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, 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 August 14, 1997: 6,150,550 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
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents $ 403,238
Accounts receivable, less allowance for
doubtful accounts of $39,500 2,379,578
Inventories 222,392
Prepaid expenses and other current assets 240,008
-----------
Total current assets 3,245,216
Property and equipment, net 427,704
Security deposits and other 27,738
-----------
Total assets $ 3,700,658
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 50,004
Accounts payable and accrued expenses 2,704,148
-----------
Total current liabilities 2,754,152
Long term debt less current portion 91,662
-----------
Total liabilities 2,845,814
-----------
Shareholders' equity:
Common stock, $.015 par value, authorized
20,000,000 shares; issued 6,417,217 shares 96,258
Additional paid-in capital 2,338,643
Deficit (1,490,057)
-----------
944,844
Less common stock held in treasury, at
cost, 266,667 shares (90,000)
-----------
Total shareholders' equity 854,844
-----------
Total liabilities and shareholders' equity $ 3,700,658
===========
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
June 30, June 30,
1997 1996
----------- -----------
(Unaudited) (Unaudited)
Revenue from operations $ 3,197,844 $ 2,870,207
Costs of revenue (principally charges incurred
at repair facilities for services) 2,628,802 2,349,742
----------- -----------
Gross profit 569,042 520,465
Operating expenses:
Selling, general and administrative 663,699 462,406
----------- -----------
Income (loss) from operations (94,657) 58,059
----------- -----------
Other income (expense):
Interest and other income 15,983 9,247
Interest expense (1,730) --
----------- -----------
Total other income 14,253 9,247
----------- -----------
Income (loss) from continuing operations
before income taxes (80,404) 67,306
Provision for income taxes -- 500
----------- -----------
Income (loss) from continuing operations (80,404) 66,806
Discontinued operations (Note 4):
Loss from operations of discontinued division
(no income tax benefit) (328,463) --
----------- -----------
Net income (loss) ($ 408,867) $ 66,806
=========== ===========
Earnings (loss) per common share (continuing operations) ($ 0.01) $ 0.01
Earnings (loss) per common share (discontinued operations) (0.06) --
----------- -----------
Net earnings (loss) per common share ($ 0.07) $ 0.01
=========== ===========
The accompanying notes are an integral part of these financial statements.
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED
June 30, June 30,
1997 1996
----------- -----------
(Unaudited) (Unaudited)
----------- -----------
Revenue from operations $ 6,877,134 $ 6,050,986
Costs of revenue (principally charges incurred
at repair facilities for services) 5,707,040 4,938,914
----------- -----------
Gross profit 1,170,094 1,112,072
Operating expenses:
Selling, general and administrative 1,281,029 946,611
----------- -----------
Income (loss) from operations (110,935) 165,461
----------- -----------
Other income (expense):
Interest and other income 20,938 15,785
Interest expense (1,730) --
----------- -----------
Total other income 19,208 15,785
----------- -----------
Income (loss) from continuing operations
before income taxes (91,727) 181,246
Provision for income taxes -- 1,500
----------- -----------
Income (loss) from continuing operations (91,727) 179,746
Discontinued operations (Note 4):
Loss from operations of discontinued division
(no income tax benefit) (670,198) --
----------- -----------
Net income (loss) ($ 761,925) $ 179,746
=========== ===========
Earnings (loss) per common share (continuing operations) ($ 0.02) $ 0.02
Earnings (loss) per common share (discontinued operations) (0.11) --
----------- -----------
Net earnings (loss) per common share ($ 0.13) $ 0.02
=========== ===========
The accompanying notes are an integral part of these financial statements
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
SIX MONTHS ENDED
June 30, June 30,
1997 1996
--------- ---------
Cash flows from operating activities:
Net income (loss) ($761,925) $ 179,746
--------- ---------
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 36,918 18,086
Provision for bad debt 28,000
Changes in assets and liabilites:
Accounts receivable (390,943) 82,597
Inventories 96,006
Prepaid expenses and other current assets 81,890 (6,002)
Security deposit and other 19,575 (175)
Accounts payable and accrued
expenses 991,346 (169,460)
--------- ---------
Total adjustments 862,792 (74,954)
--------- ---------
Net cash provided by operating
activities 100,867 104,792
--------- ---------
Cash flows from investing activities,
additions to property and equipment (322,798) (32,555)
--------- ---------
Cash flows provided by (used in) financing activities:
Repayment under line of credit financing (600,000)
Proceeds from bank loan 150,000
Principal payments on bank loan (8,334) (37,264)
Proceeds from issuance of common stock 400,000
--------- ---------
Net cash used in financing activities (58,334) (37,264)
--------- ---------
Net decrease in cash and cash equivalents (280,265) 34,973
Cash and cash equivalents at beginning of period 683,503 779,074
--------- ---------
Cash and cash equivalents at end of period $ 403,238 $ 814,047
========= =========
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 June 30, 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. (See Note 4, regarding the
discontinuance of this operation).
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 six months ended June 30, 1997
are not necessarily indicative of the results to be expected for the full year.
4. DISCONTINUED OPERATIONS
During the second quarter of 1997, the Company decided to discontinue its
FPG Direct division. As the programs end, the Company intends to fill all
orders, pay all
7
vendors and collect receivables over a period of time. The results of operations
for this division are reported separately in the statements of operations.
5 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.
The number of common and common equivalent shares utilized in the per share
computations were 6,018,681 and 7,747,504 for the three months ended June 30,
1997 and 1996, respectively and 5,951,655 and 7,747,504 for the six months ended
June 30, 1997 and 1996, respectively.
THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.
