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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
/X/ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 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
FIVE STAR PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3729186
(State of Incorporation) (I.R.S. Employer Identification No.)
9 West 57th Street, New York, NY 10019
(Address of principle executive offices) (Zip code)
Registrant's telephone number, including area code: (212) 826-8976
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers to item 405 of
Regulation S-K 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 this Form 10-K or any amendment to this
Form 10- K. /X/
As of March 12, 2001, the aggregate market value of the outstanding shares of
the Registrant's Common Stock, par value $.01 per share, held by non-affiliates
was approximately $705,135 based on the closing price of the Common Stock on the
OTC Bulletin Board, which is operated by the NASDAQ Stock Market on March 12,
2001.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 12, 2001
- ----- -----------------------------
Common Stock, par value $.01 per share 13,020,371 shares
DOCUMENTS INCORPORATED BY REFERENCE: None
TABLE OF CONTENTS
PART I Page
Item 1. Business 1
Item 2. Properties....................................................6
Item 3. Legal Proceedings.............................................7
Item 4. Submission of Matters to a Vote of Security Holders...........7
PART II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder Matters................................8
Item 6. Selected Financial Data.......................................9
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations........................10
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..13
Item 8. Financial Statements and Supplementary Data..................14
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure...................34
PART III
Item 10. Directors and Executive Officers of the Registrant..........35
Item 11. Executive Compensation......................................37
Item 12. Security Ownership of Certain Beneficial
Owners and Management................................................41
Item 13. Certain Relationships and Related Transactions..............42
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K..................................................44
PART I
Item 1. Business
(a) General Development of Business
On September 30, 1998, a newly formed wholly owned subsidiary of Five
Star Products, Inc. (the "Company"), Five Star Group, Inc. ("Five Star")
purchased from JL Distributors, Inc. ("JL"), a wholly owned subsidiary of GP
Strategies Corporation ("GP Strategies"), substantially all of the operating
assets of JL. The assets were purchased for $16,476,000 in cash and a $5,000,000
unsecured senior note. The unsecured senior note bears interest at the rate of
8% payable quarterly, with the principal due on September 30, 2003. Five Star is
a leading distributor of home decorating, hardware and finishing products in the
northeast. For the year ended December 31, 2000 Five Star had sales of
approximately $94,000,000.
The Company was organized in 1993, as a wholly owned subsidiary of GP
Strategies to initiate marketing and sales activities for generic pharmaceutical
and medical products in Russia and the Commonwealth of Independent States. NPD
Trading (USA) Inc. ("NPD Trading") was formed in January 1990 as a wholly owned
subsidiary of GP Strategies to provide consulting services to American and
Western corporations in Russia and Eastern Europe. The Company now has two
wholly owned subsidiaries, Five Star and NPD Trading. NPD Trading is currently
inactive. On August 10, 1999, the Company changed its name to Five Star
Products, Inc. from American Drug Company to reflect its new industry focus.
(b) Financial Information about Industry Segments
This item is not applicable because the Company has only a single line
of business.
(c) Narrative Description of Business
Five Star
Five Star is engaged in the wholesale distribution of home decorating,
hardware and finishing products. Five Star is composed of two strategically
located warehouse distribution centers and office locations in New Jersey and
Connecticut with over 360,000 square feet of space. All operations are
coordinated by senior management from the headquarters in New Jersey, with each
strategically located facility having its own sales force.
In January 2000, Five Star expanded its sales territory with the
addition of an established, dedicated sales force servicing the Mid Atlantic
States, as far south as Virginia. This new sales force is currently generating
revenues in excess of $7,000,000 on an annual basis. Five Star intends to
service this new territory from its 250,000 square foot East Hanover, New Jersey
facility, from which it currently services the Northeast. Five Star's ability to
service this territory from its existing New Jersey facility will enable Five
Star to leverage its fixed costs over a broader revenue base.
Five Star is a leading distributor of paint sundry items, interior and
exterior stains, brushes, rollers, caulking compounds and hardware products.
Five Star offers products from leading manufacturers such as Cabot Stain,
William Zinsser & Company, DAP, General Electric Corporation, American Tool,
USG, Stanley Tools, Minwax and Minnesota Mining Company. Five Star distributes
its products to retail dealers, which include lumber yards, "do-it yourself"
centers, hardware stores and paint stores principally in the northeast region.
It carries an extensive inventory of the products it distributes and provides
delivery, generally within 24 to 72 hours. Five Star has grown to be one of the
largest independent distributors in the Northeast by providing a complete line
of competitively priced products, timely delivery and attractive pricing and
financing terms to its customers. Much of Five Star's success can be attributed
to a continued commitment to provide customers with the highest quality service
at reasonable prices.
As one of the largest distributors of paint sundry items in the
Northeast, Five Star enjoys cost advantages and favorable supply arrangements
over the smaller distributors in the industry. This enables Five Star to compete
as a "low cost" provider. Five Star uses a fully computerized warehouse system
to track all facets of its distribution operations. Five Star has enhanced the
sophistication of its warehouse and office facilities to take full advantage of
economies of scale, speed the flow of orders and to compete as a low cost
distributor. Nearly all phases of the selling process from inventory management
to receivable collection are automated and tracked at each facility.
Furthermore, all operations are overseen by senior management at the New Jersey
facility. Five Star is able to capitalize on manufacturer discounts by
strategically timing purchases involving large quantities.
Management takes a proactive approach in coordinating all phases of the
Company's operations. For example, sales managers require all sales
representatives to call on customers once every week. Each representative
transmits their orders through Five Star's automated sales system, to the IBM
AS400 computer located at the New Jersey facility. The salesperson system
combines the ability to scan product codes in the stores and download the
information to a laptop computer for final transmission. Based on the floor plan
of each warehouse and the location of products therein, the computer designs the
most efficient pattern for the orders to be picked. The orders are then relayed
to the appropriate location and picked in the evening. The warehouse facilities
are well-maintained and skillfully organized. A bar-coded part number attached
to the racking shelves identifies the location of each of the approximately
22,000 stock keeping units (SKUs). This numbering system allows the computer to
arrange picking in the most efficient order. The products are loaded onto Five
Star's trucks in the evening in the order that they will be unloaded, and are
then delivered directly to the customers' locations.
Customers
Five Star's largest customer accounted for approximately 9.0% of its sales
in 2000 and its 10 largest customers accounted for approximately 12.5% of such
sales. All such customers are unaffiliated and Five Star does not have a
long-term contractual relationship with any of them.
Management Information System
All of Five Star's inventory control, purchasing, accounts payable and
accounts receivable are now being fully automated on an IBM AS400 computer
system. The Computer Associates Warehouse Boss System installed in 1994 located
at the New Jersey and the Connecticut facilities allows Five Star to obtain
maximum efficiency and cost savings by coordinating the processing of orders,
the selection of optimal picking routines and the tracking of inventory levels.
In addition, Five Star's software alerts buyers to purchasing needs, and
monitors payables and receivables. This system allows senior management to
closely control all phases of Five Star's operations. Five Star recently
implemented a new salesperson-order-entry system, which allows the salesman to
scan product and then download the information to a laptop. The laptop will
contain all product and customer information and will interact with the AS400.
Five Star has developed strong, long-term relationships with the leading
suppliers since its predecessor company, J. Leven was founded in 1912. As a
major distributor of paint sundry items, suppliers rely on Five Star to
introduce new products to market. Furthermore, suppliers have grown to trust
Five Star's ability to penetrate the market. As a result, Five Star is often
called on first by manufacturers to introduce new products into the marketplace.
For example, Minwax, Best Liebco and Cabot Stain have utilized Five Star to
introduce and distribute some of their new product innovations.
Purchasing
Five Star relies heavily upon its purchasing capabilities to gain a
competitive advantage relative to its competitors. Five Star's capacity to stock
the necessary products in sufficient volume and its ability to deliver them
promptly upon demand is one of the strongest components of service in the
distribution business, and is a major factor in Five Star's success.
Since retail outlets depend upon their distributor's ability to supply
products quickly upon demand, inventory is the primary working capital
investment for most distribution companies, including Five Star. Through its
strategic purchasing decisions, Five Star carries large quantities of inventory
relative to its competitors and thus can boast fill ratios of approximately 95%,
as compared to industry averages as reported in trade publications of
approximately 87%.
All purchasing decisions based on current inventory levels, sales
projections, manufacturer discounts and recommendations from sales
representatives, are made by the merchandising group, located in New Jersey, in
order to effectively coordinate Five Star's activities. Notwithstanding senior
management's active involvement, the sales managers play an extremely critical
role in this day-to-day process.
