**UNITED
              STATES**
 **SECURITIES
              AND EXCHANGE COMMISSION**
 **WASHINGTON,
              D.C. 20549**
 
 **FORM
                        10-K/A**
 ****Amendment
                      No. 1****
 (Mark
              One)
 x ANNUAL
              REPORT UNDER
              SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For
              the
              fiscal year ended December 31, 2006
 
 o TRANSITION
              REPORT
              UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For
              the
              transition period from ________ to _______
 
 Commission
              file Number:  333-78252
  **FIVE
              STAR PRODUCTS, INC.**
 (Exact
              Name of Registrant as Specified in Its Charter)
 
 Delaware
                    
                    13-3729186(State
                        or Other Jurisdiction of
                      Incorporation
                        or Organization)
                    
                    IRS
                        Employer Identification Number)
 
 10
                        East 40thStreet, Suite 3110, New York, NY 10016(Address
                        of Principal Executive Offices, including Zip Code)
 
 (646)
                        742-1600(Registrant’s
                        telephone number, including area code)
 
  Securities
              registered pursuant to Section 12(b) of the Act:  None
  Securities
              registered pursuant to Section 12(g) of the Act:   Common
              Stock, $.01 Par Value
 (Title
              of
              Class)
 
 Indicate
              by check mark if the registrant is a well-known seasoned issuer, as
              defined in
              Rule 405 of the Securities Act.  Yes o No
x
  Indicate
              by check mark if the registrant is not required to file reports pursuant
              to
              Section 13 or 15(d) of the Act. Yes o No
x
  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
o
  Indicate
              by check mark if disclosure of delinquent filers pursuant to Item 405
              of
              Regulation S-K is not contained herein, and will not be contained,
              to the best
              of registrant’s knowledge, in definitive proxy or information statements
              incorporated by reference in Part III of this Form 10-K or any amendment
              to this
              Form 10-K. o
  Indicate
              by check mark whether the registrant is a large accelerated filer,
              an
              accelerated filer, or a non-accelerated filer. See definition of “accelerated
              filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
              one):
  Large
              accelerated filer o Accelerated
              filer o Non-accelerated
              filer x
  Indicate
              by check mark whether the registrant is a shell company (as defined
              in Rule
              12b-2 of the Exchange Act). Yes o No
x
  
 The
              aggregate market value of the registrant’s common stock held by non-affiliates
              of the registrant, computed by reference to the price at which the
              common stock
              was last sold as quoted on the OTC Bulletin Board, which is operated
              by the
              Nasdaq Stock Market, as of the last business day of the registrant’s most
              recently completed second quarter, is $983,470.
  As
              of
              April 20, 2007, 16,359,577 shares of the registrant’s common stock were
              outstanding.
 
  
  **EXPLANATORY
                  NOTE**
  Five
                  Star
                  Products, Inc. (the “Company”) is filing this Amendment No. 1 to its Annual
                  Report on Form 10-K for the Company’s fiscal year ended December 31, 2006
                  pursuant to General Instruction G(3) to Form 10-K for the purpose
                  of filing the
                  information required to be disclosed pursuant to Part III of Form
                  10-K. In
                  addition, the cover page and the list of exhibits in Part IV of
                  the Form 10-K
                  have been updated and amended. As a result of this amendment, the
                  Company is
                  also filing as exhibits to this Form 10-K/A the certifications
                  required under
                  Section 302 of the Sarbanes-Oxley Act of 2002. Because no financial
                  statements
                  are contained within this Form 10-K/A, the Company is not including
                  certifications pursuant to Section 906 of the Sarbanes-Oxley Act
                  of 2002. Except
                  for the amendments described above, this Form 10-K/A does not modify
                  or update
                  the disclosures in, or exhibits to, the Form 10-K for the Company’s fiscal year
                  ended December 31, 2006.
 
   
   **TABLE
                            OF CONTENTS****PART
                            III**
                        **Page**Item10.
                        Directors,
                            Executive Officers and Corporate Governance
                        1Item11.
                        Executive
                            Compensation
                        3Item12.
                        Security
                            Ownership of Certain Beneficial Owners and Management
                            andRelated
                            Stockholder Matters
                        20Item13.
                        Certain
                            Relationships and Related Transactions, and Director
                            Independence
                        22Item14.
                        Principal
                            Accountant Fees and Services
                        25**PART
                            IV**Item15.
                        
                        Exhibits
                            and Financial Statement Schedules
                        25SIGNATURES
                        26
 
  
 
