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, 2002
---------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________to______________
Commission File Number 1-8912
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STAR STRUCK, LTD.
-----------------
(Exact name of small business issuer as specified in its charter)
Delaware 36-1805030
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1865 Palmer Avenue
Larchmont, NY 10538
------------- -----
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (914) 833-0649
--------------
________________________________________________________________________________
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 9, 2002.
Transitional Small Business Disclosure Format (checkbox):
Yes No X
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STAR STRUCK, LTD.
FORM 10-QSB
INDEX
JUNE 30, 2002
PART I. FINANCIAL INFORMATION Page No.
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ITEM 1.
Consolidated Balance Sheets-
June 30, 2002 (unaudited) and
December 31, 2001 (audited) 1 & 2
Consolidated Statements of Operations-unaudited
Six Months Ended June 30, 2002 and 2001 3
Consolidated Statements of Operations-unaudited
Three Months Ended June 30, 2002 and 2001 4
Consolidated Statements of Cash Flows-unaudited
Six Months Ended June 30, 2002 and 2001 5
Notes to Consolidated Financial Statements-
June 30, 2002 6 -8
ITEM 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-11
PART II. OTHER INFORMATION 12
STAR STRUCK, LTD.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2002 AND DECEMBER 31, 2001
A S S E T S
2002 2001
---- ----
(Unaudited) (Audited)
CURRENT ASSETS:
--------------
Cash $ 111,000 $ 63,000
Accounts receivable, less allowance for doubtful
accounts of $82,000 in 2002 and 2001 909,000 1,146,000
Inventories 3,246,000 2,359,000
Prepaid expenses and other current assets 447,000 604,000
----------- ----------
TOTAL CURRENT ASSETS 4,713,000 4,172,000
-------------------- ---------- ---------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
--------------------------------------
Land, building and improvements 1,242,000 1,235,000
Machinery and equipment 882,000 841,000
---------- ----------
2,124,000 2,076,000
Less: accumulated depreciation and amortization 942,000 877,000
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, NET 1,182,000 1,199,000
---------------------------------- ---------- ---------
INTANGIBLE ASSETS AND GOODWILL, NET 438,000 272,000
----------------------------------- ----------- ----------
TOTAL ASSETS $ 6,333,000 $ 5,643,000
------------ ========== =========
The accompanying notes are an integral part of these consolidated financial
statements.
- 1 -
STAR STRUCK, LTD.
CONSOLIDATED BALANCE SHEETS (Continued)
JUNE 30, 2002 AND DECEMBER 31, 2001
LIABILITIES AND SHAREHOLDERS' EQUITY
2002 2001
---- ----
(Unaudited) (Audited)
CURRENT LIABILITIES:
-------------------
Accounts payable and accrued expenses $1,653,000 $ 1,325,000
Borrowings under line of credit 1,179,000 1,276,000
Current portion of long-term debt 35,000 40,000
----------- ------------
TOTAL CURRENT LIABILITIES 2,867,000 2,641,000
------------------------- ---------- ---------
OTHER LIABILITIES:
-----------------
Notes payable - shareholders 912,000 872,000
Long-term debt, less current portion 546,000 549,000
---------- ----------
TOTAL LIABILITIES 4,325,000 4,062,000
----------------- --------- ---------
NONCONTROLLING INTEREST 392,000 -----
----------------------- ------- ------
COMMITMENTS AND CONTINGENCIES ----- -----
-----------------------------
SHAREHOLDERS' EQUITY:
--------------------
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
Additional paid-in capital 4,584,000 4,584,000
Accumulated deficit (4,994,000) (5,029,000)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 1,616,000 1,581,000
-------------------------- ---------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,333,000 $ 5,643,000
------------------------------------------ ========== =========
The accompanying notes are an integral part of these consolidated financial
statements.
