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, 2000
--------------
[ ] 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)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock par value $.015 per share
Preferred Stock Purchase Rights par value $.01 per share
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
As of May 14, 2000, the issuer had outstanding a total of 9,078,423
shares of common stock.
Transitional Small Business Format (check one)
Yes[ ] No[ X ]
2
Part I Financial Information
Item 1. Financial Statements
THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.
3
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 896,936
Accounts receivable, less allowance for doubtful
accounts of $28,223 1,829,046
Investment securities 748,250
Prepaid expenses and other current assets 51,194
-------------
Total current assets 3,525,426
Property and equipment, net of accumulated
depreciation of $655,251 719,544
Security deposits and other assets 34,533
-------------
Total assets $4,279,503
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 874,542
Accrued expenses and other current liabilities 756,549
Current portion of long-term debt 50,513
-------------
Total current liabilities 1,681,604
-----------
Shareholders' equity:
Common stock, $.015 par value, authorized 20,000,000
shares; issued 9,078,423 shares 136,176
Preferred stock, $.01 par value, authorized 1,000,000
shares; none issued or outstanding -
Additional paid-in capital 7,951,406
Accumulated other comprehensive loss, unrealized holding
loss on investment securities ( 5,444)
Deficit ( 5,345,077)
-----------
2,739,061
Less common stock held in treasury, at cost,
300,991 shares 139,162
------------
Total shareholders' equity 2,597,899
-----------
Total liabilities and shareholders' equity $4,279,503
----------
See notes to condensed consolidated financial statements.
4
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF REVENUE
(UNAUDITED)
Three Months Ended
March 31, March 31,
2000 1999
--------------- ----------
Revenue:
Collision repairs and fleet management services $2,672,755 $2,749,049
Subrogation and salvage service commissions 145,219 114,007
Automobile affinity services 423,070 127,363
-------------- --------------
Total revenues 3,241,044 2,990,419
Cost of revenue (principally charges incurred at repair
facilities for services) 2,270,029 2,337,298
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Gross profit 971,015 653,120
-------------- --------------
Operating expenses:
Selling 97,177 89,639
General and administrative 822,923 815,352
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Total operating expenses 920,100 904,991
-------------- -------------
50,915 ( 251,871)
--------------- ------------
Other income (expense):
Realized loss on investment ( 1,518) -
Investment and other income 36,715 43,929
--------------- -------------
Total other income 35,197 43,929
--------------- -------------
Income (loss) from operations before
income taxes 86,112 ( 207,942)
Income taxes, all current 2,175 -
---------------- --------------
Net income (loss) $ 83,937 ($ 207,942)
---------------- --------------
Basic and diluted earnings (loss) per share:
Basic $ .01 ($ .02)
Diluted .01 ( .02)
-------------- -------------
Weighted average number of common shares outstanding 8,620,464 8,331,800
Affect of dilutive securities, stock options, warrants 3,602,179 -
-------------- ------------
Weighted average diluted common shares outstanding 12,222,643 8,331,800
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See notes to condensed consolidated financial statements.
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FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOW
(UNAUDITED)
Three Months Ended
March 31, March 31,
2000 1999
--------------- ---------------
Cash flows provided by (used in) operating activities:
Net income (loss) $ 83,937 ($207,942)
--------------- ---------------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 57,764 42,461
Realized loss on investment 1,518 -
Provision for bad debts - -
Options granted for services 30,592 -
Changes in assets and liabilities:
Accounts receivable ( 34,306) ( 256,169)
Prepaid expenses and other current assets ( 11,818) ( 27,877)
Security deposit and other assets 755 ( 756)
Accounts payable ( 63,876) ( 234,478)
Accrued expenses and other current liabilities 8,982 596,750
--------------- ------------
Total adjustments ( 10,389) 119,931
-------------- ------------
Net cash provided by (used in) operating activities 73,548 ( 88,011)
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Cash flows provided by (used in) investing activities:
Purchase of property and equipment ( 88,214) ( 1,021)
Purchase of investments ( 14,854)
Proceeds from sale of investments 300,000 -
------------ -------------
Net cash provided by (used in) investing activities 196,932 ( 287,422)
------------ ------------
Cash flows provided by (used in) financing activities:
Repayment of long-term debt - ( 11,821)
Proceeds disgorgement of short-swing profits 75,097 -
Proceeds from issuance of common stock 9,000 -
--------------- -------------
Net cash provided by (used in) financing activities 84,097 ( 11,821)
------------- --------------
Net increase (decrease) in cash and cash equivalents 354,577 ( 89,032)
Cash and cash equivalents at beginning of period 542,359 2,782,180
------------ -----------
Cash and cash equivalents at end of period $ 896,936 $2,681,327
----------- ----------
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 2,175 $ -
----------- -----------
See notes to condensed consolidated 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, 2000 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 major
corporate clients throughout the United States. The Company also provides
automotive affinity services for individuals.