   
  **PART** **III**
  **ITEM
              10.****Directors,
              Executive Officers and Corporate Governance**
  **Directors**
  Set
              forth
              below are the names of, and certain biographical information regarding,
              the
              directors of the Company.
  ***S.
              Leslie Flegel*** ,
              age 69,
              has been Chairman of the Board of the Company and a director of National
              Patent
              Development Corporation (“NPDC”), the Company’s parent, since March 2007, and a
              director of the Company since March 2007. From March 1995 until November
              2006,
              Mr. Flegel served as the Chairman of the Board and Chief Executive
              Officer of
              Source Interlink Companies, Inc., a leading marketing, merchandising
              and
              fulfillment company of entertainment products such as DVDs, music CDs,
              magazines, books and related items. For more than 14 years prior thereto,
              Mr.
              Flegel was the principal owner and Chief Executive Officer of Source
              Interlink
              Companies’ predecessor, Display Information Systems Company.
  ***John
              C. Belknap*** ,
              age 60,
              has been President, Chief Executive Officer and a director of the Company
              since
              March 2007. Mr. Belknap has served as a director of NPDC since October
              2006 and
              has been an employee of NPDC since December 2006. Prior to joining
              the Company
              and NPDC, Mr. Belknap was engaged in certain entrepreneurial activities
              and
              served as an independent consultant to various private companies from
              2000 until
              October 2006. From 1997 to 1999, Mr. Belknap was Executive Vice President
              and
              Chief Financial Officer of Richfood Holdings, Inc., a Fortune 500 integrated
              food wholesaler and retailer. From 1995 to 1997, he was Chief Financial
              Officer
              for OfficeMax, Inc. During the period from 1974 to 1995, he was Chief
              Financial
              Officer for several other major retailers. Mr. Belknap has been the
              Non-Executive Chairman of the Board of eMerge Interactive, Inc. and
              Chairman of
              its Audit Committee since 2003.
  ***Bruce
              Sherman*** ,
              age 54,
              has served as Chief Executive Officer of Five Star Group, Inc. (“Five Star
              Group”), the Company’s wholly owned subsidiary, since October 2006, as a
              director of Five Star Group since 1999 and as a director of the Company
              since
              2002. Mr. Sherman has held various positions with Five Star Group since
              he began
              working there in 1993, serving as Executive Vice President, Sales from
              2002
              until October 2006 and as Vice President of Sales from 1993 until 2002.
              Mr.
              Sherman serves as the Executive Vice President of the Company.
  **Executive
              Officers Who Are Not Directors**
  Set
              forth
              below are the names of, and certain biographical information regarding,
              executive officers of the Company who do not serve as directors of
              the Company.
  ***Neal
              W. Collins*** ,
              age 46,
              has been Chief Financial Officer of the Company since February 2006.
              Mr. Collins
              served as the Company’s Controller from March 2005 until February 2006. From
              2002 until 2005, Mr. Collins served as Assistant Controller for D&M
              Holdings, Inc., a Japan-based designer, manufacturer and seller of
              audio, video
              and media equipment.  From
              1999
              until 2002, Mr.  Collins
              was Assistant Controller for Imperial Tobacco, an international manufacturer
              and
              seller of tobacco and tobacco products.
  1
 ***Charles
              Dawson*** ,
              age 51,
              has served as President of Five Star Group since January 2002. From
              2002 until
              March 2007, Mr. Dawson also served as President of the Company and
              from 1999
              until March 2007, Mr. Dawson was a director of the Company. Mr. Dawson
              served as
              a Vice President of the Company from 1999 until 2002 and has held several
              managerial positions with the Company since 1993.
  **Board
              Independence and Composition**
  The
              Company is not subject to the listing requirements of any securities
              exchange or
              the Nasdaq Stock Market (“Nasdaq”) because the common stock of the Company is
              traded on the over-the-counter bulletin board. However, the independence
              determinations that follow are based upon the criteria established
              by Nasdaq for
              determining director independence.
  No
              member
              of our Board is “independent” pursuant to the listing requirements of Nasdaq
              because each director is employed by the Company or Five Star Group.
              We did not
              determine whether Carll Tucker, a former director of the Company, qualified
              as
              independent under Nasdaq requirements for purposes of this Form 10-K
              because he
              resigned from our Board in March 2007, but we believe that he would
              have
              qualified as independent under Nasdaq independence requirements.
  **Audit
              Committee**
  The
              Company does not currently have a separately designated Audit Committee.
              The
              entire Board currently acts as the Company’s Audit Committee. The Board has
              determined that Mr. Belknap qualifies as an Audit Committee financial
              expert
              under applicable SEC regulations. Mr. Belknap is not independent under
              the
              listing requirements of Nasdaq.
  **Section
              16(a) Beneficial Ownership Reporting Compliance**
  Section
              16(a) of the Securities Exchange Act of 1934, as amended, requires
              the Company’s
              executive officers and directors to file reports regarding ownership
              of the
              Company’s common stock with the SEC, and to furnish the Company with copies
              of
              all such filings. Based on a review of these filings, the Company believes
              that
              all filings were timely made, with the exception of a Form 3 reporting
              Mr.
              Collins as an officer of the Company that was not timely filed due
              to an
              administrative oversight but has since been filed.
  **Code
              of Ethics**
  The
              Company has adopted a Code of Ethics for directors, officers and employees
              of
              the Company and its subsidiaries, including but not limited to the
              principal
              executive officer, the principal financial officer, the principal accounting
              officer or controller, and persons performing similar functions for
              the Company
              and its subsidiaries. If the Company makes any substantive amendment
              to the Code
              of Ethics or grants any waiver from a provision of the Code of Ethics
              for its
              executive officers or directors, the Company will disclose the nature
              of such
              amendment or waiver in a filing on Form 8-K. The Company will also
              provide a
              copy of such Code of Ethics to any person, without charge, upon written
              request
              made to the Company’s Secretary in writing to the following address: Five Star
              Products, Inc., Attn: Secretary, 10 East 40 th Street,
              Suite 3110, New York, New York 10016.
   2
  **ITEM
              11.**  **Executive
              Compensation**
  **Compensation
              Discussion and Analysis**
  ***General***
  This
              Compensation Discussion and Analysis focuses on the objectives the
              Company seeks
              to achieve through each element of compensation paid to our named executive
              officers under the Company’s executive compensation program. In fiscal 2006, our
              named executive officers were Charles Dawson, who served as the Company’s
              President until March 1, 2007 and who continues to serve as the President
              of the
              Company’s wholly-owned subsidiary, Five Star Group, Neal W. Collins, who serves
              as the Company’s Chief Financial Officer, Bruce Sherman, who serves as Executive
              Vice President of the Company and as Chief Executive Officer of Five
              Star Group,
              and Steven Schilit, who served as Executive Vice President and Chief
              Operating
              Officer of the Company until February 28, 2007.
  ***Executive
              Compensation Philosophy and Objectives***
  The
              primary objective of our executive compensation program is to attract
              and retain
              the highest quality executives to manage and lead the Company in order
              to build
              and sustain value for our shareholders. The Board believes that executive
              compensation should be:
  ·
                  structured
                      to motivate and reward the achievement of annual and long-term
                      individual
                      and Company goals;  ·
                  based
                      on each executive’s level of responsibility and performance as well as the
                      actual performance of the Company;  ·
                  designed
                      to align the interests of our executives with our shareholders
                      by creating
                      a direct link between compensation and stockholder
                      return;  ·
                  reviewed
                      by the Board of Directors and CEO (in the case of officers
                      other than the
                      CEO) on an annual basis; and  ·
                  competitive
                      with compensation packages offered by companies in the Company’s peer
                      group and consistent with prevailing market
                      conditions.  Our
              philosophy is to focus on total compensation through a mix of base
              salary,
              annual cash bonus and long-term incentives, including stock-based
              awards.
  ***Design
              and Elements of the Company’s Executive Compensation
              Program***
  **Principles
              for Setting Compensation and Performance Levels**
  In
              October 2006 and March 2007, we determined to upwardly adjust Mr. Sherman’s
              salary and bonus levels, and grant stock options to him, because we
              believed
              that Mr. Sherman's compensation needed to be adjusted for competitive
              purposes.
              Mr. Dawson’s compensation arrangement with the Company, including a stock option
              grant made to Mr. Dawson in March 2007, and the modest cash bonus paid
              to Mr.
              Collins for 2006, also were the result of competitive market pressure.
              Mr.
              Sherman’s employment agreement, as amended, and Mr. Dawson’s stock option
              agreement are discussed in more detail under the headings “Agreement with Bruce