8
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. See discussion
below regarding the discontinuance of the operations of FPG Direct.
Automotive Management
For the three months ended June 30, 1997, revenues from services of the
automotive management operations were $3,197,844, as compared to $2,870,207 for
the three months ended June 30, 1996, representing an increase of $327,637, or
11.4%. For the six months ended June 30, 1997 revenues from services were
$6,877,134 as compared to $6,050,986 for the six months ended June 30, 1996,
representing an increase of $826,148, or 13.6%. 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 $2,628,802 and $2,349,742 for the
three month periods ended June 30, 1997 and 1996, respectively, resulting in an
increase of $279,060 or 11.9%. The direct cost of services related to such
revenue was $5,707,040 and $4,938,914 for the six months ended June 30, 1997 and
1996, respectively, resulting in an increase of $768,126 or 15.6%. The gross
profit percentage was 17.7% and 17.0% for the three and six months ended June
30, 1997, respectively, as compared to 18.1% and 18.4% for the same periods 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.
Operating expenses and other (Continuing operations)
Total operating expenses were $663,699 for the three months ended June 30,
1997, as compared to $462,406 for the three months ended June 30, 1996,
representing an increase of $201,293, or 43.5%. For the six months ended June
30, 1997, total operating expenses were $1,281,029, an increase of $334,418 or
35.3% from total operating expenses of $946,611 for the same period of 1996. The
increase in operating expenses is primarily attributable to increased payroll
and related expenses specifically associated with hiring of senior executives to
head the Affinity and Direct Appraisal and Repair Programs (DARP) business
groups as well as increases in other general and administrative expenses
required to service the Company's growing automotive management operations.
9
Net earnings (loss) (Continuing operations)
As a result of the foregoing, the net loss from continuing operations for
the three months ended June 30, 1997 was $80,404 ($.01 per share) as compared to
a net income of $66,806 ($.01 per share) for the comparable three months in
1996. For the six months ended June 30, 1997, the net loss from continuing
operations was $91,727 ($.02 per share) as compared to a net income of $179,746
($.02 per share) for the same period in 1996.
FPG Direct (Discontinued operations)
For the three and six months ended June 30, 1997, FPG Direct had net sales
of $1,480,246 and $2,294,789 and cost of goods sold of $692,539 and $1,070,085,
resulting in a three month gross profit of $787,707 (53.2%) and a six month
gross profit of $1,224,704 (53.4%), respectively. For the three months ended
June 30, 1997, FPG Direct incurred selling, general, and administrative expenses
of $1,096,369, and interest expense of $19,801, resulting in a net loss of
$328,463 ($.06 per share). For the six months ended June 30, 1997, FPG Direct
incurred selling, general, and administrative expenses of $1,861,903 and
interest expense of $32,999 resulting in a six month net loss of $670,198 ($.11
per share). Sales related to the promotions completed and ongoing during this
year did not meet expectations, resulting in losses for the division. This
division has not participated in any new promotions since June 1997. As a result
of the losses from the operations of this division, management has decided to
discontinue the operations of this division. The Company does not expect to
incur any additional losses during the phase out period.
Contingency Note
FPG Direct has contracted through an intermediary to market its direct mail
program to holders of credit cards issued by oil companies and retail stores. On
July 7, 1997, one such credit card issuer, Montgomery Ward filed a petition for
reorganization under Chapter 11 of the U.S. Bankruptcy Code. As of June 30,
1997, approximately $230,000 was outstanding and owed to the Company from the
Montgomery Ward program. The intermediary has offered to reimburse the Company
up to 88 percent of the balance outstanding. The Company has reserved $28,000
against this accounts receivable in anticipation of the settlement.
Liquidity and Capital Resources
As of June 30, 1997, the Company had cash and cash equivalents of $403,238.
Working capital of the Company as of June 30, 1997, was $533,564. The Company's
operating activities generated $100,867 of cash in the first two quarters 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 June 30, 1997 the Company had no borrowings from the bank
under the
10
line of credit. On June 30, 1997 the Company renewed the line of credit through
June 30, 1998 at a quarter percent above the bank's prime lending rate (one
quarter percent less than the original agreement).
As a result of relocating the Company's offices in April 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 May 1997, the Company raised $400,000 through the private
placement issuance of 266,667 shares of its common stock 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.
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description
10.1 Short Term Loan Agreement dated April 15, 1997 between the
Company and The Chase Manhattan Bank.
10.2 Promissory Note dated April 15, 1997 payable to The Chase
Manhattan Bank.
10.3 Lease Agreement dated December 6, 1996 between the Company
and 51 East Bethpage Holding Corporation for lease of the
Company's facilities in Plainview, New York.
10.4 First Amendment to Lease Agreement dated July 14, 1997
amending the lease dated December 6, 1996 between the
Company and 51 East Bethpage Holding Corporation.
(b) Reports on Form 8-K
None
11
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 19, 1997 By: /s/ Michael Karpoff
-------------------
Michael Karpoff
Co-Chairman of the Board
of Directors, President and
Co-Chief Executive Officer
Date: August 19, 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
12
Index of Exhibits
Exhibit No. Description
10.1 Short Term Loan Agreement dated April 15, 1997 between the
Company and The Chase Manhattan Bank.
10.2 Promissory Note dated April 15, 1997 payable to The Chase
Manhattan Bank.
10.3 Lease Agreement dated December 6, 1996 between the
Company and 51 East Bethpage Holding Corporation for lease
of the Company's facilities in Plainview, New York.
10.4 First Amendment to Lease Agreement dated July 14, 1997
amending the lease dated December 6, 1996 between the
Company and 51 East Bethpage Holding Corporation.
13