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,
2000 are not necessarily indicative of the results to be expected for the full
year.
4. 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, such as stock options and warrants, were exercised. During
the three month period ended March 31, 1999 there was no dilutive effect from
stock options and warrants.
7
Item 2. Management's Discussion and Analysis or Plan of Operation.
Results of Operations
In accordance with Securities and Exchange Commission Staff Accounting
Bulletin No. 101 (SAB 101), the Company has determined that the portion of its
business representing commission revenues from its subrogation and salvage
services should be displayed in the financial statements on a net basis. It had
been the Company's prior policy to report such revenues and related costs on a
gross basis. Accordingly, the three months ended March 31, 1999 has been
reclassified to reflect the net presentation. There was no effect on net loss or
net cash flows used in operating activities from the reclassification. Revenues
and direct costs for the three months ended March 31,1999 were reduced by
$588,188.
Automotive Management
Revenues were $3,241,044 for the three months ended March 31, 2000, as
compared to $2,990,419 for the same period in 1999, representing an increase of
$250,625 or 8.4%. The direct costs of services related to such revenue
(principally charges from automotive repair facilities) were $2,270,029 for the
three months ended March 31, 2000, as compared to $2,337,298 in 1999,
representing a decrease of $67,269 or 2.9%. Gross profit percentage increased
8.2% to 30.0% from 21.8% for the three months ended March 31, 2000 and 1999,
respectively. The Company had decreased revenues of $45,082 for its collision
repair and fleet management services, including subrogation and salvage
commissions representing a decrease of 1.6% for the three months ended March 31,
2000, as compared to the same three months of 1999. Affinity sales increased
232% or $295,707 for the period ended March 31, 2000 to $423,070 as compared to
$127,363 in 1999. The increased gross profit percentage is a result of the
increased affinity sales, which has a lower cost of revenue than the other
programs.
Total operating expenses were $920,100 for the three months ended March 31,
2000, as compared to $904,991 for the three months ended March 31, 1999,
representing an increase of $15,109 or 1.7%.
Investment and other income was $35,197 for the period ended March 31,
2000, as compared to $43,929 for the same period in 1999, representing a
decrease of $8,732. The decrease is primarily attributable to lower average
investment balances available during the quarter.
As a result of the foregoing, the net income for the three months
ended March 31, 2000 was $83,937 ($.01 per share) as compared to a net loss of
$207,942 ($.02 per share) for the comparable three months in 1999.
Liquidity and Capital Resources
As of March 31, 2000, the Company had cash and cash
equivalents of $896,936. The Company also holds 77,298 shares of Salomon Smith
Barney Adjustable Rate Government Income Fund securities valued at $748,250 at
March 31, 2000. Working capital of the Company as of March 31, 2000, was
$1,843,822. The Company's operating activities provided $73,548 of cash for the
three months
8
ended March 31, 2000 as compared to 1999, when the Company's operating
activities used $88,011 of cash. This is primarily a result of the increase in
net income for 2000.
In the first quarter of 2000, the Company received approximately
$75,000, representing the disgorgement of short-swing profits, pursuant to
regulations of the Securities and Exchange Commission, earned by three
shareholders of the Company, through their sale of the Company's common stock.