              Sherman” and “Agreement with Charles Dawson”, respectively, in the narrative
              that follows the Summary Compensation Table.
  3
 We
              determined to award the compensation payable to Mr. Schilit pursuant
              to his
              consulting and severance agreement, as amended, in recognition of his
              many years
              of service to the Company. Mr. Schilit’s consulting and severance agreement is
              discussed in more detail under the heading “Agreement with Steven Schilit” in
              the narrative that follows the Summary Compensation Table.
  Options
              granted to Messrs. Sherman and Dawson vest upon the achievement of
              certain
              EBITDA targets which are directly related to our internal financial
              targets,
              forecasts and goals. Mr. Sherman’s targets were adjusted in March 2007 to align
              them with the Company’s then-current goals and to make them consistent with Mr.
              Dawson’s targets, which were determined at such time.
  **Elements
              of Compensation**
  We
              intend
              that our Board and CEO (with respect only to non-CEO compensation)
              will review
              and approve our executive compensation levels at least once each fiscal
              year
              with respect to base salary, cash bonus and grants of equity securities.
  In
              fiscal
              year 2006, direct pay to our named executive officers was comprised
              of some or
              all of the following elements:
  ·
                  Cash
                      compensation, comprised of base salary and, for two of our
                      named executive
                      officers, an annual cash bonus; and  ·
                  Equity
                      awards that were granted to Mr. Sherman in October 2006, subject
                      to the
                      attainment of certain annual improvements in EBITDA, which
                      were
                      subsequently replaced by options granted to Mr. Sherman in
                      March 2007
                      under our 2007 Incentive Stock Plan (the “2007 Plan”), which modified the
                      EBITDA targets, have a higher exercise price and were made
                      subject to
                      attainment of the EBITDA targets and shareholder approval of
                      the 2007
                      Plan. The Board does not utilize a specific allocation or relationship
                      between equity and cash compensation.  Our
              named
              executive officers also received indirect compensation in fiscal year
              2006
              through their participation in a 401(k) Plan maintained by an affiliate
              of the
              Company and the Company’s benefits program.
  Our
              named
              executive officers also are entitled to certain personal benefits,
              which are
              provided in order to assist them in their performance of Company business.
  Cash
              Compensation
  We
              expect
              that our Board and our CEO (with respect to persons other than the
              CEO) will
              review and approve the base salary and cash bonus paid to each named
              executive
              officer at least once each fiscal year. We expect that base salary
              and bonus
              amounts paid to our named executive officers will be based on competitive
              base
              salary levels for such executives in our peer group and are designed
              to reflect
              actual individual and Company performance for the previous fiscal year.
              When
              establishing a named executive officer’s base salary and annual cash bonus for
              any given fiscal year, we intend for the Board to consider the individual
              results achieved by each named executive officer over the prior fiscal
              year as
              compared against the projected results for that fiscal year set by
              the Board.
  4
 The
              Board
              considers the scope of the executive’s responsibilities, taking into account
              compensation levels paid to executives in our peer group who share
              similar
              responsibilities. For 2006, bonuses granted to Messrs. Dawson and Collins
              were
              not determined in advance and were based on their and the Company’s performance
              during 2006. Equity awards have not been specifically designated by
              amounts at
              the beginning of the year but the general level of grants to named
              executive
              officers is based on the performance of the Company and the named executive
              officer’s individual performance.
  Equity
              Awards
  The
              Board
              is of the view that stock ownership or its equivalent by management
              aligns the
              interest of management with the Company’s shareholders. We anticipate that on a
              going forward basis, equity awards granted to our named executive officers
              will
              serve as the long-term compensation component of our executive compensation
              program.
  The
              Board
              establishes the size and terms of equity award grants to named executive
              officers. In the fiscal year 2006, options to acquire 400,000 shares
              of Company
              common stock were granted to Mr. Sherman which, as modified in March
              2007, vest,
              contingent upon Mr. Sherman’s continued employment and shareholder approval of
              the 2007 Plan, over a three year period in equal annual amounts upon
              the
              achievement by the Company of certain adjusted EBITDA targets, as described
              in
              the narrative to the 2006 Summary Compensation Table, under the heading
              “Agreement with Bruce Sherman”, contained elsewhere herein. These vesting
              provisions are an additional incentive to Mr. Sherman to grow the value
              of our
              common stock. In addition, because our unvested equity awards may be
              subject to
              forfeiture upon termination of employment for any reason other than
              death,
              disability or retirement, the multi-year vesting structure assists
              the Company
              in retaining our key executive talent.
  The
              Company currently has one equity incentive plan, the 2007 Plan, which
              was
              approved by the Board and which the Board expects to submit to the
              stockholders
              for their approval at the Company’s 2007 Annual Meeting of Stockholders.
  Under
              the
              2007 Plan, which was adopted by the Board on March 1, 2007 subject
              to
              stockholder approval, the Board (or the Compensation Committee, if
              one exists)
              determines the terms of each grant to eligible participants, which
              include any
              employee, officer (including any named executive officer) or director
              of the
              Company or of any company directly or indirectly controlled by the
              Company.
              Grants relating to our common stock may be in the form of stock options,
              restricted stock, or other awards determined by the Board (or the Compensation
              Committee). The exercise price of options granted under the 2007 Plan
              must equal
              at least the fair market value of the Company common stock at the time
              of grant,
              and the term of any option cannot exceed 10 years after the date of
              the grant.
  Personal
              Benefits
  Our
              named
              executive officers receive certain personal benefits in connection
              with their
              employment with the Company. In 2006, to facilitate the business related
              travel
              of Messrs. Sherman, Dawson and Schilit, the Company provided to each
              such named
              executive officer a late model luxury automobile and paid for its operation
              and
              maintenance, which was valued at the cost to us.
  *Other
              Compensation Arrangements*
  As
              more
              fully described in the narrative that follows the Summary Compensation
              Table,
              the Company is a party to employment and compensation arrangements
              with Messrs.
              Sherman and Dawson and to a consulting and severance agreement, as
              amended, with
              Mr. Schilit.
  5
 ***Accounting
              and Tax Considerations***
  The
              Board
              considers the accounting and tax treatment of compensation it approves
              to named
              executive officers with respect to the Company and the tax impact on
              the named
              executive officer. Generally, the Board has not structured compensation
              arrangements to provide named executive officers with particular tax
              benefits.
              The Board does review the impact of the grants of equity awards on
              the Company’s
              financial statements.
  **2006
              SUMMARY COMPENSATION TABLE**
  The
              table
              below summarizes the total compensation paid to or earned by each of
              the
              Company’s named executive officers for the fiscal year ended December 31, 2006.
  **Name
                        and PrincipalPosition**
                    **Year**
                    **Salary******($)****
                    **Bonus******($)****
                    **Option
                        Awards******($)****
                    **Non-Equity
                        Incentive Plan Compensation******($)****
                    **All
                        Other Compensation****($)**
                    **Total****($)**Charles
                        Dawson
                      Former
                        President of the Company; current President of Five Star
                        Group
                        (1)
                    2006
                    281,767
                    50,000
                        (2)
                    0
                    0
                    11,694
                        (3)
                    343,461Neal
                        W. Collins
                      Chief
                        Financial Officer
                    2006
                    102,790
                    10,000
                        (2)
                    0
                    0
                    5,323
                        (4)
                    118,113Bruce
                        Sherman
                      Executive
                        Vice President of the Company; Chief Executive Officer of
                        Five Star
                        Group
                    2006
                    270,548
                    0
                    0
                        (5)
                    75,000
                    26,854
                        (6)
                    372,402Steven
                        Schilit
                      Former
                        Executive Vice President and Chief Operating Officer (7)
                    2006
                    247,800
                    0
                    0
                    0
                    329,954
                        (7)
                    577,754
  ___________________
 