-2-
STAR STRUCK, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
2002 2001
---- ----
NET SALES $ 4,389,000 $ 4,861,000
---------
COST OF SALES 1,857,000 2,295,000
------------- ----------- ---------
GROSS PROFIT ON SALES 2,532,000 2,566,000
---------------------
OPERATING EXPENSES:
------------------
Selling, general and administrative 2,369,000 2,200,000
Depreciation and amortization 184,000 205,000
---------- ----------
TOTAL OPERATING EXPENSES 2,553,000 2,405,000
------------------------
OPERATING (LOSS) INCOME (21,000) 161,000
-----------------------
OTHER INCOME (EXPENSE), net:
---------------------------
List rental income 139,000 -----
Interest expense, net (148,000) (181,000)
----------- ------------
Loss from continuing operations before
provision for income taxes and noncontrolling interest (30,000) (20,000)
PROVISION FOR INCOME TAXES ----- -----
----------------------------
NONCONTROLLING INTEREST IN LOSS OF SUBSIDIARY 65,000 -----
--------------------------------------------- ----------- ---------------
Income (loss) from continuing operations 35,000 (20,000)
----------------------------------------
LOSS FROM DISCONTINUED OPERATIONS ----- (10,000)
--------------------------------- --------------- ------------
NET INCOME (LOSS) $ 35,000 $ (30,000)
----------------- ======== ============
PER SHARE (Note 1)
---------
Basic and diluted loss per common share:
Income (loss) from continuing operations .02 (.01)
Loss from discontinued operations ----- -----
------------- ------------
Net income (loss) per common share $ .02 $ (.01)
=============== ===============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
----------------------------------------
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.
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
FOR THE THREE MONTHS ENDED JUNE 30, 2002 AND 2001
2002 2001
---- ----
NET SALES $ 2,217,000 $ 2,361,000
---------
COST OF SALES 996,000 1,058,000
------------- --------- ---------
GROSS PROFIT ON SALES 1,221,000 1,303,000
---------------------
OPERATING EXPENSES:
------------------
Selling, general and administrative 1,329,000 1,095,000
Depreciation and amortization 78,000 103,000
--------- ----------
TOTAL OPERATING EXPENSES 1,407,000 1,198,000
------------------------ --------- ---------
OPERATING (LOSS) PROFIT (186,000) 105,000
------------------------
OTHER INCOME (EXPENSE), net:
---------------------------
List rental income 65,000 -------
Interest expense, net (76,000) (85,000)
---------- -----------
(Loss) income from continuing operations before
provision for income taxes and noncontrolling interest (197,000) 20,000
PROVISION FOR INCOME TAXES ----- -----
----------------------------
NONCONTROLLING INTEREST IN LOSS OF SUBSIDIARY 31,000 -----
--------------------------------------------- ----------- --------------
(Loss) income from continuing operations (166,000) 20,000
LOSS FROM DISCONTINUED OPERATIONS ----- (10,000)
--------------------------------- --------------- ------------
NET (LOSS) INCOME $ (166,000) $ 10,000
----------------- =============== ===============
PER SHARE (Note 1)
---------
Basic and diluted loss per common share:
(Loss) income from continuing operations (.08) .01
Loss from discontinued operations ----- -----
------------- ------------
Net (loss) income per common share $ (.08) $ .01
============== ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
----------------------------------------
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.
