<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
[X] THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended Dec. 31, 1999
-------------
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[_] SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
Commission File Number 1-8912
------
STAR STRUCK, LTD.
(formerly known as SBM Industries, Inc.)
------------------------------------------
(Name of Small Business Issuer in it Charter)
Delaware 36-1805030
---------------------------------------- -------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1865 Palmer Avenue
Larchmont, New York 10538
- ---------------------------------------- -------------------------
(Address of principal executive offices) (Zip Code)
(914) 833-0649
--------------
(Issuer's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Stock, $1.00 par value American Stock Exchange
- ----------------------------- -----------------------
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been
<PAGE>
subject to such filing requirements for the past 90
days.
Yes X No
----- -----
Check if disclosure of no delinquent filers pursuant to Item 405 of
Regulation S-B is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year were approximately
$11,568,000.
Based on the closing sales price on March 17, 2000, the aggregate market
value of the voting stock held by non-affiliates of the registrant was
approximately $1,820,000.
The number of shares outstanding of the registrant's common stock was
2,025,899 at March 17, 2000.
DOCUMENTS INCORPORATED BY REFERENCE: Part III - Definitive Proxy Statement
relating to May 2, 2000 Annual Meeting of Shareholders. Parts I and II - Annual
Report to Shareholders for the year ended December 31, 1999.
<PAGE>
PART I
Item I. Description of Business
-----------------------
General
- -------
Star Struck, Ltd. (the "Company") is a holding company whose operating
subsidiary corporation is primarily engaged in the distribution of watch
batteries and related products, and sports apparel. Prior to May 4, 1999, the
Company's name was SBM Industries, Inc. The Company's principal executive
offices have been located in Larchmont, New York since 1992.
Star Struck, Inc.
- -----------------
The Company's operating subsidiary is Star Struck, Inc., a Connecticut
corporation ("SSI"), whose principal offices are in Bethel, Connecticut. SSI is
a distributor throughout the United States of watch batteries and watch straps.
SSI also sells related products, such as alkaline, photo and hearing aid
batteries, jewelry findings, tools and supplies.
SSI also distributes a line of sports apparel. These products consist
principally of caps and shirts bearing logos of various professional and college
sports teams. These products are manufactured for SSI by various apparel
manufacturers under license from the respective teams whose logos are being
used. In 1999, sales of sports apparel products were approximately $2.4 million.
SSI sells its watch batteries and related products through direct mail and
telemarketing to jewelry stores, discount store chains and other retail vendors.
SSI sells its sports apparel products directly to customers through direct mail
and print media advertising, and, since early 1999, through its internet site,
www.starstruck.com.
SSI competes in competitive, but highly fragmented, industries.
SSI's business does not depend on the availability of raw materials. SSI
distributes watch batteries for Sony, Eveready, Maxell, Renata, Rayovac and
Varta under the manufacturer's and SSI's private label. SSI sells its watch
straps under the Sahara and Town & Country tradenames. SSI sells its sports
apparel under the "Star Struck" trade name.
SSI has approximately 5,000 active customers for its watch batteries and
related products. SSI's two largest customers account for 32% and 4%,
respectively, of its
<PAGE>
sales.
Governmental regulation is not a specific influence on the business of SSI,
and generally compliance with environmental regulations have not been burdensome
to SSI.
SSI has approximately 65 full-time employees.
RC Manufacturing, Inc.
- ----------------------
RC Manufacturing, Inc. ("RC"), which the Company acquired in 1994, ceased
doing business in September 1999. Prior to its closing, RC manufactured and sold
leather accessories and watch straps. The Company wrote off its entire
investment in RC in 1999.
Investments
- -----------
The Company generally holds its liquid assets in government securities.
Government securities include only such securities as defined in the Investment
Company Act of 1940, as amended.
General
- -------
The Company does not hold any patents, trademarks, licenses, franchises or
concessions in connection with its business, except as described above.
The Company expended no money on research and development in 1998 or 1999.
<PAGE>
Item 2. Properties.
----------
The Company leases offices in Larchmont, New York for use as its
executive offices.
SSI owns property located in the Francis J. Clarke Industrial Park at
8 Francis J. Clarke Circle in Bethel, Connecticut. The property consists of
2.344 acres of land and a warehouse/office building. The building comprises
approximately 20,500 square feet. Approximately sixty percent of the building
is used as a warehouse and remaining forty percent is used as offices by SSI.
The warehouse space contains a loading dock. The property is encumbered by two
mortgages. SSI also leases a warehouse facility, comprising approximately 7,000
square feet, in the Francis J. Clarke Industrial Park.
In the opinion of management, the properties are adequately covered by
insurance.
Item 3. Legal Proceedings.
-----------------
The Company is not a party to any legal proceeding required to be
described in this Report.
Item 4. Submission of Matters to a Vote of Security
Holders.
-------------------------------------------
None.
PART II
Item 5. Market for Common Equity and Related
Stockholder Matters.
------------------------------------
The principal United States market in which the Company's common stock
is traded is the American Stock Exchange. See page 14 of the Company's 1998
Annual Report to Shareholders, in the section entitled "Market and Dividend
Information", for information concerning the high and low sales prices for the
Company's common stock for each quarter of 1998 and 1999. That section is
incorporated herein by reference. As of March 17, 2000, the Company had
approximately 550 shareholders of common stock. No dividends were paid by the
Company in 1998 or 1999.
<PAGE>
Item 6. Management's Discussion and Analysis or
Plan of Operation.
---------------------------------------
See pages 12 through 13 of the Company's 1999 Annual Report to
Shareholders. Those pages are incorporated herein by reference.
Item 7. Financial Statements and Supplementary Data.
-------------------------------------------
See pages 2 through 10 of the Company's 1999 Annual Report to
Shareholders. Those pages are incorporated herein by reference.
Item 8. Changes in and Disagreements on Accounting
and Financial Disclosure.
------------------------------------------
None.
PART III
Item 9. Directors and Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
-----------------------------------------------------------------
See the sections entitled "Nominees for Election as Directors" and
"Executive Officers and Executive Compensation" and "Compliance with Section
16(a) of the Exchange Act" in the Company's Proxy Statement for the Annual
Meeting of Shareholders to be held on May 2, 2000 for information concerning
directors, executive officers, promoters and control persons of the Company.
Those sections are incorporated herein by reference.
Item 10. Executive Compensation.
----------------------
See the section entitled "Executive Officers and Executive
Compensation" in the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held on May 2, 2000 for information concerning executive
compensation. That section is incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners
and Management.
-----------------------------------------------
See the sections entitled "Executive Officers and Executive
Compensation -- Stock Options," "Security Ownership of Management" and "Other
Principal Holders of Voting Securities" in the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held on May 2, 2000. Those sections are
incorporated herein by reference.
<PAGE>
Item 12. Certain Relationships and Related Transactions.
