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 June 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 August 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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JUNE 30, 2001
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PART I. FINANCIAL INFORMATION Page No.
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ITEM 1.
Consolidated Balance Sheets-
June 30, 2001 (unaudited) and
December 31, 2000 (audited) 1 & 2
Consolidated Statements of Operations-unaudited
Six Months Ended June 30, 2001 and 2000 3
Consolidated Statements of Operations-unaudited
Three Months Ended June 30, 2001 and 2000 4
Consolidated Statements of Cash Flows-unaudited
Six Months Ended June 30, 2001 and 2000 5
Notes to Consolidated Financial Statements-
June 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 & 11
STAR STRUCK, LTD.
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CONSOLIDATED BALANCE SHEETS
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JUNE 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:
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Cash $ ----- $ 78,000
Accounts receivable, less allowance for doubtful
accounts of $108,000 in 2001 and 2000 786,000 925,000
Inventories (Note 1) 2,504,000 2,488,000
Prepaid expenses and other current assets 689,000 512,000
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TOTAL CURRENT ASSETS 3,979,000 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 765,000 737,000
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2,000,000 1,972,000
Less: accumulated depreciation 804,000 735,000
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PROPERTY, PLANT AND EQUIPMENT, NET 1,196,000 1,237,000
---------------------------------- ------------ ----------
INTANGIBLE ASSETS AND GOODWILL, NET 399,000 512,000
----------------------------------- ----------- ----------
TOTAL ASSETS $ 5,574,000 $ 5,752,000
------------ ------------ ----------
The accompanying notes are an integral part of these consolidated financial statements.
- 1 -
STAR STRUCK, LTD.
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CONSOLIDATED BALANCE SHEETS
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JUNE 30, 2001 AND DECEMBER 31, 2000
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LIABILITIES AND SHAREHOLDERS' INVESTMENT
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2001 2000
---- ----
(Unaudited) (Audited)
CURRENT LIABILITIES:
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Note payable-Officer (Note 5) $ ----- $ 42,000
Accounts payable and accrued expenses 1,396,000 1,168,000
Borrowings under line of credit (Note 4) 1,307,000 1,646,000
Current portion of notes payable 57,000 68,000
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TOTAL CURRENT LIABILITIES 2,760,000 2,924,000
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OTHER LIABILITIES:
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Notes payable 524,000 548,000
Notes payable-Shareholders (Note 5) 832,000 792,000
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TOTAL LIABILITIES 4,116,000 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 (5,152,000) (5,122,000)
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TOTAL SHAREHOLDERS' INVESTMENT 1,458,000 1,488,000
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TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 5,574,000 $ 5,752,000
---------------------------------------------- ========= =========
The accompanying notes are an integral part of these consolidated financial statements.
- 2 -
STAR STRUCK, LTD.
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CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
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FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
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2001 2000
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NET SALES $ 4,861,000 $ 5,561,000
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COST OF SALES 2,295,000 2,763,000
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GROSS PROFIT ON SALES 2,566,000 2,798,000
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OPERATING EXPENSES:
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Selling, general and administrative 2,200,000 2,588,000
Depreciation and amortization 205,000 196,000
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TOTAL OPERATING EXPENSES 2,405,000 2,784,000
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OPERATING PROFIT 161,000 14,000
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Interest expense, net 181,000 123,000
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Loss from continuing operations before provision for income taxes (20,000) (109,000)
Provision for income taxes ----- -----
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Loss from continuing operations (20,000) (109,000)
(Loss) Income from discontinued operations (10,000) 2,000
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NET LOSS $ (30,000) $ (107,000)
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PER SHARE (Note 1)
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Basic and diluted loss per common share:
Loss from continuing operations $ (.01) $ (.05)
(Loss) Income from discontinued operations ----- ----
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Net loss per common share $ (.01) $ (.05)
========= =========
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.
- 3 -
STAR STRUCK, LTD.
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CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
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FOR THE THREE MONTHS ENDED JUNE 30, 2001 AND 2000
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2001 2000
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NET SALES $ 2,361,000 $ 2,894,000
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COST OF SALES 1,058,000 1,408,000
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GROSS PROFIT ON SALES 1,303,000 1,486,000
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OPERATING EXPENSES:
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Selling, general and administrative 1,095,000 1,317,000
Depreciation and amortization 103,000 101,000
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TOTAL OPERATING EXPENSES 1,198,000 1,418,000
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OPERATING PROFIT 105,000 68,000
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Interest expense, net 85,000 64,000
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Income from continuing operations before provision for income taxes 20,000 4,000
Provision for income taxes ----- -----
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Income from continuing operations 20,000 4,000
(Loss) Income from discontinued operations (10,000) 2,000
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NET INCOME $ 10,000 $ 6,000
---------- ========= =========
PER SHARE (Note 1)
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Basic and diluted income per common share:
Income from continuing operations $ .01 $ .01
(Loss) Income from discontinued operations ----- -----
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Net income per common share $ .01 $ .01
========= =========
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.
