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 quarterly period ended March 31, 2005
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _______________ to ______________
Commission File Number: 033-78252
--------------------------------------------------------
FIVE STAR PRODUCTS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3729186
- ------------------------------------ ----------------------
(State or other jurisdiction of (I.R.S. Employer .
incorporation or organization) Identification No.)
777 Westchester Avenue, Fourth Floor, White Plains, NY 10604
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(914) 249-9700
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(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
Indicate by check mark whether registrant is an accelerated filer. Yes No X
Number of shares outstanding of each of issuer's classes of common stock as of
May 2, 2005:
Common Stock, par value $0.01 per share 14,309,577 shares
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Item 1. Financial Statement s (Unaudited)
Consolidated Condensed Balance Sheets -
March 31, 2005 and December 31, 2004 1
Consolidated Condensed Statements of Operations
and Comprehensive Income -
Three Months Ended March 31, 2005 and 2004 2
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 2005 and 2004 3
Notes to Consolidated Condensed Financial
Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risks 14
Item 4. Controls and Procedures 14
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
PART I. FINANCIAL INFORMATION
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
March 31, December 31,
2005 2004
---- ----
(unaudited)
ASSETS
Current assets
Cash $ 3 $ 4
Accounts receivable, net 18,171 9,622
Inventory 29,231 29,334
Prepaid expenses and other current assets 627 336
--------- --------
Total current assets 48,032 39,296
------ ------
Machinery and equipment, net 827 855
Deferred income taxes 89 178
Other assets 383 146
---------- -----------
$ 49,331 $ 40,475
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings $ 27,955 $ 18,234
Accounts payable and accrued expenses
(including due to affiliates of $29 and $37) 13,458 14,504
Note payable to National Patent Development Corporation 2,800 2,800
--------- ---------
Total current liabilities 44,213 35,538
Interest rate collar 44 19
----------- ----------
Total Liabilities 44,257 35,557
Stockholders' equity
Common stock 173 173
Additional paid-in capital 8,552 8,552
Accumulated deficit (3,149) (3,168)
Accumulated other comprehensive income 198 61
Treasury stock, at cost (700) (700)
------------ ---------
Total stockholders' equity 5,074 4,918
---------- -------
$ 49,331 $ 40,475
======== ========
See accompanying notes to the consolidated condensed financial statements.
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(Unaudited)
(in thousands, except per share data)
Three Months Ended
March 31,
2005 2004
---- ----
Sales $ 28,239 $ 26,991
Cost of goods sold 23,835 22,522
-------- --------
Gross margin 4,404 4,469
Selling, general and administrative expenses (3,974) (3,823)
---------- -------
Operating income 430 646
Other income (loss) (19) 11
Interest expense (379) (211)
---------- ----------
Income before income taxes 32 446
Income tax expense (13) (187)
----------- ----------
Net income (loss) $ 19 $ 259
=========== =========
Other comprehensive income (loss) net of tax:
Change in value of cash flow hedge 236 (318)
Tax benefit (expense) (99) 133
------------ ----------
Comprehensive income $ 156 $ 74
=========== =======
Net income per share
Basic and diluted $ .00 $ .02
========= =========
See accompanying notes to the consolidated condensed financial statements.
2
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months
ended March 31,
----------------------------------------------
2005 2004
---- ----
Cash flows from operations:
Net income $ 19 $ 259
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 77 70
Interest rate collar 25 -
Deferred tax asset (10) -
Changes in other operating items:
Accounts receivable (8,549) (6,205)
Inventory 103 385
Prepaid expenses and other current assets (291) 167
Accounts payable and accrued expenses (1,046) (557)
--------- --------
Net cash used in operating activities (9,672) (5,881)
--------- ----------
Cash flows used in investing activities:
Additions to property, plant and equipment (50) (78)
-------- ---------
Cash flows from financing activities:
Net proceeds from short-term borrowings 9,721 5,959
-------- --------
Net cash provided by financing activities 9,721 5,959
------- --------
Net decrease in cash (1) -
Cash at beginning of period 4 6
---------- ----------
Cash at end of period $ 3 $ 6
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the periods for:
Interest $ 380 $ 211
Income taxes $ 580 $ 82
Non cash investing and financing activities:
Treasury stock acquired with payables - $ 657
See accompanying notes to the consolidated condensed financial statements.