----------------------------------------------
See the section entitled "Nominees for Election as Directors --
Additional Information" in the Company's Proxy Statement for the Annual Meeting
of Shareholders to be held on May 2, 2000. That section is incorporated herein
by reference.
Item 13. Exhibits, Lists and Reports on Form 8-K.
---------------------------------------
(a) Financial Statements.
--------------------
(1) A copy of the Company's Annual Report to Shareholders for the year
ended December 31, 1999 has been furnished as an exhibit to this Annual Report
on Form 10-KSB. Pages 2 through 11 of such Annual Report to Shareholders
contain the Consolidated Balance Sheet as of December 31, 1999, and the
Consolidated Statements of Income, Shareholders' Investment and Cash Flows and
Notes to Consolidated Financial Statements for each of the two years ended
December 31, 1999 and 1998, and the Auditors' Report covering the aforementioned
financial statements. These Financial Statements and the Auditors' Report
thereon are incorporated herein by reference.
Exhibits
--------
*(3) (a) The Articles of Incorporation and Bylaws of the Company
as amended, filed as Exhibit to a report on Form 8, Amendment No. 1 to the
Company's Form 10-K for the fiscal year ended December 31, 1988 and filed
May 26, 1989, are incorporated herein by reference, and Amendment to the
Articles of Incorporation of the Company, changing the name of the Company
to SBM Industries, Inc., filed as an exhibit to the Company's report on 8-K
dated September 15, 1992 and filed September 29, 1992, is incorporated
herein by reference.
(3) (b) Amendment to the Articles of Incorporation of the
Company, changing the name of the Company to Star Struck, Ltd.
(10) Material Contracts.
*(a) Mortgage, Assignment of Lease and Security Agreement,
dated July 6, 1995, between Star Struck, Inc., as
mortgagor, and First Union National Bank (formerly
First Fidelity Bank), as mortgagee, in the
<PAGE>
original amount of $800,000, secured by property known as 8
Francis J. Clarke Circle, Bethel, Connecticut, filed as
Exhibit 10(e) to the Company's report on Form 10-KSB for the
fiscal year ended December 31, 1995, filed with Amendment
No.1 thereto on April 3, 1996, is incorporated herein by
reference.
*(b) Loan Agreement, dated as of October 29, 1998, between
Star Struck, Inc. and People's Bank, filed as Exhibit
10(d)to the Company's Report on Form 10-KSB for the
year ended December 31, 1998, filed March 31, 1999, is
incorporated herein by reference.
*(c) Open-End Mortgage Deed, Assignment of Rents and Financing
Statement, dated as of October 29, 1998 from Star
Struck, Inc., as mortgagor, to People's Bank, as
mortgagee, filed as Exhibit 10(e) to the Company's
Report on Form 10-KSB for the year ended December 31,
1998, filed March 31, 1999, is incorporated herein by
reference.
*(d) Security Agreement, dated as of October 29, 1998 between
Star Struck, Inc. and People's Bank, filed as Exhibit
10(f) to the Company's Report on Form 10-KSB for the
year ended December 31, 1998, filed March 31, 1999, is
incorporated herein by reference.
*(e) Guaranty Agreement, dated as of October 29, 1998 from the
Company to People's Bank, filed as Exhibit 10(g) to the
Company's Report on Form 10-KSB for the year ended
December 31, 1998, filed March 31, 1999, is incorporated
<PAGE>
herein by reference.
*(11) Statement re: Computation of Per Share Earnings. See
page 2 of the Company's 1999 Annual Report to Shareholders for a
description of the computation of the Company's per share earnings, which
description is incorporated herein by reference.
(13) The Company's 1999 Annual Report to Shareholders (which,
except for those portions thereof incorporated by reference in this Form
10-KSB Annual Report, is furnished for the information of the Commission,
but is not deemed to be "filed" as part of this report).
*(21) The Company owns 100% of the outstanding shares of Star
Struck, Inc., a Connecticut corporation.
(27) Financial Data Schedule
___________________________
*Incorporated by reference.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
STAR STRUCK, LTD.
By: /s/ Kenneth Karlan
-----------------------------
Kenneth Karlan, President
And Chief Executive Officer
March 29, 2000
By: /s/ Lawrence J. Goldstein,
-----------------------------
Lawrence J. Goldstein,
Vice President and Treasurer
<PAGE>
March 29, 2000
Dated: March 29, 2000
In accordance with the Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ Lawrence J. Goldstein
- -------------------------------------
Lawrence J. Goldstein, March 29, 2000
(Director)
/s/ Kenneth Karlan
- ------------------------------------
Kenneth Karlan, March 29, 2000
(Director)
/s/ Robert Morris
- ------------------------------------
Robert Morris, March 29, 2000
(Director)
/s/ Peter Nisselson
- ------------------------------------
Peter Nisselson, March 29, 2000
(Director)
/s/ Arthur Salzfass
- -------------------------------------
Arthur Salzfass, March 29, 2000
(Director)
/s/ Keith Sessler
- -------------------------------------
Keith Sessler, March 29, 2000
(Director)
/s/ Michael Sweedler
- -------------------------------------
Michael Sweedler, March 29, 2000
(Director)
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated balance sheet as of December 31, 1999 and the
consolidated statements of income, shareholders' investment and cash flows for
each of the two years in the period ended December 31, 1999 together with the
report of independent public accountants contained on pages 3 through 11 of the
Company's 1999 Annual Report for the year ended December 31, 1999 are
incorporated herein by reference.
ARTHUR ANDERSEN LLP
New York, New York
March 27, 2000
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Page
------- ----
(3)(a) The Articles of Incorporation and Bylaws of *
the Company as amended, filed as Exhibit to a report
on Form 8, Amendment No.1 to the Company's Form 10-K
for the fiscal year ended December 31, 1988 and filed
May 26, 1989, are incorporated herein by reference,
Amendment to the Articles of Incorporation of the
and Company, changing the name of the Company to
SBM Industries, Inc., filed as an exhibit to the
Company's report on 8-K dated September 15, 1992 and
filed September 29, 1992, is incorporated herein by
reference.
(3) (b) Amendment to the Articles of Incorporation of ----
the Company, changing the name of the Company to Star
Struck, Ltd.
(10) Material Contracts.
(a) Mortgage, Assignment of Lease and Security *
Agreement dated July 6, 1995, between Star Struck,
Inc., as mortgagor, and First Union National Bank
(formerly First Fidelity Bank), as mortgagee, in
the original amount of $800,000, secured by property
known as 8 Francis J. Clarke Circle, Bethel,
Connecticut, filed as Exhibit 10(e) to the Company's
report on Form 10-KSB for the fiscal year ended
December 31, 1995, filed with Amendment No.1 thereto
on April 3, 1996, is incorporated herein by reference.
<PAGE>
Exhibit Page
------- ----
(b) Loan Agreement, dated of October 29, 1998, *
between Star Struck, Inc. and People's Bank,
filed as Exhibit 10(d)to the Company's Report on
Form 10-KSB for the year ended December 31, 1998,
filed March 31, 1999, is incorporated herein by
reference.
