<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 September 30, 1998
[ ] 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
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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 November 13, 1998: 8,231,800 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.
2
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FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 1998
(Unaudited)
ASSETS
<TABLE>
<S> <C>
Current Assets:
Cash and cash equivalents $3,580,567
Accounts receivable, less allowance for
doubtful accounts of $15,500 1,500,200
Inventories 36,149
Prepaid expenses and other current assets 168,384
----------
Total current assets 5,285,300
Property and equipment, net of accumulated
depreciation of $361,247 549,701
Security deposits and other non-current assets 34,238
----------
Total assets $5,869,239
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $843,944
Accrued expenses and other current liabilities 941,554
----------
Total current liabilities 1,785,498
Shareholders' equity:
Common stock, $.015 par value, authorized
20,000,000 shares; issued 8,498,467 shares 127,477
Additional paid-in capital 7,638,237
Deficit (3,591,973)
----------
Less common stock held in treasury, at
cost, 266,667 shares (90,000)
----------
Total shareholders' equity 4,083,741
----------
Total liabilities and shareholders' equity $5,869,239
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
September 30, September 30,
1998 1997
-------------------- --------------------
<S> <C> <C>
Revenue from operations $3,230,990 $3,412,788
Costs of revenue (principally charges incurred
at repair facilities for services) 2,687,637 2,801,553
-------------------- --------------------
Gross profit 543,353 611,235
Operating expenses 1,088,102 730,718
-------------------- --------------------
Loss from operations (544,749) (119,483)
-------------------- --------------------
Other income (expense):
Interest and other income 42,846 11,047
Other expenses (550) (6,663)
-------------------- --------------------
Total other income 42,296 4,384
-------------------- --------------------
Loss from continuing operations (502,453) (115,099)
Discontinued operations (Note 3):
Loss from operations of discontinued division
(no income tax benefit) - (256,511)
-------------------- --------------------
Net loss ($502,453) ($371,610)
==================== ====================
Basic and diluted loss per share:
Continuing operations ($0.06) ($0.02)
Discontinued operations - (0.04)
-------------------- --------------------
Net loss ($0.06) ($0.06)
==================== ====================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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INSERT TABLE
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FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
September 30, September 30,
1998 1997
----------------------- -----------------------
<S> <C> <C>
Revenue from operations $11,000,168 $10,289,922
Costs of revenue (principally charges incurred
at repair facilities for services) 9,161,989 8,508,593
----------------------- -----------------------
Gross profit 1,838,179 1,781,329
Operating expenses 3,155,800 2,011,747
----------------------- -----------------------
Loss from operations (1,317,621) (230,418)
----------------------- -----------------------
Other income (expense):
Interest and other income 192,887 31,985
Other expenses (7,615) (8,393)
----------------------- -----------------------
Total other income 185,272 23,592
----------------------- -----------------------
Loss from continuing operations (1,132,349) (206,826)
Discontinued operations (Note 3):
Loss from operations of discontinued division
(no income tax benefit) - (926,709)
----------------------- -----------------------
Net loss ($1,132,349) ($1,133,535)
======================= =======================
Basic and diluted loss per share:
Continuing operations ($0.14) ($0.03)
Discontinued operations - (0.15)
----------------------- -----------------------
Net loss ($0.14) ($0.18)
======================= =======================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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FIRST PRIORITY GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
NINE MONTHS ENDED
September 30, September 30,
1998 1997
------------- ------------
Cash flows from operating activities:
Net loss ($1,132,349) ($1,133,535)
---------- -----------
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 103,358 58,967
Provision for bad debts -- 11,000
Changes in assets and liabilities
Accounts receivable 104,066 68,248
Inventories 25,493 140,280
Prepaid expenses and other current assets (29,108) 275,836
Security deposit and other non-current
assets 7,090 19,575
Accounts payable and accrued expenses 143,902 (20,468)
---------- -----------
Total adjustments 354,801 545,438
---------- -----------
Net cash used in operating activities (777,548) (588,097)
---------- -----------
Cash flows used in investing activities,
additions to property and equipment (195,749) (380,455)
---------- -----------
Cash flows from financing activities:
Repayment under line of credit financing -- (600,000)
Proceeds from bank loan -- 150,000
Principal payments on bank loan -- (20,835)
Proceeds from note receivable in connection
with the exercise of warrants 100,000 --
Proceeds from issuance of common stock 1,000,000 1,800,000
---------- -----------
Net cash provided by financing activities 1,100,000 1,429,186
---------- -----------
Net increase in cash and cash equivalents 126,703 460,613
Cash and cash equivalents at beginning of period 3,453,864 683,503
---------- -----------
Cash and cash equivalents at end of period $3,580,587 $1,144,116
========== ==========
The accompanying notes are an integral part of these financial statements.