Marketing
The do-it-yourself industry relies on distributors to effectively link
manufacturer's products to the various retail networks. The do-it-yourself
market operates on this two-step distribution process, i.e., manufacturers deal
through distributors who in turn service retailers. This occurs principally
because most retailers are not equipped to carry sufficient inventory in order
to be cost effective in their purchases from manufacturers. Thus, distributors
add significant value by effectively coordinating and transporting products to
retail outlets on a timely basis. Five Star distributes and markets products
from hundreds of manufacturers to all of the various types of retailers from
regional paint stores, to lumber yards to independent paint and hardware stores.
The marketing efforts are directed by the Vice President of Sales at each
facility. These individuals are responsible for designing, implementing and
coordinating marketing policies. The Vice President of Sales at each facility
works closely with senior management to coordinate company-wide marketing plans
as well as to service Five Star's major multi-state customers. In addition, each
Vice President of Sales is responsible for overseeing the effort of his sales
representatives.
The sales representatives, by virtue of daily contact with Five Star's
customers, are the most integral part of Five Star's marketing strategy. It is
their responsibility to generate revenue, ensure customer satisfaction and
expand the customer base. Each representative covers an assigned geographic
area. The representatives are compensated based on a draw plus commission. Five
Star has experienced a very low turnover in its sales force as evidenced by the
fact that most representatives have over five years of experience with Five
Star. Many sales reps often have retail experience in the paint or hardware
industry when they are hired by Five Star.
Five Star's size, solid reputation for service, large inventory and
attractive financing terms provide sales representatives with tremendous
advantages relative to competing sales representatives from other distributors.
In addition, the representatives' efforts are strengthened by company-sponsored
marketing events. For example, each year in January, Five Star invites all of
its customers to a special trade show for Five Star's major suppliers, so that
suppliers may display their products and innovations. Five Star also
participates in a profitable advertising circular program in the spring and the
fall which contains discount specials and information concerning new product
innovations.
Five Star has continually enhanced its growth through complementary
acquisitions which have allowed it to preempt much of its competition as a
high-quality, competitively priced distributor.
Industry Dynamics
The Do-It-Yourself Industry
The paint sundry items distribution industry is closely related to the
do-it-yourself market, which has tended to exhibit elements of
counter-cyclicality. In times of recession, consumers tend to spend more on
home-improvements because they cannot afford contractor services or the cost to
trade up to bigger homes and in times of economic strength consumers spend
heavily in home improvements because they believe they can afford to complete
their home improvement projects. In 2000, Americans purchased more than $180
billion on home improvement products. These purchases are expected to grow at a
compounded rate of 4.2% till 2003.
Painting is the quintessential do-it-yourself project. Painting has to
be done more frequently than most remodeling jobs, and it is a relatively
inexpensive way to update the appearance of a home. For these reasons, the paint
and paint sundry items industry tends to be counter-cyclical and a solid growth
segment of the do-it-yourself market.
Competition
Competition within the industry is intense. There are much larger
national companies commonly associated with national franchises such as Ace and
TruServ as well as smaller regional distributors, all of whom offer similar
products and services. Other than paint sundry item distributors, Five Star
faces stiff competition from Home Depot, which purchases directly from
manufacturers and dealer-owned distributors such as Ace and TruServ.
Additionally, in some instances manufacturers will bypass the distributor and
choose to sell and ship their products directly to the retail outlet. The
principal means of competition for Five Star are its strategically placed
distribution centers and its extensive inventory of quality name brand products.
Five Star will continue to focus its efforts on supplying its products to its
customers at a competitive price and on a timely, and consistent basis. In the
future, Five Star will attempt to acquire complementary distributors and to
expand the distribution of its line of private-label products sold under the
"Five Star" name. Through internal growth and acquisitions, Five Star has
captured a leading share in its principal market, the Northeast. This
growth-oriented acquisition strategy of acquiring complementary distributors has
allowed Five Star to effectively compete against a substantial number of its
competitors. While other paint sundry items distributors sell to the same retail
networks as Five Star, they are at a distinct disadvantage versus Five Star's
experience, sophistication and size.
Concomitantly, hardware stores that are affiliated with the large,
dealer-owned distributors such as Ace also utilize Five Star's services because
they are uncomfortable with relying solely on their dealer network. Most
cooperative-type distributors lack the level of service and favorable credit
terms that independent hardware stores enjoy with Five Star. Five Star
effectively competes with the dealer-owned distributors because it provides more
frequent sales calls, faster deliveries, better financing terms and a full line
of vendors and products to choose from.
NPD Trading
NPD Trading ceased its operations in the year 2000. NPD Trading
provided ICF Kaiser International ("ICF") with technical and commercial
assistance on a contract for a $250 million hot strip mini mill in the Czech
Republic. The Company had received $1 million for this assistance and had
expected to receive another $1 million payment contingent upon the completed
construction of the mini mill.
On March 17, 1998 and April 2, 1998, the Company was informed by
holders of an aggregate of $1,000,000 of the Company's convertible notes (the
"Notes") that they had elected to convert $1,000,000 of the Notes into an
aggregate of 82,306 shares of GP Strategies common stock. In accordance with the
terms of the original agreement, the Company and GP Strategies had agreed that
if the Notes were used to exercise the warrants issued by GP Strategies in
connection with the Note offering, GP Strategies had the right to receive from
the Company in exchange for the Notes shares of the Company's common stock at a
price equal to 60% of its then current market value. However, on April 30, 1998,
the Company and GP Strategies agreed that instead of issuing additional shares
of the Company's common stock which GP Strategies was entitled to, the Company
would assign to GP Strategies any future payments it would receive from ICF as a
success fee in connection with the completion of the Company's consulting
project in the Czech Republic. No such additional payments have been received
from ICF.
Employees
The Company employs 200 people. Management-employee relations are
considered excellent at both of Five Star's warehouse facilities. Unions
represent approximately 90 of Five Star's employees, warehouse personnel and
drivers. The Teamsters union represent the 90 union employees at New Jersey.
Connecticut is completely non-unionized. Five Star has never experienced a labor
strike at its facilities. Five Star's contract with Local No. 11, affiliated
with the International Brotherhood of Teamsters expires on December 20, 2003.
(d) Financial Information about Foreign and Domestic Operations and Export
Sales.
Not Applicable.
Item 2. Properties
Five Star leases 250,000 square feet in New Jersey, 110,000 square feet
in Connecticut, 1,200 square feet of sales offices in New York and 800 square
feet in Maryland. Five Star's operating lease for the New Jersey facility
expires in March 2007 and the annual rent is $1,114,959. Five Star's lease for
the Connecticut facility expires in February 2007 and its annual rent is
$398,397. The New York sales office pays $16,740 per year in rent and the
Maryland office pays $10,080. The Company's New York office space is provided by
GP Strategies pursuant to the Management Services Agreement. As part of the
Management Services Agreement, GP Strategies can receive up to $10,000 a month
for services provided by GP Strategies employees, such as management, legal,
tax, accounting, insurance and employee benefit administration services.
The facilities leased by the Company and Five Star are considered to be
suitable and adequate for their intended uses and are considered to be well
maintained and in good condition.
Item 3. Legal Proceedings
The Company is not a party to any legal proceedings the outcome of
which are believed by management to have a reasonable likelihood of having any
material adverse effect upon the financial condition of the Company
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The following table presents the high and low prices for the Common
Stock for 2000 and 1999. The Company's Common Stock, $.01 par value, is quoted
on the OTC Bulletin Board, which is operated by the NASDAQ Stock Market.
Quarter High Low
2000 First $0.53 $0.18
Second $0.36 $0.25
Third $0.30 $0.20
Fourth $0.24 $0.10
1999 First $0.42 $0.32
Second $0.39 $0.30
Third $0.38 $0.30
Fourth $0.32 $0.19
- ----------
The number of shareholders of record of the Common Stock as of March
12, 2001 was 3,816. On March 12, 2001, the average of the closing bid and asked
prices on the OTC Bulletin Board was $0.10. The Company has not declared any
cash dividends during or since its two most recent fiscal years. The current
policy of the Company's Board of Directors is to retain earnings, if any, to
finance the operation of the Company's business. The payment of cash dividends
on the Common Stock in the future will depend on the Company's earnings,
financial condition and capital needs and on other factors deemed pertinent by
the Company's Board of Directors.