(c) Open-End Mortgage Deed, Assignment of Rents and *
Financing Statement, dated as of October 29, 1998
from Star Struck, Inc., as mortgagor, to People's Bank,
as mortgagee, filed as Exhibit 10(e) to the Company's
Report on Form 10-KSB for the year ended December 31,
1998, filed March 31, 1999, is incorporated herein by
reference.
(d) Security Agreement, dated as of October 29, 1998 *
between Star Struck, Inc. and People's Bank, filed
as Exhibit 10(f) to the Company's Report on Form 10-
KSB for the year ended December 31, 1998, filed March
31, 1999, is incorporated herein by reference.
(e) Guaranty Agreement, dated October 29, 1998 from *
the Company to People's Bank, filed as Exhibit 10(g)
to the Company's Report on Form 10-KSB for the year
ended December 31, 1998, filed March 31, 1999, is
incorporated herein by reference.
(11) Statement re: Computation of Per Share Earnings. See *
page 2 of the Company's 1999 Annual Report to
Shareholders for a description of the computation of
the Company's per share earnings, which description
is incorporated herein by reference.
<PAGE>
Exhibit Page
------- ----
(13) The Company's 1999 Annual Report to ----
Shareholders (which, except for those portions
thereof incorporated by reference in this
Form 10-KSB Annual Report, is furnished for the
information of the Commission, but is not
deemed to be "filed" as part of this report).
(21) The Company owns 100% of the outstanding *
shares of Star Struck, Inc., a Connecticut
corporation.
(27) Financial Data Schedule ----
- --------------------------------------------------------------------------------
* Incorporated by reference
<PAGE>
Exhibit 3(b)
------------
STATE of DELAWARE
CERTIFICATE of AMENDMENT of
CERTIFICATE of INCORPORATION
. First: That a meeting of the Board of Directors of SBM Industries, Inc.
resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of said corporation, declaring said amendment
to be advisable and directing that the proposed amendment be presented to
the shareholders of said corporation for consideration thereof at the 1999
Annual Meeting of Shareholders. The resolution setting forth the proposed
amendment is as follows: Resolved, that Article 1 of this Corporation=s
Certificate of Incorporation be amended to read as follows:
1: The name of the Corporation is Star Struck, Ltd.
. Second: That thereafter pursuant to resolution of its Board of Directors at
the 1999 Annual Meeting of the Shareholders of said corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware at which meeting the necessary
number of shares as required by statute were voted in favor of the
amendment.
. Third: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
. Fourth: That the capital of said corporation shall not be reduced under
<PAGE>
or by reason of said amendment.
Dated: May 2, 1999 BY: /s/ Peter Nissleson
-------------------------------------------------
(Authorized Officer)
NAME: Peter Nisselson, President and Secretary
------------------------------------------
<PAGE>
Exhibit 13
Star Struck, Ltd.
1.9.9.9
ANNUAL
REPORT
<PAGE>
Star Struck, Ltd.
- --------------------------------------------------------------------------------
To Our Shareholders 1
Selected Financial Information 2
Consolidated Statements of Income 3
Consolidated Balance Sheet 4
Consolidated Statements of Shareholders' Investment 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7-10
Report of Independent Public Accountants 11
Management's Discussion and Analysis 12-13
Shareholder Information 14
Officers and Directors 15
<PAGE>
Star Struck, Ltd.
To Our Shareholders
- --------------------------------------------------------------------------------
To Our Shareholders,
Sales from continuing operations were $11,568,000 in 1999 versus $12,277,000 in
1998. The loss from continuing operations was ($386,000) or (19(cent)) per share
in 1999 versus a loss of ($41,000) or (2(cent)) per share in 1998. These results
do not include losses of ($573,000) in 1999 and ($319,000) in 1998 resulting
from the Company's discontinued leather manufacturing business. Please see the
accompanying financial statements for details.
The acquisition of the leather watch strap manufacturing business in 1994 was
intended to complement the Company's core business of distributing watch
batteries and watch straps for the replacement market to jewelry stores and
other retailers. However, the availability of comparable products from overseas
at substantially lower cost had a significant adverse effect on the performance
of the business. Several attempts to penetrate alternate leather goods markets
had limited success. Management decided to cut the Company's losses and close
the business.
While maintaining the Company's core business, the focus will now be on further
expansion of Star Struck, Inc.'s catalog and internet sports apparel business
through the development of new partnerships. Since name recognition is important
in the retail industry, the Company's name and trading symbol on the ASE were
changed from SBM Industries, Inc. (SBM) to Star Struck, Ltd. (KAP) at the annual
meeting in May of 1999.
To gain entry and access to opportunities in the combined world of sports and
business, Star Struck, Inc. has established an Advisory Board consisting of
sports figures. Baseball Hall of Fame member Lou Brock was the first appointee
to the board in September of 1999. Gabe Kapler, the starting right fielder for
the Texas Rangers, joined him in January of 2000; as did Pat LaFontaine, a
former premier center in the National Hockey League, in March of 2000.
To capitalize on the growing popularity of minor league baseball, Star Struck,
Inc. enhanced its web site, www.starstruck.com, through an agreement with
-------------------
www.attheyard.com in December of 1999. The acquired web site focuses on Minor
- -----------------
League Baseball and features player journals, coaching lessons and baseball
information. This will be a good fit for Star Struck's Official Catalog and
Official On-Line Catalog of "Professional Baseball-The Minor Leagues".
In December of 1999 Star Struck signed a three year agreement with Major League
Soccer ("MLS") as the Official Catalog of Major League Soccer. Under the terms
of the agreement, Star Struck will produce a catalog containing authentic and
replica jerseys, caps , T-shirts, scarves, and equipment, as well as other
apparel and collectibles. The catalog is also intended to serve as a reference
guide and will contain MLS league and player information. All merchandise
contained in the catalog will be featured at MLS's e-commerce site, MLSgear.com.
------------
Star Struck, Inc. will also act as a fulfillment house for MLS merchandise sold
at this web site.
Over the past several years the Company has made various acquisitions. Some of
these have proven successful, while others have not. Management's objective is
to focus its efforts on sports apparel, the business which has shown steady
growth and has the greatest potential.
Very truly yours,
Kenneth Karlan
President
March 24, 2000
- --------------------------------------------------------------------------------
one
<PAGE>
Star Struck, Ltd.
