UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarter ended September 30, 2000
or
[ ] 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: 033-78252
FIVE STAR PRODUCTS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3729186
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 West 57th Street, New York, NY 10019
(Address of principal executive offices) (Zip code)
(212) 230-9500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange act of 1934 during
the preceding 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______
---------
Number of shares outstanding of each of issuer's classes of common stock as of
November 7, 2000:
Common Stock 13,020,371 shares
<PAGE>
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Consolidated Condensed Balance Sheets -
September 30, 2000 and December 31, 1999 1
Consolidated Condensed Statements of Operations-
Three Months and Nine Months Ended September 30,
2000 and 1999 3
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended September 30, 2000 and 1999 4
Notes to Consolidated Condensed Financial
Statements 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Qualification Relating to Financial Information 8
Part II. Other Information 9
Signatures 10
<PAGE>
PART I. FINANCIAL INFORMATION
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
September 30, December 31,
2000 1999
---------- -------
ASSETS (unaudited) *
Current assets
Cash $ 56 $ 97
Accounts receivable, net 13,894 10,108
Inventory (finished goods) 22,333 22,554
Prepaid expenses and other current assets 269 51
----------- ----------
Total current assets 36,552 32,810
--------- --------
Property, plant and equipment, at cost 1,559 1,311
Less accumulated depreciation (593) (369)
---------- ----------
966 942
----------- ----------
Other assets 78 76
----------- -----------
$ 37,596 $ 33,828
======== ========
* The Consolidated Condensed Balance Sheet as of December 31, 1999 has been
summarized from the Company's audited Consolidated Balance Sheet as of that
date.
See accompanying notes to the consolidated condensed financial statements.
<PAGE>
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Continued)
(in thousands)
September 30, December 31,
2000 1999
--------- --------
(unaudited) *
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings $ 18,215 $ 16,324
Accounts payable and accrued expenses 12,641 11,274
------- --------
Total current liabilities 30,856 27,598
------- --------
Long-term debt to GP Strategies 5,000 5,000
-------- ---------
Stockholders' equity
Common stock 130 130
Capital in excess of par value 7,589 7,589
Accumulated deficit (5,979) (6,489)
--------- ---------
Total stockholders' equity 1,740 1,230
--------- ---------
$ 37,596 $ 33,828
======== ========
* The Consolidated Condensed Balance Sheet as of December 31, 1999 has been
summarized from the Company's audited Consolidated Balance sheet as of that
date.
See accompanying notes to the consolidated condensed financial statements.
<PAGE>
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Nine Months ended
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Sales $ 24,931 $ 21,241 $ 73,811 $ 65,527
Cost of goods sold 20,714 17,406 60,883 54,411
-------- -------- -------- ---------
Gross margin 4,217 3,835 12,928 11,116
Selling, general and administrative
expenses (3,496) (3,036) (10,290) (8,917)
Management fee to GP Strategies (30) (30) (90) (90)
Interest expense (581) (457) (1,698) (1,249)
--------- ---------- --------- --------
Income before income taxes 110 312 850 860
Income tax expense (40) (141) (340) (386)
--------- ------- --------- --------
Net income $ 70 $ 171 $ 510 $ 474
========= ========= ======== ========
Income per share
Basic net income per share $ .01 $ .01 $ .04 $ .04
========= ========== ========= =========
Diluted net income per share $ .01 $ .01 $ .04 $ .03
========= ========== ========= =========
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
<PAGE>
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine months
ended September 30,
2000 1999
-------- ----
Cash flows from operations:
<S> <C> <C>
Net income $ 510 $ 474
Adjustments to reconcile net income
to net cash (used in) provided by operating activities:
Depreciation and amortization 224 133
Changes in other operating items:
Accounts receivable (3,786) (2,368)
Inventory 221 1,539
Prepaid expenses and other current assets (218) (26)
Accounts payable and accrued expenses 1,367 1,014
--------- --------
Net cash (used in) provided by operations (1,682) 766
--------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment (248) (217)
Increase in other assets (2)
---------
Net cash used in investing activities (250) (217)
--------- ---------
Cash flows from financing activities:
Net proceeds from (repayments of)
short-term borrowings 1,891 (579)
--------- --------
Net cash provided by (used in) financing activities 1,891 (579)
--------- --------
Net (decrease) increase in cash (41) (30)
Cash at beginning of period 97 119
--------- ---------
Cash at end of period $ 56 $ 89
========= =========
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
<PAGE>
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of reporting
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, such statements include all adjustments (consisting only of normal
recurring items) which are considered necessary for a fair presentation of the
Company's financial position at September 30, 2000, and the results of its
operations and cash flows for the nine months then ended. The results of
operations for the quarter and nine months ended September 30, 2000 are not
necessarily indicative of the operating results for the full year. It is
suggested that these financial statements be read in conjunction with the
financial statements and related disclosures for the year ended December 31,
1999 included in Five Star Products, Inc.'s Form 10-K.