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
FOR THE SIX MONTHS ENDED JUNE 2002 AND 2001
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 35,000 $ (30,000)
-------- --------
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation and amortization 184,000 205,000
Amortization of debt discount 40,000 40,000
Noncontrolling interest in loss of subsidiary (65,000) ------
Loss from discontinued operations ------ 10,000
Changes in operating assets and liabilities:
Accounts payable and accrued expenses 278,000 228,000
Accounts receivable 237,000 139,000
Prepaid expenses and other current assets 157,000 (177,000)
Deferred contract fees (20,000) (23,000)
Inventories (398,000) (16,000)
--------- --------
Total Adjustments 413,000 406,000
---------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 448,000 376,000
---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (49,000) ------
Net cash paid for business acquired (232,000) (28,000)
---------- ---------
NET CASH USED IN INVESTING ACTIVITIES (281,000) (28,000)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 550,000 -----
Proceeds from note payable-officer ----- 25,000
Deferred financing costs (14,000) -----
Payments on line of credit, net (97,000) (339,000)
Repayments of long-term debt (558,000) (102,000)
----------- -------
NET CASH USED IN FINANCING ACTIVITIES (119,000) (416,000)
---------- -------
NET CASH USED IN DISCONTINUED OPERATIONS ------ (10,000)
NET INCREASE (DECREASE) IN CASH 48,000 (78,000)
CASH AT BEGINNING OF PERIOD 63,000 78,000
----------- --------
CASH AT END OF PERIOD $ 111,000 $ -----
=============== ================
Cash paid during the period for interest $ 67,000 $ 107,000
Cash paid for business acquired is comprised of:
Fair value of assets acquired $ 739,000 $ -----
Liabilities assumed ----- -----
-------------- ------------
Purchased price, net of cash received 739,000 -----
Note payable issued for business acquired (50,000) -----
Common stock issued for business acquired (457,000) -----
----------- ------------
Net cash paid for business acquired $ (232,000) $ -----
=========== ============
The accompanying notes are an integral part of these consolidated financial
statements.
- 5 -
STAR STRUCK, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(1) Basis of Presentation
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. SSL is a
holding company whose 100% owned operating subsidiary Star Struck, Inc. ("SSI")
is primarily engaged in the distribution of watch batteries and related
products. In 2001, SSI formed a subsidiary, Star Struck/ProTeam, Inc. ("SSPT"),
for the purpose of operating SSI's sports apparel segment and acquiring certain
assets of ProTeam.com,Inc. (ProTeam) (see Note 2).
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
for the year ended December 31, 2001. 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 income (loss) 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 2002 and
2001. Common stock equivalents are anti-dilutive at June 30, 2002.
The profit and loss information for the interim periods presented are not
necessarily indicative of results to be expected for the entire fiscal year.
(2) Acquisition
On January 7, 2002, SSI transferred its sports apparel business, including its
sports apparel inventory, to its newly formed subsidiary, SSPT for eighty
percent of the shares of SSPT. On that same date, SSPT acquired from ProTeam,
its sports apparel business, including its sports apparel inventory and a
related customer list. In consideration of the acquisition, ProTeam received
twenty-percent of the shares of SSPT, a payment of $300,000 and a $50,000
promissory note. SSPT intends to continue using the assets acquired in the
sports apparel distribution business. The acquisition was accounted for using
the purchase method of accounting and, accordingly, the purchase price has been
allocated to the assets purchased based upon their fair values at the date of
acquisition.
The purchase price was allocated to the assets acquired (no liabilities were
assumed) based upon their estimated fair values as follows:
Inventory $ 489,000
Mailing list 250,000
----------
Total assets purchased 739,000
Accrued liabilities assumed -----
----------
Total purchase price $ 739,000
==========
(3) Inventories
Inventories, with the exception of gold, are stated at the lower of cost
(first-in, first-out) or market. Gold inventory (approximately $82,000 at June
30, 2002) is valued at market. Inventories consist principally of finished
goods.
- 6 -
STAR STRUCK, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JUNE 30, 2002
(4) Business Segments
The Company's operations by business segment for the six months period ended
June 30, 2002 and 2001 were as follows:
Battery
& Watch Strap Sports Apparel
2002 Distribution Distribution Total
---- ------------ ------------ -----
Net Sales $ 3,178,000 $ 1,211,000 $ 4,389,000
Operating Profit/(Loss) $ 400,000 $ (421,000) $ (21,000)
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
(5) Bank Debt
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 remaining amount available under the
Borrowing Base was approximately $321,000 at June 30, 2002. This agreement
extends through June 2003 and bears interest at the prime rate plus one percent
(5.5% at June 30, 2002). 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 the Company
to maintain a minimum tangible net worth. The Company did not comply with this
covenant at June 30, 2002 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. The company expects to be in compliance with the
covenants of the new agreement upon it's execution. As of June 30, 2002, the
Company had $1,179,000 outstanding under this line of credit, all of which is
included in current liabilities on the accompanying consolidated balance sheets.