- 4 -
STAR STRUCK, LTD.
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CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
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FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
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2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (30,000) $ (107,000)
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Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 205,000 196,000
Amortization of debt discount 40,000 -----
Loss (Income) from discontinued operations 10,000 (2,000)
Changes in operating assets and liabilities:
Accounts receivable 139,000 238,000
Inventories (16,000) 116,000
Prepaid expenses and other current assets (177,000) (173,000)
Accounts payable and accrued expenses 228,000 264,000
Deferred contract fees (23,000) (208,000)
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Total Adjustments 406,000 431,000
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NET CASH PROVIDED BY OPERATING ACTIVITIES 376,000 324,000
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets ----- 19,000
Purchase of fixed assets (28,000) (31,000)
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NET CASH USED IN INVESTING ACTIVITIES (28,000) (12,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable-officer 25,000 -----
Payments on note payable-officer (67,000) -----
Payments on line of credit, net (339,000) (263,000)
Payments on notes payable (35,000) (107,000)
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NET CASH USED IN FINANCING ACTIVITIES (416,000) (370,000)
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NET CASH (USED IN) PROVIDED BY DISCONTINUED OPERATIONS (10,000) 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.
-5 -
STAR STRUCK, LTD.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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JUNE 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., ("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 $62,000 at June
30, 2001) is valued at market. Inventories consist principally of finished
goods.
(3) Business Segments
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The Company's operations by business segment for the periods ended June 30, 2001
and 2000 were as follows:
Battery
& Watch Strap Sports Apparel
2001 Distribution Distribution Total
---- ------------ ------------ -----
Net Sales $ 3,704,000 $ 1,157,000 $ 4,861,000
Operating Profit/(Loss) $ 297,000 $ (136,000) $ 161,000
Battery
& Watch Strap Sports Apparel
2000 Distribution Distribution Total
---- ------------ ------------ -----
Net Sales $ 4,369,000 $ 1,192,000 $ 5,561,000
Operating Profit/(Loss) $ 206,000 $ (192,000) $ 14,000
-6-
STAR STRUCK, LTD.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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JUNE 30, 2001
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(4) Borrowings Under Line of Credit
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The Company has a $3,000,000 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 $99,000 at June 30, 2001. This agreement extends through
October 2001 and bears interest at the prime rate plus three-quarters of one
percent (7.75% at June 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 June 30, 2001 and was in default of the line of credit agreement.
The Company is currently negotiating the extension of the current agreement, as
well as a new agreement. As of June 30, 2001, the Company had $1,307,000
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
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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
$90,000 for the six months ended June 30, 2001. Included in this amount is
$40,000 of amortized debt discount.
The note payable to an officer of the Company is a non-interest bearing note
payable on demand related to working capital advances.
(6) Recent Accounting Pronouncements
--------------------------------
In June 2000, the Financial Accounting Standards Board 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.
-7 -
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 SIX MONTHS ENDED JUNE 30, 2001 AND 2000
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SIX MONTHS ENDED JUNE 30, 2001
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COMPARED TO
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SIX MONTHS ENDED JUNE 30, 2000
------------------------------
Sales. Sales from continuing operations decreased $700,000, or 12.6%, to
$4,861,000 in the first six months of 2001. Sports apparel sales decreased
$35,000, or 2.9%, to $1,157,000 from 2000's first six month's sales of
$1,192,000. This decrease was combined with a decrease in battery and watch
strap sales of $665,000, or 15.2%, from $4,369,000 to $3,704,000 in the first
six months of 2001.
Gross Profit. Gross profit decreased by $232,000 to $2,566,000 in the first six
months of 2001. Gross margin increased 2.5% to 52.8% for the first six months of
2001 compared to 50.3% for the same period in 2000. For the first six months of
2001, sports apparel sales, which represented 23.8% of total revenue, had a
gross margin of 48.7%. This is an increase from 2000's first six month's gross
margin of 46.7%. Gross margin on battery and watch strap sales was 54.1% for the
first six months of 2001 compared to 51.3% for the same period in 2000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $388,000 to $2,200,000 in the first six months
of 2001. As a percentage of sales, selling, general and administrative expenses
decreased by 1.2% to 45.3% in the first six months of 2001 compared to 46.5% for
the same period in 2000.
Operating Profit/(Loss). Operating profit increased $147,000 resulting in a
profit of $161,000 for the first six months of 2001. The battery and watch strap
distribution segment showed an operating profit of $297,000 for the first six
months of 2001. This is an increase of $91,000 from 2000's first six month's
operating profit of $206,000. The operating loss for sports apparel distribution
decreased $56,000 from 2000's operating loss of $192,000 to show a loss of
$136,000 for the first six months of 2001.