 (1)
                    Mr.
                        Dawson resigned as President of the Company on March 1, 2007.
                        He continues
                        to serve as President of Five Star Group. On March 1, 2007,
                        John C.
                        Belknap became the Company’s President and Chief Executive
                        Officer.
  (2)
                    These
                        amounts reflect the dollar value of the bonus earned by Mr.
                        Dawson and Mr.
                        Collins for their service to the Company in fiscal 2006.
                        These amounts
                        were paid by the Company in fiscal 2007. In fiscal 2006,
                        Messrs. Dawson,
                        Collins, Sherman and Schilit also were paid the following
                        amounts, which
                        represent the bonus earned by each named officer for his
                        service to the
                        Company in fiscal 2005: Mr. Dawson, $32,500; Mr. Collins,
                        $7,500; Mr.
                        Sherman, $32,500; and Mr. Schilit,
                        $32,500.
  6
 (3)
                    For
                        Mr. Dawson, the amount reflected under “All Other Compensation” includes
                        $9,452 for a Company-provided car and $2,242 in insurance
                        premiums paid by
                        the Company in 2006 for life insurance for the benefit of
                        Mr.
                        Dawson.
  (4)
                    For
                        Mr. Collins, the amount reflected under “All Other Compensation” includes
                        $1,867 for Company contributions to the Company’s
                      401(k)
                        plan and $3,456 in premiums paid by the Company in 2006 for
                        life insurance
                        for the benefit of Mr. Collins.
  (5)
                    In
                        connection with his appointment as Chief Executive Officer
                        of Five Star
                        Group, Mr. Sherman was granted options in fiscal 2006 to
                        purchase 400,000
                        shares of the Company’s common stock under his employment agreement with
                        Five Star Group. These options will not vest unless the Company’s 2007
                        Plan is approved by shareholders and certain performance
                        and service based
                        vesting conditions are satisfied. Achievement of the performance
                        conditions was determined as less then probable at December
                        31, 2006 and
                        therefore no compensation expense was recognized by the Company
                        in
                        accordance with FAS 123(R) in fiscal
                        2006.
  The
              award
              is reflected in the “Estimated Future Payouts Under Equity Incentive Plan
              Awards” column of the 2006 Grant of Plan-Based Awards table below and a
              description of the performance conditions (as of fiscal 2006) is included
              under
              the heading “Long-Term Equity Incentive Plan - Bruce Sherman” in the narrative
              following that table.
  (6)
                    For
                        Mr. Sherman, the amount reflected under “All Other Compensation” includes:
                        $9,452 for a Company-provided car; $14,245 for Company contributions
                        to
                        the Company’s 401(k) plan; and $3,157 in insurance premiums paid by the
                        Company in 2006 for life insurance for the benefit of Mr.
                        Sherman.
  (7)
                    For
                        Mr. Schilit, the amount reflected under “All Other Compensation” includes:
                        $8,748 for a Company-provided car; $14,430 for Company contributions
                        to
                        the Company’s 401(k) plan; and $5,532 in insurance premiums paid by the
                        Company in 2006 for life insurance for the benefit of Mr.
                        Schilit.
  The
              amount also includes $301,244, which is the amount accrued by the Company
              for
              financial statement reporting purposes in connection with Mr. Schilit’s
              anticipated separation as an employee of the Company. Mr. Schilit did
              not
              receive any payments in fiscal 2006 in connection with his anticipated
              separation, nor was he entitled to any payments in connection with
              his
              termination of employment as of the Company’s fiscal year end.
  As
              discussed in the narrative following this table, Mr. Schilit and the
              Company
              entered into a Consulting and Severance Agreement (the “Schilit Agreement”) on
              February 28, 2007, under which Mr. Schilit ceased serving as our Executive
              Vice
              President and Chief Operating Officer and commenced service as an independent
              consultant. Under the Schilit Agreement, the Company pays Mr. Schilit
              a weekly
              consulting fee of $2,403.85 (and pays the associated payroll taxes)
              and provides
              Mr. Schilit with certain benefits, including an automobile, medical
              benefits and
              life insurance. The $301,224 represents the present value (using fixed
              discount
              rate of 8.25%) of the total anticipated amounts that the Company will
              be
              obligated to pay to, or for the benefit of, Mr. Schilit over the two-year
              term
              of the Schilit Agreement.
  ***Overview
              of Material Agreements with Our Named Executive Officers and Other
              Officers***
  The
              following is a summary of the material terms of material agreements
              pursuant to
              which compensation is paid to our named executive officers for their
              service
              with the Company and Five Star Group. Each of the agreements described
              below,
              other than the original agreement with Mr. Sherman, was entered into
              subsequent
              to December 31, 2006, the end of our 2006 fiscal year and, as described
              below,
              Mr. Sherman's agreement was amended subsequent to such time. This summary
              also
              includes a description of the material terms of the agreement entered
              into with
              Mr. Belknap, who became an officer of the Company subsequent to December
              31,
              2006. Details
              regarding the payments and benefits Mr. Sherman would have been entitled
              to
              receive upon the occurrence of certain termination events or upon a
              change in
              control (if any such event had occurred on December 31, 2006) are described
              under the heading “Potential Payments to Bruce Sherman Upon Termination or
              Change in Control” below. A summary of our agreement with Mr. Flegel, our
              current Chairman of the Board, is provided under the heading "Agreement
              with Our
              Current Chairman, S. Leslie Flegel", in the narrative following the
              2006
              Director Compensation Table.
 7
 ***Agreement
              with John C. Belknap***
  Mr.
              Belknap, who serves as a director of the Company and NPDC, the President
              and
              Chief Executive Officer of the Company and is an employee of NPDC,
              receives a
              salary of $300,000 from NPDC, a portion of which will be reimbursed
              to NPDC by
              the Company based on the amount of time Mr. Belknap spends working
              for the
              Company. In addition, Mr. Belknap was granted options to purchase an
              aggregate
              of 400,000 shares of NPDC common stock, 181,240 of which are subject
              to
              shareholder approval of an amendment to NPDC’s 2003 Incentive Stock Plan, at an
              exercise price equal to $2.45 per share, which was the average of the
              closing
              bid and asked prices of NPDC common stock on March 1, 2007. Contingent
              upon Mr.
              Belknap’s continued employment with NPDC, the options will vest in three equal
              annual installments, commencing on December 1, 2007.
  In
              addition, pursuant to the Restricted Stock Agreement, dated as of March
              2, 2007,
              between the Company and Mr. Belknap (the “Restricted Stock Agreement”), Mr.
              Belknap was granted 1,000,000 restricted shares of the Company’s common stock.
              Contingent upon Mr. Belknap’s continued employment with the Company or
              NPDC:
  ·
                  333,333
                      of the shares will vest if the Company achieves adjusted EBITDA