The Company's cash position was enhanced through this transaction, and has been
reflected as an increase to shareholders' equity in the first quarter of 2000.
The Company believes that its present cash position will enable the
Company to continue to support its operations for the next twelve months.
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 also summarized as follows:
1. The Company has been able to assemble a network of independently owned
and operated repair shops throughout the United States. These collision
repair shops must maintain the high quality repairs standard that has
enabled the Company to continue to retain and attract new clients. The
Company's inability to retain these quality repair shops and maintain
their individually high repair standards could have a material adverse
impact upon all of the Company's vehicle collision repair programs.
2. The Company, under NFS, its fleet management business, or the Affinity
Division, have clients that either individually control a large number
of insureds, control large fleets, or a large number of participants in
FPG programs such as Driver's Shield(R). The loss of any large fleet
operator, or affinity group, terminating its relationship with the
Company or NFS, could have an adverse impact on the continued growth of
that business. The Company and NFS have addressed the issue of customer
retention by implementing a policy of entering into long-term contracts
with its customers. In the past several years, this has materially
improved the customer retention rate.
3. As the Company's proprietary programs gain more success, it is possible
that the competition will attempt to copy these programs and
incorporate them into their programs. This could lead to increased
competitive pressures on those programs that are the most successful.
The competition could result in decreased profit margins and/or the
loss of certain customers.
4. As the Company has embarked on an Internet strategy whereby it will
offer auto collision managed care services on its website, there will
be new and additional risks that may influence the business of the
Company. These risks are:
9
o The Company's website will be the first to offer auto collision managed
care services on the Internet, and therefore, we are not sure our business
model will be successful or that we can generate revenue from this
activity.
o As is typical for any new, rapidly evolving market, demand and market
acceptance for recently introduced products and services are subject to a
high level of uncertainty and risk. It is also difficult to predict the
market's future growth rate, if any. If the market fails to develop,
develops more slowly than expected or becomes saturated with competitors,
or our services do not achieve or sustain market acceptance, our business,
results of operations and financial condition could be materially and
adversely affected.
o We also depend on establishing and maintaining a number of commercial
relationships with other companies. Our business could be adversely
affected if we do not maintain our existing commercial relationships on
terms as favorable as currently in effect, if we do not establish
additional commercial relationships on commercially reasonable terms or if
our commercial relationships do not result in the expected increased use of
our Website.
o We cannot assure you that we will be able to establish new agreements or
maintain existing agreements on commercially acceptable terms. We also may
not be able to maintain relationships with third parties that supply us
with software or products that are crucial to our success, and the vendors
of these software or products may not be able to sustain any third- party
claims or rights against their use. Furthermore, we cannot assure you that
the software, services or products of those companies that provide access
or links to our services or products will achieve market acceptance or
commercial success.
o To remain competitive we must continue to enhance and improve the ease of
use, responsiveness, functionality and features of our website and develop
new services in addition to continuing to improve the customer experience.
These efforts may require the development or licensing of increasingly
complex technologies. We may not be successful in developing or introducing
new features, functions and services, and these features, functions and
services may not achieve market acceptance.
o Our future success and revenue growth depends partially upon continued
growth in the use of the Internet. Businesses will likely widely accept and
adopt the Internet for conducting business and exchanging information only
if the Internet provides these businesses with greater efficiencies and
improvements in commerce and communication. In addition, e-commerce
generally, and the purchase of automotive related products and services on
the Internet in particular, must become widespread. The Internet may prove
not to be a viable commercial marketplace generally, or, in particular, for
vehicle related products and services.
o We are dependent on certain key personnel. Our future success is
substantially dependent on our senior management and key technical
personnel. Although all key executives have executed confidentiality and
non-competition agreements, should one or more of our key employees decided
to leave us, join a competitor or otherwise
10
compete directly or indirectly with us, this could have a material adverse
effect on our business, results of operations and financial condition.
