<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 June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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 August 6, 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.
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FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current Assets:
Cash and cash equivalents $3,931,566
Accounts receivable, less allowance for
doubtful accounts of $15,500 1,558,379
Inventories 35,588
Prepaid expenses and other current assets 114,167
----------
Total current assets 5,639,700
Property and equipment, net of accumulated
depreciation of $324,336 525,494
Security deposits and other non-current assets 27,738
----------
Total assets $6,192,932
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $810,106
Accrued expenses and other current liabilities 796,632
----------
Total current liabilities 1,606,738
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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 (3,089,520)
----------
4,676,194
Less common stock held in treasury, at
cost, 266,667 shares (90,000)
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Total shareholders' equity 4,586,194
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Total liabilities and shareholders' equity $6,192,932
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unauditied)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
June 30, June 30,
1998 1997
---------- ----------
<S> <C> <C>
Revenue from operations $3,751,677 $3,197,844
Costs of revenue (principally charges incurred
at repair facilities for services) 3,115,360 2,628,802
---------- ----------
Gross profit 636,317 569,042
Operating expenses 1,089,414 663,699
---------- ----------
Loss from operations (453,097) (94,657)
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Other income (expense):
Interest and other income 98,691 15,983
Other expenses (294) (1,730)
---------- ----------
Total other income 98,397 14,253
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Loss from continuing operations (354,700) (80,404)
Discontinued operations (Note 3):
Loss from operations of discontinued division
(no income tax benefit) - (328,463)
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Net loss ($354,700) ($408,867)
========== ==========
Basic and diluted loss per share:
Continuing operations ($0.04) ($0.01)
Discontinued operations - (0.06)
---------- ----------
Net loss ($0.04) ($0.07)
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unauditied)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
June 30, June 30,
1998 1997
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<S> <C> <C>
Revenue from operations $7,769,178 $6,877,134
Costs of revenue (principally charges incurred
at repair facilities for services) 6,474,352 5,707,040
---------- ----------
Gross profit 1,294,826 1,170,094
Operating expenses 2,067,698 1,281,029
---------- ----------
Loss from operations (772,872) (110,935)
---------- ----------
Other income (expense):
Interest and other income 150,041 20,938
Other expenses (7,065) (1,730)
---------- ----------
Total other income 142,976 19,208
---------- ----------
Loss from continuing operations (629,896) (91,727)
Discontinued operations (Note 3):
Loss from operations of discontinued division
(no income tax benefit) - (670,198)
---------- ----------
Net loss ($629,896) ($761,925)
========== ==========
Basic and diluted loss per share:
Continuing operations ($0.08) ($0.02)
Discontinued operations - (0.11)
---------- ----------
Net loss ($0.08) ($0.13)
========== ==========
</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)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
June 30, June 30,
1998 1997
---------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($629,896) ($761,925)
---------- --------
Adjustments to reconcile net loss
to net cash provided by (used in) operating
activities:
Depreciation and amortization 66,446 36,918
Provision for bad debt 28,000
Changes in assets and liabilities
Accounts receivable 45,887 (390,943)
Inventories 26,054 96,006
Prepaid expenses and other current assets 25,109 81,890
Security deposit and other non-current asset 13,590 19,575
Accounts payable and accrued
expenses (34,858) 991,346
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Total adjustments 142,228 862,792
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Net cash provided by (used in) operating
activities (487,668) 100,867
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Cash flows from investing activities,
additions to property and equipment (134,630) (322,798)
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Cash flows from financing activities:
Repayment under line of credit financing - (600,000)
Proceeds from bank loan - 150,000
Principal payments on bank loan - (8,334)
Proceeds from note receivable in connection
with the exercise of warrants 100,000 -
Proceeds from issuance of common stock 1,000,000 400,000
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Net cash provided by (used in) financing activities 1,100,000 (58,334)
---------- --------
Net increase (decrease) in cash and cash equivalents 477,702 (280,265)
Cash and cash equivalents at beginning of period 3,453,864 683,503
---------- --------
Cash and cash equivalents at end of period $3,931,566 $403,238
========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
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 June 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 six months ended June 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 six month
periods ended June 30, 1998 and 1997, there was no dilutive effect from stock
options and warrants.
Weighted average number of shares were 8,231,800 and 6,018,681 in the
three months ended June 30, 1998 and June 30, 1997, respectively and 8,162,739
and 5,951,655 for the six months ended June 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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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company was served with a summons and complaint filed by Philip M.
Panzera in United States District Court (Eastern District, NY) alleging that
the Company wrongfully terminated his employment on January 29, 1998 pursuant
to an employment agreement dated November 14, 1997 (the "Employment
Agreement") and wrongfully converted Mr. Panzera's personal property. Mr.