3
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Summary of Significant Accounting Policies
Description of Business
Five Star Products, Inc. (the "Company" or "Five Star") owns 100% of
Five Star Group, Inc., which is a wholesale distributor of home decorating,
hardware and finishing products in the northeastern United States. At March 31,
2005 the Company is a majority owned subsidiary of National Patent Development
Corporation ("NPDC").
The Company, which was then 37.5% owned by GP Strategies Corporation
("GPS"), purchased its business from GPS in 1998 in exchange for cash and a
$5,000,000 unsecured 8% note payable ("the Note"). In 2002 and 2003, GPS
converted $1,000,000 principal amount of the Note into 4,272,727 shares of the
Company's common stock. In 2004, the Company repurchased approximately 2,628,000
shares of its common stock through a tender offer. The conversion of the Note
and the tender offer increased GPS' ownership in the Company to approximately
64%. On July 30, 2004, GPS contributed its ownership interest in Five Star and
the Note to NPDC. On November 24, 2004, GPS completed the spin-off to its
shareholders of the common stock of NPDC.
Basis of reporting
The accompanying unaudited financial statements of the Company 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 certain information and footnotes required by
accounting principles generally accepted in the United States 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, 2005, and the results of its operations and cash flows for the quarter then
ended. The results of operations for the quarter ended March 31, 2005 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,
2004 included in the Company's Form 10-K.
Revenue recognition
Revenue on product sales is recognized at the point in time when the
product has been shipped, title and risk of loss has been transferred to the
customer, and the following conditions are met: persuasive evidence of an
arrangement exists, the price is fixed and determinable, and collectibility of
the resulting receivable is reasonably assured. Allowances for estimated returns
and allowances are recognized when sales are recorded.
(Continued)
4
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.
Reclassifications
Certain prior year amounts in the financial statements and notes
thereto have been reclassified to conform to 2005 classifications.
2. Short-term borrowings
In 2003, the Company's wholly-owned subsidiary, Five Star Group, Inc.,
obtained a Loan and Security Agreement (the "Loan Agreement") with Bank of
America Business Capital (formerly Fleet Capital Corporation) (the "Lender").
The Loan Agreement has a five-year term, with a maturity date of June 30, 2008.
The Loan Agreement, as amended in March 2005, provides for a $30,000,000
revolving credit facility, which allows Five Star Group, Inc. to borrow based
upon a formula of up to 55% of eligible inventory and 80% of eligible accounts
receivable, as defined therein. The interest rates under the Loan Agreement
consist of LIBOR plus a credit spread of 2% (4.69% at March 31, 2005) for
borrowings not to exceed $15,000,000 and the prime rate (5.75% at March 31,
2005) for borrowings in excess of the above-mentioned LIBOR-based borrowings.
The credit spreads can be reduced in the event that Five Star Group, Inc.
achieves and maintains certain performance benchmarks. At March 31, 2005 and
December 31, 2004, approximately $27,955,000 and $18,234,000 was outstanding
under the Loan Agreement and approximately $521,000 and $434,000 was available
to be borrowed, respectively. Substantially all of the Company's assets are
pledged as collateral for these borrowings. Under the Loan Agreement the Company
is subject to covenants requiring minimum net worth, limitations on losses, if
any, and minimum or maximum values for certain financial ratios. As of March 31,
2005 the Company was in compliance with all required covenants.
In April 2005, Five Star Group, Inc. amended the Loan Agreement to
allow it to increase the maximum amount that can be borrowed under the revolving
credit facility to $30,800,000 through June 30, 2005; reverting back to a
maximum of $28,000,000 on July 1, 2005.