Competition for such personnel is intense, and we may not be able to
attract, assimilate or retain such personnel in the future. The inability
to attract and retain the necessary managerial, technical, sales and
marketing personnel could have a material adverse effect on our business,
results of operations and financial condition.
o We are a new business in a new industry and need to manage our growth and
our entry into new business areas in order to avoid increased expenses
without corresponding revenues. The growth of our operations requires us to
increase expenditures before we generate revenues. Our inability to
generate satisfactory revenues from such expanded services to offset costs
could have a material adverse effect on our business, financial condition
and results of operations. We believe establishing industry leadership also
requires us to: - test, introduce and develop new services and products,
including enhancing our website, - expand the breadth of and services
offered, - expand our market presence through relationships with third
parties, and - acquire new or complementary businesses, products or
technologies. We cannot assure you that we can successfully manage these
tasks.
o Our success is dependent on keeping pace with advances in technology. If we
are unable to keep pace with advances in technology, businesses may stop
using our services and our revenues will decrease. The Internet and
electronic commerce markets are characterized by rapid technological
change, changes in user and customer requirements, frequent new service and
product introductions embodying new technologies and the emergence of new
industry standards and practices that could render our existing Website and
technology obsolete. If we are unable to adapt to changing technologies,
our business, results of operations and financial condition could be
materially and adversely affected. Our performance will depend, in part, on
our ability to continue to enhance our existing services, develop new
technology that addresses the increasingly sophisticated and varied needs
of our prospective customers, license leading technologies and respond to
technological advances and emerging industry standards and practices on a
timely and cost-effective basis.
o We are uncertain of our ability to obtain additional financing for our
future capital needs. We currently anticipate that our cash, cash
equivalents and short-term investments will be sufficient to meet our
anticipated needs for working capital and other cash requirements at least
for the next 12 months. We may need to raise additional funds sooner,
however, in order to fund more rapid expansion, to develop new or enhance
existing services or products, to respond to competitive pressures or to
acquire complementary products, businesses or technologies. There can be no
assurance that additional financing will be available on terms favorable to
us, or at all. If adequate funds are not available or are not available on
acceptable terms, our ability to fund our expansion, take advantage of
potential acquisition opportunities, develop or enhance services or
products or respond to competitive pressures would be significantly
limited. Such limitation could have a material adverse effect on our
business, results of operations, financial condition and prospects.
The Company's business involves the repair of motor vehicles through a
contracted
11
network of automobile collision repair shops. These shops are obligated to
maintain certain minimum limits of liability insurance, indemnify the Company
from any and all claims and expenses related to the shop's negligent acts or
from the breach of the agreement between the Company and the shop, and name the
Company as an additional insured under the shop's liability policy. However, the
repair shop and/or the Company's general liability insurance may not cover all
potential claims to which we are exposed and may not be adequate to indemnify us
for all liability that may be imposed. Any imposition of liability that is not
covered by insurance or is in excess of insurance coverage could have a material
adverse effect on our business, results of operations and financial condition.
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 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. The discovery phase of this case has been completed.
The plaintiff in this action recently made a motion for partial summary judgment
to dismiss a number of affirmative defenses and the counterclaims brought by the
Company against Mr. Panzera. On April 14, 2000, the Court ruled in favor of the
Company and denied the plaintiff's motion for partial summary judgment.
Additionally, the Company made a motion for partial summary judgment to dismiss
Mr. Panzera's complaint to the extent he seeks to recover on a modification to
Mr. Panzera's employment agreement with First Priority Group. The motion was
granted, dismissing Mr. Panzera's claim against the Company under his employment
agreement, to the extent that he relies on the terms of the modification of his
employment agreement. The management believes that the remainder of Mr.
Panzera's claim is without merit and intends to continue to vigorously defend
this suit.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
12
27 Financial Data Schedules
(b) Reports on Form 8-K
None
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, 2000 By: /s/ Barry Siegel
----------------
Barry Siegel
Chairman of the Board
of Directors, Chief Executive Officer
Treasurer, Secretary and Principal
Financial and Accounting Officer
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Index of Exhibits
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedules
14