                      (as
                      defined in the Restricted Stock Agreement) of $5.0 million
                      for the year
                      ending December 31, 2007;  ·
                  333,333
                      of the shares will vest if the Company achieves adjusted EBITDA
                      of $7.5
                      million for the year ending December 31,
                      2008;  ·
                  333,334
                      of the shares will vest if the Company achieves adjusted EBITDA
                      of $11.25
                      million for the year ending December 31, 2009;
                      and  ·
                  to
                      the extent that adjusted EBITDA equals or exceeds $23.75 million
                      for the
                      three-year period ending December 31, 2009, any previously
                      unvested shares
                      will vest.  Upon
              the
              occurrence of a change in control of the Company (as defined in the
              Restricted
              Stock Agreement), all unvested shares also will become fully vested.
  The
              Company has granted Mr. Belknap certain demand and piggy-back registration
              rights beginning March 2, 2010 pursuant to a registration rights agreement
              between Mr. Belknap and Five Star Products.
  ***Agreement
              with Bruce Sherman***
  On
              February 23, 2007, the Company’s subsidiary Five Star Group and Mr. Sherman
              entered into an Amended and Restated Employment Agreement (the “Amended Sherman
              Employment Agreement”), for a period commencing on February 23, 2007 and
              terminating on December 31, 2010 (unless terminated sooner according
              to its
              terms), pursuant to which Mr. Sherman serves as Chief Executive Officer
              of Five
              Star Group. The Amended Sherman Employment Agreement amends and restates
              the
              employment agreement between Five Star Group and Mr. Sherman, dated
              as of
              October 18, 2006, pursuant to which Mr. Sherman served as Chief Executive
              Officer of Five Star Group (the “2006 Sherman Agreement”).
  Under
              the
              2006 Sherman Agreement, which had a term that commenced on October
              18, 2006 and
              terminated on December 31, 2010 (unless terminated sooner according
              to its
              terms):
  8
 ·
                  Mr.
                      Sherman’s base annual salary was $262,500, with annual increases of
                      not
                      less than the greater of three percent and the percentage increase
                      in the
                      consumer price index for the prior year.  ·
                  Mr.
                      Sherman’s annual cash incentive award for 2006 was $75,000 (this payment
                      was contingent upon an increase in EBITDA for 2006 over
                      2005).  ·
                  For
                      all other years, Mr. Sherman’s annual cash incentive award would have been
                      equal to $500,000 multiplied by the actual percentage increase
                      in EBITDA,
                      if any, for the year in which the bonus was earned, over the
                      prior year,
                      based upon a baseline EBITDA of the greater of $1.6 million
                      or actual, but
                      in no event to exceed $250,000 per year.  ·
                  Mr.
                      Sherman would have also been eligible to receive an additional
                      annual
                      super-bonus cash incentive award in an amount not to exceed
                      $250,000
                      (assuming a 150% increase in EBITDA), beginning in
                      2007.  ·
                  Five
                      Star Group was required to provide Mr. Sherman with the use
                      of an
                      automobile.  Subject
              to shareholder approval, under the 2006 Sherman Agreement Mr. Sherman
              was
              granted options to purchase up to 400,000 shares of Company common
              stock at an
              exercise price equal to the closing price of the common stock of the
              Company on
              October 18, 2006. Contingent upon an annual increase in Five Star Group’s EBITDA
              for each year over the prior year, calculated in accordance with GAAP,
              the
              options were to be granted as follows:
  ·
                  A
                      maximum of 140,000 shares in March 2008;  ·
                  A
                      maximum of 130,000 shares in March 2009;
                      and  ·
                  A
                      maximum of 130,000 shares in March 2010.  The
              actual number of shares granted for each year would have been pro-rated
              based
              upon the actual percentage increase in EBITDA, based upon a baseline
              EBITDA of
              the greater of $1.6 million or actual, but in no event to exceed the
              above-stated maximum in a given year. For example, a 50% increase in
              EBITDA in
              2007 over 2006 would have resulted in a March 2008 grant of 140,000
              shares, a
              25% increase in EBITDA would have resulted in a grant of 70,000 shares
              and a
              12.5% increase in EBITDA would have resulted in a grant of 35,000
              shares.
  Five
              Star
              Group could have terminated the 2006 Sherman Agreement for any of the
              following
              reasons:
  ·
                  a
                      breach by Mr. Sherman of any of the terms of the
                      agreement;  ·
                  gross
                      neglect by Mr. Sherman of his duties;  ·
                  the
                      conviction of Mr. Sherman for any felony or crime involving
                      moral
                      turpitude;  ·
                  the
                      conviction of Mr. Sherman of any crime involving the property
                      of Five Star
                      Group;  ·
                  the
                      commission by Mr. Sherman of any act of fraud or dishonesty;
                      or  9
 ·
                  the
                      engagement by Mr. Sherman in misconduct resulting in serious
                      injury to
                      Five Star Group.  If
              Mr.
              Sherman was terminated for any of the six reasons listed immediately
              above, he
              would not have been entitled to any compensation, including his annual
              cash
              incentive award, after the date of termination. If Mr. Sherman’s employment was
              terminated by his death or disability, Five Star Group would have been
              required
              to pay Mr. Sherman his base salary as then in effect for the month
              during which
              termination occurred and four months thereafter and, if the month in
              which the
              termination occurred was more than six months into the then-current
              contract
              year, his bonus for that year pro-rated through the date of
              termination.
  The
              2006
              Sherman Agreement also contained non-compete and non-solicitation
              covenants.
  Under
              the
              Amended Sherman Employment Agreement:
  ·
                  Mr.
                      Sherman’s base annual salary is $262,500, with annual increases of
                      not
                      less than the greater of three percent and the percentage increase
                      in the
                      consumer price index for the prior year.  ·
                  Mr.
                      Sherman’s annual cash incentive award for 2006 was $75,000 (this payment
                      was contingent upon an increase in EBITDA for 2006 over
                      2005).  ·
                  For
                      all other years, Mr. Sherman’s annual cash incentive award will be equal
                      to $500,000 multiplied by the actual percentage increase in
                      EBITDA, if
                      any, for the year in which the bonus is earned, over the prior
                      year, based
                      upon a baseline EBITDA of $1.6 million or actual, whichever
                      is greater,
                      but in no event to exceed $250,000 per
                      year.  ·
                  Mr.
                      Sherman is also eligible to receive an additional annual super-bonus
                      cash
                      incentive award in an amount not to exceed $250,000 (assuming
                      a 150%
                      increase in EBITDA).  ·
                  Five
                      Star Group is required to provide Mr. Sherman with the use
                      of an
                      automobile.  In
