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
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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 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.
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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.
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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.
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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.
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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, 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
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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.
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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.
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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 &
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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
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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
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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
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