The Company refinanced its mortgage note payable in March 2002. The mortgage
note has a balance of $545,000 at June 30, 2002, a maturity date of March 2017
and interest at a fixed rate of 7.95% for the first five years which is subject
to restatement on the fifth and tenth year anniversary dates based on the most
recent published Federal Home Bank of Boston Classic Credit Five-Year Loan
Advance Rate plus two and one-half percent. The Company's building has been
pledged as collateral.
(6) 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 notes, the Company issued warrants for the purchase of 500,000 shares of
the Company's common stock at an exercise price of $1.50 per share exercisable
through July 31, 2005. The fair value of these warrants of $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 notes. For each of the six month periods ended
June 30, 2002 and 2001, $40,000, has been accreted and is included in interest
expense in the accompanying consolidated statements of operations. These notes
are subordinate to the Company's borrowings under the line of credit.
- 7 -
STAR STRUCK, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JUNE 30, 2002
(7) Recent Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which replaces SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-lived
Assets to Be Disposed Of ". The accounting model for long-lived assets to be
disposed of by sale applies to all long-lived assets, including discontinued
operations, and replaces the provisions of APB Opinion No. 30, "Reporting
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business", for the disposal of segments of a business. SFAS 144 establishes a
single accounting model for long-lived assets to be disposed of by sale and
resolves significant implementation issues relating to impairment of long-lived
assets to be held and used or disposed of other than by sale. SFAS 144 requires
that those long-lived assets to be disposed by sale be measured at the lower of
carrying amount or fair value less cost to sell, whether reported in continuing
operations or in discontinued operations. Therefore, discontinued operations
will no longer be measured at net realizable value or include amounts for
operating losses that have not yet occurred. SFAS 144 is effective for fiscal
years beginning after December 15, 2001 and, generally, is to be applied
prospectively. The adoption of this standard did not have a material impact on
the Company's consolidated financial statements.
In June 2001, the FASB issued Statement of Financial Accounting Standards No.
143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). SFAS 143
requires entities to recognize the fair value of a liability for an asset
retirement obligation in the period in which it is incurred. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset at the discounted value of the asset retirement obligation.
SFAS 143 is effective for fiscal years beginning after June 15, 2002, with
earlier application encouraged. The Company does not believe that adoption of
SFAS 143 will have a material impact on its consolidated financial statements.
In June 2001, the FASB issued Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142 requires
goodwill and certain intangible assets with indefinite useful lives to be
subject to an annual review for impairment, 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 142 eliminates the Company's amortization expense relating to goodwill of
approximately $6,200 for the six-months ended June 30, 2002.
In June 2001, the FASB issued Statement of Financial Accounting Standards No.
141, "Business Combinations" ("SFAS 141"). SFAS 141 changes the accounting for
business combinations by, among other things, prohibiting the prospective use of
pooling-of-interests accounting. SFAS 141 is effective for all business
combinations consummated after June 30, 2001. The adoption of SFAS 141 did not
have a material effect on the Company's operating results or financial
condition.
-8-
STAR STRUCK, LTD.
ITEM 2, MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
SIX MONTHS ENDED JUNE 30, 2002
COMPARED TO
SIX MONTHS ENDED JUNE 30, 2001
Sales. Sales decreased $472,000, or 9.7%, to $4,389,000 for the first six months
of 2002. Sports apparel sales, for the first fiscal six month's, increased
$54,000, while the battery and watch strap business sales decreased $526,000
from the same period for 2001. The decrease in battery and watch strap sales
attributable to the overall economic downturn experienced during the same
period.
