<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________
Commission file number 0-21467
FIRST PRIORITY GROUP, INC
(Exact name of small business issuer as specified in its charter)
New York 11-2750412
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
51 East Bethpage Road
Plainview, New York 11803
(Address of principal executive offices)
(516) 694-1010
(Issuer's telephone number)
Check whether the issuer (1) has 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 __
State the number of shares outstanding of each of the issuer's classes of
common equity, as of May 15, 1997: 6,150,550 shares of common stock
Transitional Small Business Format (check one)
Yes [ ] No [X]
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Part I Financial Information
Item 1. Financial Statements
THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.
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FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents $ 520,493
Accounts receivable, less allowance for
doubtful accounts of $11,500 2,169,606
Inventories 586,261
Prepaid expenses and other current assets 345,293
-----------
Total current assets 3,621,653
Property and equipment, net 363,218
Security deposits and other 31,396
-----------
Total assets $ 4,016,267
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit financing 600,000
Accounts payable and accrued expenses 2,552,556
-----------
Total current liabilities 3,152,556
-----------
Shareholders' equity:
Common stock, $.015 par value, authorized
20,000,000 shares; issued 6,150,550 shares 92,258
Additional paid-in capital 1,942,643
Deficit (1,081,190)
-----------
953,711
Less common stock held in treasury, at
cost, 266,667 shares (90,000)
-----------
Total shareholders' equity 863,711
-----------
Total liabilities and shareholders' equity $ 4,016,267
===========
The accompanying notes are an integral part of these financial statements.
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FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
March 31, March 31,
1997 1996
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenue:
Revenue from services $ 3,679,290 $ 3,180,779
Net sales 814,542 --
----------- -----------
Total Revenue 4,493,832 3,180,779
----------- -----------
Costs and expenses applicable to sales and revenues:
Cost of services 3,078,238 2,589,172
Cost of goods sold 377,546 --
----------- -----------
Total costs and expenses applicable to revenue 3,455,784 2,589,172
----------- -----------
Excess of revenue over direct costs 1,038,048 591,607
----------- -----------
Operating expenses:
Selling and direct marketing expenses 685,431 --
General and administrative 697,432 484,205
----------- -----------
Total operating expenses 1,382,863 484,205
----------- -----------
Income (loss) from operations (344,815) 107,402
----------- -----------
Other income (expense):
Interest and other income 4,955 6,538
Interest expense (13,198) --
----------- -----------
Total other income (expense) (8,243) 6,538
----------- -----------
Income (loss) before income taxes (353,058) 113,940
Provision for income taxes -- 1,000
----------- -----------
Net income (loss) ($ 353,058) $ 112,940
=========== ===========
Earnings (loss) per common share ($ 0.06) $ 0.01
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
THREE MONTHS ENDED
March 31, March 31,
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($353,058) $ 112,940
--------- ---------
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 13,975 8,887
Changes in assets and liabilites:
Accounts receivable (152,971) (83,150)
Inventories (267,863)
Prepaid expenses and other current assets (23,395) (3,522)
Security deposit and other 15,917
Accounts payable and accrued
expenses 839,754 15,983
--------- ---------
Total adjustments 425,417 (61,802)
--------- ---------
Net cash provided by operating
activities 72,359 51,138
--------- ---------
Cash flows from investing activities,
additions to property and equipment (235,369) (21,181)
--------- ---------
Cash flows used in financing activities,
repayment of notes payable -- (37,264)
--------- ---------
Net decrease in cash and cash equivalents (163,010) (7,307)
Cash and cash equivalents at beginning of period 683,503 779,074
--------- ---------
Cash and cash equivalents at end of period $ 520,493 $ 771,767
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. UNAUDITED FINANCIAL STATEMENTS
The information contained in the condensed consolidated financial
statements for the period ended March 31, 1997 is unaudited, but includes all
adjustments, consisting of normal recurring adjustments, which the Company
considers necessary for a fair presentation of the financial position and the
results of operations for these periods.
The financial statements and notes are presented as permitted by Form
10-QSB, and do not contain certain information included in the Company's annual
statements and notes. These financial statements should be read in conjunction
with the Company's annual financial statement as reported in its most recent
annual report on Form 10-KSB.
2. BUSINESS OF THE COMPANY
First Priority Group, Inc. (the "Company"), a New York corporation formed
in June 28, 1985, is engaged directly and through its wholly-owned subsidiaries
in automotive fleet management and administration of automotive repairs for
businesses, insurance companies and members of affinity groups. The services
provided by the Company include the computerized compilation and analysis of
vehicle usage and maintenance data and the repair and maintenance of vehicles
through approximately 3,000 independently contracted and over 5,000 nationally
recognized repair facilities nationwide.
Effective September 1, 1996, the Company commenced marketing consumer goods
through oil companies and retail department stores ("client") through direct
mailing efforts throughout the United States, to customers who regularly use a
credit card issued by the client companies.
The Company's office is located at 51 East Bethpage Road, Plainview, New
York 11803 and its telephone number is (516) 694-1010.
3. RESULTS OF OPERATIONS
The unaudited results of operations for the three months ended March 31,
1997 are not necessarily indicative of the results to be expected for the full
year.
4. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
The computation of earnings (loss) per common and common equivalent share
is based upon the weighted average number of outstanding common shares during
the period plus, when applicable, the dilutive effect of stock options and
warrants.
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The number of common and common equivalent shares utilized in the per share
computations were 5,883,883 and 7,775,377 in the three months ended March 31,
1997 and March 31, 1996, respectively.
THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.
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Item 2. Management's Discussion and Analysis or Plan of Operation.
Results of Operations
The Company, prior to September, 1996, conducted business in only one
segment, automotive fleet management and related operations ("Automotive
Management".) In September of 1996, the Company commenced a new line of
business, under the name FPG Direct. FPG Direct markets consumer goods to the
credit card base of customers of oil companies and retail department stores
through direct mailing efforts throughout the United States.
Automotive Management
For the three months ended March 31, 1997, revenues from services of the
automotive management operations were $3,679,290, as compared to $3,180,779 for
the three months ended March 31, 1996, representing an increase of $498,511, or
15.7%. The increased revenues reflect the Company's continued success in
increasing the amount of business it is conducting with continuing customers, as
well as new customers to its base of business. The direct cost of services
related to such revenue (principally charges from automotive repair facilities)
was $3,078,238 and $2,589,172 for the three month periods ended March 31, 1997
and 1996, respectively, resulting in an increase of $489,066 or 18.9%. The gross
profit percentage was 16.3% for the three months ended March 31, 1997 as
compared to 18.6% for the same period of 1996. The decreased gross profit
percentage is mainly due to fee based programs offered to large companies at a
reduced rate as an incentive to sign long term contracts. This business practice
has reduced the Company's attrition rate.
FPG Direct
For the three months ended March 31, 1997, FPG Direct had net sales of
$814,542, and cost of goods sold of $377,546, resulting in a gross profit of
$436,996, or 53.6%. FPG direct incurred selling, general, and administrative
expenses of $765,533, and interest expense of $13,198, resulting in a net loss
of $341,735. Sales related to the promotions completed and ongoing during this
quarter did not meet expectations, resulting in losses for the division. This
division has committed to several additional promotions which have mail dates
from April 1997 through June 1997 . Given the unexpected results of operations
for the initial seven month period, all additional commitments for mailings
beginning July 1997 and later have been canceled pending management's review of
the results of the current and upcoming promotions. The product mix has been
altered in an attempt to increase sales and reduce returns. Pending the success
of this strategy, the company is considering additional mail promotions.
Operating expenses and other
Total operating expenses were $1,382,863 for the three months ended March
31, 1997, as compared to $484,205 for the three months ended March 31, 1996,
8
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representing an increase of $898,658, or 185.6%. Of this increase, $765,533 is
directly related to the operating expenses of FPG Direct. The remaining increase
in operating expenses of $133,125 or 27.5% is primarily attributable to
increased payroll and related expenses specifically associated with hiring of
senior executives to head the Affinity and DARP business groups as well as
increases in other general and administrative expenses required to service the
Company's growing automotive management operations.
Net earnings (loss)
As a result of the foregoing, the net loss for the three months ended
March 31, 1997 was $353,058 ($.06 per share) as compared to a net income of
$112,940 ($.01 per share) for the comparable three months in 1996.
Liquidity and Capital Resources
As of March 31, 1997, the Company had cash and cash equivalents of
$520,493. Working capital of the Company as of March 31, 1997, was $469,097. The
Company's operating activities generated $72,359 of cash in the first quarter of
1997.
In order to provide for the working capital needs of FPG Direct and provide
liquidity for its ongoing growth, the Company entered into a short-term line of
credit agreement with its bank, providing for financing up to $1,000,000 through
June 30, 1997. As of March 31, 1997 the Company had borrowed $600,000 from the
bank under the line of credit. Subsequent to March 31, 1997, the Company has
repaid $450,000 of the $600,000 borrowed.
As a result of relocating the Corporate offices in April of 1997, to a
12,000 square foot facility in Plainview, New York, the company incurred
significant expenditures representing moving costs, new furniture and equipment,
and leasehold improvements. In April 1997 , the Company obtained a term loan of
$150,000 from its bank to finance some of these costs.
Additionally, in April 1997 , the Company raised $400,000 through the
private placement issuance of 266,667 shares at $1.50 per share. Several of the
Company's executives and employees accounted for a majority of the shares issued
in the private placement.
9
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Part II Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
FIRST PRIORITY GROUP, INC.
Date: May 15, 1997 By: /s/ Michael Karpoff
----------------------------------
Michael Karpoff
Co-Chairman of the Board
of Directors, President and
Co-Chief Executive Officer
Date: May 15, 1997 By: /s/ Barry Siegel
---------------------------------
Barry Siegel
Co-Chairman of the Board
of Directors, Co-Chief Executive Officer
Treasurer, Secretary and Principal
Financial and Accounting Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 520,493
<SECURITIES> 0
<RECEIVABLES> 2,181,106
<ALLOWANCES> 11,500
<INVENTORY> 586,261
<CURRENT-ASSETS> 3,621,653
<PP&E> 555,210
<DEPRECIATION> 191,992
<TOTAL-ASSETS> 4,016,267
<CURRENT-LIABILITIES> 3,152,556
<BONDS> 0
0
0
<COMMON> 92,258
<OTHER-SE> 771,453
<TOTAL-LIABILITY-AND-EQUITY> 4,016,267
<SALES> 4,493,832
<TOTAL-REVENUES> 4,493,832
<CGS> 377,546
<TOTAL-COSTS> 3,455,784
<OTHER-EXPENSES> 1,382,863
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,198
<INCOME-PRETAX> (353,058)
<INCOME-TAX> 0
<INCOME-CONTINUING> (353,058)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (353,058)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