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share amounts)
Item 6. Selected Financial Data
Years Ended December 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Statement of Operations Data:
Revenue $93,878 $83,134 $17,080 $2,047 $ 1,104
Cost of goods sold 77,372 68,646 13,686 936 496
General and administrative
expenses 13,154 11,627 3,187 1,385 1,674
Net income (loss) 775 647 (664) (857) (1,498)
Income (loss) per share:
Basic and diluted
before extraordinary item .06 .05 (.03) (.07) (.12)
Basic and diluted .06 .05 (.05) (.07) (.12)
December 31,
-------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Balance Sheet Data:
Current assets $ 34,983 $ 32,810 $ 32,291 $ 514 $1,018
Current liabilities 29,183 27,598 27,596 199 152
Non current liabilities 5,000 5,000 5,000 4,933 4,739
Working capital 5,800 5,212 4,695 315 866
Total assets 36,188 33,828 33,179 552 1,088
Total stockholders' equity (deficiency) 2,005 1,230 583 (4,580) (3,803)
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Overview
On September 30, 1998 a newly formed wholly owned subsidiary of the Company, the
Five Star Group, Inc. (Five Star) purchased from JL Distributors, Inc. (JL),
(formerly Five Star Group, Inc.) certain operating assets of JL. JL is a wholly
owned subsidiary of GP Strategies Corporation (GP Strategies). The assets were
purchased for $16,476,000 in cash and a $5,000,000 unsecured five year senior
note. Five Star is a leading distributor of home decorating, hardware and
finishing products in the northeast.
The purchase by the Company of certain assets of Five Star has changed the focus
of the Company. Since September 30, 1998, the Company had to focus its efforts
on growing the distribution business, and has taken several steps to reduce its
traditional operations from both a business and cost perspective including
closing its Washington, DC, Prague and Moscow offices. For the years ended
December 31, 2000 and December 31, 1999, the Company incurred losses of $0 and
$105,000 before income taxes related to the business of NPD Trading. Of this
total, approximately $74,000 pertained to severance and shut down costs related
to Washington and Prague offices.
Liquidity and Capital Resources
At December 31, 2000, the Company had cash of $51,000 and working capital of
$5,800,000. On September 30, 1998, Five Star entered into a $25,000,000 loan and
security agreement with a group of banks. The credit facility allowed Five Star
to borrow up to 50% of eligible inventory and up to 80% of eligible accounts
receivable. The Company borrowed $16,476,000 on September 30, 1998 to fund the
cash portion of the purchase price in connection with the purchase of JL. At
December 31, 2000, the Company had borrowed $16,303,000 and had $1,229,000 of
additional availability under the loan agreement.
The Company believes it has sufficient borrowing availability under existing
credit agreements, and cash anticipated to be generated through the operations
of the Company, to fund the working capital requirements of Five Star.
Results of operations
Because of the September 30, 1998 purchase of the assets of Five Star and the
change in focus of the Company, results of operations for the years ended
December 31, 1999 and December 31, 2000 are not comparable to results for the
prior years.
The Company had income before income taxes of $1,047,000 for the year ended
December 31, 2000 compared to $1,147,000 for the year ended December 31, 1999.
The slight decrease in income before income taxes is the result of increased
sales and gross margin, which was more than offset by increased selling, general
and administrative expenses and interest costs. In addition, there were no
consulting revenues in 2000 while 1999 results included $98,000 of such income.
Income tax expense in 2000 was $272,000 and in 1999 $500,000. The lower
effective rate in 2000 is due to the reversal of a $185,000 valuation reserve
against deferred tax assets.
Sales
The Company had sales of $93,878,000 in 2000 compared to sales of $83,134,000 in
1999 and $17,080,000 in 1998. 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. The increased sales in 1999 over 1998 were totally attributable to the
operations of Five Star, which entered into the operations of the Company only
for the fourth quarter of 1998.
Consulting revenues
The Company had consulting revenues of $98,000 in 1999, $104,000 in 1998 and
$924,000 in 1997. The decrease in consulting revenues from 1997 to 1998 and 1999
was primarily due to $840,000 in the form of a success fee related to a project
with ICF Kaiser International in the Czech Republic during 1997. No consulting
fees were earned in 2000 as NPD Trading ceased operations.
Gross margin
The Company had gross margin of $16,506,000 in 2000, $14,488,000 in 1999 and
$3,394,000 in 1998. The gross margin percentage in 2000 was 17.6%, similar to
that recorded in 1999. The consistent gross margin percentage was achieved with
increased operating and purchasing efficiencies in 2000 being offset by rising
warehouse costs. The increased gross margin in 1999 was due to the gross margin
earned on the full year sales volume generated by Five Star since September 30,
1998.
Selling, general and administrative expense
The Company had Selling, general and administrative (SG&A) expense of
$13,154,000 in 2000, $11,627,000 in 1999 and $3,187,000 in 1998. The increased
SG&A in 2000 is attributable to 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
forces in the Mid Atlantic States. The increased SG&A in 1999 is due to the
acquisition of substantially all the operating assets of Five Star on September
30, 1998, partially mitigated by reduced SG&A incurred by the rest of the
Company due to reduced consulting, personnel costs and facility costs in
Washington D.C., Moscow and Prague.
Interest expense
The Company had interest expense of $2,220,000 in 2000, $1,692,000 in 1999 and
$611,000 in 1998. The increased interest expense in 2000 is the result of both
the short -term borrowings incurred by Five Star (see Note 3 to the consolidated
financial statements), as well as interest incurred on the $5,000,000 unsecured
senior note (see Note 1 to the consolidated financial statements), and increased
interest rates.
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 the acquisition of Five Star will 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.
Inflation
Inflation is not expected to have a significant impact on the Company's
business.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by Item 7A is not applicable to the
Company's business.
16
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report 15
Financial Statements:
Consolidated Balance Sheets - December 31, 2000 and
1999 17
Consolidated Statements of Operations - Years ended
December 31, 2000, 1999 and 1998 19
Consolidated Statements of Changes in Stockholders'
Equity (Deficiency) - Years ended December 31,
2000, 1999 and 1998 20
Consolidated Statements of Cash Flows - Years ended
December 31, 2000, 1999 and 1998 21
Notes to Consolidated Financial Statements 22
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Five Star Products, Inc.
We have audited the accompanying consolidated balance sheets of Five
Star Products, Inc. and subsidiaries as of December 31, 2000 and 1999,
and the related consolidated statements of operations, changes in
stockholders' equity (deficiency) and cash flows for each of the years
in the three year period ended December 31, 2000. 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 of America. 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 enumerated above present
fairly, in all material respects, the consolidated financial position
of Five Star Products, Inc. and subsidiaries at December 31, 2000 and
1999, and the consolidated results of their operations and their cash
flows for each of the years in the three year period ended December 31,
2000, in conformity with accounting principles generally accepted in
the United States of America.
Richard A. Eisner & Company, LLP
New York, New York
March 15, 2001
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, December 31,
2000 1999
------------ --------
ASSETS
Current assets
Cash $ 51 $ 97
Accounts receivable, trade, less allowance
for doubtful accounts of $681 and $616
in 2000 and 1999 11,115 10,108
Inventory 23,610 22,554
Prepaid expenses and other current assets 207 51
--------- ---------
Total current assets 34,983 32,810
Machinery and equipment, net 998 942
Deferred tax asset 163
Other assets 44 76
----------- ----------
$ 36,188 $ 33,828
========= =========
See accompanying notes to the consolidated financial statements.
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(in thousands, except shares)
December 31, December 31,
2000 1999
---------- ------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings $ 16,303 $ 16,324
Accounts payable and accrued expenses
(including due to affiliates of $536 and $602) 12,880 11,274
-------- ----------
Total current liabilities 29,183 27,598
-------- ----------
Long-term debt to GP Strategies 5,000 5,000
--------- ---------
Commitments and contingencies (Note 14)
Stockholders' equity
Common stock, authorized 30,000,000 shares,
par value $.01 per share; 13,020,155 shares
issued and outstanding 130 130
Capital in excess of par value 7,589 7,589
Accumulated deficit (5,714) (6,489)
-------- --------
Total stockholders' equity 2,005 1,230
-------- --------
$ 36,188 $ 33,828
======== ========
See accompanying notes to the consoliddated financial statements.