Selected Financial Information
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------- ----------- ----------- -----------
December 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------ ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales $ 11,568,000 $ 12,277,000 $ 12,389,000 $ 13,379,000 $ 13,094,000
Loss from continuing
operations before income
taxes and extraordinary item $ (386,000) $ (41,000) $ (215,000) $ (55,000) $ (36,000)
Loss from continuing
operations after taxes $ (386,000) $ (41,000) $ (215,000) $ (55,000) $ (42,000)
Net loss $ (959,000) $ (360,000) $ (475,000) $ (2,127,000) $ (707,000)
Basic and diluted loss
per common share $ (.47) $ (.18) $ (.23) $ (1.05) $ (.35)
Shareholders' investment $ 2,073,000 $ 3,032,000 $ 3,392,000 $ 3,871,000 $ 6,001,000
per common share $ 1.02 $ 1.50 $ 1.67 $ 1.91 $ 2.96
- ------------------------------------------------ ----------- ------------ ------------ ------------ -----------
Total assets $ 6,684,000 $ 7,332,000 $ 7,147,000 $ 8,463,000 $ 11,537,000
- ------------------------------------------------ ----------- ------------ ------------ ------------ -----------
Long-term debt $ 2,228,000 $ 2,193,000 $ 899,000 $ 1,103,000 $ 1,333,000
- ------------------------------------------------ ----------- ------------ ------------ ------------ -----------
Cash dividends per share $ .00 $ .00 $ .00 $ .00 $ .00
- ------------------------------------------------ ----------- ------------ ------------ ------------ -----------
</TABLE>
- --------------------------------------------------------------------------------
two
<PAGE>
Star Struck, Ltd.
Consolidated Statements of Income
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------- ---------- -----------
For the years ended December 31, 1999 1998
- ------------------------------------------------- ---------- -----------
<S> <C> <C>
NET SALES $ 11,568,000 $ 12,277,000
Cost of Sales 5,711,000 6,599,000
- ------------------------------------------------- ---------- -----------
Gross Profit on Sales 5,857,000 5,678,000
- ------------------------------------------------- ---------- -----------
OPERATING EXPENSES
Selling, General and Administrative 5,674,000 5,232,000
Depreciation and Amortization 339,000 303,000
- ------------------------------------------------- ---------- -----------
Total Operating Expenses 6,013,000 5,535,000
---------- -----------
Operating Profit (Loss) (156,000) 143,000
- ------------------------------------------------- ---------- -----------
OTHER INCOME (EXPENSE)
Interest Expense, Net (230,000) (184,000)
- ------------------------------------------------- ---------- -----------
- ------------------------------------------------- ---------- -----------
Loss from Continuing Operations Before Income (386,000) (41,000)
Taxes
Provision for Income Taxes (Note 6) ---- ----
- ------------------------------------------------- ---------- -----------
Loss from Continuing Operations (386,000) (41,000)
- ------------------------------------------------- ---------- -----------
Loss from Discontinued Operations (573,000) (319,000)
- ------------------------------------------------- ---------- -----------
Net Loss $ (959,000) $ (360,000)
- ------------------------------------------------- ---------- -----------
LOSS PER COMMON SHARE (Note 1)
Basic and Diluted:
Loss per Common Share
Loss from Continuing Operations $ (.19) $ (.02)
- ------------------------------------------------- ---------- -----------
Loss From Discontinued Operations (.28) (.16)
- ------------------------------------------------- ---------- -----------
Net Loss per Common Share $ (.47) $ (.18)
- ------------------------------------------------- ---------- -----------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
Basic and Diluted 2,026,000 2,026,000
- ------------------------------------------------- ---------- -----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
- --------------------------------------------------------------------------------
three
<PAGE>
Star Struck, Ltd.
Consolidated Balance Sheet
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------ --------------
December 31, 1999
- ------------------------------------------------------------------------------------ --------------
ASSETS
Current Assets:
<S> <C>
Cash $ 56,000
Accounts Receivable, Less Allowance for Doubtful Accounts of $108,000 1,023,000
Inventories (Note 1) 3,353,000
Prepaid Expenses and Other Current Assets 331,000
Assets Held for Sale 40,000
- ------------------------------------------------------------------------------------ --------------
Total Current Assets 4,803,000
- ------------------------------------------------------------------------------------ --------------
Property, plant and equipment, at cost (Note 1):
Land, Building and Improvements 1,235,000
Machinery and Equipment 866,000
- ------------------------------------------------------------------------------------ --------------
2,101,000
Less - Accumulated Depreciation 764,000
- ------------------------------------------------------------------------------------ --------------
1,337,000
==================================================================================== ==============
Intangible Assets and Goodwill, Net (Note 1) 544,000
==================================================================================== ==============
Total Assets 6,684,000
==================================================================================== ==============
LIABILITIES & SHAREHOLDERS' INVESTMENT
Current Liabilities:
Accounts Payable and Accrued Expenses (Note 2) 2,017,000
Current Portion of Borrowings Under Lines of Credit (Notes 4) 225,000
Current Portion of Notes Payable (Note 5) 141,000
- ------------------------------------------------------------------------------------ --------------
Total Current Liabilities 2,383,000
- ------------------------------------------------------------------------------------ --------------
Other Liabilities:
Borrowings Under Lines of Credit (Note 4) 1,612,000
Notes Payable (Note 5) 616,000
==================================================================================== ==============
Total Liabilities 4,611,000
==================================================================================== ==============
Commitments and Contingencies (Notes 10 and 11)
==================================================================================== =============
Shareholders' Investment:
Preferred Shares, $1 Par Value - 500,000 Shares Authorized; None Issued and
Outstanding -------
Common Shares, $1 Par Value - 5,000,000 Shares Authorized; 2,025,899 Issued
and Outstanding 2,026,000
Paid in Surplus 4,344,000
Accumulated Deficit (4,297,000)
==================================================================================== ===============
Total Shareholders' Investment 2,073,000
==================================================================================== ==============
Total Liabilities and Shareholders' Investment $ 6,684,000
==================================================================================== ==============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this balance sheet.
- --------------------------------------------------------------------------------
four
<PAGE>
Star Struck, Ltd.
Consolidated Statements of Shareholders' Investment
- --------------------------------------------------------------------------------
- ----------------------------------------- ---------- ----------
For the years ended December 31, 1999 1998
- ----------------------------------------- ---------- ----------
COMMON SHARES
Balance at beginning of year $ 2,026,000 $ 2,026,000
Changes during year ------- -------
========================================= ========== ==========
Balance at End of Year $ 2,026,000 $ 2,026,000
========================================= ========== ==========
PAID IN SURPLUS
Balance at beginning of year $ 4,344,000 $ 4,344,000
Changes during year ------- -------
========================================= ========== ==========
Balance at End of Year $ 4,344,000 $ 4,344,000
========================================= ========== ==========
ACCUMULATED DEFICIT
Balance at beginning of year $(3,338,000) $(2,978,000)
Net Loss (959,000) (360,000)
========================================= ========== ==========
Balance at End of Year $(4,297,000) $(3,338,000)
========================================= ========== ==========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
- --------------------------------------------------------------------------------
five
<PAGE>
Star Struck, Ltd.
