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, 1996 |_| 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.) 270 Duffy Avenue Hicksville, New York 11801 -------------------------- (Address of principal executive offices) (516) 938-1010 -------------- (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 4, 1996: 5,883,883 shares of common stock Transitional Small Business Format (check one) Yes |_| No |X| Part I Financial Information Item 1. Financial Statements THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK. 2 FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1996 ASSETS Current Assets: Cash and cash equivalents $ 951,808 Accounts receivable, less allowance for doubtful accounts of $11,500 1,233,219 Inventory 6,521 Other current assets 20,528 ----------- Total current assets 2,212,076 Property and equipment, net 166,831 Security deposits 10,750 Other 7,619 ----------- $ 2,397,276 =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 1,177,483 ----------- Total current liabilities 1,177,483 ----------- 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 (725,108) ----------- 1,309,793 Less common stock held in treasury, at cost, 266,667 shares (90,000) ----------- Total shareholders' equity 1,219,793 ----------- $ 2,397,276 =========== The accompanying notes are an integral part of these financial statements. FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED September 30, September 30, 1996 1995 ------------- ------------- (Unaudited) (Unaudited) Revenue from operations $3,599,722 $2,423,933 Costs of revenue (principally charges incurred at repair facilities for services) 2,992,848 2,027,974 ---------- ---------- Gross profit 606,874 395,959 Operating expenses: Selling, general and administration 475,024 393,284 ---------- ---------- Income from operations 131,850 2,675 Interest and other income 6,502 1,699 ---------- ---------- Income before income taxes 138,352 4,374 Provision for income taxes 1,500 ---------- ---------- Net income $ 136,852 $ 4,374 ========== ========== Income per common share 0.02 NIL ========== ========== The accompanying notes are an integral part of these financial statements. FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS NINE MONTHS ENDED September 30, September 30, 1996 1995 ------------- ------------- (Unaudited) (Unaudited) Revenue from operations $9,650,709 $7,346,860 Costs of revenue (principally charges incurred at repair facilities for services) 7,930,763 6,031,671 ---------- ---------- Gross profit 1,719,946 1,315,189 Operating expenses: Selling, general and administration 1,422,635 1,154,595 ---------- ---------- Income from operations 297,311 160,594 Interest and other income 22,287 3,879 ---------- ---------- Income before income taxes 319,598 164,473 Provision for income taxes 3,000 1,000 ---------- ---------- Net income $ 316,598 $ 163,473 ========== ========== Income per common share 0.04 0.03 ========== ========== The accompanying notes are an integral part of these financial statements. FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW NINE MONTHS ENDED September 30, September 30, 1996 1995 ------------- ------------- Cash flows from operating activities: Net income $ 316,598 $ 163,473 --------- --------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 28,305 21,434 Changes in assets and liabilites: Accounts receivable (163,433) (112,427) Other current assets (4,374) (6,813) Inventory (6,521) Security deposits (175) Accounts payable and accrued expenses 118,195 251,169 --------- --------- Total adjustments (28,003) 153,363 --------- --------- Net cash provided by operating activities 288,595 316,836 --------- --------- Cash flows from investing activities, additions to property and equipment (78,597) (73,486) --------- --------- Cash flows used in financing activities, borrowing (repayment) of notes payable (37,264) 39,865 --------- --------- Net increase in cash and cash equivalents 172,734 283,215 Cash and cash equivalents at beginning of period 779,074 126,918 --------- --------- Cash and cash equivalents at end of period $ 951,808 $ 410,133 ========= ========= The accompanying notes are an integral part of these financial statements. 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, 1996 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 business of the Company was started in 1983. Thereafter, the original company was merged into the present company after its formation on June 28, 1985, presently named First Priority Group, Inc. (the "Company"). The Company 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 repair and maintenance of vehicles through approximately 8,000 independently owned and/or nationally recognized repair facilities. The Company has recently added two new divisions: FPG Recovery Services, which provides subrogation and premium recovery services directly to insurance companies; and FPG Direct Marketing, which will market the Company's services as well as hard goods through non-financial data-based businesses. The Company's office is located at 270 Duffy Avenue, Hicksville, New York 11801 and its telephone number is (516) 938-1010. 