In connection with the Loan Agreement, Five Star Group, Inc. also
entered into a derivative transaction with the Lender. The derivative
transaction is an interest rate swap and has been designated as a cash flow
hedge. Effective July 1, 2004 through June 30, 2008, Five Star Group, Inc. will
pay a fixed interest rate of 3.38% to the Lender on notional principal of
$12,000,000. In return, the Lender will pay to Five Star Group, Inc. a floating
(Continued)
5
rate, namely, LIBOR, on the same notional principal amount. The credit spread
under the new Loan Agreement is not included in, and will be paid in addition to
this fixed interest rate of 3.38%. The fair value of the interest rate swap
amounted to $341,000 and $105,000 at March 31, 2005 and December 31, 2004,
respectively and is included in other assets in the accompanying balance sheets.
On June 17, 2004, Five Star Group, Inc. also entered into a derivative
interest rate collar transaction during the period from July 1, 2004 through
June 30, 2008 on notional principal of $12,000,000. The transaction consists of
an interest rate floor of 2.25%, whereas if LIBOR is below 2.25%, the Lender
will pay to Five Star Group, Inc. the difference between LIBOR and 2.25%, on the
same notional principal amount. The transaction also consists of an interest
rate cap of 5.75%, whereas if LIBOR is above 5.75%, Five Star Group, Inc. will
pay to the Lender the difference between LIBOR and 5.75%, on the same notional
principal amount.
3. Derivatives and hedging activities
The interest rate swap and interest rate collar entered into by the
Company in connection with its loan agreement (see Note 2) are being accounted
for under SFAS No. 133, as amended, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133 requires all derivatives to be recognized in
the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through earnings. If the derivative is a cash flow hedge,
changes in the fair value of the derivative are recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value is immediately
recognized in earnings. Changes in the fair value of the interest rate swap,
which has been designated as a cash flow hedge, were recognized in other
comprehensive income. Changes in the fair value of the interest rate collar are
recognized in earnings. During the quarter ended March 31, 2005 the Company
recognized a loss of $25,000, as part of other income, for the changes in the
fair value of the interest rate collar.
4. Note payable to JL Distributors, Inc.
The Company's wholly-owned subsidiary, Five Star Group, Inc., has an
unsecured note payable (the "Note") to JL Distributors, Inc., a wholly-owned
subsidiary of NPDC following the spin-off of NPDC from GPS on November 24, 2004.
The Note, as amended, bears interest at 8%, which is payable quarterly, and
matures on June 30, 2005. The Note is subordinated to the indebtedness under the
Loan Agreement according to an Agreement of Subordination & Assignment (the
"Subordination Agreement") between Five Star Group, Inc. and JL Distributors,
Inc. dated June 20, 2003. The Subordination Agreement permits the annual
repayment of principal under certain circumstances. The balance of the Note was
$2,800,000 as of March 31, 2005. The Company is currently negotiating an
extension of the maturity date of the Note, subject to approval by the Board of
Directors of the Company and NPDC, respectively.
(Continued)
6
5. Earnings per share
Earnings per share (EPS) for the quarter ended March 31, 2005 and 2004
are as follows (in thousands, except per share amounts):
Three months
ended March 31,
2005 2004
---- ----
Basic EPS
Net income $ 19 $ 259
------ ---------
Weighted average shares outstanding 14,310 16,938
------ ------
Basic earnings per share $ .00 $ .02
-------- -------
Diluted EPS
Net income $ 19 $ 259
------ ---------
Weighted average shares outstanding 14,310 16,938
Dilutive effect of stock options 499 260
-------- ---------
Diluted weighted average shares outstanding 14,809 17,198
------ ------
Diluted earnings per share $ .00 $ .02
-------- -------
Basic earnings per share is based upon the weighted average number of
common shares outstanding during the period. Diluted earnings per share is 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. For the quarter ended March 31, 2004, 405,000 option shares were
excluded, as their effect is anti-dilutive.