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------- ------------ -------------
For the years ended December 31, 1999 1998
- --------------------------------------------------------------------------------- ------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Loss $ (959,000) $ (360,000)
Adjustments to reconcile net loss
to cash provided by (used in) operating activities:
Bad debt expense ------ 67,000
Depreciation and amortization 339,000 303,000
Loss from discontinued operations 573,000 319,000
Changes in operating assets and liabilities:
Accounts receivable 375,000 (75,000)
Inventories (475,000) (253,000)
Prepaid expenses and other current assets (62,000) (60,000)
Accounts payable and accrued expenses 571,000 (8,000)
Deferred contract fees (76,000) ------
- --------------------------------------------------------------------------------- ------------ -------------
Total Adjustments 1,245,000 293,000
- --------------------------------------------------------------------------------- ------------ -------------
Net Cash Provided By (Used In) Operating Activities 286,000 (67,000)
================================================================================= ============ =============
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Fixed Assets (42,000) (230,000)
================================================================================= ============ =============
Net Cash Used In Investing Activities (42,000) (230,000)
================================================================================= ============ =============
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Notes Payable ------- 92,000
Proceeds from Lines of Credit 172,000 540,000
Payment of Deferred Financing Fees ------- (29,000)
Payment on Notes Payable (236,000) (212,000)
================================================================================= ============ =============
Net Cash Provided By (Used In) Financing Activities (64,000) 391,000
================================================================================= ============ =============
Net Cash Used In Discontinued Operations (145,000) (164,000)
================================================================================= ============ =============
Net Increase (Decrease) in Cash 35,000 (70,000)
================================================================================= ============ =============
Cash at Beginning of Year 21,000 91,000
================================================================================= ============ ==============
Cash at End of Year $ 56,000 $ 21,000
================================================================================= ============ ==============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
- --------------------------------------------------------------------------------
six
<PAGE>
Star Struck, Ltd.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. Summary of Major Significant Policies:
Principles of Consolidation
The consolidated financial statements include the accounts of Star Struck, Ltd.
(the "Company" or "SSL") and its 100% owned subsidiary, Star Struck, Inc.
("SSI"). The RCM, Inc. ("RCM") business is accounted for as a discontinued
operation (See Note 7). All intercompany transactions have been eliminated.
Utilization of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current
year presentation.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with an original maturity of
three months or less to be cash equivalents. Cash equivalents consist primarily
of overnight commercial paper and are stated at cost, which approximates market,
and are considered available for sale. At December 31, 1999, the Company had no
cash equivalents.
SFAS No. 115, "Accounting of Certain Investments in Debt and Equity Securities,"
requires the classification of debt and equity securities based on whether the
securities will be held to maturity, are considered trading securities or are
available-for-sale. Classification within these categories may require the
securities to be reported at their fair market value with unrealized gains and
losses included either in current earnings or reported as a separate component
of shareholders' investment.
Inventories
Inventories, with the exception of gold, are stated at the lower of cost
(first-in, first-out) or market. Gold inventory (approximately $276,000 at
December 31, 1999) is valued at market. Inventories consist principally of
finished goods.
Property, Plant and Equipment
The Company provides for depreciation generally using the straight-line method
for financial reporting and an accelerated method for income tax purposes.
Estimated useful lives are as follows:
Assets Life
- ------ ----
Office Equipment 5-7 Years
Machinery and Equipment 7 Years
Building and Improvements 31.5-39 Years
Repair and maintenance costs are expensed as incurred. Renewals and betterments
are capitalized. Upon retirement or other disposition of property, the cost and
related depreciation or amortization are removed from the accounts. Gains and
losses on such retirements are included in income.
Income Taxes
Income taxes have been provided using the liability method in accordance with
Financial Accounting Standards Board ("FASB") Statement No. 109, "Accounting for
Income Taxes."
Advertising Costs
The Company expenses the costs of advertising at the initial time of
advertisement, except for those costs related to direct response advertising
through catalog mailings. Direct response advertising costs, consisting
primarily of catalog preparation, paper and printing, are amortized over the
period following the mailing of the catalog during which the benefits are
expected. Sports apparel catalog expenses are amortized over the five month
period following the mailing, while battery and watch strap expenses are
amortized over three months.
Fair Value of Financial Instruments
The fair value of notes payable outstanding is estimated by discounting the
future cash flows using the current rates offered by lenders for similar
borrowings with similar credit ratings. The carrying amounts of the accounts
receivable and debt approximate their fair value.
Earnings/(Loss) Per Common Share
In accordance with SFAS No. 128, net earnings (loss) per common share amounts
("basic EPS") were computed by dividing net earnings (loss) by the weighted
average number of common shares outstanding and excluded any potential dilution.
Net earnings (loss) per common share amounts assuming dilution ("diluted EPS")
were computed by reflecting potential dilution from the exercise of stock
options.
Revenue Recognition
Revenue is recognized upon shipment of merchandise to customers net of
applicable provisions for discounts and allowances for returns based on Company
estimates. The Company also provides for its estimate of bad debts at the time
of sale as selling, general and administrative expenses.
Amortization of Intangibles
Goodwill is being amortized on a straight-line basis over fifteen, twenty, or
forty years. Subsequent to its acquisitions, the Company continually evaluates
whether later events and circumstances have occurred that indicate the remaining
estimated useful life of goodwill may warrant revision or that the remaining
balance of goodwill may not be recoverable. When factors indicate that goodwill
should be evaluated for possible impairment, the Company uses an estimate of the
related business segments undiscounted net income over the remaining life of the
goodwill in measuring whether the goodwill is recoverable.
Major components of intangibles are as follows:
Amortization
Amounts in thousands Period (Years) 1999
- --------------------------------- -------------- --------
Non-compete agreements 7-10 $ 981
Other intangibles and goodwill 3-40 375
- --------------------------------- -------------- --------
1,356
Accumulated amortization 812
- --------------------------------- -------------- --------
$ 544
========
- --------------------------------------------------------------------------------
seven
<PAGE>
Star Struck, Ltd.
Notes to Consolidated Financial Statements,Continued
- --------------------------------------------------------------------------------
Stock Options
The Company currently follows the provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB 25"), which
requires compensation expense for the Company's options to be recognized only if
the market price of the underlying stock exceeds the exercise price on the date
of the grant.
As permitted, the Company has adopted the disclosure-only requirements of SFAS
No. 123, "Accounting for Stock Based Compensation," for stock option grants to
employees and, accordingly, has made all the required proforma disclosures for
the years ended December 31, 1999 and 1998 in Note 3.
Comprehensive Income
The Company complies with the provisions of SFAS No. 130, "Reporting
Comprehensive Income," which requires companies to report all changes in equity
during a period, except those resulting from investment by owners and
distributions to owners, for the period in which they are recognized.
Comprehensive income is the total of net income and all other nonowner changes
in equity (or other comprehensive income) such as unrealized gains or loses on
securities classified as available-for-sale, foreign currency translation
adjustments and minimum pension liability adjustments. Comprehensive and other
comprehensive income must be reported on the face of annual financial
statements. The Company's operations did not give rise to any material items
includable in comprehensive income which were not already in net income for the
years ended December 31, 1999 and 1998. Accordingly, the Company's comprehensive
income is the same as its net income for all periods presented.
