U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
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OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-8912
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STAR STRUCK, LTD.
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(Exact name of small business issuer as specified in its charter)
Delaware 36-1805030
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1865 Palmer Avenue
Larchmont, NY 10538
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (914) 833-0649
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Former name, former address and former fiscal year,
if changed since last report.
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS: Check whether the registrant filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act
after the distribution of securities under a plan confirmed by a court.
Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS: State the number of shares outstanding of
each of the issuer's classes of common equity, as of the latest practicable
date: $1.00 par value - 2,025,899 shares at November 2, 2001.
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STAR STRUCK, LTD.
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FORM 10-QSB
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INDEX
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SEPTEMBER 30, 2001
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PART I. FINANCIAL INFORMATION Page No.
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ITEM 1.
Consolidated Balance Sheets-
September 30, 2001 (unaudited) and
December 31, 2000 (audited) 1 & 2
Consolidated Statements of Operations-unaudited
Nine Months Ended September 30, 2001 and 2000 3
Consolidated Statements of Operations-unaudited
Three Months Ended September 30, 2001 and 2000 4
Consolidated Statements of Cash Flows-unaudited
Nine Months Ended September 30, 2001 and 2000 5
Notes to Consolidated Financial Statements-
September 30, 2001 6 & 7
ITEM 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 & 9
PART II. OTHER INFORMATION 10
STAR STRUCK, LTD.
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CONSOLIDATED BALANCE SHEETS
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SEPTEMBER 30, 2001 AND DECEMBER 31, 2000
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A S S E T S
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2001 2000
---- ----
(Unaudited) (Audited)
CURRENT ASSETS:
--------------
Cash $ -- $ 78,000
Accounts receivable, less allowance for doubtful
accounts of $108,000 in 2001 and 2000 780,000 925,000
Inventories 2,408,000 2,488,000
Prepaid expenses and other current assets 787,000 512,000
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TOTAL CURRENT ASSETS 3,975,000 4,003,000
-------------------- ------------ -----------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
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Land, building and improvements 1,235,000 1,235,000
Machinery and equipment 777,000 737,000
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2,012,000 1,972,000
Less: accumulated depreciation and amortization 839,000 735,000
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PROPERTY, PLANT AND EQUIPMENT, NET 1,173,000 1,237,000
---------------------------------- ------------ -----------
INTANGIBLE ASSETS AND GOODWILL, NET 338,000 512,000
----------------------------------- ------------ -----------
TOTAL ASSETS $ 5,486,000 $ 5,752,000
------------ ============ ===========
The accompanying notes are an integral part of these
consolidated financial statements.
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STAR STRUCK, LTD.
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CONSOLIDATED BALANCE SHEETS
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SEPTEMBER 30, 2001 AND DECEMBER 31, 2000
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LIABILITIES AND SHAREHOLDERS' INVESTMENT
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2001 2000
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(Unaudited) (Audited)
CURRENT LIABILITIES:
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Note payable-Officer $ -- $ 42,000
Accounts payable and accrued expenses 1,569,000 1,168,000
Borrowings under line of credit 1,064,000 1,646,000
Current portion of notes payable 50,000 68,000
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TOTAL CURRENT LIABILITIES 2,683,000 2,924,000
------------------------- ---------- ----------
OTHER LIABILITIES:
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Notes payable 513,000 548,000
Notes payable-Shareholders 852,000 792,000
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TOTAL LIABILITIES 4,048000 4,264,000
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SHAREHOLDERS' INVESTMENT:
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Preferred shares, $1 par value-500,000 shares
authorized; none issued and outstanding -- --
Common shares, $1 par value-5,000,000 shares
authorized; issued and outstanding-
2,026,000 shares 2,026,000 2,026,000
Paid-in surplus 4,584,000 4,584,000
Accumulated deficit (5,172,000) (5,122,000)
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TOTAL SHAREHOLDERS' INVESTMENT 1,438,000 1,488,000
------------------------------ ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $5,486,000 $5,752,000
---------------------------------------------- ========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
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STAR STRUCK, LTD.