6
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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 September 30, 1998 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
The Company, a New York corporation formed on June 28, 1985, is engaged in
automotive fleet management and administration of automotive repairs for
businesses, insurance companies and members of affinity groups.
The Company's office is located at 51 East Bethpage Road, Plainview, New
York 11803 and its telephone number is (516) 694-1010.
3. DISCONTINUED OPERATIONS
In September 1996, the Company=s FPG Direct division began to market
consumer goods through direct mailing efforts to credit card customers of major
oil companies and retail department stores. During the second quarter of 1997,
the Company decided to discontinue its FPG Direct division. While the division
has not participated in any new promotions since June 1997, it is continuing to
collect receivables and return surplus inventory. The Company does not expect
to incur any additional losses during the remaining phase out period.
4. RESULTS OF OPERATIONS
The unaudited results of operations for the nine months ended September 30,
1998 are not necessarily indicative of the results to be expected for the full
year.
5. EARNINGS PER SHARE
Basic earnings (loss) per share is computed by dividing earnings by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share reflects the potential dilution that could occur if common
stock equivalents,
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such as stock options and warrants, were exercised. During the nine
month periods ended September 30, 1998 and 1997, there was no dilutive effect
from stock options and warrants.
Weighted average number of shares were 8,231,800 and 6,411,420 in the three
months ended September 30, 1998 and September 30, 1997, respectively and
8,186,0102 and 6,133,944 for the nine months ended September 30, 1998 and 1997,
respectively.
6. ISSUANCE OF COMMON STOCK
In December 1997 the Company issued a Notice of Redemption to the holders
of the warrants issued as part of the August 1997 private placement. In January
1998 the remaining warrant holder from the August 1997 private placement,
exercised its right to purchase 500,000 additional shares of common stock at
$2.00, permitting the Company to raise an additional $1,000,000.
THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.
8
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Item 2. Management's Discussion and Analysis or Plan of Operation.
Results of Operations
Automotive Management
Revenues from services of the automotive management operations were
$3,230,990, as compared to $3,412,788 for the three months ended September 30,
1998 and 1997, respectively, representing a decrease of $181,798, or 5.3%. For
the nine months ended September 30, 1998 revenues from services were
$11,000,168 as compared to $10,289,922 for the same period in 1997,
representing an increase of $710,246 or 6.9%. The direct cost of services
related to such revenue (principally charges from automotive repair facilities)
was $2,687,637 and $2,801,553 for the three month periods ended September 30,
1998 and 1997, respectively, resulting in a decrease of $113,916 or 4.1%. The
direct cost of services for the nine months ended September 30, 1998 and 1997,
respectively were $9,161,989 and $8,508,593 representing an increase of
$653,396 or 7.7%. Revenues from automotive management are sensitive to the
vehicle accident rate. During the third quarter of 1998 the vehicle accident
rate decreased due to moderate weather conditions throughout most of the United
States. The gross profit percentage was relatively stable at 16.8% and 16.7%
for the three and nine months ended September 30, 1998, respectively, as
compared to 17.9% and 17.3% for the same periods of 1997.
Total operating expenses were $1,088,102 for the three months ended
September 30, 1998, as compared to $730,718 for the three months ended
September 30, 1997, representing an increase of $357,384 or 48.9%. For the nine
months ended September 30, 1998, total operating expenses were $3,155,800, an
increase of $1,144,053 or 56.9% from total operating expenses of $2,011,747 for
the same period of 1997. The increase in operating expenses is primarily
attributable to increased payroll and related expenses specifically associated
with hiring additional staff for the anticipated growth of the Direct Repair
Program business group (discussed below), the development of an information
technology department, as well as increases in other general and administrative
expenses required to service the Company=s group automotive management
operations. The Company relocated its corporate headquarters in April 1997,
more than doubling the Company=s office space. As a result, rent and utility
expenses more than doubled. These expenditures have positioned the Company for
rapid growth in new and current business areas.
Interest and other income was $42,846 and $192,887 for the three and nine
months ended September 30, 1998, as compared to $11,047 and $31,985 for the
same periods in 1997, representing an increase of $31,799 and $160,902,
respectively. The increase is primarily attributable to larger average cash
balances available during 1998 which have been invested in short-term cash
equivalents as well as the proceeds of a $40,000 settlement of a lawsuit
received in June 1998 recorded as other income.
As a result of the foregoing, the net loss from continuing operations for
the three months ended September 30, 1998 was $502,453 ($.06 per share) as
compared to a net loss from continuing operations of $115,099 ($.02 per share)
for the comparable
9
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three months in 1997. For the nine months ended September 30, 1998, net
loss from continuing operations was $1,132,349 ($.14 per share) as compared to
a net loss from continuing operations of $206,826 ($.03 per share) for the nine
months ended September 30, 1997.
Direct Repair Program
In 1992 the Company began developing the business of providing automotive
appraisal and collision repair services for insurance companies. The automobile
insurance industry is experiencing massive changes as it moves in the direction
of a APPO@ or AHMO@ type environment, similar to that of the health industry.