Interest Expense. Net interest expense was $181,000 during the first six months
of 2001 versus $123,000 for the same period in 2000. Approximately $64,000 in
interest expense related to the borrowing on the Company's outstanding line of
credit compared to $91,000 in 2000. Interest on a mortgage totaled approximately
$27,000 in the first six months of 2001 compared to $30,000 in 2000. Interest
expense for notes payable to shareholders totaled $90,000 for the six months
ended June 30, 2001. Included in this amount is $40,000 of amortized debt
discount for the six months ended June 30, 2001.
Net Loss. Net loss for the first six months of 2001 decreased $77,000 from
2000's loss of $107,000 to show a net loss of $30,000.
Liquidity and Capital Resources. The Company has a $3,000,000 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 $99,000 at June 30,
2001. This agreement extends through October 2001 and bears interest at the
prime rate plus three-quarters of one percent (7.75% at June 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 June 30, 2001 and was in default of the line of
credit agreement. The Company is currently negotiating the extension of the
current agreement, as well as a new agreement. As of June 30, 2001, the Company
had $1,307,000 outstanding under this line of credit, all of which is included
in current liabilities on the accompanying consolidated balance sheet.
At June 30, 2001 net working capital was $1,219,000.
-8-
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 SIX MONTHS ENDED JUNE 30, 2001 AND 2000
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THREE MONTHS ENDED JUNE 30, 2001
--------------------------------
COMPARED TO
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THREE MONTHS ENDED JUNE 30, 2000
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Sales. Sales from continuing operations decreased $533,000, or 18.4%, to
$2,361,000 in the second quarter of 2001. Sports apparel sales decreased
$15,000, or 2.0%, to $753,000 from 2000's second quarter sales of $768,000. This
decrease was combined with a decrease in battery and watch strap sales of
$518,000, or 24.3%, from $2,126,000 to $1,608,000 in the second quarter of 2001.
Gross Profit. Gross profit decreased by $183,000 to $1,303,000 in the second
quarter of 2001. Gross margin increased 3.9% to 55.2% for the second quarter of
2001 compared to 51.3% for the same period in 2000. For the second quarter of
2001, sports apparel sales, which represented 31.9% of total revenue, had a
gross margin of 51.3%. This is an increase from 2000's second quarter gross
margin of 47.5%. Gross margin on battery and watch strap sales was 57.0% for the
second quarter of 2001 compared to 52.7% for the same period in 2000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $222,000 to $1,095,000 in the second quarter
of 2001. As a percentage of sales, selling, general and administrative expenses
increased by .9% to 46.4% in the second quarter of 2001 compared to 45.5% for
the same period in 2000.
Operating Profit/(Loss). Operating profit increased $37,000 resulting in a
profit of $105,000 for the second quarter of 2001. The battery and watch strap
distribution segment showed an operating profit of $142,000 for the second
quarter of 2001. This is a decrease of $11,000 from 2000's second quarter
operating profit of $153,000. The operating loss for sports apparel distribution
decreased $48,000 from 2000's operating loss of $85,000 to show a loss of
$37,000 for the second quarter of 2001.
Interest Expense. Net interest expense was $85,000 during the second quarter of
2001 versus $64,000 for the same period in 2000. Approximately $27,000 in
interest expense related to the borrowing on the Company's outstanding line of
credit compared to $49,000 in 2000. Interest on a mortgage totaled approximately
$13,000 in the second quarter of 2001 compared to $15,000 in 2000. Interest
expense for notes payable to shareholders totaled $45,000 for the quarter ended
June 30, 2001. Included in this amount is $20,000 of amortized debt discount for
the quarter ended June 30, 2001.
Net Income. Net income for the second quarter of 2001 increased $4,000 from
2000's profit of $6,000 to show a net profit of $10,000.
-9-
PART II - OTHER INFORMATION
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STAR STRUCK, LTD.
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JUNE 30, 2001
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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
See Attached
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
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: August 2, 2001 By: /s/Kenneth Karlan
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Kenneth Karlan, President
Date: August 2, 2001 By: /s/Keith Sessler
----------------
Keith Sessler, Vice President
-10-
PART II - OTHER INFORMATION
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STAR STRUCK, LTD.
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JUNE 30, 2001
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a) Annual meeting held April 30, 2001
b) Directors elected at the Meeting:
Lawrence J. Goldstein
Kenneth Karlan
Robert J. Morris
Peter M. Nisselson
Arthur Salzfass
Keith Sessler
Michael Sweedler
c) Other matters voted on:
None
-11-