(Continued)
7
8
6. Stock-based compensation
Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation" encourages the use of the fair value
based method of accounting for stock-based employee compensation. Alternatively,
SFAS No. 123 allows entities to continue to apply the intrinsic value method
prescribed by the Accounting Principles Board ("APB") Opinion 25, "Accounting
for Stock Issued to Employees", and related interpretations and provide pro
forma disclosures of net income (loss) and earnings (loss) per share, as if the
fair value based method of accounting had been applied to employee awards. The
Company has elected to continue to apply the provisions of APB Opinion 25 and
provide the disclosures required by SFAS No. 123 and SFAS No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure", which was released in
December, 2002, as an amendment of SFAS No. 123. The following table illustrates
the effect on net income and earnings per share if the fair value based method
had been applied to all awards.
Three months
Ended March 31,
2005 2004
---- ----
Reported net income $ 19 $ 259
Stock-based employee compensation
determined under the intrinsic value
method, net of tax - -
Stock-based employee compensation
determined under the fair value based
method, net of tax (3) (3)
--------- ------
Pro-forma net income $ 16 $ 256
---- ------
Basic earnings per share:
As reported $ .00 $ .02
----- -----
Pro forma $ .00 $ .02
----- -----
Diluted earnings per share:
As reported $ .00 $ .02
----- -----
Pro forma $ .00 $ .01
----- -----
8
FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
Five Star is a publicly held company that is a leading distributor in the United
States of home decorating, hardware, and finishing products. Five Star offers
products from leading manufacturers in the home improvement industry and
distributes those products to retail dealers, which include lumber yards, "do-it
yourself" centers, hardware stores and paint stores. Five Star has grown to be
one of the largest independent distributors in the Northeast United States by
providing a complete line of competitively priced products, timely delivery and
attractive pricing and financing terms to its customers.
Results of Operations
The Company had income before income taxes of $32,000 for the quarter ended
March 31, 2005, as compared to income before income taxes of $446,000 for the
quarter ended March 31, 2004. The decrease in income before income taxes for the
quarter ended March 31, 2005 was primarily the result of increased delivery
expense, interest expense and management fees charged by NPDC.
Sales
The Company had sales of $28,239,000 for the quarter ended March 31, 2005, as
compared to sales of $26,991,000 for the quarter ended March 31, 2005. The
increase in sales was a result of increased sales volume generated from the
Company's annual trade shows; as well as rising prices due to increased raw
material costs for certain of the Company's vendors.
Gross margin
Gross margin decreased to $4,404,000, or 15.6% of net sales, for the quarter
ended March 31, 2005, as compared to $4,469,000, or 16.6% of net sales, for the
quarter ended March 31, 2004. The decrease in gross margin dollars and gross
margin percentage for the quarter ended March 31, 2005 is primarily a result of
increased purchases during the period, an unfavorable shift in the product mix
sold and increased warehouse expenses.
Selling, general and administrative expense
The Company had selling, general and administrative (SG&A) expense of $3,974,000
for the quarter ended March 31, 2005, as compared to $3,823,000 for the quarter
ended March 31, 2004. The increase in SG&A expenses was primarily attributable
to increases in salesmen commissions, in delivery expenses and in medical
expenses; offset by a decrease in legal and professional fees.
9
Other income
The Company had other losses of $19,000 for the quarter ended March 31, 2005, as
compared to other income of $11,000 for the quarter ended March 31, 2004. The
decrease in other income for the quarter ended March 31, 2005 is mainly a result
of the Company recognizing a loss of $25,000 for the change in the fair value of
the interest rate collar.
Interest expense
The Company had interest expense of $379,000 for the quarter ended March 31,
2005, as compared to interest expense of $211,000 for the quarter ended March
31, 2004. The increase in interest expense for the quarter ended March 31, 2005
is a result of an increase in average short-term borrowings and interest rates.