Gross Profit. Gross profit decreased by $34,000 to $2,532,000 in the six month
period of 2002. However, consolidated gross margin increased to 58% from 53%
during the same period. For the first six months of 2002, sports apparel sales,
which represented 27.6% of total revenue, had a gross margin of 53.5%. This is
an increase of of 4.8% over the first six month period in 2001 of 48.7%. Gross
margin on battery and watch strap sales was 59.3% for the first six months of
2002 compared to 54.1% for the same period in 2001.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $169,000 to $2,369,000, or 7.7%, in the first
six months of 2002. This increase is mostly attributable to the increase in
staffing in the sports apparel business segment. As a percentage of sales,
selling, general and administrative expenses increased by 8.7% to 54% in the
first quarter of 2002 compared to 45.3% for the same period in 2001.
Operating Profit/(Loss). Operating loss of $21,000 for the first six-months of
2002 represents a $182,000 decrease from 2001's six month's operating profit of
$161,000. During the first six month's of 2002, the battery and watch strap
distribution segment showed an operating profit of $400,000 as compared to
$297,000 in 2001. The operating loss for sports apparel distribution increased
$285,000 from 2001's operating loss of $136,000 to show a loss of $421,000 for
the first quarter of 2002.
Interest Expense. Net interest expense for the first six month reporting periods
of 2002 and 2001 were $148,000 and $181,000, respectively. Approximately $35,000
in interest expense related to the borrowing on the Company's outstanding line
of credit compared to $64,000 in 2001. Interest on a mortgage totaled
approximately $16,000 in the first six month period of 2002. Interest expense
for notes payable to shareholders totaled $90,000 for the six month's ended June
30, 2002. Included in this amount is $40,000 of amortized debt discount.
Net Income. Net income for the first six month's of 2002 increased $65,000 from
2001's loss of $30,000 to show net income of $35,000.
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
remaining amount available under the Borrowing Base was approximately $321,000
at June 30, 2002. This agreement extends through June 2003 and bears interest at
the prime rate plus one percent (5.5% at June 30, 2002). 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. The Company did not comply with this covenant at June 30, 2002 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, 2002, the Company had $1,179,000 outstanding under this line of
credit, all of which is included in current liabilities on the accompanying
consolidated balance sheets.
At June 30, 2002 net working capital was $1,846,000.
- 9 -
ITEM 2, MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
SIX MONTHS ENDED JUNE 30, 2002
COMPARED TO
SIX MONTHS ENDED JUNE 30, 2001
Safe Harbor Forward-Looking Statements. The Company's prospects are subject to
certain uncertainties and risks. The discussions set forth in this Form 10-Q
report contain certain statements, based on current expectations, estimates,
forecasts and projections about the industry in which the Company operates and
management's beliefs and assumptions, which are not historical facts and are
considered forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 ("the Act"). Forward-looking statements
include, without limitation, any statement that may predict, forecast, indicate,
or imply future results, performance, or achievements, and may contain the words
"believe," "will be," "will continue," "will likely result," "anticipates,"
"seeks to," "estimates," "expects," "intends," "plans," "predicts," "projects,"
and similar words, expressions or phrases of similar meaning. The Company's
actual results could differ materially from those projected in the
forward-looking statements as a result of certain risks, uncertainties and
assumptions, which are difficult to predict. The risks and uncertainties are
detailed from time to time in reports filed by the Company with the Securities
and Exchange Commission ("SEC"), including Forms 8-K, 10-Q, and 10-K, and
include, among other factors, general economic conditions and growth in the
watch batteries and related products industry and the sports apparel industry,
competitive factors and pricing pressures, changes in product mix, product
demand, risk of dependence on third party suppliers, the ability of the Company
to sustain, manage or forecast its growth and inventories, performance and
reliability of products, customer service, adverse publicity, business
disruptions; increased costs of freight and transportation to meet delivery
deadlines, changes in business strategy or development plans, turnover of key
employees, the ability of the Company to obtain necessary financing, and other
risk factors detailed in this report, described from time to time in the
Company's other SEC filings, or discussed in the Company's press releases. In
addition, other written or oral statements made or incorporated by reference
from time to time by the Company or its representatives in this report, other
reports, filings with the Securities and Exchange Commission, press releases,
conferences, or otherwise are forward-looking statements within the meaning of
the Act. All forward-looking statements included in this document are based upon
information available to the Company on the date hereof. The Company undertakes
no obligation to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise.