              accordance with the Amended Sherman Employment Agreement and pursuant
              to the
              terms and conditions of the Stock Option Agreement, dated March 1,
              2007, between
              the Company and Mr. Sherman (the “Sherman Stock Option Agreement”), and in lieu
              of the options granted under the 2006 Sherman Agreement, Mr. Sherman
              was granted
              options to purchase 400,000 shares of the Company’s common stock at an exercise
              price equal to $0.38 per share (the average of the closing bid and
              asked prices
              of the Company’s common stock on March 1, 2007). Contingent upon Mr. Sherman’s
              continued employment with Five Star Group and shareholder approval
              of the 2007
              Plan:
  ·
                  options
                      to purchase 133,333 shares of the Company’s common stock will vest and
                      become exercisable if the Company achieves adjusted EBITDA
                      (as defined in
                      the Sherman Stock Option Agreement) of $5.0 million for the
                      year ending
                      December 31, 2007;  ·
                  options
                      to purchase 133,333 shares of the Company’s common stock will vest and
                      become exercisable if the Company achieves adjusted EBITDA
                      of $7.5 million
                      for the year ending December 31, 2008;  10
 ·
                  options
                      to purchase 133,334 shares of the Company’s common stock will vest and
                      become exercisable if the Company achieves adjusted EBITDA
                      of $11.25
                      million for the year ending December 31, 2009;
                      and  ·
                  to
                      the extent that adjusted EBITDA equals or exceeds $23.75 million
                      for the
                      three-year period ending December 31, 2009, any previously
                      unvested shares
                      will vest and become exercisable.  Upon
              the
              occurrence of a change in control (as defined in the Sherman Stock
              Option
              Agreement) of the Company or NPDC, all unvested shares also will become
              fully
              vested and exercisable.
  Five
              Star
              Group may terminate the Amended Sherman Employment Agreement for any
              of the
              following reasons:
  ·
                  a
                      breach by Mr. Sherman of any of the terms of the
                      agreement;  ·
                  gross
                      neglect by Mr. Sherman of his duties;  ·
                  the
                      conviction of Mr. Sherman for any felony or crime involving
                      moral
                      turpitude;  ·
                  the
                      conviction of Mr. Sherman of any crime involving the property
                      of Five Star
                      Group;  ·
                  the
                      commission by Mr. Sherman of any act of fraud or dishonesty;
                      or  ·
                  the
                      engagement by Mr. Sherman in misconduct resulting in serious
                      injury to
                      Five Star Group.  If
              Mr.
              Sherman is terminated for any of the six reasons listed immediately
              above, he
              will not be entitled to any compensation, including his annual cash
              incentive
              award, after the date of termination. If Mr. Sherman’s employment is terminated
              by his death or disability, Five Star Group is required to pay Mr.
              Sherman his
              base salary as then in effect for the month during which termination
              occurred
              and four months thereafter and, if the month in which the termination
              occurred
              is more than six months into the then-current contract year, his bonus
              for that
              year pro-rated through the date of termination.
  The
              Amended Sherman Employment Agreement also contains non-compete and
              non-solicitation covenants.
  ***Agreement
              with Charles Dawson***
  Pursuant
              to the terms and conditions of the Stock Option Agreement, dated March
              1, 2007,
              between the Company and Mr. Dawson (the “Dawson Stock Option Agreement”), Mr.
              Dawson, an Executive Vice President of Five Star Group, was granted
              options to
              purchase 125,000 shares of Company common stock at an exercise price
              equal to
              $0.38 per share, the closing price on March 1, 2007.
  Contingent
              upon Mr. Dawson’s continued employment with Five Star Group and shareholder
              approval of the 2007 Plan:
  ·
                  41,666
                      shares will vest and become exercisable if the Company achieves
                      adjusted
                      EBITDA (as defined in the Dawson Stock Option Agreement) of
                      $5.0 million
                      for the year ending December 31, 2007;  11
 ·
                  41,666
                      shares will vest and become exercisable if the Company achieves
                      adjusted
                      EBITDA of $7.5 million for the year ending December 31,
                      2008;  ·
                  41,667
                      shares will vest and become exercisable if the Company achieves
                      adjusted
                      EBITDA of $11.25 million for the year ending December 31, 2009;
                      and  ·
                  to
                      the extent that adjusted EBITDA equals or exceeds $23.75 million
                      for the
                      three year period ending December 31, 2009, any previously
                      unvested shares
                      will vest and become exercisable.  Upon
              the
              occurrence of a change in control of the Company (as defined in the
              Dawson Stock
              Option Agreement), all unvested shares also will become fully vested
              and
              exercisable.
  ***Agreement
              with Steven Schilit***
  On
              February 28, 2007, the Company entered into a Consulting and Severance
              Agreement
              with Mr. Schilit, the former Executive Vice President, Chief Operating
              Officer
              and director of the Company (the “Schilit Agreement”). Pursuant to the Schilit
              Agreement, Mr. Schilit will provide consulting services to the Company
              for a
              period of two years, commencing February 28, 2007, in exchange for
              a weekly
              consulting fee of $2,403.85. In addition, Mr. Schilit will be entitled
              to
              receive, for a period of five years, a commission of one half of one
              percent on
              sales by certain of the Company’s employees. During the term of the Schilit
              Agreement, Mr. Schilit will be entitled to continue to participate
              in the
              Company’s benefit plans to the extent he remains eligible, on the same basis
              as
              the Company’s management, and the Company will continue to make the lease
              payments and pay for the insurance and maintenance on the car currently
              provided
              to Mr. Schilit. Mr. Schilit also agreed not to compete with the Company
              or NPDC
              or solicit any of their employees.
  On
              March
              14, 2007, the Schilit Agreement was amended to state that, if Mr. Schilit
              should
              die during the term thereof, the Company would (i) pay Mr. Schilit’s spouse or
              estate the weekly consulting fee for the remainder of the term of the
              agreement
              and (ii) continue to provide certain medical, life insurance and disability
              benefits in accordance with the relevant benefit plan or as required
              by law. It
              was further amended to state that if Mr. Schilit’s services under the agreement
              are terminated due to his incapacity, the Company would continue to
              (A) pay him
              the weekly consulting fee for the remainder of the term of the agreement,
              (B)
              provide certain life insurance and disability benefits in accordance
              with the
              relevant benefit plan or as required by law and (C) provide certain
              medical
              benefits for the remainder of the term of the agreement. The amendment
              was
              effective as of February 28, 2007.
    12
 **2006
              GRANT OF PLAN-BASED AWARDS**
  The
              following table provides information regarding grants of plan-based
              awards to
              our named executive officers during the fiscal year ended December
              31, 2006.
 
