to calculating
deferred income taxes. SFAS 109 requires a company to recognize deferred tax
liabilities and assets for the expected future tax consequences of events that
have been recognized in a company's financial statements or tax returns. Under
this method, deferred tax liabilities and assets are determined based on the
difference between the financial statement carrying amounts and tax basis of
assets and liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse.
At December 31, 1998, the Company had net operating loss carryforwards
of approximately $3,567,000, which will expire in various years through and
including 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 December 31,
1998, the Company had a deferred tax asset of approximately $1,700,000. 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 $106,814 and $30,675 for the nine months and
three months ended September 30, 1999, and the income tax expense of $147,850
and $62,427 for the nine months and three months ended September 30, 1998,
respectively, represents state and local income taxes on the income of MKP.
Costs associated with software development subsequent to the
establishment of technological feasibility, including enhancements to software
products, are capitalized and amortized as required by Statement of Financial
Accounting Standards No. 86. Costs incurred prior to achieving technological
feasibility are expensed as incurred and classified as research and development
costs. There were no research and development costs incurred by the Company for
the three months ended September 30, 1999 and 1998.
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.
-18-
<PAGE> 21
RESULTS OF OPERATIONS
Three Months Ended September 30, 1999 vs. Three Months Ended September 30,
1998
Revenues. Total revenues decreased by $3,855,265 or approximately
54.6% to $3,210,987 for the three months ended September 30, 1999 from
$7,066,252 for the three months ended September 30, 1998. This decrease was
attributable to a decrease in billings by MKP during this period. The Company
believes the decrease in MKP's billings was primarily attributable to the
decreased scope of the merger and other projects for which MKP was engaged
during the three months ended September 30, 1999 and, to a lesser extent,
quarterly variations arising from the nature of MKP's
-19-
<PAGE> 22
business, based upon the different stages of merger communications projects for
which MKP was engaged during this period. MKP generated 100% of the
consolidated revenues of the Company for the three months ended September 30,
1999 and for the three months ended September 30, 1998.
Cost of Revenues. Cost of revenues decreased by $3,185,404 or
approximately 57.9% to $2,312,723 for the three months ended September 30, 1999
from $5,498,127 for the three months ended September 30, 1998. This decrease
was primarily attributable to the decreased level of revenues of MKP during the
three month period ended September 30, 1999.
Salaries and Related Expenses. Payroll expenses decreased by $196,561
or approximately 41.6% to $275,662 for the three months ended September 30, 1999
from $472,223 for the three months ended September 30, 1998. This decrease was
attributable primarily to the decreased bonus payments by MKP to its managing
directors during the three month period ended September 30, 1999 pursuant to the
employment agreements between MKP and the managing directors, as a result of
decreased pre-tax net profit of MKP during the period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $77,104 or approximately 22.3% to $422,899
for the three months ended September 30, 1999 from $345,795 for the three months
ended September 30, 1998. This increase was attributable principally to an
increase in general overhead expenses, including professional and consulting
fees and other administrative expenses.
Other Income (Expense). Other expense decreased by $222,043 or
approximately 76.0% to other expense of $70,297 for the three months ended
September 30, 1999 from other expense of $292,340 for the three months ended
September 30, 1998. This decrease was primarily attributable to a decrease in
the deduction attributable to the Company's minority interest in income of
consolidated subsidiaries.
Operating Profit. The Company's operating profit decreased by $550,404
or approximately 73.4% to $199,703 for the three months ended September 30,
1999 compared to an operating profit of $750,107 for the three months ended
September 30, 1998.
-20-
<PAGE> 23
Net Income. The Company's net income decreased by $381,609 or
approximately 79.4% to $98,731 for the three months ended September 30, 1999
compared to net income of $480,340 for the three months ended September 30,
1998.
Nine Months Ended September 30, 1999 vs. Nine Months Ended September 30, 1998
Revenues. Total revenues decreased by $4,979,308 or approximately 30.6%
to $11,294,200 for the nine months ended September 30, 1999 from $16,273,508 for
the nine months ended September 30, 1998. This decrease was attributable to a
decrease in billings by MKP during this period. The Company believes the
decrease in MKP's billings was primarily attributable to the decreased scope of
the merger and other projects for which MKP was engaged during the three months
ended September 30, 1999 and, to a lesser extent, variations arising from the
nature of MKP's business, based upon the different stages of merger
communications projects for which MKP was engaged during this period. MKP
generated 100% of the consolidated revenues of the Company for the nine months
ended September 30, 1999 and for the nine months ended September 30, 1998.
