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 March 31, 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
6cified 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
May 12, 2000:
Common Stock 13,020,195 shares
<PAGE>
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Consolidated Condensed Balance Sheets-
March 31, 2000 and December 31, 1999 1
Consolidated Condensed Statements of Operations-
Three Months Ended March 31, 2000 and 1999 3
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 2000 and 1999 4
Notes to Consolidated Condensed Financial
Statements 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. Other Information 9
Signatures 10
<PAGE>
PART I. FINANCIAL INFORMATION
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
March 31, December 31,
2000 1999
--------- -------
ASSETS (unaudited) *
Current assets
Cash $ 79 $ 97
Accounts receivable, net 15,507 10,108
Inventory (finished goods) 26,060 22,554
Prepaid expenses and other current assets 550 51
----------- ---------
Total current assets 42,196 32,810
--------- ---------
Property, plant and equipment, at cost 1,419 1,311
Less accumulated depreciation (442) (369)
---------- ---------
977 942
----------- ---------
Other assets 76 76
----------- ---------
$ 43,249 $ 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)
March 31, December 31,
2000 1999
---------- --------
(unaudited) *
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings $ 21,029 $ 16,324
Accounts payable and accrued expenses 15,790 11,274
------- --------
Total current liabilities 36,819 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 (6,289) (6,489)
-------- ---------
Total stockholders' equity 1,430 1,230
-------- ----------
$ 43,249 $ 33,828
======== ========
* The Consolidated Condensed Balance Sheet as of December 31, 1998 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)
Three months ended
March 31,
2000 1999
---------- -------
Sales $ 24,038 $ 21,160
Cost of goods sold 19,914 17,892
--------- ----------
Gross margin 4,124 3,268
Selling, general and
administrative expenses (3,267) (2,553)
Management fee to GP Strategies (30) (30)
Interest expense (494) (422)
----------- ----------
Income before income taxes 333 263
Income tax expense (133) (105)
---------- ---------
Net income $ 200 $ 158
========== =========
Net income per share
Basic $ .02 $ .01
----------- ----------
Diluted .01 .01
----------- ----------
See accompanying notes to the consolidated financial statements.
<PAGE>
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three months
ended March 31,
------------------
2000 1999
----- ----
Cash flows from operating activities:
Net income $ 200 $ 158
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 73 42
Changes in other operating items:
Accounts receivable, trade (5,399) (3,751)
Inventory (3,506) (1,338)
Prepaid expenses and other current assets (499) (175)
Accounts payable and accrued expenses 4,516 4,386
--------- --------
Net cash used in operating activities (4,615) (678)
--------- --------
Cash flows from investing activities:
Additions to property plant and equipment (108) (33)
---------- --------
Cash flows from financing activities:
Net proceeds from short-term borrowings 4,705 680
--------- --------
Net decrease in cash (18) (31)
Cash at beginning of period 97 119
--------- --------
Cash at end of period $ 79 $ 88
========= ========
Supplemental disclosures of cash flow information:
Cash paid during the periods for:
Interest $ 394 $ 322
========= =========
Income taxes $ 267 $ 68
========= =========
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 March 31, 2000, and the results of its
operations, changes in stockholders' equity and cash flows for the three months
then ended. The results of operations for the three months ended March 31, 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 the Company'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 periods ended March 31, 2000 and 1999
are as follows (in thousands, except per share amounts):
Three months
ended March 31,
2000 1999
---- ----
Basic EPS
Net income $ 200 $ 158
Weighted average shares
outstanding 13,020 13,020
-------- -------
Basic earnings per share $ .02 $ .01
========== =========
Diluted EPS
Net income $ 200 $ 158
Weighted average shares
outstanding 13,020 13,020
Dilutive effect of stock options
and warrants 1,004 907
--------- ----------
Weighted average shares
outstanding, diluted 14,024 13,927
--------- --------
Diluted earnings per share $ .01 $ .01
========== ==========
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 potential dilutive 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 $333,000 for the quarter ended
March 31, 2000 as compared to income before income taxes of $263,000 for the
quarter ended March 31, 1999. The increased income is the result of increased
sales and gross margin, partially offset by increased selling, general and
administrative expenses.
Sales
The Company had sales of $24,038,000 for the three months ended March 31, 2000,
compared to sales of $21,160,000 for the three months ended March 31, 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 by $856,000 to $4,124,000 or 17.2% of sales for the
quarter ended March 31, 2000, as compared to $3,268,000 or 15.4% of sales for
the quarter ended March 31, 1999. The increased gross margin was the result of
the increased sales volume generated by the Company during the first quarter of
2000, as well as increased gross margin percentage for the period. The increased
gross margin percentage was due to increased operating and purchasing
efficiencies during the first quarter of 2000.
Selling, general and administrative expense
The Company had Selling, general and administrative (SG&A) expense of $3,267,000
for the three months ended March 31, 2000, compared to $2,553,000 for the three
months ended March 31,1999. The increased SG&A expense in 2000 is attributable
to increased selling and delivery expenses resulting from the increased sales
volume, 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 $494,000 for the three months ended March
31, 2000, compared to interest expense of $422,000 for the three months ended
<PAGE>
March 31,1999. 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 March 31, 2000 the Company had cash of $79,000. 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 March 31, 2000, the Company had borrowed $21,029,000 and
had $1,937,000 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.
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
March 31, 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: May 12, 2000 BY: Richard T. Grad
President
DATE: May 12, 2000 BY: Cynthia Krugman
Vice President
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<NAME> FIVE STAR PRODUCTS, INC.
<S> <C>
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