Income taxes
The effective income tax rate remained at approximately 42% for the quarter
ended March 31, 2005 and 2004, which is the anticipated annualized effective
rate.
Liquidity and Capital Resources
At March 31, 2005, the Company had cash of $3,000. Management believes that cash
generated from operations and borrowing availability under existing credit
agreements will be sufficient to fund the Company's working capital requirements
for at least the next twelve months.
For the three months ended March 31, 2005, the Company's working capital
increased by $61,000 from $3,758,000 to $3,819,000, which was primarily due to
increased accounts receivable, other current assets and decreased accounts
payable and accrued expenses, offset by increased short-term borrowings.
The decrease in cash of $1,000 for the three months ended March 31, 2005
resulted from cash used by operations of $9,672,000 and cash used by additions
to property, plant and equipment of $50,000, offset by cash provided by
short-term borrowings of $9,721,000.
In 2003, the Company's wholly-owned subsidiary, Five Star Group, Inc., obtained
a Loan and Security Agreement (the "Loan Agreement") with Bank of America
Business Capital (formerly Fleet Capital Corporation) (the "Lender"). The Loan
Agreement has a five-year term, with a maturity date of June 30, 2008. The Loan
Agreement, as amended in March 2005, provides for a $30,000,000 revolving credit
facility, which allows Five Star Group, Inc. to borrow based upon a formula of
up to 55% of eligible inventory and 80% of eligible accounts receivable, as
defined therein. The interest rates under the Loan Agreement consist of LIBOR
plus a credit spread of 2% (4.69% at March 31, 2005) for borrowings not to
exceed $15,000,000 and the prime rate (5.75% at March 31, 2005) for borrowings
in excess of the above-mentioned LIBOR-based borrowings. The credit spreads can
10
be reduced in the event that Five Star Group, Inc. achieves and maintains
certain performance benchmarks. At March 31, 2005 and December 31, 2004,
approximately $27,955,000 and $18,234,000 was outstanding under the Loan
Agreement and approximately $521,000 and $434,000 was available to be borrowed,
respectively. Substantially all of the Company's assets are pledged as
collateral for these borrowings. Under the Loan Agreement Five Star is subject
to covenants requiring minimum net worth, limitations on losses, if any, and
minimum or maximum values for certain financial ratios. As of March 31, 2005 the
Company was in compliance with all required covenants.
In April 2005, Five Star Group, Inc. amended the Loan Agreement to allow it to
increase the maximum amount that can be borrowed under the revolving credit
facility to $30,800,000 through June 30, 2005; reverting back to a maximum of
$28,000,000 on July 1, 2005.
In connection with the Loan Agreement, Five Star Group, Inc. also entered into a
derivative transaction with the Lender. The derivative transaction is an
interest rate swap and has been designated as a cash flow hedge. Effective July
1, 2004 through June 30, 2008, Five Star Group, Inc. will pay a fixed interest
rate of 3.38% to the Lender on notional principal of $12,000,000. In return, the
Lender will pay to Five Star Group, Inc. a floating rate, namely, LIBOR, on the
same notional principal amount. The credit spread under the new Loan Agreement
is not included in, and will be paid in addition to this fixed interest rate of
3.38%. The fair value of the interest rate swap amounted to $341,000 and
$105,000 at March 31, 2005 and December 31, 2004, respectively and is included
in other assets in the accompanying balance sheets.
On June 17, 2004, Five Star Group, Inc. also entered into a derivative interest
rate collar transaction during the period from July 1, 2004 through June 30,
2008 on notional principal of $12,000,000. The transaction consists of an
interest rate floor of 2.25%, whereas if LIBOR is below 2.25%, the Lender will
pay to Five Star Group, Inc. the difference between LIBOR and 2.25%, on the same
notional principal amount. The transaction also consists of an interest rate cap
of 5.75%, whereas if LIBOR is above 5.75%, Five Star Group, Inc. will pay to the
Lender the difference between LIBOR and 5.75%, on the same notional principal
amount.