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CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
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FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
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2001 2000
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NET SALES $7,177,000 $7,572,000
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COST OF SALES 3,393,000 3,728,000
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GROSS PROFIT ON SALES 3,784,000 3,844,000
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OPERATING EXPENSES:
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Selling, general and administrative 3,203,000 3,760,000
Depreciation and amortization 309,000 298,000
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TOTAL OPERATING EXPENSES 3,512,000 4,058,000
------------------------ ---------- ----------
OPERATING PROFIT (LOSS) 272,000 (214,000)
----------------------
Interest expense, net 262,000 226,000
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Income (loss) from continuing operations before provision for income taxes 10,000 (440,000)
Provision for income taxes -- --
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Income (loss) from continuing operations 10,000 (440,000)
(Loss) income from discontinued operations (60,000) 2,000
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NET LOSS $ (50,000) $ (438,000)
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PER SHARE
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Basic and diluted loss per common share:
Income (loss) from continuing operations $ -- $ (.21)
(Loss) income from discontinued operations (.02) --
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Net loss per common share $ (.02) $ (.21)
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
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Basic and diluted 2,026,000 2,026,000
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
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STAR STRUCK, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
2001 2000
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NET SALES $ 2,316,000 $ 2,011,000
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COST OF SALES 1,098,000 965,000
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GROSS PROFIT ON SALES 1,218,000 1,046,000
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OPERATING EXPENSES:
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Selling, general and administrative 1,003,000 1,172,000
Depreciation and amortization 104,000 102,000
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TOTAL OPERATING EXPENSES 1,107,000 1,274,000
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OPERATING PROFIT (LOSS) 111,000 (228,000)
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Interest expense, net 81,000 103,000
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Income (loss) from continuing operations before provision for income taxes 30,000 (331,000)
Provision for income taxes -- --
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Income (loss) from continuing operations 30,000 (331,000)
Loss from discontinued operations (50,000) --
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NET LOSS $ (20,000) $ (331,000)
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PER SHARE
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Basic and diluted income (loss) per common share:
Income (loss) from continuing operations $ .01 $ (.16)
(Loss) income from discontinued operations (.02) --
----------- -----------
Net loss per common share $ (.01) $ (.16)
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES
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Basic and diluted 2,026,000 2,026,000
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
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STAR STRUCK, LTD.
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CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
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FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
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2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(50,000) $(438,000)
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Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization 309,000 298,000
Amortization of debt discount 60,000 15,000
Loss (income) from discontinued operations 60,000 (2,000)
Changes in operating assets and liabilities:
Accounts receivable 145,000 9,000
Inventories 80,000 149,000
Prepaid expenses and other current assets (275,000) (128,000)
Accounts payable and accrued expenses 366,000 (622,000)
Deferred contract fees (31,000) (215,000)
Changes in discontinued operations -- (220,000)
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Total Adjustments 714,000 (716,000)
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 664,000 (1,154,000)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (40,000) (33,000)
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NET CASH USED IN INVESTING ACTIVITIES (40,000) (33,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable-officer 42,000 --
Payments on note payable-officer (84,000) --
(Payments on) proceeds from line of credit, net (582,000) 253,000
Proceeds from shareholder investment -- 1,000,000
Payments on notes payable (53,000) (124,000)
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NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (677,000) 1,129,000
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NET CASH (USED IN) PROVIDED BY DISCONTINUED OPERATIONS (25,000) 2,000
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NET DECREASE IN CASH (78,000) (56,000)
CASH AT BEGINNING OF PERIOD 78,000 56,000
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CASH AT END OF PERIOD $ -- $ --
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The accompanying notes are an integral part of these
consolidated financial statements.
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STAR STRUCK, LTD.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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SEPTEMBER 30, 2001
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(1) Basis of Presentation
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The consolidated financial statements heretofore presented have been prepared by
Star Struck, Ltd. and its wholly owned subsidiary, Star Struck, Inc., ("the
Company" or "SSL"), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with U.S.
generally accepted accounting principles have been omitted pursuant to such
rules and regulations. Although the Company believes that the disclosures are
adequate to make the information presented not misleading, it is suggested that
these consolidated financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's latest annual report on Form 10-KSB. The interim figures presented are
unaudited and are subject to any adjustments, which may result from the year-end
audit of the Company's consolidated financial statements. However, in the
opinion of management, the information furnished reflects all adjustments
necessary to fairly state the consolidated financial statements for the interim
periods presented.
Net (loss) income per common share is computed based on the weighted average
number of shares outstanding during each period. The weighted average number of
shares used in the computation of earnings per share was 2,026,000 for 2001 and
2000.
The profit and loss information for the interim periods presented are not
necessarily indicative of results to be expected for the year.
(2) Inventories
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Inventories, with the exception of gold, are stated at the lower of cost
(first-in, first-out) or market. Gold inventory (approximately $56,000 at
September 30, 2001) is valued at market. Inventories consist principally of
finished goods.