Recent Accounting Pronouncements
In June 1999, the Financial Accounting Standards Boards issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of SFAS No. 133." The statement defers, for one year, the
effective date of SFAS No. 133, which was issued in June 1998. The statement
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability and
be measured at its fair value. Additionally, any changes in the derivative's
fair value are to be recognized currently in earnings, unless specific hedge
accounting criteria are met. This statement is effective for fiscal years
beginning after June 15, 2000. The Company does not believe that adoption of
this statement will have a material impact on its consolidated financial
statements.
2. Accounts Payable and Accrued Expenses
A breakdown of significant accounts payable and accrued expenses at December 31,
1999, is as follows:
- -------------------------------- -------------
Amounts in thousands 1999
- -------------------------------- -------------
Accounts payable 1,217
Accrued expenses 800
- -------------------------------- -------------
$ 2,017
=============
3. Stock Options
The 1992 Incentive Stock Option Plan of Star Struck Ltd. is a qualified plan
which reserved 100,000 shares of the Company's unissued common stock for
issuance to officers and salaried employees at option prices not less than 100%
of the fair market value on the date of grant. Options are exercisable one year
after the date of grant and expire five years from the date of grant.
After a one year waiting period, forty percent of the options granted may be
exercised in the second year, and twenty percent in each of the next three
years.
The Company accounts for all plans under APB Opinion No. 25. No options were
granted in 1999 and 1998. Had compensation cost for these plans been determined
in accordance with SFAS 123, the Company's proforma net loss and EPS would be
the same as the reported amounts.
Under SFAS 123, the fair value of each option is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1996: (1) expected life of option of eight years;
(2) dividend yield of 0%; (3) expected volatility of 46%; and (4) risk-free
interest rate of 6.87%.
Because SFAS 123 method of accounting has not been applied to options granted
prior to January 1, 1995, the resulting pro-forma compensation cost may not be
representative of that to be expected in future years.
Transactions under the Incentive Stock Option Plan during 1999 and 1998 were as
follows:
Year ended December 31, 1999 1998
- ----------------------------------------- ---------------- ----------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
- ----------------------------------------- ---------------- ----------------
Options outstanding at beginning of year 5,150 5.72 9,150 4.74
Granted -- -- -- --
Exercised -- -- -- --
Terminated/Expired (1,950) 7.50 (4,000) 3.48
----- -----
Options outstanding at end of year 3,200 4.63 5,150 5.72
===== =====
Exercisable at end of year 2,560 4.63 3,870 6.08
===== ==== ===== ====
Weighted average fair value of
options granted -- -- -- --
Shares available for future grant 96,800 94,850
- -----------------------------------------
The following table summarizes information about stock options outstanding at
December 31, 1999:
Options Options
Outstanding Excercisable
- -------------- -----------------------------------------------------------
Weighted
Number Average Weighted Number Weighted
Outstanding Remaining Average Excercisable Average
at Contractual Exercise at Excercise
Exercise Price 12/31/99 Life Price 12/31/99 Price
- -------------- -----------------------------------------------------------
$4.63 3,200 2.00 $4.63 2,560 $4.63
----- -----
- -------------- -----------------------------------------------------------
- --------------------------------------------------------------------------------
eight
<PAGE>
Star Struck, Ltd.
Notes to Consolidated Financial Statements,Continued
4. Borrowings Under Lines of Credit
The Company has $2,000,000 available in a line of credit agreement with one of
its banks. This agreement extends through October 2001 and bears interest at the
prime rate plus one percent (9.50% at December 31, 1999). The Company's accounts
receivable and a portion of its inventory have been pledged as collateral for
this line of credit. The agreement contains certain financial covenants,
including the requirement for SSI to maintain a minimum debt service coverage
ratio. SSI did not comply with this covenant at December 31, 1999, and
accordingly, received a waiver with respect to such covenant from its bank
lender. As of December 31, 1999, the Company had $1,612,000 outstanding under
this line of credit.
In addition to the amount outstanding under the above referenced line of credit
agreement, the Company has guaranteed $225,000 outstanding under a line of
credit agreement entered into by RC Manufacturing, Inc. The repayment terms for
this indebtedness have yet to be determined.
5. Notes Payable
The Company's outstanding long-term debt as of December 31, 1999, is summarized
as follows:
- --------------------------------------------------------------------------------
1999
- --------------------------------------------------------------------------------
Variable rate mortgage payable, due in monthly
installments to 2003; the current annual rate is
9.25%. The Company's building has been pledged
as collateral. $ 623,000
Promissory note payable, due in monthly
installments through 2000. Interest imputed at 6%. 74,000
.9% promissory note payable, due in monthly
installments through 2002. 17,000
12.24% promissory note payable due in monthly
installments through 2001. 43,000
---------------
757,000
- --------------------------------------------------------------------------------
Less Current Portion 141,000
- --------------------------------------------------------------------------------
$ 616,000
- --------------------------------------------------------------------------------
Scheduled maturities of all long-term debt instruments at December 31, 1999 are
as follows:
2000 $ 141,000
2001 69,000
2002 44,000
2003 503,000
------------
$ 757,000
------------
Total interest expense was $230,000 and $187,000 in 1999 and 1998, respectively.
Land, building and improvements include a building with a cost of $674,000,
which has a $623,000 mortgage balance at December 31, 1999.
6. Income Taxes
Deferred income taxes result from temporary differences in the recording of
certain expenses for financial reporting and income tax purposes. The source of
these differences and the tax effects are as follows:
- --------------------------------------- -------- --------
Amounts in thousands 1999 1998
- --------------------------------------- -------- --------
Net operating loss carryforward $ 1,763 $ 1,465
Excess of financial amortization over
tax amortization 116 94
Bad debt reserves 32 32
-------- --------
$ 1,911 $ 1,591
Valuation Allowance (1,911) (1,591)
- --------------------------------------- -------- --------
$ 0 $ 0
Reconciliations between actual tax expense and the amount computed by applying
the statutory U.S. Federal Income tax rate to income (loss) from continuing
operations are as follows:
1999 1998
- --------------------------------------- ----------------- -----------------
% of % of
Pre-Tax Pre-Tax
Amounts in thousands Amount Income Amount Income
- --------------------------------------- ----------------- -----------------
Tax at statutory
Federal Income tax rate $ (131) (34.0%) $ (122) (34.0%)
Current year addition
to Net Operating Loss 131 34.0 122 34.0
State and local taxes, and other 0 0 0 0
- --------------------------------------- ----------------- -----------------
$ 0 0 $ 0 0
At December 31, 1999, for federal income tax reporting purposes, the Company had
approximately $5,186,000 of operating loss carryforwards. The tax operating loss
carryforwards will begin expiring in 2005.