 **Name**
                    **Grant
                        Date**
                    **Estimated
                        Future Payouts Under Non-Equity Incentive Plan
                        Awards**
                    **Estimated
                        Future Payouts Under**
                      **Equity
                        Incentive**
                      **Plan
                        Awards**
                    **Exercise
                        or Base Price of Option Awards**
                      **($/Sh)**
                    **Grant
                        Date Fair Value of**
                      **Stock
                        and**
                      **Option
                        Awards**
                      **($)****Target**
                      **($)**
                    **Target**
                      **(#)**Charles
                        Dawson
                    -
                    -
                    -
                    -
                    -Neal
                        W.
                      Collins
                    -
                    -
                    -
                    -
                    -Bruce
                      Sherman
                    10/18/06
                    75,000
                        (1)
                    400,000
                        (2)
                    0.18
                    66,000
                        (3)Steven
                      Schilit
                    -
                    -
                    -
                    -
                    -
 ___________________
 
 (1)
                    Mr.
                        Sherman is entitled to participate in an annual cash incentive
                        plan
                        pursuant to the terms of the employment agreement he entered
                        into with
                        Five Star Group in October 2006. Mr. Sherman’s annual cash incentive award
                        opportunity for fiscal years 2007 through 2010 was modified
                        by the Amended
                        Sherman Employment Agreement.
  In
              fiscal
              2006, Mr. Sherman’s annual incentive award was a fixed sum of $75,000 if the
              Company achieved any increase in EBITDA calculated at the end of fiscal
              2006
              over EBITDA calculated at the end of fiscal 2005. Increases in EBITDA
              are
              calculated in accordance with GAAP. This amount is reflected in under
              the
“Non-Equity Incentive Plan Compensation” column of the 2006 Summary Compensation
              Table above.
  Details
              regarding Mr. Sherman’s annual cash incentive award opportunity under the
              Amended Sherman Employment Agreement are included in the narrative
              following the
              2006 Summary Compensation Table above under “Agreement with Bruce
              Sherman.”
  (2)
                    The
                        stock options reflected in these columns represent the total
                        number of
                        shares that may vest and become exercisable under the equity
                        incentive
                        award established in the employment agreement Mr. Sherman
                        entered into
                        with Five Star Group in fiscal 2006.
  The
              stock
              options were granted on October 18, 2006 under the 2007 Plan and are
              subject to
              our stockholder’s approval of the 2007 Plan.
  If
              the
              2007 Plan is approved, the options could potentially vest and become
              exercisable
              on an annual basis, beginning as of March 2007 if certain performance-
              and
              service-based vesting conditions are met. As described under the heading
              “Potential Payments to Bruce Sherman Upon Termination or Change in Control”
below, the shares would also have vested and become exercisable if
              a change in
              control or sale of Five Star Group had occurred on December 31,
              2006.
  13
 The
              terms
              of the option grant, including the exercise price of the options and
              the
              performance-based vesting conditions, have been modified in connection
              with the
              Amended Sherman Employment Agreement. A description of the terms of
              Mr.
              Sherman’s equity incentive arrangement, as of December 31, 2006, follow this
              table under “Long Term Equity Incentive Arrangement - Bruce Sherman” and,
              under the Amended Sherman Employment Agreement, in the narrative following
              the
              2006 Summary Compensation Table under “Agreement with Bruce Sherman”
above.
  Holders
              of unexercised stock options have no rights as stockholders, including
              no voting
              rights or dividend rights.
  (3)
                    This
                        amount represents the full grant date fair value of the stock
                        options
                        under FAS 123(R). This amount reflects the Company’s
                        accounting expense, and does not neccessarily represent to the
                        actual value that will be recognized by Mr.
                        Sherman.
  The
              Company determined the estimated aggregate fair value of these options
              on the
              date of grant to be $66,000 based on the Black-Scholes valuation model
              using the
              following assumptions: expected volatility of 166%, dividend yield
              of 0%, risk
              free interest of 5% and an expected life of 4 years.
  ***Long-Term
              Equity Incentive Arrangement - Bruce
              Sherman***
  Mr.
              Sherman was granted stock options to purchase 400,000 shares of the
              Company’s
              common stock at an exercise price equal to $0.18 per share (the average
              of the
              closing bid and asked prices of the Company’s common stock on October 18, 2006)
              in connection with the 2006 Sherman Agreement that Mr. Sherman entered
              into with
              Five Star Group on the same date. The exercise price of the options
              was
              subsequently modified in connection with the Amended Sherman Employment
              Agreement.
  Under
              the
              2006 Sherman Agreement, some or all of the stock options would vest
              and become
              exercisable if all of the following conditions are met: (1) our stockholders
              approve the 2007 Plan; (2) Five Star Group meets certain EBITDA targets
              (calculated in accordance with GAAP) over approximately the next three
              years;
              and (3) Mr. Sherman remains employed with Five Star Group (except that
              options
              earned during the 2009 to 2010 measurement period would vest and become
              exercisable despite the expiration of the 2006 Sherman Agreement if
              the other
              two conditions are met).
  Under
              the
              2006 Sherman Agreement, the determination of whether the EBITDA targets
              had been
              achieved by Five Star Group would have been made on an annual basis
              in March
              2008, 2009 and 2010. The total number of options that would have vested
              and
              become exercisable if the Company met or exceeded the EBITDA target
              in the
              measurement period of 2007 to 2008 was 140,000 options. For the measurement
              periods of 2008 to 2009 and 2009 to 2010, the total number of options
              that may
              have vested and become exercisable was 130,000 options per year. The
              number of
              options that may vest and become exercisable in each year has been
              modified by
              the Amended Sherman Employment Agreement.
  As
              discussed under “Agreement with Bruce Sherman” in the narrative following the
              Summary Compensation Table above, the EBITDA targets were subsequently
              modified
              by the Amended Sherman Employment Agreement. However, under the 2006
              Sherman
              Agreement, the “baseline EBITDA” for each period was $1.6 million or Five Star
              Group’s actual EBITDA as of the beginning of the measurement period, whichever
              was greater. Mr. Sherman would have been entitled to receive all of
              the shares
              allocated to the particular measurement period if there had been a
              50% increase
              in Five Star Group’s baseline EBITDA as of the end of the measurement period. If
              less than 50% of baseline EBITDA had been achieved, the number of options
              that
              would have vested and become exercisable would have been pro-rated
              based upon
              the actual percentage increase in baseline EBITDA. For example, under
              the 2006
              Sherman Agreement for the 2007 to 2008 measurement period, if baseline
              EBITDA
              had increased by 50%, 140,000 options would have vested and become
              exercisable.
              If, however, baseline EBITDA had increased by one percent, 2,800 options
              would
              have vested and become exercisable.
  14
 **2006
              OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END**
  The
              following table provides information concerning the current holdings
              of
              unexercised and unvested stock options and unvested stock awards for
              each of our
              named executive officers as of the fiscal year ended December 31, 2006.
  **Option
                        Awards****Name**
                    **Equity
                        Incentive Plan Awards: Number of Securities Underlying Unexercised
                        Unearned Options**
                      **(#)**
                    **Option
                        Exercise Price**
                      **($)**
                    **Option
                        Expiration Date**Charles
                        Dawson
                    0
                    -
                    -Neal
                        W. Collins
                    0
                    -
                    -Bruce
                        Sherman (1)
                    400,000
                    0.18
                    12/31/10Steven
                        Schilit
                    0
                    -
                    -
 ___________________
 