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
Year Ended December 31,
2000 1999 1998
-------- --------- -------
Sales $ 93,878 $ 83,134 $ 17,080
Cost of goods sold 77,372 68,646 13,686
--------- --------- ----------
Gross margin 16,506 14,488 3,394
Selling, general and
administrative expenses (13,154) (11,627) (3,187)
Management fee to GP Strategies (85) (120) (120)
Consulting revenues 98 104
Interest expense (including amounts
to affiliates of $400, $400 and $177) (2,220) (1,692) (611)
-------- ---------- -------
Income (loss) before income taxes
and extraordinary item 1,047 1,147 (420)
Income tax expense (272) (500) (40)
--------- ----------- ----------
Income (loss) before extraordinary item 775 647 (460)
Extraordinary item
Early extinguishment of debt (204)
--------- ------------ ---------
Net income (loss) $ 775 $ 647 $ (664)
======== ======== ========
Income (loss) per share
Basic and diluted before extraordinary item $ .06 $ .05 $ (.05)
--------- --------- -------
Basic and diluted net income (loss) per share .06 .05 (.05)
--------- ---------- -------
See accompanying notes to the consolidated financial statements.
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY (DEFICIENCY)
Years Ended December 31, 2000, 1999 and 1998
(in thousands, except number of shares)
Shares of Capital in Total
Common Stock Common Excess of Stockholders' Equity
Outstanding Stock Par Value Deficit (Deficiency)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 13,020,155 $130 $1,762 $(6,472) $(4,580)
- --------------------------------------------------------------------------------------------------------------------------
Net loss (664) (664)
Contribution to capital by GP Strategies 5,407 5,407
Contribution to capital by GP Strategies
by issuance of warrants 330 330
Issuance of compensatory stock options 90 90
- -------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 13,020,155 130 7,589 (7,136) 583
- -------------------------------------------------------------------------------------------------------------------------
Net income 647 647
- -------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 13,020,155 130 7,589 (6,489) 1,230
- -------------------------------------------------------------------------------------------------------------------------
Net income 775 775
- -------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 13,020,155 $130 $7,589 $(5,714) $ 2,005
- -------------------------------------------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
-------------------------
2000 1999 1998
------- --------- ------
Cash flows from (used in) operating activities:
Net income (loss) $ 775 $ 647 $(664)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 234 196 191
Non cash compensation 90
Loss from extinguishment of debt 204
Deferred income taxes (163)
Changes in other operating items:
Accounts receivable (1,007) (411) 2,310
Inventory (1,056) (108) (1,906)
Prepaid expenses and other current assets (124) (22) 235
Accounts payable and accrued expenses 1,606 649 (1,608)
-------- -------- --------
Net cash provided by (used in) operating activities 265 951 (1,148)
---------- --------- --------
Cash flows from financing activities:
(Repayments of) net proceeds from
short-term borrowings (21) (647) 16,971
Loans from GP Strategies 474
------------ ------------- -------
Net cash (used in) provided
by financing activities (21) (647) 17,445
---------- ---------- --------
Cash flows from investing activities:
Net assets of Five Star, less cash acquired (16,291)
Additions to machinery and equipment (290) (326) (112)
---------- ----------- ---------
Net cash used in investing activities (290) (326) (16,403)
---------- ----------- --------
Net decrease in cash (46) (22) (106)
Cash at beginning of period 97 119 225
----------- ---------- --------
Cash at end of period $ 51 $ 97 $ 119
========== =========== ========
Non cash financing and investing activities:
Senior note issued in Five Star acquisition $ 5,000
---------
7% convertible notes retired by
issuance of GP Strategies common stock 1,000
----------
Contributions to capital by GP Strategies 5,737
----------
See accompanying notes to the consolidated financial statements.
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Acquisition of the assets and business of Five Star
Five Star Products, Inc. (the "Company") (formerly American Drug
Company) has two subsidiaries, NPD Trading (USA), Inc. (NPD Trading)
and Five Star Group, Inc. (Five Star).
On August 10, 1999, the Company changed its name to Five Star Products,
Inc. from American Drug Company to reflect its new industry focus.
Five Star is a wholesale distributor of home decorating hardware and
finishing products in the northeastern United States. NPD Trading is an
inactive subsidiary.
On September 30, 1998, a newly formed wholly owned subsidiary of the
Company, Five Star, purchased from JL Distributors, Inc. (JL),
(formerly the Five Star Group, Inc.) substantially all of the operating
assets of JL, for approximately $16,476,000 in cash and a $5,000,000
unsecured senior note. The unsecured senior note bears interest at the
rate of 8% payable quarterly, with the principal due on September 30,
2003. As part of this transaction, GP Strategies Corporation (GP
Strategies) sold a 16.5% interest in the Company to the employees and
management of Five Star. GP Strategies currently owns approximately 37%
of the Company. JL is a wholly owned subsidiary of GP Strategies. The
acquisition was accounted for as a purchase. The excess of the fair
value of the net assets acquired over the purchase price was applied to
reduce the recorded value of fixed assets. Since the acquisition of
Five Star occurred on September 30, 1998, the results of operations for
Five Star prior to that date have not been included in the operations
of the Company.
The following shows on a proforma basis the results of operations of
the Company had the above transaction occurred on January 1, 1998 (in
thousands, except per share data):
Year ended December 31, 1998
(unaudited)
------------
Sales $81,091
Income before extraordinary item 371
Net income 167
Basic income per share .01
Diluted income per share .01
Such information is not indicative of what actual results might have
been.
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
2. Summary of significant accounting policies
Inventory. Inventory is valued at the lower of cost, using the
first-in, first-out (FIFO) method, or market. Inventory consists solely
of finished products.
Machinery and equipment. Fixed assets are carried at cost. Major
additions and improvements are capitalized, while maintenance and
repairs that do not extend the lives of the assets are expensed
currently. Gain or loss if any on the disposition of fixed assets is
recognized currently in operations. Depreciation is calculated on a
straight-line basis over the estimated useful lives of the assets.
Principles of consolidation. The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries,
NPD Trading and Five Star. All significant intercompany balances and
transactions have been eliminated in consolidation.
Income taxes. Income taxes are provided for based on the asset and
liability method of accounting pursuant to Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). Under SFAS 109, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates in effect for the year in which those temporary differences are
expected to be recovered or settled. Under SFAS 109, the effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Use 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 these estimates.
Concentration of credit risk. Financial instruments that potentially
subject the Company to significant concentrations of credit risk
consist primarily of accounts receivable. Sales are made principally to
independently owned paint and hardware stores in the northeast United
States.
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
2. Summary of significant accounting policies (Continued)
Stock based compensation. The Financial Accounting Standard Board's
Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation" encourages, but does not
require, companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has elected to continue
to account for its stock-based compensation plans using the intrinsic
value method prescribed by Accounting Principles Board Opinion No. 25
("APB No. 25"), "Accounting for Stock Issued to Employees" and to
disclose the pro forma effect on net income and earnings per share had
the fair market price of the Company's common stock at the date of the
grant over the amount an employee must pay to acquire the stock.
Revenue recognition. Revenue is recognized upon shipment of product to
customers. Allowances for estimated discounts and returns are
recognized when sales are recorded.
Earnings per share. Basic earnings per share (EPS) is based upon the
weighted average number of common shares outstanding during the period.
Diluted EPS is 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. For the year
ended December 31, 1998 the Company did not include any potential
common stock in its calculation of diluted EPS because all options and
warrants were anti-dilutive.
Advertising costs. The Company expenses advertising costs as required.
Advertising expense was $56,000, $74,000 and $20,000 for the years
ended December 31, 2000, 1999, and 1998, respectively.
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
3. Recent Accounting pronouncements
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements," which provides guidance related to revenue
recognition and was effective the first fiscal quarter of fiscal years
beginning after December 15, 1999, and requires companies to report any
changes in revenue recognition as a cumulative change in accounting
principle at the time of implementation, in accordance with APB Opinion
20, "Accounting Changes". Subsequently, SAF Nos. 101A and 101B were
issued to delay the implementation of SAB No. 101. Management believes
that the adoption had no effect on the Company's revenue recognition
policies. The Company adopted this pronouncement during the fiscal year
ended December 31, 2000.
In 2000, the Financial Accounting Standards Board ("FASB") issued
interpretation No. 44, "Accounting for Certain Transactions Involving
Stock Compensation", an interpretation of APB Opinion No. 25, "Stock
Issued to Employees". Interpretation No. 44 clarifies the application
of APB No. 25 for the definition of an employee for purposes of
applying APB No. 25, the criteria for determining whether a plan
qualifies as a non-compensatory plan, the accounting consequences of
various modifications to the terms of previously granted stock options
or awards and the accounting for an exchange of stock compensation
awards in a business combination. The Company is applying this
interpretation on the financial statements for the fiscal year ended
December 31, 2000.
