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, 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 ------- 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 May 6, 1998: 8,231,800 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 March 31, 1998 (Unaudited) ASSETS Current Assets: Cash and cash equivalents $4,289,841 Accounts receivable, less allowance for doubtful accounts of $15,500 1,694,781 Inventories 70,888 Prepaid expenses and other current assets 90,776 ----------- Total current assets 6,146,286 ----------- Property and equipment, net of accumulated depreciation of $290,551 523,302 Security deposits and other non-current assets 27,738 ----------- Total assets $6,697,326 =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $976,193 Accrued expenses and other current liabilities 780,239 ----------- Total current liabilities 1,756,432 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 (2,734,820) ----------- 5,030,894 Less common stock held in treasury, at cost, 266,667 shares (90,000) ----------- Total shareholders' equity 4,940,894 ----------- Total liabilities and shareholders' equity $6,697,326 =========== The accompanying notes are an integral part of these financial statements. 3 FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
THREE MONTHS ENDED March 31, March 31, 1998 1997 ----------- ----------- Revenue from operations $4,017,501 $3,679,290 Costs of revenue (principally charges incurred at repair facilities for services) 3,358,992 3,078,238 ----------- ----------- Gross profit 658,509 601,052 Operating expenses 978,284 617,330 ----------- ----------- Loss from operations (319,775) (16,278) ----------- ----------- Other income (expense): Interest and other income 51,350 4,955 Other expenses (6,771) - ----------- ----------- Total other income 44,579 4,955 ----------- ----------- Loss from continuing operations (275,196) (11,323) =========== =========== Discontinued operations (Note 3): Loss from operations of discontinued division (no income tax benefit) - (341,735) ----------- ----------- Net income (loss) ($275,196) ($353,058) =========== =========== Basic and diluted loss per share: Continuing operations ($0.03) ($0.00) Discontinued operations - (0.06) ----------- ----------- Net loss ($0.03) ($0.06) =========== ===========
The accompanying notes are an integral part of these financial statements. 4 FIRST PRIORITY GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)
THREE MONTHS ENDED March 31, March 31, 1998 1997 ----------- ----------- Cash flows from operating activities: Net loss ($275,196) ($353,058) ----------- ----------- Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 32,661 13,975 Changes in assets and liabilities Accounts receivable (90,515) (152,971) Inventories (9,246) (267,863) Prepaid expenses and other current assets 48,500 (23,395) Security deposit and other non-current assets 13,590 15,917 Accounts payable and accrued expenses 114,836 839,754 ----------- ----------- Total adjustments 109,826 425,417 ----------- ----------- Net cash provided by (used in) operating activities (165,370) 72,359 ----------- ----------- Cash flows from investing activities, additions to property and equipment (98,653) (235,369) ----------- ----------- Cash flows from financing activities: Proceeds from note receivable in connection - with the exercise of warrants 100,000 Proceeds from issuance of common stock 1,000,000 - ----------- ----------- Net cash provided by financing activities 1,100,000 - ----------- ----------- Net increase (decrease) in cash and cash equivalents 835,977 (163,010) Cash and cash equivalents at beginning of period 3,453,864 683,503 ----------- ----------- Cash and cash equivalents at end of period $4,289,841 $520,493 =========== ===========
The accompanying notes are an integral part of these financial statements. 5 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, 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 pay vendors, 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 three months ended March 31, 1998 are not necessarily indicative of the results to be expected for the full year. 5. EARNINGS PER SHARE Basic earnings 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 6 stock options and warrants, were exercised. During the three month periods ended March 31, 1998 and 1997, there was no dilutive effect from stock options and warrants. Weighted average number of shares were 8,092,911 and 5,883,883 in the three months ended March 31, 1998 and March 31, 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. 7. SUBSEQUENT EVENTS 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 for $1,000,000 cash and $1,000,000 of the Company's common stock. The completion of this potential acquisition is subject to satisfactory due diligence. THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK. 7 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 $4,017,501, as compared to $3,679,290 for the three months ended March 31, 1997, representing an increase of $338,211, or 9.2%. 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 $3,358,992 and $3,078,238 for the three month periods ended March 31, 1998 and 1997, respectively, resulting in an increase of $280,754 or 9.1%. The gross profit percentage for the three months ended March 31, 1998 and March 31, 1997 was stable at 16.4% and 16.3%, respectively. Total operating expenses were $978,284 for the three months ended March 31, 1998, as compared to $617,330 for the three months ended March 31, 1997, representing an increase of $360,954, or 58.5%. 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 Affinity and Direct Appraisal and Repair Programs ("DARP") 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 $51,350 for the three months ended March 31, 1998, as compared to $4,955 for the same period in 1997, representing an increase of $46,395. The increase is primarily attributable to larger average cash balances available during 1998 which have been invested in short-term cash equivalents. As a result of the foregoing, the net loss from continuing operations for the three months ended March 31, 1998 was $275,196 ($.03 per share) as compared to a net loss of $24,521 ($.00 per share) for the comparable three months in 1997. FPG Direct (Discontinued operations) The Company, prior to September 1996, conducted business in 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 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. 8 This division posted no results that affected the Condensed Consolidated Statements of Operations for the period ended March 31, 1998. Discontinued operations resulted in a loss of $341,731 for the three months ended March 31, 1997 ($.06 per share). Returns and sales for this division have been continuing in a decreasing manner, however accruals previously recorded for FPG Direct have accounted for these anticipated transactions. Inventories are being decreased through returns to manufacturers and suppliers. It is anticipated that all inventory will be returned by September 1, 1998. Liquidity and Capital Resources As of March 31, 1998, the Company had cash and cash equivalents of $4,289,841 and working capital was $4,389,854. The Company's operating activities used $165,370 of cash in the first quarter of 1998 as compared to the first quarter of 1997 where operating activities generated $72,359 of cash. As discussed above, the Company has experienced large 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 continue to support its operations for the short and longer term. 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 4. Submission of Matters to a Vote of Security Holders The Company held the Annual Meeting of Share holders on March 23, 1998. The following matters were voted upon at the meeting: 1. The following slate of nominees stood for election to the Board of Directors: For Against Withheld --- ------- -------- Barry Siegel 5,185,833 0 0 Michael Karpoff 5,185,833 0 0 Paul J. Di Stefano 5,185,833 0 0 Barry J. Spiegel 5,185,833 0 0 Leonard Giarraputo 5,185,833 0 0 2. Ratification of the selection by the Board of Directors of Nussbaum Yates & 9 Wolpow, P.C. as the independent accountants to audit the Company's financial statements for 1998. For Against Withheld --- ------- -------- Barry Siegel 5,185,833 0 0 Michael Karpoff 5,185,833 0 0 Paul Di Stefano 5,185,833 0 0 Barry J. Spiegel 5,185,833 0 0 Leonard Giarraputo 5,185,833 0 0 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 10.1 Employment Agreement dated March 23, 1998 between the Company and Gerald M. Zutler. 27 Financial Data Schedules (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: May 5, 1998 By: /s/ Barry Siegel ---------------- Barry Siegel Chairman of the Board of Directors, Chief Executive Officer Treasurer, Secretary and Principal Financial and Accounting Officer 11 Index of Exhibits Exhibit No. Description 10.1 Employment Agreement dated March 23, 1998 between the Company and Gerald M. Zutler. 27 Financial Data Schedules 12