(3) Business Segments
-----------------
The Company's operations by business segment for the periods ended September 30,
2001 and 2000 were as follows:
Battery
& Watch Strap Sports Apparel
2001 Distribution Distribution Total
---- ------------ ------------ -----
Net Sales $ 5,609,000 $ 1,568,000 $ 7,177,000
Operating Profit/(Loss) $ 456,000 $ (184,000) $ 272,000
Battery
& Watch Strap Sports Apparel
2000 Distribution Distribution Total
---- ------------ ------------ -----
Net Sales $ 5,916,000 $ 1,656,000 $ 7,572,000
Operating Profit/(Loss) $ 118,000 $ (332,000) $ (214,000)
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STAR STRUCK, LTD.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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SEPTEMBER 30, 2001
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(4) Borrowings Under Line of Credit
-------------------------------
The Company has a $1,500,000 line of credit agreement with one of its banks, as
amended. Availability under this line is based on the Borrowing Base, as defined
in the agreement with the bank. The amount available under the Borrowing Base
was approximately $117,000 at September 30, 2001. This agreement extends through
April 2002 and bears interest at the prime rate plus one percent (7.25% at
September 30, 2001). The Company's accounts receivable and a portion of its
inventory have been pledged as collateral for this line of credit. The agreement
contains certain financial covenants, including the requirement for Star Struck,
Inc. to maintain a minimum tangible net worth and debt service coverage ratio.
Star Struck, Inc. did not comply with these covenants at September 30, 2001 and
was in default of the line of credit agreement. The Company is currently
negotiating a new agreement. As of September 30, 2001, the Company had
$1,064,000 outstanding under this line of credit, all of which is included in
current liabilities on the accompanying consolidated balance sheet.
(5) Related Party Notes Payable
---------------------------
In August 2000, the Company entered into promissory notes, (the "Notes") with
three of the Company's shareholders, two of which are members of the Company's
management, for an aggregate of $1,000,000. Each note bears interest at 10%, due
quarterly, and the principal amount matures in August 2003. In connection with
these loans, the Company issued warrants for the purchase of 500,000 shares of
the Company's common stock at an exercise price of $2.00 per share. The fair
value of these warrants of approximately $240,000 has been recorded as original
issue discount, resulting in a reduction in the carrying value of this debt. The
original issue discount will be amortized into interest expense over the period
of the debt. These loans are subordinate to the Company's borrowings under the
line of credit. Interest expense for notes payable to shareholders totaled
$135,000 for the nine months ended September 30, 2001. Included in this amount
is $60,000 of amortized debt discount.
The note payable to an officer of the Company was a non-interest bearing note
payable on demand related to working capital advances.
(6) Recent Accounting Pronouncements
--------------------------------
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141")
and Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" effective for all business combinations initiated after June
30, 2001. SFAS 142 requires goodwill to be tested for impairment under certain
circumstances, and written off when impaired, rather than being amortized as
previous standards required. SFAS 142 is effective for fiscal years beginning
after December 15, 2001. The adoption of SFAS 141 did not have a material effect
on the Company's operating results or financial condition. The Company is
currently assessing the impact of SFAS 142 on its operating results and
financial condition.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities," which amends the accounting and
reporting standards of SFAS No. 133. SFAS No. 133 was previously amended by SFAS
No. 137, which deferred the effective date of SFAS No. 133 to fiscal years
commencing after June 15, 2000. The statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability and be measured at its fair value.
Additionally, any changes in the derivative's fair value are to be recognized
currently in earnings, unless specific hedge accounting criteria are met. The
Company does not believe that adoption of this statement will have a material
impact on its consolidated financial statements.
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STAR STRUCK, LTD.
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ITEM 2, MANAGEMENT'S DISCUSSION AND ANALYSIS
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OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
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NINE MONTHS ENDED SEPTEMBER 30, 2001
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COMPARED TO
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NINE MONTHS ENDED SEPTEMBER 30, 2000
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Sales. Sales from continuing operations decreased $395,000, or 5.2%, to
$7,177,000 in the first nine months of 2001. Sports apparel sales decreased
$88,000, or 5.3%, to $1,568,000 from 2000's first nine month's sales of
$1,656,000. This decrease was combined with a decrease in battery and watch
strap sales of $307,000, or 5.2%, from $5,916,000 to $5,609,000 in the first
nine months of 2001.
Gross Profit. Gross profit decreased by $60,000 to $3,784,000 in the first nine
months of 2001. Gross margin increased 1.9% to 52.7% for the first nine months
of 2001 compared to 50.8% for the same period in 2000. For the first nine months
of 2001, sports apparel sales, which represented 21.8% of total revenue, had a
gross margin of 48.9%. This is an increase from 2000's first nine month's gross
margin of 46.2%. Gross margin on battery and watch strap sales was 53.8% for the
first nine months of 2001 compared to 52.0% for the same period in 2000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $557,000 to $3,203,000 in the first nine
months of 2001. As a percentage of sales, selling, general and administrative
expenses decreased by 5.1% to 44.6% in the first nine months of 2001 compared to
49.7% for the same period in 2000.
Operating Profit/(Loss). Operating profit increased $486,000 resulting in a
profit of $272,000 for the first nine months of 2001. The battery and watch
strap distribution segment showed an operating profit of $456,000 for the first
nine months of 2001. This is an increase of $338,000 from 2000's first nine
month's operating profit of $118,000. The operating loss for sports apparel
distribution decreased $148,000 from 2000's operating loss of $332,000 to show a
loss of $184,000 for the first nine months of 2001.