4. Short-term borrowings
As of September 30, 1998, the Company's wholly owned subsidiary Five
Star entered into a new three year Loan and Security Agreement (the
"Loan Agreement") by and among three banks. The Loan Agreement provides
for a $25,000,000 revolving credit facility, which allows Five Star to
borrow based upon a formula of up to 50% of eligible inventory and 80%
of eligible accounts receivable, as defined in the Loan Agreement. The
interest rate under the Loan Agreement is based on the LIBOR rate for
$12,500,000 of the loan and an adjusted prime rate for the balance of
the loan. At December 31, 2000, $16,303,000 was outstanding under the
Loan Agreement and approximately $1,229,000 was available to be
borrowed. As of December 31, 2000, the LIBOR rate was 9.0% and the
adjusted prime rate was 10.0%. The weighted average interest rate on
the Company's short-term debt at December 31, 2000 is 9.23%.
Substantially all of the Company's assets are pledged as collateral for
these borrowings.
5. 401(k) plan
The Company's employees are included in the GP Strategies 401(k)
pension plan. The Company pays its allocable share of costs as
incurred. Such allocable costs, including administrative expenses and
the employer's contributions, amounted to approximately $120,000,
$132,000 and $36,000 for the years ended December 31, 2000, 1999 and
1998, respectively.
6. Machinery and equipment
Major classes of machinery and equipment consist of the following (in
thousands):
December 31, Estimated
2000 1999 useful lives
---- ---- ------------
Machinery and equipment $ 296 $ 250 3 years
Furniture and fixtures 429 285 5 years
Leasehold improvements 763 663 3-9 years
----- -----
1,488 1,198
Less accumulated depreciation
and amortization (490) (256)
------- -----
$ 998 $ 942
======= =======
Depreciation and amortization expense for the years ended December 31,
2000, 1999 and 1998 was $234,000, $196,000 and $191,000, respectively.
7. Long-term debt
a. Related party
The Company has an unsecured note to GP Strategies in the amount of
$5,000,000. The note bears interest at 8%, payable quarterly, with the
principal due September 30, 2003. The note is subordinated to the Loan
Agreement (See note 4). Interest expense for the year ended December
31, 2000, 1999 and 1998 was $400,000, $400,000 and $177, 000,
respectively.
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
b. Other
On March 17, 1998 and April 2, 1998, the Company was informed by
holders of an aggregate of $1,000,000 of the Company's convertible
notes (the "Notes") that they had elected to convert all the Notes into
an aggregate of 82,306 shares of GP Strategies common stock. In
accordance with the terms of the original agreement, the Company and GP
Strategies had agreed that if the Notes were used to exercise the
warrants issued by GP Strategies in connection with the Note offering,
GP Strategies had the right to receive from the Company in exchange for
the Notes, shares of the Company's common stock at a price equal to 60%
of its then current market value.
The company recorded during 1998 the $330,000 fair value of the
warrants issued by GP Strategies to the noteholders as a credit to
capital in excess of par value. The unamortized balance of the related
debt issuance expense at the date of conversion of the Notes in the
amount of $204,000 was recorded as an extraordinary charge upon early
extinguishment of debt in 1998.
On April 30, l998, the Company and GP Strategies agreed that instead of
issuing additional shares of the Company's common stock, the Company
would assign to GP Strategies any future payments from ICF Kaiser
International as a success fee in connection with the completion of the
Company's consulting project in the Czech Republic.
Since this fee is contingent upon the successful completion of the
project, it has not been recorded by the Company. Only the amount of
the fee, if any, collected by the Company is required to be remitted to
GP Strategies. Accordingly, no liability to GP Strategies has been
recorded for any amount which may ultimately be collected in connection
with this project
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
8. Transactions with affiliates
Transactions with GP Strategies and its subsidiaries, other than loans
and capital contributions received, as disclosed elsewhere in the
financial statements, during the years ended December 31, 2000, 1999,
and 1998 are summarized below (in thousands):
December 31,
----------------------------
2000 1999 1998
Consulting fees earned from affiliate $ - $ 98 $ 101
===== ==== =====
Transactions with GP Strategies
Management fees incurred $ 85 $ 120 $ 120
Interest expense incurred 400 400 177
From inception through September 30, 1998, the Company was financed by
GP Strategies, by means of capital contributions, short-term
non-interest bearing advances and long-term interest bearing
obligations. The Company received $2,500,000 under its $2,500,000 loan
agreement with GP Strategies, plus additional funding totaling
$5,407,000 including accrued interest through September 30, 1998.
In 1999 and 1998, the Company provided services to GSE Systems, Inc.
(GSES), an affiliate of GP Strategies, in assisting that affiliate to
obtain a contract to provide the Temelin Nuclear Power Plant and the
St. Petersburg Nuclear Power Plant with full scope simulators. GSES is
a successor to General Physics International Engineering and
Simulation, Inc. Revenues from GSES amounted to $0, $98,000 and
$101,000, respectively, for the years ended December 31, 2000, 1999,
and 1998.
In 1994 the Company commenced paying $150,000 annually as compensation
to an officer of GP Strategies, in view of the additional time
allocated by this officer to the Company. This agreement was terminated
effective December 31, 1998.
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
8. Transactions with affiliates (Continued)
As of January 1, 1994, the Company and GP Strategies entered into a
three-year Management Services Agreement pursuant to which certain
direct and indirect services will be provided to the Company by GP
Strategies. The services to be provided by GP Strategies include
management, legal, tax, accounting, insurance and employee benefit
administration services. The Company paid GP Strategies a fee of up to
$10,000 per month during the term of the agreement. The Agreement is
automatically renewable for successive one-year terms unless one of the
parties notifies the other in writing at least six months prior to the
end of the initial term of any renewal thereof. The Agreement was
renewed for 2001. Fees incurred to GP Strategies under this agreement
totaled $85,000, $120,000 and $120,000 for each of the years ended
December 31, 2000, 1999 and 1998. At December 31, 2000 and 1999, the
amount due to GP Strategies for expenses and interest, which is
included in accounts payable and accrued expenses on the consolidated
balance sheets, was $536,000 and $602,000, respectively
9. Income taxes
As of December 31, 2000 and 1999, the Company had approximately
$323,000 and $345,000, respectively, of deferred tax assets and no
deferred tax liabilities. The tax effects that gave rise to these
deferred tax assets and the valuation allowance consist of the
following (in thousands):
December 31, December 31,
2000 1999
-------- -------
Deferred tax assets
Allowance for doubtful accounts $ 46 $ 56
Machinery, property, plant and equipment 65 75
Deferred compensation 160 160
Inventory 52 54
-------- --------
Deferred tax assets 323 345
------- -------
Valuation allowance (160) (345)
------- -------
Net deferred tax assets after
valuation allowance $ 163 $
======== =========
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
9. Income taxes (Continued)
A reconciliation between the Company's tax provision and the provision
of the U.S. statutory rate follows:
Years ended December 31, 2000 1999 1998
----------------------------------------------------------------------------------------
Tax at U.S. statutory rate $ 356 $ 390 $ (212)
State and local taxes net of
Federal benefit 84 111 40
Items not deductible 24
Net operating loss utilization (42) 1,608
Valuation allowance adjustment (185) 41 (1,396)
Other 7
----------------------------------------------------------------------------------------
Income Taxes $ 272 $ 500 $ 40
----------------------------------------------------------------------------------------
Under SFAS No. 109, a valuation allowance is provided when it is more
likely than not that some portion of deferred tax assets will not be
realized. The Company has for the year ended December 31, 2000 reserved
for the deferred tax asset relating to the deferred compensation as the
realization of such asset is uncertain. As of December 31, 1999 the
Company had a 100% valuation reserve.
The change in the valuation allowance for the year ended December
31,2000 amounted to a decrease of $185,000.
10. Major customers
For the years ended December 31, 2000, 1999 and 1998 no customer
accounted for more than 10% of the Company's revenue.
Export revenues represented approximately $1,123,000 of the Company's
revenues in 1998.
There were no export revenues for the years ended December 31, 2000 and
1999.
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES Notes to Consolidated
Financial Statements (Continued)
11. Stock options and warrants
(a) Stock option plan
On January 1, 1994, the Company's Board of Directors and sole
stockholder adopted the Five Star Products, Inc. 1994 Stock Option Plan
(the "Stock Option Plan"), which became effective August 5, 1994. Under
the Stock Option Plan, a total of 2,000,000 shares of Common Stock have
been reserved for issuance, subject to adjustment in the event of stock
splits, stock dividends, recapitalizations, reclassifications or other
capital adjustments. Unless designated as "incentive stock options"
intended to qualify under Section 422 of the Internal Revenue Code,
options granted under the Stock Option Plan are intended to be
nonqualified options. Options may be granted to any director, officer
or other key employee of the Company and its subsidiaries, and to
consultants and other individuals providing services to the Company.