The risks included here are not exhaustive. Other sections of this report may
include additional factors which could adversely affect the Company's business
and financial performance. Moreover, the Company operates in a very competitive
and rapidly changing environment. New risk factors emerge from time to time and
it is not possible for management to predict all such risk factors, nor can it
assess the impact of all such risk factors on its business or the extent to
which any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements. Given these
risks and uncertainties, investors should not place undue reliance on
forward-looking statements as a prediction of actual results.
Investors should also be aware that while the Company does, from time to time,
communicate with securities analysts, it is against the Company's policy to
disclose to them any material information unless such information shall have
been previously or is simultaneously disclosed in a manner intended to provide
broad, non-exclusionary distribution of the information to the public.
Accordingly, shareholders should not assume that the Company agrees with any
statement or report issued by any analyst irrespective of the content of the
statement or report. Furthermore, the Company has a policy against issuing or
confirming financial forecasts or projections issued by others. Thus, to the
extent that reports issued by securities analysts contain any projections,
forecasts or opinions, such reports are not the responsibility of the Company.
- 10 -
STAR STRUCK, LTD.
ITEM 2, MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
FOR THE THREE MONTHS ENDED JUNE 30, 2002 AND 2001
THREE MONTHS ENDED JUNE 30, 2002
COMPARED TO
THREE MONTHS ENDED JUNE 30, 2001
Sales. Sales decreased $144,000, or 6.1%, to $2,217,000 for the second quarter
of 2002. Sports apparel sales increased $59,000, or 7.8%, from $753,000 in 2001
to $812,000 for the second quarter of 2002. This was combined with a decrease in
battery and watch strap sales of $203,000, or 12.6%, from $1,608,000 to
$1,405,000 in the second quarter of 2002.
Gross Profit. Gross profit decreased $82,000 to $1,221,000 in the second quarter
of 2002. Gross margin remained flat at 55% for the three month periods ending in
2002 and 2001. For the second quarter in 2002, sports apparel sales, which
represented 36.6% of total revenue, had a gross margin of 52.8%. This is an
increase from 2001's second quarter's gross margin of 51.3%. Gross margin on
battery and watch strap sales was 56.3% for the second three months of 2002
compared to 57% for the same period in 2001.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $234,000 to $1,329,000 in the second quarter
of 2002 as compared with $1,095,000 in 2001 . As a percentage of sales, selling,
general and administrative expenses increased by 13.5% to 59.9% in the second
quarter of 2002 compared to 46.4% for the same period in 2001. This increase was
due, in large part, to increased staffing requirements in the sports apparel
segment.
Operating Profit/(Loss). Operating profit decreased $291,000 resulting in a loss
of $186,000 for the second quarter of 2002. The battery and watch strap
distribution segment was approximately at break even for the second quarter of
2002 as compared to a profit of $142,000 during the same period of 2001. The
operating loss for sports apparel accounted for substantially all of the
operating loss of $186,000, as compared to the 2001 second quarter loss of
$32,000.
Interest Expense. Net interest expense was $76,000 for the second quarter of
2002 versus $85,000 for the same period in 2001. Approximately $18,000 in
interest expense related to the borrowing on the Company's outstanding line of
credit compared to $27,000 in 2001. Interest on a mortgage totaled approximately
$8,000 in the second quarter of 2002. Interest expense for notes payable to
shareholders totaled $45,000 for the quarter ended June 30, 2002. Included in
this amount is $20,000 of amortized debt discount.
Net Income/(Loss). Net income for the second quarter of 2002 decreased $176,000
from 2001's profit of $10,000 to show a net loss of $166,000.
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PART II - OTHER INFORMATION
STAR STRUCK, LTD.
JUNE 30, 2002
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
None
SIGNATURES
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 13, 2002 By: /s/Kenneth Karlan
--------------------------------
Kenneth Karlan, President
Date: August 13, 2002 By: /s/Keith Sessler
--------------------------------
Keith Sessler, Vice President
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