Panzera is seeking monetary damages in excess of $1 million. Mr. Panzera held
the position in the Company of Senior Vice President, Chief Financial Officer
for the period of November 17, 1997 through January 29, 1998. The Company has
recently answered this complaint and denied all of Mr. Panzera's allegations
stating that the Company properly terminated Mr. Panzera for cause pursuant to
the Employment Agreement. Additionally, the Company has filed a counterclaim
against Mr. Panzera alleging, among other things, that Mr. Panzera
fraudulently induced the Company to enter into the Employment Agreement by
making false representations concerning his educational background, employment
history, experience and skills. The Company is seeking monetary damages of no
less than $1 million. The Company believes that Mr. Panzera's claim is without
merit and intends to vigorously defend this suit.
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
$3,751,677, as compared to $3,197,844 for the three months ended June 30, 1998
and 1997, respectively, representing an increase of $553,833, or 17.3%. For
the six months ended June 30, 1998 revenues from services were $7,769,178 as
compared to $6,877,134 for the same period in 1997, representing an increase
of $892,044 or 13.0%. The increased revenues reflect the Company's continued
success in increasing the amount of business it is conducting with continuing
customers, as well adding new customers to its base of business. The direct
cost of services related to such revenue (principally charges from automotive
repair facilities) was $3,115,360 and $2,628,802 for the three month periods
ended June 30, 1998 and 1997, respectively, resulting in an increase of
$486,558 or 18.5%. The direct cost of services for the six months ended June
30, 1998 and 1997, respectively were $6,474,352 and $5,707,040 representing an
increase of $767,312 or 13.4%. The gross profit percentage was relatively
stable at 17.0% and 16.7% for the three and six months ended June 30, 1998,
respectively, as compared to 17.8% and 17.0% for the same periods of 1997.
Total operating expenses were $1,089,414 for the three months ended June
30, 1998, as compared to $663,699 for the three months ended June 30, 1998,
representing an increase of $425,715 or 64.1%. For the six months ended June
30, 1998, total operating expenses were $2,067,698, an increase of $786,669 or
61.4% from total operating expenses of $1,281,029 for the same period of 1997.
The increase
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<PAGE>
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 Programs ("DRP") business groups, 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 business areas.
Interest and other income was $98,691 and $150,041 for the three and six
months ended June 30, 1998, as compared to $15,983 and $20,938 for the same
periods in 1997, representing an increase of $82,708 and $129,103,
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.
As a result of the foregoing, the net loss from continuing operations for
the three months ended June 30, 1998 was $354,700 ($.04 per share) as compared
to a net loss of $80,404 ($.01 per share) for the comparable three months in
1997. For the six months ended June 30, 1998, net loss from continuing
operations was $629,896 ($.08 per share) as compared to a net loss of $91,727
($.02 per share) for the six months ended June 30, 1997.
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 six months ended June 30, 1998. Discontinued
operations resulted in a loss of $328,643 and $670,198 for the three and six
months ended June 30, 1997 ($.06 and $.11 per share), respectively.
Inventories are being decreased through returns to manufacturers and
suppliers.
Liquidity and Capital Resources
As of June 30, 1998, the Company had cash and cash equivalents of
$3,931,566 and working capital was $4,032,962. The Company's operating
activities used $487,668 of cash in the six months of 1998 as compared to the
same period of 1997 where operating activities generated $100,867 of cash. As
discussed above, the Company has experienced increases in its operating costs
in order to accommodate the anticipated growth of the Company as it explores
and enters into new business.
The Company believes that its present cash position will enable the
Company to
10
<PAGE>
continue to support its operations for the short and longer term.
Other Matters
On March 8, 1998, the Company signed a letter of intent to acquire
substantially all of the assets owned by an individual doing business as Body
Shop Video's Business Development Group. The parties were unable to consummate
a final agreement; therefore, discussions have been discontinued.
Forward Looking Statements - Cautionary Factors
Except for the historical information and statements contained in this
Report, the matters and items set forth in this Report are forward looking
statements that involve uncertainties and risks some of which are discussed at
appropriate points in the Report and are detailed in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1997.
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
11
<PAGE>
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: August 14, 1998 By: /s/ Barry Siegel
----------------
Barry Siegel
Chairman of the Board
of Directors, Chief Executive Officer
Treasurer, Secretary and Principal
Financial and Accounting Officer
12
<PAGE>
Index of Exhibits
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<PERIOD-START> JAN-01-1998
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 3931566
<SECURITIES> 0
<RECEIVABLES> 1573879
<ALLOWANCES> 15500
<INVENTORY> 35588
<CURRENT-ASSETS> 5639700
<PP&E> 849830
<DEPRECIATION> 324336
<TOTAL-ASSETS> 6192932
<CURRENT-LIABILITIES> 1606738
<BONDS> 0
0
0
<COMMON> 127477
<OTHER-SE> 4548717
<TOTAL-LIABILITY-AND-EQUITY> 6192932
<SALES> 7769178
<TOTAL-REVENUES> 7769178
<CGS> 6474352
<TOTAL-COSTS> 2067698
<OTHER-EXPENSES> 7065
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (629896)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (629896)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