The Compensation Committee of the Board of Directors will administer
the Stock Option Plan and will determine, among other things, the
persons to be granted options, the number of shares to be subject to
each option, the exercise price and vesting schedule of each option,
whether to accelerate the exercise date of the option for any reason,
and whether to cause the Company to make loans which enable an optionee
to pay the purchase price of any option. No options are transferable by
the optionee other than by will.
The term of any option granted under the Stock Option Plan will not
exceed ten years from the date of the grant of the option and, in the
case of incentive stock options granted to a 10% or greater holder in
the total voting stock of the Company, three years from the date of
grant. The exercise price of any option will not be less than the fair
market value of the Common Stock on the date of grant or, in the case
of incentive stock options granted to a 10% or greater holder in the
total voting stock, 110% of such fair market value.
In June 1998, the Company cancelled 1,440,000 options and issued
1,500,000 common stock options at a price of $.13 per share to both
employees of the Company and employees of GP Strategies who provide
services to the Company under the management services agreement. The
Company recorded compensation expense of $90,000 related to the
issuance of the options to the employees of GP Strategies.
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
11. Stock options and warrants (Continued)
(a) Stock option plan (Continued)
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized in the financial
statements for stock options issued to employees of the Company. Had
the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net
income (loss) would have been changed to the pro forma amounts
indicated below (in thousands, except per share amounts):
2000 1999 1998
---- ---- ----
Net income (loss) As reported $ 775 $647 $(664)
Pro forma 740 606 (670)
Basic and diluted income
(loss) per share As reported .06 .05 (.05)
Pro forma .05 .04 (.05)
Stock option activity during the periods indicated is as follows:
No options were granted during 2000.
The per share weighted-average fair value of stock options granted
during 1999 and 1998 were $.30 and $.06, respectively, on the dates of
grant using the Black Scholes option-pricing model with the following
assumptions: 1999 - expected dividend yield 0%, risk-free interest rate
of 5.05%, expected volatility of 146% and expected life of 3 years;
1998 - expected dividend yield 0%, risk-free interest rate of 5.6%,
expected volatility of 66.7% and an expected life of 3 years.
Number of Weighted-Average
Shares Exercise Price
Balance at December 31, 1997 1,540,000 .50
Granted 1,500,000 .13
Cancelled (1,440,000) .50
----------- ---
Balance at December 31, 1998 1,600,000 .15
----------- ---
Granted 650,000 .33
Cancelled (100,000) .50
----------- ---
Balance at December 31, 1999 2,150,000 .19
Cancelled (25,000) .13
----------- ---
Balance at December 31, 2000 2,125,000 .19
=========== ===
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
11. Stock options and warrants (Continued)
At December 31, 2000 and 1999, the range of exercise prices and
weighted-average remaining contractual life of outstanding options was
$.33 and $.13 and 2 years and 3 years, respectively.
At December 31, 2000, 1999 and 1998, the number of options exercisable
was 1,485,000, 1,380,000 and 1,350,000, respectively, and the
weighted-average exercise price of exercisable options was $.17, $.15
and $.17, respectively.
(b) Warrants to purchase common stock
In August 1994, GP Strategies entered into a Transfer and Distribution
Agreement with the Company whereby GP Strategies transferred to the
Company (the "Distribution") immediately prior to the closing of the
Distribution, all of its interest in NPD Trading in exchange for (i)
the issuance by the Company of 6,990,900 shares of Common Stock to GP
Strategies (ii) the issuance of 6,017,775 shares of Common Stock to be
distributed to GP Strategies stockholders, and (iii) the issuance of
6,017,775 warrants to be distributed to GP Strategies stockholders.
Each warrant was initially exercisable for a period of two years from
August 5, 1994 at an exercise price per share of $1.00. In August 1996,
the Board of Directors approved an extension of the Company's warrants
until August 5, 1999 and a reduction of the exercise price to $.50 per
share, subject to adjustment in certain circumstances and in August
1998 the Board of Directors approved a two-year extension of the
Company's warrants until August 5, 2000 and an increase in the exercise
price to $.75 per share, subject to adjustment in certain
circumstances. In August 2000, the warrants expired and were not
further extended by the Board of Directors.
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
12. Earnings (loss) per share
Earnings (loss) per share (EPS) for the years ended December 31, 2000,
1999 and 1998 are as follows (in thousands, except per share amounts):
Year ended December 31,
------------------------
2000 1999 1998
---- ---- ----
Basic EPS
Net income (loss) $ 775 $ 647 $ (664)
Weighted average shares
Outstanding 13,020 13,020 13,020
-------- -------- --------
Basic earnings (loss) per share $ .06 $ .05 $ (.05)
---------- ---------- ---------
Diluted EPS
Net income (loss) $ 775 $ 647 $ (664)
--------- --------- ---------
Weighted average shares
outstanding 13,020 13,020 13,020
Dilutive effect of stock options
and warrants (a) 719 806
---------- ----------
Weighted average shares
outstanding, diluted 13,739 13,826 13,020
-------- -------- -------
Diluted earnings (loss)
per share $ .06 $ .05 $ (.05)
---------- ---------- --------
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.
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
13. Loans and advances from GP Strategies
In August 1994, GP Strategies entered into a $2.5 million loan
agreement with NPD Trading, under which GP Strategies would fund the
loan with either securities or cash, at its option. At September 30,
1998, the Company had borrowed the full $2,500,000 under its loan
agreement with GP Strategies and therefore had no remaining borrowing
availability under this agreement. GP Strategies advanced additional
funds to the Company, until the third quarter of 1998, when the total
amount due to GP Strategies, including accrued interest totaled
approximately $5,407,000. During the third quarter of 1998, GP
Strategies deemed that the Company would not have the ability to repay
its loan to GP Strategies, and therefore made the decision to
contribute the amount due to capital in excess of par value.
14. Commitments and contingencies
The Company has several noncancellable leases which cover real
property, machinery and equipment. Such leases expire at various dates
with, in some cases, options to extend their terms.
Minimum rentals under long-term operating leases are as follows(in thousands):
Real Machinery and
property equipment Total
- ----------------------------------------------------------------------------
2001 $ 1,315 $ 858 $ 2,173
2002 1,360 936 2,296
2003 1,374 736 2,110
2004 1,347 373 1,720
2005 1,347 18 1,365
After 2005 1,651 - 1,651
- -----------------------------------------------------------------------------
Total $ 8,394 $ 2,921 $11,315
- ------------------------------------------------------------------------------
During 2000, 1999 and 1998, the Company incurred $3,412,000, $3,359,000 and
$804,000, respectively, of rental expenses. GP Strategies has guaranteed the
leases for the Company's New Jersey and Connecticut warehouses, totaling
approximately $1,513,000 per year through 2007.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth certain information concerning the
directors and officers of the Company:
Name Age Position
- ---- --- --------
Jerome I. Feldman 72 Chairman of the Board
Richard T. Grad 63 President, Chief Executive Officer and Director
Charles Dawson 44 Vice President and Director
Bruce Sherman 48 Vice President and Director
Steven Schilit 54 Vice President and Director
Joseph Leven 48 Vice President
Cindy Krugman 39 Vice President and Controller
Scott N. Greenberg 44 Director
Michael Feldman 33 Director
Jerome I. Feldman has been Chairman of the Board of the Company since
1994. He is founder of, and since 1959, has been President and Chief Executive
Officer and a director of GP Strategies Corporation ("GPS") and Chairman of the
Board since 1999, a global provider of performance improvement services and
products. He has been a director of GSE Systems, Inc., ("GSE") since 1994 and
Chairman of the Board of GSE since 1997. Mr. Feldman is also Chairman of the New
England Colleges Fund and a Trustee of Northern Westchester Hospital.
Richard T. Grad has been President and Chief Executive Officer and a
director of the Company since September 1999 and President of Five Star Group,
Inc., a wholly owned subsidiary of the Company ("Five Star") since 1985.
Charles Dawson has been Vice President and a director of the Company
since September 1999, Vice President of Merchandising of Five Star since 1993
and Merchandising Manager from 1992.