7. Discontinued Operations
In September 1999, the Company's 80% owned subsidiary, RCM, discontinued its
operations. The net loss from the discontinuance of RCM of $573,000 has been
recorded as discontinued operations in the 1999 consolidated statement of
income. All periods presented have been restated to reflect the discontinued
operations.
In 1999 and 1998 net sales for RCM were $523,000 and $793,000, respectively.
- -------------------------------------------------------------------------------
nine
<PAGE>
Star Struck, Ltd.
Notes to Consolidated Financial Statements,Continued
8. Business Segments
The Company's continuing operations by business segment for the years ended
December 31, 1999 and 1998 were as follows:
Battery & Watch Strap Sports Apparel
1999 Distribution Distribution Total
- --------------------------------------------------------------------------------
Net Sales $ 9,148,000 $ 2,420,000 $ 11,568,000
Operating Loss $ (40,000) $ (116,000) $ (156,000)
Identifiable Assets $ 6,684,000
Depreciation
& Amortization $ 339,000
Capital Expenditures $ 42,000
Battery & Watch Strap Sports Apparel
1998 Distribution Distribution Total
- --------------------------------------------------------------------------------
Net Sales $ 10,638,000 $ 1,639,000 $ 12,277,000
Operating Profit (Loss) $ 267,000 $ (124,000) $ 143,000
Identifiable Assets $ 7,332,000
Depreciation
& Amortization $ 303,000
Capital Expenditures $ 230,000
The majority of the customers in the battery and watch strap distribution
business segment are small retail jewelers nationwide. The sports apparel
distribution line of business sells to consumers internationally.
9. Major Customers
During 1999 and 1998, 32% and 25%, respectively, of the Company's total sales
were made to a single customer in the battery and watch strap distribution line
of business.
10. Commitments
The Company leases certain property and equipment under operating leases
expiring on various dates through 2003. Total rent expense amounted to $146,321
and $188,603 in 1999 and 1998, respectively. Aggregate future minimum rent
payments under the terms of non-cancelable leases as of December 31 are as
follows:
2000 $ 88,000
2001 81,000
2002 32,000
2003 5,000
11. Contingencies
The Company has contingent liabilities with respect to litigation and claims
arising in the ordinary course of business. In the opinion of management, such
contingent liabilities are not likely to result in any loss that would have a
material adverse effect on the Company's operating results or financial
condition.
- -------------------------------------------------------------------------------
ten
<PAGE>
Star Struck, Ltd.
Report of Independent Public Accountants
To the Shareholders of Star Struck, Ltd.:
We have audited the accompanying consolidated balance sheet of Star Struck, Ltd.
(a Delaware corporation) and subsidiaries as of December 31, 1999, and the
related consolidated statements of income, shareholders' investment and cash
flows for each of the two years in the period ending December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Star Struck, Ltd., and
subsidiaries as of December 31, 1999, and the results of their operations and
their cash flows for each of the two years in the period ending December 31,
1999, in conformity with accounting principles generally accepted in the United
States.
ARTHUR ANDERSEN LLP
New York, New York
March 6, 2000
- --------------------------------------------------------------------------------
eleven
<PAGE>
Star Struck, Ltd.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
1999
Net Sales
Net Sales By Segment
1999 1998
Segment Sales % of Total Sales % of Total
Battery & Watch Strap
Distribution 9,148,000 79.08% 10,638,000 86.65%
Sports Apparel Distribution 2,420,000 20.92% 1,639,000 13.35%
---------- ----------
Total Sales 11,568,000 12,277,000
Total sales for SSI from continuing operations in 1999 decreased 5.8% to
$11,568,000 from $12,277,000 in 1998.
SSI's battery and watch strap sales were $9,148,000 in 1999. This is a decrease
of $1,490,000, or 14%, from 1998's sales of $10,638,000. Sales decreased by
$224,000 and $407,000 in the first and second quarters, respectively, from
1998's sales for these periods. The third and fourth quarters also showed
decreases in sales of $191,000 and $668,000, respectively, from 1998's sales for
the same periods.
SSI's sports apparel sales were $2,420,000 in 1999. This is an increase of
$781,000, or 47.7%, over 1998's sales of $1,639,000. Decreased sales in the
first quarter of $86,000 from 1998's sales were offset by increased sales in the
second, third and fourth quarters of $280,000, $150,000 and $437,000,
respectively, over 1998's sales for these periods.
Gross Profit
Gross profit, as a percentage of sales, increased to 51% in 1999 from 46% in
1998. This increase can be attributable to increased sports apparel sales which
had a higher gross margin than the other product lines distributed by SSI. While
sports apparel sales accounted for only 13% of SSI's total sales in 1998, in
1999 they comprised 21% of SSI's total sales.
Selling, General and Administrative
Expenses
Selling, general and administrative expenses, as a percentage of sales,
increased to 49% in 1999 compared with 42.6% in 1998 for the Company. SSI's
expenses were 48.8% of the Company's total sales in 1999 as opposed to 42.3% of
total sales in 1998, while corporate expenses decreased from .3% of total sales
in 1998 to .2% of total sales in 1999.
Operating Income/(Loss)
Operating Income/(Loss) by Segment
1999 1998
Operating Operating
Segment Income/(Loss) Income/(Loss)
Battery & Watch Strap
Distribution (40,000) 267,000
Sports Apparel Distribution (116,000) (124,000)
Total Operating Income/(Loss) (156,000) 143,000
Operating income decreased by $299,000 from 1998's profit of $143,000 to show a
loss of ($156,000) in 1999.
Operating income in the battery and watch strap segment decreased by $307,000
from 1998's operating profit of $267,000 to show an operating loss of ($40,000).
The sports apparel operating loss decreased by $8,000 from 1998's operating loss
of ($124,000) to show an operating loss of ($116,000) in 1999.
Interest Expense
Net interest expense was $230,000 in 1999 versus $184,000 in 1998. Approximately
$153,000 in interest expense related to the borrowing on the Company's
outstanding line of credit was recorded in 1999 compared to $97,000 in 1998.
Interest on a mortgage totaled approximately $57,000 in 1999.
Net Income (Loss)
The Company showed a net loss of ($959,000), or (47(cent)) per share in 1999
compared to a net loss of ($360,000), or (18(cent)) per share in 1998. Income
from continuing operations decreased $345,000 to show a loss of ($386,000), or
(19(cent)) per share in 1999, as compared to a loss from continuing operations
of ($41,000), or (2(cent)) per share in 1998.
- --------------------------------------------------------------------------------
twelve
<PAGE>
Star Struck, Ltd.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
1998
Net Sales
Total sales for SSI from continuing operations in 1998 decreased 1% to
$12,277,000 from $12,389,000 in 1997. Increased sales in the first and fourth
quarters of 1998 of $437,000 and $166,000, respectively, over 1997's sales for
the same periods were offset by decreased sales in the second and third quarters
of 1998 of $234,000 and $481,000, respectively, from 1997's sales for these
periods.