The interest rate swap and interest rate collar entered into by the Company in
connection with its loan agreement (see Note 2) are being accounted for under
SFAS No. 133, as amended, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 requires all derivatives to be recognized in the
balance sheet at fair value. Derivatives that are not hedges must be adjusted to
fair value through earnings. If the derivative is a cash flow hedge, changes in
the fair value of the derivative are recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value is immediately recognized in earnings. Changes
in the fair value of the interest rate swap, which has been designated as a cash
flow hedge, were recognized in other comprehensive income. Changes in the fair
value of the interest rate collar are recognized in earnings. During the quarter
ended March 31, 2005 the Company recognized a loss of $25,000, as part of other
income, for the changes in the fair value of the interest rate collar.
11
The Company's wholly-owned subsidiary, Five Star Group, Inc., has an unsecured
note payable (the "Note") to JL Distributors, Inc., a wholly-owned subsidiary of
NPDC following the spin-off of NPDC from GPS on November 24, 2004. The Note, as
amended, bears interest at 8%, which is payable quarterly, and matures on June
30, 2005. The Note is subordinated to the indebtedness under the Loan Agreement
according to an Agreement of Subordination & Assignment (the "Subordination
Agreement") between Five Star Group, Inc. and JL Distributors, Inc. dated June
20, 2003. The Subordination Agreement permits the annual repayment of principal
under certain circumstances. The balance of the Note was $2,800,000 as of March
31, 2005. The Company is currently negotiating an extension of the maturity date
of the Note, subject to approval by the Board of Directors of the Company and
NPDC, respectively.
Application of Critical Accounting Policies
The Company's consolidated condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America. Certain accounting policies have a significant impact on amounts
reported in the financial statements. A summary of those significant accounting
policies can be found in Note 2 to the Company's financial statements included
in the Company's 2004 Annual Report on Form 10-K. The Company has not adopted
any significant new accounting policies during the three months ended March 31,
2005.
Among the significant judgments made by management in the preparation of the
Company's financial statements are the determination of the allowance for
doubtful accounts and adjustments of inventory valuations. These adjustments are
made each quarter in the ordinary course of accounting.
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 Company 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.
12
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We have no material changes to the disclosure on this matter
made in our report on Form 10-K for the fiscal year ended December 31, 2004.
Item 4. Controls and Procedures
a. Evaluation of disclosure controls and procedures. The Company's Chief
Executive Officer and Chief Financial Officer have reviewed and evaluated the
effectiveness of the Company's disclosure controls and procedures (as defined
in Exchange Act Rules 240.13a-15(e) or 15d-15(e) as of the end of period
covered by the report. Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer have concluded that the Company's current
disclosure controls and procedures are effective as of the evaluation date,
providing them with material timely information relating to the Company
required to be disclosed in the reports the Company files or submits under the
Exchange Act.
b. Changes in internal controls. There have not been any significant changes in
the Company's internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation.
13
PART II OTHER INFORMATION
Item 6. Exhibits
10.1 Second Modification Agreement dated as of March 22,
2005 by and between Five Star Group, Inc. as borrower and
Fleet Capital Corporation, as Lender.
31.1 Certification of Chief Executive Officer of the Company,
dated May 16, 2005 pursuant to Securities Exchange Act Rule
13a-14(a)/15d-14(a), as adopted pursuant to Sections 302 and
404 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer of the Company,
dated May 16, 2005 pursuant to Securities Exchange Act Rule
13a-14(a)/15d-14(a), as adopted pursuant to Sections 302 and
404 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and Chief
Financial Officer of the Company dated May 16, 2005 pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
14
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 16, 2005 Charles Dawson
President
DATE: May 16, 2005 Greg Golkov
Chief Financial Officer
15