Bruce Sherman has been Vice President and a director of the Company
since September 1999 and Vice President of Sales of Five Star since 1993. He is
a member of the New York and New Jersey Paint and Decorating Association.
Steven Schilit has been Vice President and a director of the Company
since September 1999 and since 1981 has held several executive positions with
Five Star.
Joseph Leven has been Vice President of the Company since September
1999; Vice President of Operations of Five Star since 1995 and since 1976 has
held various managerial positions with Five Star. Mr. Leven is the cousin of Mr.
Grad.
Cindy Krugman has been Vice President and Controller of the Company
since September 1999, and Controller of Five Star since 1985. Ms. Krugman is the
daughter of Mr. Grad.
Scott N. Greenberg has been a director of the Company since September
1999, a director of GPS since 1987 and Executive Vice President and Chief
Financial Officer since June 1999 and since 1985 has held several executive
positions. Mr. Greenberg is a director of GSE.
Michael D. Feldman has been a director of the Company since August
1999. He has served as Executive Vice President and a director of Avenue
Entertainment Group, Inc., an independent entertainment company, since 1997.
At each annual meeting of stockholders, directors are elected to serve
for a term of office to expire at the next annual meeting of stockholders after
their election. Under the Company's bylaws, the number of directors constituting
the entire Board of Directors shall be fixed, from time to time, by the
directors then in office, who may decrease or increase the number of directors
by majority action without soliciting stockholder approval. The Company does not
currently pay compensation to directors for service in that capacity.
Item 11. Executive Compensation
Executive Compensation
The following table and notes present the aggregate compensation paid
by the Company's subsidiary, Five Star Group, Inc., to its President and Chief
Executive Officer and most highly compensated executive officers for services
rendered to Five Star Group in 2000.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Awards
Annual Compensation Stock All Other
Salary Bonus Options Compensation
Name and Principal Position Year ($) ($) (#) ($)
- --------------------------- ---- ------- -------- ----------------- ------------
Richard T. Grad 2000 280,295 -0- -0- 6,450(1)
Officer, President Five Star 1999 275,600 -0-- -0- 5,881(1)
President, Chief Executive 1998 47,594(2) -0- -0- 1,943(1)
Group, Inc.
Bruce Sherman 2000 171,586 15,000 -0- 4,665(3)
Vice President 1999 169,745 25,415 -0- 4,211(3)
Vice President of Sales,
Five Star Group, Inc
Steven Schilit 2000 167,055 -0- -0- 4,701(4)
Vice President 1999 164,700 -0- -0- 4,540(4)
Executive Vice President,
Five Star Group, Inc.
Chuck Dawson 2000 161,544 -0- -0- 379(5)
Vice President 1999 160,004 -0- -0- 296(5)
Vice President of Merchandising,
Five Star Group, Inc.
Joseph Leven 2000 113,800 -0- -0- 2,050(6)
Vice President 1999 108,375 -0- -0- 4,014(6)
Vice President of Operations,
Five Star Group, Inc.
- ------------------
(1) Includes $4,000, $4,000 and $911 as a matching contribution made by the
Company to the 401(k) Savings Plan (the "401(k) Savings Plan") for
2000, 1999 and for the period September 30, 1998 through December 31,
1998, and $2,450 and $1,881 for executive life insurance premiums in
2000 and 1999 and $1,032 for Group Term Life Insurance paid by the
Company in for the period September 30, 1998 through December 31, 1998.
(2) Mr. Grad became the Chief Executive Officer of the Company effective
September 30, 1998 and the above compensation relates to the period
September 30, 1998 through December 31, 1998.
(3) Includes $4,196 and $3,840 matching for 2000 and 1999, respectively,
contribution to the 401(k) and $469 and $371, respectively, for
executive life insurance premiums.
(4) Includes $3,953 for 2000 and 1999, respectively, contribution to the
401(k) and $748 and $587, respectively for executive life insurance
premiums.
(5) Executive life insurance premiums
(6) Includes $1,768 and $3,790 matching for 2000 and 1999, respectively,
contribution to the 401(k) and $282 and $224, respectively, for
executive life insurance premiums.
Option Grants in 2000
No options were granted to the named executive officers in 2000.
Board Report on Executive Compensation
During the year ended December 31, 2000, the Company did not have a
Compensation Committee. Accordingly, the full Board of Directors is responsible
for determining and implementing the compensation policies of the Company.
The Board's executive compensation policies are designed to offer
competitive compensation opportunities for all executives which are based on
personal performance, individual initiative and achievement, as well as
assisting the Company in attracting and retaining qualified executives. The
Board also endorses the position that stock ownership by management and
stock-based compensation arrangements are beneficial in aligning management's
and shareholders' interests in the enhancement of shareholder value.
Compensation paid to the Company's executive officers generally
consists of the following elements: base salary, annual bonus and long-term
compensation in the form of stock options and the 401(k) Savings Plan. The
compensation for the other executive officers of the Company is determined by a
consideration of each officer's initiative and contribution to overall corporate
performance and the officer's managerial abilities and performance in any
special projects that the officer may have undertaken. Competitive base salaries
that reflect the individual's level of responsibility are important elements of
the Company's executive compensation philosophy. Subjective considerations of
individual performance are considered in establishing annual bonuses and other
incentive compensation.
The Company has certain broad-based employee benefit plans in which all
employees, including the named executives, are permitted to participate on the
same terms and conditions relating to eligibility and subject to the same
limitations on amounts that may be contributed. In 2000, the Company also made
matching contributions to the 401(k) Savings Plan for those participants.
Mr. Grad's Compensation
In reviewing Mr. Grad's performance in 2000 and determining appropriate
compensation, the Board took the following major accomplishments into
consideration:
oThe transformation of the Company into a leading distributor in the
United States of home decorating, hardware and finishing products.
oThe major sales territory expansion.
Mr. Grad was the driving force behind the Company's transformation into
a leading distributor in the United States of home decorating, hardware and
finishing products. In addition, Mr. Grad, together with his senior management
team was instrumental in Five Star's expansion of its sales territory with the
addition of an established dedicated sales force servicing the Mid Atlantic
States, as far south as Virginia. Five Star's diverse product line enabled these
established salespeople immediately to penetrate this market with an expanded
product line. Five Star's ability to service this territory from its existing
New Jersey facility enabled Five Star to leverage its fixed costs on a broader
revenue base. This new sales force is currently generating revenues in excess of
$7,000,000 on an annual basis. The Board considered Mr. Grad's integral role in
the above-described transactions as well as his significant contribution to the
Company's financial progress.
As of January 1, 1997 Five Star Group, Inc. entered into a five-year
(the "Employment Term") employment agreement (the "Employment Agreement") with
Bruce Sherman ("Mr. Sherman"), Five Star's Vice President, Sales, New York and
New Jersey. The Employment Agreement provides for Mr. Sherman to receive an
annual base salary of $160,000, subject to 3% annual increases. In addition, Mr.
Sherman shall be entitled to receive a $15,000 annual bonus. Mr. Sherman
received a $10,000 bonus in January 2000 and received a $15,000 bonus in January
1, 2001. The Employment Agreement provides for the termination of employment
upon Mr. Sherman's death, physical or mental disability or retirement. In
addition, Five Star may terminate Mr. Sherman's employment for "cause"
(including failing to perform required duties or engaging in gross negligence).
Upon termination of the Employment Agreement "for cause", all
obligations of Five Star under the Employment Agreement terminate. Upon
termination by Five Star other than "for cause", disability or retirement, Mr.
Sherman is entitled to receive as severance pay an amount equal to his annual
base salary and annual bonus for any termination prior to the fourth anniversary
of the Employment Term and 50% of his annual base salary for termination at any
time after the fourth anniversary of the Employment Term and ending on the fifth
anniversary of the Employment Term. The Employment Agreement also contains
non-competition and confidentiality provisions.
Item 12. Security Ownership of Certain Beneficial Owners and Management
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of March 12,
2001, with respect to shares of Common Stock which are beneficially owned by (a)
each person who owns more than 5% of the Company's Common Stock, (b) each
director of the Company, (c) each of the persons named in the Summary
Compensation Table and (d) all officers and directors of the Company as a group.
Beneficial Ownership
Number of Percentage
Name and Address Common Shares of Class
GP Strategies Corporation 4,830,104(1) 37%
9 West 57th Street
New York, NY 10019
Jerome I. Feldman 5,424,740(2) 41
Goldman, Sachs & Co. 653,917(3) 5
The Goldman Sachs Group, Inc.