Cost of Revenues. Cost of revenues decreased by $3,939,616 or
approximately 32.2% to $8,282,916 for the nine months ended September 30, 1999
from $12,222,532 for the nine months ended September 30, 1998. This decrease
was primarily attributable to the decreased level of revenues of MKP during the
nine month period ended September 30, 1999.
Salaries and Related Expenses. Payroll expenses decreased by $465,603
or approximately 33.4% to $928,127 for the nine months ended September 30, 1999
from $1,393,730 for the nine months ended September 30, 1998. This decrease was
attributable primarily to the decreased bonus payments by MKP to its managing
directors during the nine month period ended September 30, 1999 pursuant to the
employment agreements between MKP and the managing directors, as a result of
decreased pre-tax net profit of MKP during the period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $301,554 or approximately 35.3% to
$1,155,297 for the nine months ended September 30, 1999 from $853,743 for the
nine months September 30, 1998. This increase was attributable principally to
an increase in general overhead expenses, including consulting
fees, insurance costs, professional fees and other administrative expenses.
-21-
<PAGE> 24
Other Income (Expense). Other expense decreased by $108,945 or
approximately 29.1% to other expense of $265,905 for the nine months ended
September 30, 1999 from other expense of $374,850 for the nine months ended
September 30, 1998. This decrease was primarily attributable to a decrease in
the deduction attributable to the Company's minority interest in income of
consolidated subsidiaries.
Operating Profit. The Company's operating profit decreased by $875,643
or approximately 48.6% to $927,860 for the nine months ended September 30, 1999
compared to an operating profit of $1,803,503 for the nine months ended
September 30, 1998.
Net Income. The Company's net income decreased by $725,662 or
approximately 56.7% to $555,141 for the nine months ended September 30, 1999
compared to net income of $1,280,803 for the nine months ended September 30,
1998.
LIQUIDITY AND CAPITAL RESOURCES
In the past, the Company required continuous capital to fund its
operating losses which were primarily attributable to expenses in connection
with marketing activities, research and development costs and other expenses
including salaries and related expenses and selling, general and administrative
expenses. The Company has financed its operations to date primarily through
public and private sales of its debt and equity securities, including
significant sales to one of its principal stockholders, and more recently
revenues generated by the Company's subsidiary, MKP. In October 1997, the
Company sold an additional 30% equity interest in FPC Information to a
principal shareholder for a purchase price of $225,000.
As of September 30, 1999, the Company had working capital of
$4,446,159, stockholders' equity of $4,716,967 and a working capital ratio
(current assets to current liabilities) of approximately 3.3:1. As of September
30, 1999 and September 30, 1998, the Company had cash and cash equivalents of
$4,132,918 and $3,456,266, respectively.
For the nine months ended September 30, 1999, net cash used in the
Company's operating activities was $1,797,854 compared to net cash provided by
operating activities of $1,349,348 for the nine months ended September 30,
1998. For the nine months ended September 30, 1999 and
-22-
<PAGE> 25
September 30, 1998, the Company utilized $356,376 and $429,300 for investing
activities, respectively. For the nine months ended September 30, 1999 and
September 30, 1998, net cash provided by the Company's financing activities was
$0 and $280,000, respectively.
For the years ending December 31, 1999, 2000, 2001 and 2002, the
Company's minimum payments in connection with non-cancelable operating leases
for office space and equipment will be approximately $281,000, $281,000,
$374,000 and $415,000 per year, respectively.
Based on the Company's current plan of operations, it is anticipated
that the Company's existing working capital and expected operating revenues
will provide sufficient working capital for operations for the forseeable
future. However, there can be no assurance that the Company will not require
additional financing. The Company's capital requirements depend on, among other
things, whether the Company is successful in continuing to generate revenues
and income from MKP, the Company's marketing efforts, including those related
to our MARS(TM) computer software, the ability of the Company to successfully
market its services and software, competing technological and market
developments, any costs involved in protecting and enforcing the Company's
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.
Year 2000. The Company recognizes the potential business impact
relating to the Year 2000 computer system issue and has implemented a plan to
assess and improve the Company's state of readiness with respect to such issue.
The Year 2000 issue is one where computer systems recognize the designation
"00" as 1900 instead of 2000, potentially resulting in system failure or
miscalculations.