<PAGE>
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
2. Earnings per share
Earnings per share (EPS) for the quarter and nine months ended
September 30, 2000 and 1999 are as follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
2000 1999 2000 1999
---- ---- ---- ----
Basic EPS
<S> <C> <C> <C> <C>
Net income $ 70 $ 171 $ 510 $ 474
--------- --------- -------- --------
Weighted average shares
Outstanding 13,020 13,020 13,020 13,020
------- -------- ------- -------
Basic earnings per share $ .01 $ .01 $ .04 $ .04
--------- --------- --------- ---------
Diluted EPS
Net income $ 70 $ 171 $ 510 $ 474
--------- -------- ------- -------
Weighted average shares
outstanding 13,020 13,020 13,020 13,020
Dilutive effect of stock options
and warrants 633 825 593 860
--------- -------- --------- ---------
Weighted average shares
outstanding, diluted 13,653 13,845 13,613 13,888
-------- -------- ------- -------
Diluted earnings per share $ .01 $ .01 $ .04 $ .03
---------- --------- --------- --------
</TABLE>
Basic earnings per share are based upon the weighted average number of
common shares outstanding during the period. Diluted earnings per share are
based upon the weighted average number of common shares outstanding during the
period, assuming the issuance of common shares for all dilutive potential common
shares outstanding.
<PAGE>
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The Company had income before income taxes of $110,000 and $850,000 for the
quarter and nine months ended September 30, 2000 as compared to income before
income taxes of $312,000 and $860,000 for the quarter and nine months ended
September 30, 1999. The slight decrease in income before taxes for the nine
months is the result of increased sales and gross margin, which was more than
offset by increased selling, general and administrative expenses, and increased
interest expense. The decrease in income before income taxes for the quarter
ended September 30, 2000 of $202,000 was due to increased general,
administrative and interest expenses described below.
Sales
The Company had sales of $24,931,000 and $73,811,000 for the quarter and nine
months ended September 30, 2000, compared to sales of $21,241,000 and
$65,527,000 for the quarter and nine months ended September 30, 1999. The
increased sales were attributable to the expansion of Five Star's sales
territory through the addition of an established, dedicated sales force
servicing the Mid Atlantic States, as far south as Virginia, as well as internal
growth within the Company's established customer base.
Gross margin
Gross margin increased to $4,217,000 or 16.9% and $12,928,000 or 17.5% of net
sales for the quarter and nine months ended September 30, 2000, as compared to
$3,835,000 or 18.1% of net sales and $11,116,000 or 17.0% of net sales for the
quarter and nine months ended September 30, 1999. The increased gross margin was
the result of the increased sales volume generated by the Company during the
nine months of 2000. The increased gross margin percentage for the nine months
was due to increased operating and purchasing efficiencies during the first six
months of 2000 partially offset by rising warehouse costs in the third quarter
of 2000.
Selling, general and administrative expense
The Company had Selling, general and administrative (SG&A) expense of $3,496,000
and $10,290,000 for the quarter and nine months ended September 30, 2000,
compared to $3,036,000 and $8,917,000 for the quarter and nine months ended
September 30,1999. The increased SG&A expense in 2000 is attributable to
<PAGE>
increased selling and delivery expenses resulting from the increased sales
volume and the increase of fuel prices, as well as initial costs incurred to
integrate the new customer base and sales force in the Mid Atlantic States.
Interest expense
The Company had interest expense of $581,000 and $1,698,000 for the quarter and
nine months ended September 30, 2000, compared to interest expense of $457,000
and $1,249,000 for the quarter and nine months ended September 30,1999. The
increased interest expense in 2000 is the result of both increased short-term
borrowings, used to finance increased levels of inventory, and increased
interest rates.
Liquidity and Capital Resources
At September 30, 2000 the Company had cash of approximately $56,000. Five Star
has a $25,000,000 loan and security agreement with a group of banks. The credit
facility allows Five Star to borrow up to 50% of eligible inventory and up to
80% of eligible accounts receivable. At September 30, 2000, the Company had
borrowed $18,215,000 and had $2,151,000 of additional availability under the
loan agreement.
The Company believes that cash generated from operations and borrowing
availability under existing credit agreements will be sufficient to fund the
working capital requirements of Five Star for at least the next twelve months.
Forward-Looking Statements
This report contains certain forward-looking statements reflecting management's
current views with respect to future events and financial performance. These
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those in the
forward-looking statements, all of which are difficult to predict and many of
which are beyond the control of the Company, but not limited to the risk that
Five Star will not achieve the projected levels of profitability and revenues,
and those risks and uncertainties detailed in the Company's periodic reports and
registration statements filed with the Securities and Exchange Commission.
<PAGE>
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
b. Reports on Form 8-K
None
<PAGE>
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
September 30, 2000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
FIVE STAR PRODUCTS, INC.
DATE: November 14, 2000 BY: Richard T. Grad
President
DATE: November 14, 2000 BY: Cynthia Krugman
Vice President