85 Broad Street
New York, NY 10014
Richard T. Grad 284,883(4) 2.2
Charles Dawson 284,308(4) 1.8
Bruce Sherman 284,308(4) 1.8
Steven Schilit 284,308(4) 1.8
Scott N. Greenberg 179,150(4) 1.4
Michael D. Feldman 51,441(4) *
All directors and officers
as a group (9 persons) 2,166,265(4) 15.7
- --------------
* The number of shares owned is less than one percent of the outstanding shares
of Common Stock.
(1) GP Strategies has entered into a Voting Agreement which limits its
ability, to a certain degree, to control the affairs of the Company.
See "Certain Relationships and Related Transactions - GP Strategies'
Capital Stock Interest."
(2) Includes (i) 4,830,104 shares of Common Stock beneficially owned by GP
Strategies, (ii) 594,636 shares of Common Stock held by Mr. Feldman
(iii) 1,173 shares of Common Stock which are held by certain members of
Mr. Feldman's family and (iv) 500,000 shares of Common Stock issuable
upon exercise of currently exercisable stock options held by Mr.
Feldman. Mr. Feldman disclaims beneficial ownership of the shares owned
by GP Strategies and his family.
(3) Based on Schedule 13G filed with the Securities and Exchange Commission
on February 12, 2001.
(4) Includes (i) 194,883, 4,150, 1,441 shares of Common Stock held by
Messrs. Grad, Greenberg and Michael Feldman, respectively, 237,308
shares of Common Stock held by each of Messrs. Dawson, Sherman, and
Schilit and 1,140,092 shares for all executives and officers as a
group, (ii) 90,000, 175,000 and 50,000 shares of Common Stock issuable
upon exercise of currently exercisable stock options held by Messrs.
Grad, Greenberg and Michael Feldman, respectively, 45,000 shares of
Common Stock issuable upon exercise of currently exercisable stock
options held by each of Messrs. Dawson, Sherman , Schilit and (iii)
1,025,000 shares for all executives and officers as a group.
Item 13. Certain Relationships and Related Transactions
Transactions with GP Strategies
On September 30, 1998, a newly formed wholly owned subsidiary of the
Company, Five Star purchased from JL Distributors, Inc. ("JL"), a wholly owned
subsidiary of GP Strategies, substantially all of the operating assets of JL.
The assets were purchased for approximately $16,476,000 in cash and a $5,000,000
unsecured senior note. The unsecured senior note payable to GP Strategies bears
interest at the rate of 8% payable quarterly, with the principal due on
September 30, 2003.
As of January 1, 1994, the Company and GP Strategies entered into a
three-year Management Services Agreement pursuant to which certain direct and
indirect services will be provided to the Company by GP Strategies. The services
to be provided by GP Strategies include legal, tax, accounting, insurance and
employee benefit administration services. The Company pays GP Strategies a fee
of up to $10,000 per month during the term of the agreement. The Agreement is
automatically renewable for successive one-year terms. The Agreement was renewed
for 2000 and 2001.
Five Star leases 250,000 square feet in New Jersey, 110,000 square feet
in Connecticut, 1,200 square feet of sales offices in New York and 800 square
feet in Maryland. Five Star's operating lease for the New Jersey facility
expires in March 2007 and the annual rent is $1,114,959. Five Star's lease for
the Connecticut facility expires in February 2007 and its annual rent is
$398,397. The rent expense for the New York sales office was $16,740 in 2000 and
$10,080 for the Maryland sales office. The Company's New York office space is
provided by GP Strategies pursuant to the Management Services Agreement. GP
Strategies has guaranteed the leases for two of Five Star's warehouses in New
Jersey and Connecticut totaling approximately $1,119,000 and $398,000 per year
through 2007 and 2001, respectively.
GP Strategies holds approximately 4,830,104 shares of Common Stock,
representing approximately 37% of the Common Stock issued and outstanding on
March 12, 2001 (without taking into account outstanding options and warrants).
The Company's by-laws do not provide for cumulative voting. GP Strategies has
entered into a Voting Agreement pursuant to which it has agreed that, for a
period of three years from August 31, 1998 it will vote its shares of Common
Stock (i) such that not more than 50% of the Company's directors will be
officers or directors of GP Strategies; and (ii) on all matters presented to a
vote of stockholders, other than the election of directors, in the same manner
and in the same proportion as the remaining stockholders of the Company vote.
See "Principal Stockholders." GP Strategies and the Company intend to renew the
Voting Agreement for an additional year.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) The following financial statements are included in Part II, Item 8:
Page
Independent Auditors' Reports.......................................15
Financial Statements:
Consolidated Balance Sheets -
December 31, 2000 and 1999..........................................16
Consolidated Statements of
Operations - Years ended
December 31, 2000, 1999 and 1998....................................18
Consolidated Statements of Changes in
Stockholders' Equity (Deficiency)- Years
ended December 31, 2000, 1999 and 1998..............................19
Consolidated Statements of Cash Flows
Years ended December 31, 2000, 1999 and 1998........................20
Notes to Consolidated Financial Statements..........................21
(a)(2) Schedules have been omitted because they are not required
or are not applicable, or the required information has been
included in the financial statements or the notes thereto.
(a)(3) See accompanying Index to Exhibits
There were no reports filed by the Registrant on Form 8-K for the
period ended December 31, 2000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIVE STAR PRODUCTS, INC.
Richard T. Grad, President
and Chief Executive Officer
Dated: March 31, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title
Richard T. Grad President, Chief Executive Officer and Director
(Principal Executive and Operating Officer)
Jerome I. Feldman Chairman of the Board
Cindy Krugman Vice President and Controller
(Principal Financial and Accounting Officer)
Scott N. Greenberg Director
Charles Dawson Director
March 31, 2001
INDEX TO EXHIBITS
Exhibit No. Document Page
- ----------- -------- ----
3 Amended Certificate of Incorporation of the Registrant. Incorporated
herein by reference to Exhibit 3 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996.
3.1 By-laws of the Registrant. Incorporated herein by reference to Exhibit
3.2 of the Registrant's Registration Statement on Form S-1 filed on
July 22, 1994, Registration Statement No. 33-78252.
10. 1994 Stock Option Plan of the Registrant. Incorporated herein by
reference to Exhibit 10.1 of the Registrant's Registration Statement on
Form S-1 filed on July 22, 1994, Registration Statement No. 33-78252.
10.1 Management Services Agreement, dated as of August 5, 1994, between GP
Strategies Corporation and the Registrant. Incorporated herein by
reference to Exhibit 10.3 of the Registrant's Registration Statement on
Form S-1 filed on July 22,1994, Registration Statement No. 33-78252.
10.2 Consulting Agreement, dated as of January 1, 1994, between Jerome I.
Feldman and the Registrant. Incorporated herein by reference to Exhibit
10.5 of the Registrant's Registration Statement on Form S-1 filed on
July 22, 1994, Registration Statement No. 33-78252.
10.3 Voting Agreement, dated as of August 31, 1998, from GP Strategies
Corporation. Incorporated herein by reference to Exhibit 10.5 of the
Registrant's Form 10-K for the year ended December 31, 1998.
10.4 Lease dated as of February 1, 1986 between Vernel Company and Five Star
Group, Inc., as amended on July 25, 1994. Incorporated herein by
reference to Exhibit 10.6 of the Registrant's Form 10-K for the year
ended December 31, 1998.
10.5 Lease dated as of May 4, 1983 between Vornado, Inc., and Five Star
Group, Inc. Incorporated herein by reference to Exhibit 10.7 of the
Registrant's Form 10-K for the year ended December 31, 1998.
10.6 Lease Modification and Extension Agreement dated July 6, 1996 between
Hanover Public Warehousing, Inc. and Five Star Group, Inc. Incorporated
herein by reference to Exhibit 10.8 of the Registrant's Form 10-K for
the year ended December 31, 1998.
10.7 Agreement between Five Star Group and Local No. 11 affiliated with
International Brotherhood of Teamsters dated December 12, 2000.*
10.8 Asset Purchase Agreement dated as of August 31, 1998 between Five Star
Products, Inc. and Five Star Group, Inc. Incorporated herein by
Reference to Exhibit 10 of the Registrant's Form 8-K dated September
15, 1998.
10.9 Loan and Security Agreement by and among Fleet Bank, National
Association in its capacity as Agent for the ratable benefit of Lenders
named Within and The Lenders named Herein and Five Star Group, Inc.
formerly Five Star Acquisition Group Incorporated herein by reference
to the Registrant's Form 10-Q for the third quarter ended September 30,
1998.
21. Subsidiaries.*
22. N/A
*Filed herewith