In recognition of the Year 2000 issue, commencing in 1998, the Company
initiated a comprehensive review of its information technology systems, which
the Company is dependent upon for the conduct of its business operations, as
well as the computer hardware and software products, components and other
equipment supplied to the Company by third parties, in order to determine the
adequacy of those systems in light of the Company's future business
requirements. Year 2000 readiness was one of the factors considered in the
review of the Company's systems. Such review included testing and analysis of
the Company's systems and inquiries of third parties supplying information
technology systems, computer hardware and software products and components, and
other equipment to the Company in order to receive assurances from such third
parties that these systems, products and components are Year 2000 compliant.
The Company completed its review in January 1999.
As a result of its review, the Company has determined that its
internal financial software systems are adequate for the Company's future
business needs, including Year 2000 compliance, and do not need to be replaced.
Also, the Company has completed all necessary Year 2000 modifications with
regard to the MARS(TM) computer software product being developed by the
Company's subsidiary, FPC Information Corp. The Company believes that the
MARS(TM) computer software product is Year 2000 compliant. The cost of the
Company's Year 2000 compliance efforts is immaterial.
The Company has not assessed the Year 2000 readiness of any third
parties with whom the Company has relationships, such as the Company's banking
clients and vendors. Due to the Company's uncertainty concerning the Year 2000
readiness of these third parties, the Company is unable to determine whether
the failure by one or more of these parties to be Year 2000 complaint will
materially impact the Company's business, financial condition or results of
operations. The Company has not developed a "worst case" scenario with respect
to Year 2000 issues.
The Company has not developed Year 2000 contingency plans, other than
the review described above, and the Company does not believe such plans are
merited by the results of the Company's Year 2000 review. The Company maintains
and deploys contingency plans designed to address various other potential
business interruptions. These plans may be applicable to address the possible
interruption of support provided by third parties resulting from their failure
to be Year 2000 compliant.
If the Company or the third parties with which it has relationships
were to not successfully meet its or their Year 2000 compliance requirements,
the Company would likely encounter disruptions to its business that could have
a material adverse effect on its business, financial position and results of
operations. The Company could be materially and adversely impacted by
widespread economic or financial market disruption or by Year 2000 computer
system failures of third parties with which it has relationships.
Forward-Looking Statements. Certain statements contained in this Report
on Form 10-QSB, including without limitation, statements containing the words
"believes," "anticipates," "may," "intends," "expects" and words of similar
import, constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, performance or achievements of the Company or
industry results to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: the continued services of key
employees of the Company and its subsidiaries; technological, engineering,
manufacturing, quality control or other problems which could delay the
development and sale of the Company's software; the development, testing and
market acceptance of the Company's software; changes in the banking and
financial services industries; competition; changes in business strategy or
development plans; 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; the Company's ability to obtain sufficient
financing to continue operations; and general economic and business conditions,
both nationally and in the regions in which the Company operates. Certain of
these factors are discussed in more detail elsewhere in this Quarterly Report on
Form 10-QSB and in the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1998. Given the risks, uncertainties and unknown factors
referred to above, undue reliance should not be placed on such forward-looking
statements. The Company disclaims any obligation to update any such factors or
to publicly announce the results of any revisions to any of the forward-looking
statements contained herein to reflect future events or developments.
-23-
<PAGE> 26
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27 Financial Data Schedule
(b) Reports on Form 8-K.
None
-24-
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned thereunto duly authorized.
Dated: November 12, 1999
FINANCIAL PERFORMANCE CORPORATION
By:/s/ WILLIAM F. FINLEY
---------------------------------
William F. Finley
Chief Executive Officer and
President
(Principal Executive Officer and
Principal Financial and Accounting
Officer and Officer Duly Authorized
to Sign on Behalf of Registrant)
-25-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,132,918
<SECURITIES> 0
<RECEIVABLES> 2,180,924
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,387,151
<PP&E> 470,956
<DEPRECIATION> 248,445
<TOTAL-ASSETS> 7,679,005
<CURRENT-LIABILITIES> 1,940,992
<BONDS> 0
0
0
<COMMON> 94,715
<OTHER-SE> 4,622,252
<TOTAL-LIABILITY-AND-EQUITY> 7,679,005
<SALES> 11,294,200
<TOTAL-REVENUES> 11,294,200
<CGS> 8,282,916
<TOTAL-COSTS> 8,282,916
<OTHER-EXPENSES> 2,083,424
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 661,955
<INCOME-TAX> 106,814
<INCOME-CONTINUING> 555,141
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 555,141
<EPS-BASIC> 0.059
<EPS-DILUTED> 0.056
</TABLE>