SSI's battery and watch strap sales were $10,638,000 in 1998. This is a
decrease of $626,000, or 5.6%, from 1997's sales of $11,264,000.
SSI's sports apparel sales were $1,639,000 in 1998. This is an increase of
$514,000, or 45.7%, over 1997's sales of $1,125,000.
Gross Profit
Gross profit, as a percentage of sales, increased to 46% in 1998 from 41% in
1997. This increase can be attributable to increased sports apparel sales which
had a higher gross margin than the other product lines distributed by SSI. While
sports apparel sales accounted for only 10% of SSI's total sales in 1997, in
1998 they comprised 13% of SSI's total sales.
Selling, General and
Administrative Expenses
Selling, general and administrative expenses, as a percentage of sales,
increased to 42.6% in 1998 as compared with 39.6% in 1997 for the Company. SSI's
expenses were 42.3% of the Company's total sales in 1998 as opposed to 39.2% of
total sales in 1997, while corporate expenses decreased from .4% of total sales
in 1997 to .3% of total sales in 1998.
Operating Income (Loss)
Operating income increased by $216,000 from 1997's loss of ($73,000) to show a
profit of $143,000 in 1998.
Operating income in the battery and watch strap segment increased $334,000 from
1997's operating loss of ($67,000) to show a profit of $267,000. The sports
apparel operating loss increased by $118,000 from 1997's operating loss of
($6,000) to show an operating loss of ($124,000) in 1998.
Interest Expense
Net interest expense was $184,000 in 1998 versus $142,000 in 1997. Approximately
$97,000 in interest expense related to the borrowings on the Company's line of
credit was recorded in 1998 compared to $76,000 in 1997. Interest on a mortgage
totaled approximately $63,000 in 1998.
Net Income (Loss)
The Company showed a net loss of ($360,000) or (18(cent)) per share in 1998
compared to a net loss of ($475,000), or (23(cent)) per share in 1997. While
1997's net loss reflected a loss from discontinued operations of ($260,000), or
(13(cent)) per share, income from continuing operations increased $174,000 from
1997's loss of ($215,000) to show a loss of ($41,000).
Liquidity and Capital Resources
The net increase in cash of $35,000 is attributable to cash provided by
operating activities of $286,000, which was offset by cash used in investing
activities, financing activities, and discontinued operations of $42,000,
$64,000, and $145,000, respectively. Accounts receivable decreased $375,000, or
27.1% in 1999 from 1998's balance. Inventory increased $475,000, or 16.5%, in
1999 from that of 1998. During 1999, the Company repaid $236,000 of its
outstanding debt.
The Company has a line of credit agreement with one of its banks. The Company
has $2,000,000 available under this line, of which $1,612,000 was used at
December 31, 1999. At December 31, 1999, the Company was not in compliance with
a debt service coverage ratio contained in the agreement and received a waiver
from the bank. The Company believes it has adequate funds available to conduct
and continue its business and to repay the approximately $366,000 in long-term
and line of credit debt which will mature in 2000.
Year 2000 Compliance
The Company has overall addressed and evaluated the year 2000 issue. Date
sensitive computer programs that do not properly recognize the year 2000 could
generate incorrect data or cause a system to fail, resulting in business
interruption. Necessary changes to the Company's computer systems have been
identified and are being implemented. Costs incurred, which were immaterial
relative to the year 2000 issue, have been expensed.
The year 2000 issue is expected to affect the systems of suppliers and vendors
with which the Company interacts. There can be no assurance that any potential
year 2000 non-compliance within the systems of these other companies will not
have a material adverse effect on the Company.
- --------------------------------------------------------------------------------
thirteen
<PAGE>
Star Struck, Ltd.
Shareholder Information
- --------------------------------------------------------------------------------
Market and Dividend Information
The following table shows the quarterly per share sales price ranges of the
Company's common stock on the American Stock Exchange for 1999 and 1998. No
dividends were paid during this period. On March 13, 2000 there were 2,025,899
shares of common stock outstanding.
---------------------- ---------------------
1999 1998
- --------------- ---------- --------- --------- ---------
High Low High Low
First Quarter $ 8.750 $ 3.000 $ 3.625 $ 3.125
Second Quarter 5.813 3.125 4.125 3.500
Third Quarter 4.938 4.313 3.250 3.125
Fourth Quarter 4.750 4.125 3.500 3.000
Annual Meeting
The Annual Meeting of Shareholders of Star Struck, Ltd. will be held on May 2,
2000.
Availability of Form 10-KSB
A copy of Star Struck, Ltd.'s 1999 Annual Report to the Securities and Exchange
Commission Form 10-KSB will be furnished without charge to shareholders upon
written request to the Corporate Secretary.
Capital Stock Listing
American Stock Exchange Symbol: KAP
Transfer Agent and Registrar
Harris Trust and Savings Bank, Chicago
Auditors
Arthur Andersen LLP, New York
- --------------------------------------------------------------------------------
fourteen
<PAGE>
Star Struck, Ltd.
Officers and Directors
Lawrence J.Goldstein
Vice President and Director; General
Partner, Santa Monica Partners
Kenneth Karlan
President and Director
Robert J.Morris
Director; President of Dunhill
Personnel of Manhattan
Peter Nisselson
Chairman of the Board and Director
Arthur Salzfass
Director; President, Rutledge Books, Inc.
Keith Sessler
Vice President and Director
Michael J.Sweedler
Director; Partner, Darby and Darby,
P.C.
- --------------------------------------------------------------------------------
fifteen
<PAGE>
Star Struck, Ltd.
1865 Palmer Avenue
Larchmont, NY 10538
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STAR STRUCK
LTD.'S ANNUAL REPORT TO STOCKHOLDERS FOR THE PERIOD ENDED DECEMBER 31, 1999.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 56,000 0
<SECURITIES> 0 0
<RECEIVABLES> 1,131,000 0
<ALLOWANCES> 108,000 0
<INVENTORY> 3,353,000 0
<CURRENT-ASSETS> 4,803,000 0
<PP&E> 2,101,000 0
<DEPRECIATION> 764,000 0
<TOTAL-ASSETS> 6,684,000 0
<CURRENT-LIABILITIES> 2,383,000 0
<BONDS> 0 0
0 0
0 0
<COMMON> 2,026,000 0
<OTHER-SE> 47,000 0
<TOTAL-LIABILITY-AND-EQUITY> 6,684,000 0
<SALES> 11,568,000 12,277,000
<TOTAL-REVENUES> 11,568,000 12,277,000
<CGS> 5,711,000 6,599,000
<TOTAL-COSTS> 6,013,000 5,535,000
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 230,000 184,000
<INCOME-PRETAX> (386,000) (41,000)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (386,000) (41,000)
<DISCONTINUED> (573,000) (319,000)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (959,000) (360,000)
<EPS-BASIC> (.47) (.18)
<EPS-DILUTED> (.47) (.18)
</TABLE>