Interest Expense. Net interest expense was $262,000 during the first nine months
of 2001 versus $226,000 for the same period in 2000. Approximately $90,000 in
interest expense related to borrowings on the Company's outstanding line of
credit compared to $142,000 in 2000. Interest on a note payable totaled
approximately $37,000 in the first nine months of 2001 compared to $46,000 in
2000. Interest expense for notes payable to shareholders totaled $135,000 for
the nine months ended September 30, 2001. Included in this amount is $60,000 of
amortized debt discount for the nine months ended September 30, 2001.
Net Loss. Net loss for the first nine months of 2001 decreased $388,000 from
2000's loss of $438,000 to show a net loss of $50,000.
Liquidity and Capital Resources. The Company has a $1,500,000 line of credit
agreement with one of its banks, as amended. Availability under this line is
based on the Borrowing Base, as defined in the agreement with the bank. The
amount available under the Borrowing Base was approximately $117,000 at
September 30, 2001. This agreement extends through April 2002 and bears interest
at the prime rate plus one percent (7.25% at September 30, 2001). The Company's
accounts receivable and a portion of its inventory have been pledged as
collateral for this line of credit. The agreement contains certain financial
covenants, including the requirement for Star Struck, Inc. to maintain a minimum
tangible net worth and debt service coverage ratio. Star Struck, Inc. did not
comply with these covenants at September 30, 2001 and was in default of the line
of credit agreement. The Company is currently negotiating a new agreement. As of
September 30, 2001, the Company had $1,064,000 outstanding under this line of
credit, all of which is included in current liabilities on the accompanying
consolidated balance sheet.
At September 30, 2001 net working capital was $1,292,000.
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STAR STRUCK, LTD.
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ITEM 2, MANAGEMENT'S DISCUSSION AND ANALYSIS
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OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
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THREE MONTHS ENDED SEPTEMBER 30, 2001
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COMPARED TO
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THREE MONTHS ENDED SEPTEMBER 30, 2000
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Sales. Sales from continuing operations increased $305,000, or 15.2%, to
$2,316,000 in the third quarter of 2001. Sports apparel sales decreased $53,000,
or 11.4%, to $411,000 from 2000's third quarter sales of $464,000. This decrease
offset an increase in battery and watch strap sales of $358,000, or 23.1%, from
$1,547,000 to $1,905,000 in the third quarter of 2001.
Gross Profit. Gross profit increased by $172,000 to $1,218,000 in the third
quarter of 2001. Gross margin increased .6% to 52.6% for the third quarter of
2001 compared to 52.0% for the same period in 2000. For the third quarter of
2001, sports apparel sales, which represented 17.7% of total revenue, had a
gross margin of 49.5%. This is an increase from 2000's third quarter gross
margin of 44.9%. Gross margin on battery and watch strap sales was 53.3% for the
third quarter of 2001 compared to 54.2% for the same period in 2000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $169,000 to $1,003,000 in the third quarter of
2001. As a percentage of sales, selling, general and administrative expenses
decreased by 15.0% to 43.3% in the second quarter of 2001 compared to 58.3% for
the same period in 2000.
Operating Profit/(Loss). Operating profit increased $339,000 resulting in a
profit of $111,000 for the third quarter of 2001. The battery and watch strap
distribution segment showed an operating profit of $159,000 for the third
quarter of 2001. This is an increase of $247,000 from 2000's third quarter
operating loss of $88,000. The operating loss for sports apparel distribution
decreased $92,000 from 2000's operating loss of $140,000 to show a loss of
$48,000 for the third quarter of 2001.
Interest Expense. Net interest expense was $81,000 during the third quarter of
2001 versus $103,000 for the same period in 2000. Approximately $26,000 in
interest expense related to borrowings on the Company's outstanding line of
credit compared to $51,000 in 2000. Interest on a note payable totaled
approximately $10,000 in the third quarter of 2001 compared to $16,000 in 2000.
Interest expense for notes payable to shareholders totaled $45,000 for the
quarter ended September 30, 2001. Included in this amount is $20,000 of
amortized debt discount for the quarter ended September 30, 2001.
Net Loss. Net loss for the third quarter of 2001 decreased $311,000 from 2000's
loss of $331,000 to $20,000.
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PART II - OTHER INFORMATION
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STAR STRUCK, LTD.
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SEPTEMBER 30, 2001
------------------
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 2001.
SIGNATURES
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Pursuant to the requirements 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.
STAR STRUCK, LTD.
Date: November 2, 2001 By: /s/ Kenneth Karlan
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Kenneth Karlan, President
Date: November 2, 2001 By: /s/ Keith Sessler
--------------------------------------------
Keith Sessler, Vice President
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