3. RESULTS OF OPERATIONS The unaudited results of operations for the nine months ended September 30, 1996 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 per common and common equivalent share is based upon the weighted average number of outstanding common shares during the period plus, when their effect is dilutive, common shares subject to stock options and warrants. The number of common and common equivalent shares utilized in the per share 7 computations were 7,870,350 and 4,883,883 in the three months ended September 30, 1996 and September 30, 1995, respectively. The number of common and common equivalent shares utilized in the per share computations were 7,788,453 and 4,883,883 in the nine months ended September 30, 1996 and September 30, 1995, respectively. THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK. 8 Item 2. Management's Discussion and Analysis or Plan of Operation. For the three months ended September 30, 1996 the Company's revenues from operations increased by $1,175,789 (48.5%) to $3,599,722 from $2,423,933 for the three months ended September 30, 1995. Gross profit increased $210,915 to $606,874 for the third quarter of 1996 from $395,959 during the same period of 1995. For the nine months ended September 30, 1996 the Company's revenues from operations increase by $2,303,849 (31.4%) to $9,650,709 from $7,346,860 for the nine months ended September 30, 1995. The gross profit percentage increased .6% to 16.9% for the three months ended September 30, 1996 as compared to 16.3% for the same period of 1995. For the nine months ended September 30, 1996 the gross profit percentage decreased .1% to 17.8% from 17.9% for the same period of 1995. Fluctuations in gross profit are attributable to the revenue derived from the sales mix of fleet repair, direct appraisal and repair, and consumer oriented auto club programs. Selling, general and administrative expenses increased $81,740 (20.8%) to $475,024 for the third quarter of 1996 from $393,284 during the same period of 1995. For the first nine months of 1996 selling, general and administrative expenses increased $268,040 (23.2%) to $1,422,635 from $1,154,595 during the same period of 1995. The increase in selling, general, and administrative expenses is related to increased salary expenses due to contractual agreements, wage increases and an increase in labor force necessary to prepare the Company to manage its increased business activities and the start up of the FPG Direct Marketing and FPG Recovery Services Divisions. The Company believes that it has adequate liquidity to support its cost of operations for the foreseeable future. THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK. 9 Part II Other Information Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 3.1 Amendment to the Certificate of Incorporation 10.1 The Company's 1995 Incentive Stock Plan filed herein. 10.2 Employment Agreement between the Company and Paul Zucker dated September 3, 1996 filed herein. 10.3 Employment Agreement between the Company and Steven Zucker dated September 3, 1996 filed herein. 10.4 Employment Agreement between the Company and Donald Shanley dated September 3, 1996 filed herein. 10.5 Employment Agreement between the Company and Barry J. Spiegel dated September 3, 1996 filed herein. 27 Financial Data Schedule (b) Reports on Form 8-K None 10 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 4, 1996 By: /s/ Michael Karpoff ----------------------------- Michael Karpoff Co-Chairman of the Board of Directors, President and Co-Chief Executive Officer Date: November 4, 1996 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 INDEX TO EXHIBITS Exhibit Description Page No. 3.1 Amendment to the Certificate of Incorporation 13 10.1 The Company's 1995 Incentive Stock Plan filed herein. 16 10.2 Employment Agreement between the Company and Paul Zucker dated September 3, 1996 filed herein. 22 10.3 Employment Agreement between the Company and Steven Zucker dated September 3, 1996 filed herein. 30 10.4 Employment Agreement between the Company and Donald Shanley dated September 3, 1996 filed herein. 38 10.5 Employment Agreement between the Company and Barry J. Spiegel dated September 3, 1996 filed herein. 46 27 Financial Data Schedule 56 12