The Company believes that its presence in this market and provision of such
services to insurance companies will be an important source of revenue for the
Company because of the high volume of collision repair referrals that insurance
companies can provide. The Company believes it is uniquely positioned to take
advantage of the need for such services by insurance companies. The Company has
entered into agreements with insurance companies whereby such insurance
companies have agreed to utilize the Company for appraisal and repair services.
In order to accommodate the anticipated growth of this division, the Company
entered into a leasing agreement with a call center located in Florida and has
staffed and trained subcontracted personnel to telemarket the Direct Repair
Program (ADRP@). The Company has also hired a President and Vice President of
Operations and Marketing to coordinate the growth in this division. The Company
has updated its technology and systems capabilities for this DRP with a
resoundingly favorable response from other participants in the claims
management industry. [See Forward-Looking Statements and Cautionary Factors].
FPG Direct (Discontinued operations)
In September of 1996, the Company commenced a new line of business, under
the name FPG Direct. FPG Direct marketed consumer goods to the credit card base
of customers of oil companies and retail department stores through direct
mailing efforts throughout the United States. The division was discontinued
during the second quarter of 1997.
This division posted no results that affected the Condensed Consolidated
Statements of Operations for the nine months ended September 30, 1998.
Discontinued operations resulted in a loss of $256,511 and $926,709 for the
three and nine months ended September 30, 1997 ($.04 and $.15 per share),
respectively. Inventories are being decreased through returns to manufacturers
and suppliers.
Liquidity and Capital Resources
As of September 30, 1998, the Company had cash and cash equivalents of
$3,580,567 and working capital was $3,499,802. The Company=s operating
activities used $777,548 of cash in the nine months of 1998 as compared to the
same period of 1997 where operating activities used $588,097 of cash. As
discussed above, the Company has experienced increases in its operating costs
in order to develop the technology systems and professional staff for the
Company to offer to its customers
10
<PAGE>
and clients a state of the art total vehicle managed care program.
The Company believes that its present cash position will enable the Company
to continue to support its operations for the short and longer term.
Year 2000 Compliance
The Company has two computer systems and software products coded to accept
only two digit entries to represent years. For example, the year A1998@ would
be represented by A98.@ These systems and products will need to be able to
accept four digit entries to distinguish years beginning with 2000 from prior
years. As a result, systems and products that do not accept four digit year
entries will be replaced to comply with such AYear 2000@ requirements. The
Company believes that its internal systems are Year 2000 compliant or will be
replaced in connection with previously planned changes to information systems
prior to the need to comply with Year 2000 requirements without material cost
or expense. The anticipated costs of any Year 2000 modifications are based on
management=s best estimates, which were derived utilizing numerous assumptions
of future events, including the continued availability of certain resources and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are
not limited to the availability or cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes and similar
uncertainties. In addition, there can be no assurance that Year 2000 compliance
problems will not be revealed in the future which could have a material adverse
affect on the Company=s business, financial condition and results of
operations. Many of the Company=s customers and suppliers may be affected by
Year 2000 issues that may require them to expend significant resources to
modify or replace their existing systems. This may result in those customers
having reduced funds to purchase the Company=s products or in those suppliers
experiencing difficulties in producing or shipping key components to the
Company on a timely basis or at all.
Forward Looking Statements - Cautionary Factors
Certain information contained herein includes information that is forward
looking. The matters referred to in forward-looking statements may be affected
by the risks and uncertainties involved in the Company's business. These
forward-looking statements are qualified in their entirety by the cautionary
statements contained in the Company's Form 10-KSB for the year ended December
31, 1997.
11
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Part II Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27 Financial Data Schedules
(b) Reports on Form 8-K
None
12
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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: November 16, 1998 By: /s/ Barry Siegel
-----------------------------------------
Barry Siegel
Chairman of the Board
of Directors, Chief Executive Officer
Treasurer, Secretary and Principal
Financial and Accounting Officer
13
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Index of Exhibits
Exhibit No. Description
- - ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,580,567
<SECURITIES> 0
<RECEIVABLES> 1,515,700
<ALLOWANCES> 15,500
<INVENTORY> 36,149
<CURRENT-ASSETS> 5,285,300
<PP&E> 910,948
<DEPRECIATION> 361,247
<TOTAL-ASSETS> 5,869,239
<CURRENT-LIABILITIES> 1,785,498
<BONDS> 0
122,477
0
<COMMON> 0
<OTHER-SE> 4,046,264
<TOTAL-LIABILITY-AND-EQUITY> 5,869,239
<SALES> 11,000,168
<TOTAL-REVENUES> 11,000,168
<CGS> 0
<TOTAL-COSTS> 9,161,989
<OTHER-EXPENSES> 3,755,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,132,349
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,132,349
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,132,349
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