 (1)
                    The
                        options reflected in this row may vest and become exercisable,
                        generally
                        in equal increments over a period of three years, beginning
                        in fiscal
                        2008, if the 2007 Plan is approved by our stockholders and
                        certain
                        performance and service based conditions are satisfied by
                        Mr. Sherman
                        under his equity incentive arrangement with Five Star Group.
  The
              exercise price of the options was modified subsequent to the end of
              our fiscal
              year  in
              connection with the Amended Sherman Employment Agreement. Under the
              Amended
              Sherman Employment Agreement, the exercise price of the options is
              $0.38 per
              share.
  A
              description of the terms of Mr. Sherman’s equity incentive arrangement, as of
              December 31, 2006, follow the Grants of Plan Based Awards table above
              under
“Long-Term Equity Incentive Arrangement - Bruce Sherman” and, as of
              February 23, 2007, under “Agreement with Bruce Sherman” in the narrative
              following the Summary Compensation Table above.
  **TERMINATION
              OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS**
  As
              discussed in the narrative following the Summary Compensation Table
              above,
              Messrs. Dawson, Sherman and Schilit have each entered into new or amended
              employment or severance and consulting agreements with the Company
              or Five Star
              Group since the beginning of fiscal 2007. On December 31, 2006, Mr.
              Sherman was
              our only named executive officer who would have been entitled to any
              incremental
              payments or benefits from the Company upon the occurrence of certain
              termination
              events or upon a change in control of the Company, as described
              below.
  **Potential
              Payments to Bruce Sherman Upon Termination or Change in
              Control**
  Under
              the
              2006 Sherman Agreement, had Mr. Sherman's employment been terminated
              as of
              December 31, 2006, Mr. Sherman would not have been entitled to any
              payments or benefits if he had been terminated for the following
              reasons:
  15
 Ÿ
                  a
                      breach by Mr. Sherman of any of the terms of the employment
                      agreement
                      (provided that Five Star Group gives Mr. Sherman 15 days notice
                      prior to
                      termination if the breach is capable of cure);  Ÿ
                  the
                      gross neglect by Mr. Sherman of his duties under the employment
                      agreement
                      (if such conduct continues for 30 days following written warning
                      to Mr.
                      Sherman);  Ÿ
                  a
                      conviction of Mr. Sherman for any felony or any crime involving
                      moral
                      turpitude or any lesser crime or offense involving the property
                      of Five
                      Star Group or any of its affiliates;  Ÿ
                  a
                      commission by Mr. Sherman of any act of fraud or dishonesty;
                      or  Ÿ
                  the
                      engagement by Mr. Sherman in misconduct resulting in serious
                      injury to
                      Five Star Group.  If
              Mr.
              Sherman’s employment was terminated due to: (i) his death or (ii) any physical
              or mental disability, then he would be entitled to receive his base
              salary as
              then in effect for the month during which termination occurred plus
              his base
              salary for the next four months. He would be entitled to receive any
              annual cash
              incentive award for that contract year, prorated through the date of
              termination, if the termination event occurred more than six months
              into the
              year. Mr. Sherman would be entitled to receive a pro-rated amount equal
              to the
              maximum amount that could have been earned by Mr. Sherman during the
              relevant
              fiscal year. Under the 2006 Sherman Agreement, if Mr. Sherman’s employment had
              been terminated due to his death or disability on December 31, 2006,
              he would
              have been entitled to receive $87,500, which represents $87,500 for
              four months’
salary, and $75,000, which represents Mr. Sherman’s annual incentive award for
              fiscal 2006.
  If
              Five
              Star Group terminated Mr. Sherman’s employment for any other reason than those
              described above, he would have been entitled to continue to receive
              (in weekly installments) his base salary as then in effect for the
              period
              commencing from the date of termination and ending on the termination
              date of
              the employment agreement. Mr. Sherman also would have been entitled to
              receive his annual cash incentive award, if any had been earned under
              the terms
              of his employment agreement, through the date of termination on a pro
              rata
              basis. Under the 2006 Sherman Agreement, if Mr. Sherman’s employment had been
              terminated due to his death or disability on December 31, 2006, he
              would have
              been entitled to receive $1,125,000, which represents $1,125,000 in
              total salary
              payments remaining under the 2006 Sherman Agreement, and $75,000, which
              represents the annual incentive award Mr. Sherman earned in fiscal
              2006.
  Under
              the
              2006 Sherman Agreement, if a “change in control” or “sale” of the Company (as
              described below) were to have occurred during the term of the employment
              agreement, Mr. Sherman would have been granted the unconditional, fully
              vested
              right to purchase up to 400,000 shares of Company common stock at a
              per share
              exercise price equal to the fair market value of a share of common
              stock on the
              date of the event. The number of options granted would have represented:
              (i) the
              total number of options that could have potentially vested and become
              exercisable under 2006 Sherman Agreement if certain conditions, including
              the
              achievement of certain performance- and service-based vesting conditions,
              were
              satisfied over fiscal years 2007 through 2010 minus (ii) the number
              of options
              that had vested and become exercisable under the 2006 Sherman Agreement
              upon
              satisfaction of those conditions. If a change in control or sale of
              the Company
              had occurred on December 31, 2006, the options that could have potentially
              vested and become exercisable under the 2006 Sherman Agreement would
              have
              terminated and Mr. Sherman would have received a new grant of fully-vested
              options to purchase 400,000 shares of common stock at an exercise price
              equal to
              the fair market value on December 29, 2006 (the last business day of
              the 2006
              fiscal year). As of December 31, 2006, no options had vested or become
              exercisable under the 2006 Sherman Agreement. Mr. Sherman’s right to receive and
              exercise the options to purchase these shares upon a change in control
              or sale
              of the Company would have survived the expiration of the term of the
              employment
              agreement.
 16
 A
              change
              in control would have been  deemed to have occurred for the purposes
              of the employment agreement if any person who was not on October 1,
              2006 the
              direct or indirect “beneficial owner” (as defined in Rule 13d-3 under the
              Securities Exchange Act of 1934) of securities of the Company representing
              15%
              or more of the combined voting power of the Company’s outstanding securities
              became such beneficial owner of Company securities representing 25%
              or more of
              the combined voting power of the Company’s outstanding securities.
  A
“sale”
              of the Company would have been  deemed to have occurred if:
  Ÿ
                  the
                      Company engaged in any transaction(s) with another entity and
                      following
                      such transaction(s) the Company’s stockholders immediately prior to such
                      transaction(s) do not hold at least 50% of the voting power
                      of the Company
                      or its successor;  Ÿ
                  NPDC
                      and its affiliates ceased to own more than 60% of the Company’s voting
                      stock; or  Ÿ
                  all
                      or substantially all of the assets of the Company were sold.  Mr.
              Sherman was subject to confidentiality, non-competition and
              non-solicitation covenants under his employment agreement. The confidentiality
              covenant was not limited in duration. The duration of the non-competition
              and
              non-solicitation covenants would have been reduced in length, depending
              on the
              amount of time Mr. Sherman had served pior to the termination event
              (the
              non-competition covenant would have remained in effect for a period
              of 18 months
              to six months and the non-solicitation covenant would have remained
              in effect
              for a period of 18 months to 12 months). If Mr. Sherman violated the
              non-competition and non-solicitation covenants, the term of each violated
              covenant would have been automatically extended for an additional period
              of
              time. In addition, the Company would have had the right to require
              Mr. Sherman
              to account for and pay over to the Company all profits or other benefits
              derived
              or received by the Mr. Sherman as a result of any transactions constituting
              a
              breach of each such covenant violated.
  **Compensation
              Committee Interlocks and Insider Participation**
  The
              Company does not have a separately designated Compensation Committee.
              The entire
              Board acts as the Company’s Compensation Committee. Each member of the Board was
              an officer of the Company or Five Star Group during fiscal 2006. During
              fiscal
              2006, Mr. Schilit (who served as our Chief Operating Officer) and Mr.
              Feldman
              (who served as a director of the Company until March 2007 and who presently
              serves as the Chairman and Chief Executive Officer of our parent, NPDC)
              each
              participated in the Company’s deliberations regarding executive
              compensation.
  As
              noted
              under “Transactions with Related Persons, Promoters and Certain Control Persons”
below, Messrs. Belknap, Sherman, Dawson and Schilit have each entered
              into
              compensation arrangements with the Company. For details of the Company’s
              agreements with these employee directors, see the summaries of such
              agreements
              in the narrative following the Summary Compensation Table.
  17
 **COMPENSATION
              COMMITTEE REPORT**
 
 The
              entire Board of Directors of the Company has reviewed and discussed
              with
              management the above Compensation Discussion and Analysis and, based
              on its
              review and discussions, the entire Board of Directors has recommended
              to the
              Board that the Compensation Discussion and Analysis be included in
              this Annual
              Report on Form 10-K.
  The
              Board of
              Directors
 
 
 S.
              Leslie Flegel
              (Chairman)
 John
              C.
              Belknap
 Bruce
              Sherman
 
 
 **2006
              DIRECTOR COMPENSATION** (1),
              (2)
  The
              table
              below summarizes the total compensation paid to or earned by each of
              the
              Company’s directors (who are not also named executive officers) for the fiscal
              year ended December 31, 2006.
  **Name**
                    **Fees
                        Earned or Paid in Cash**
                      **($)**
                    **Option
                        Awards**
                      **($)**
                    **Total**
                      **($)**Jerome
                        Feldman (3)
                    0
                    0
                        (5)
                    0John
                        Moran
                    1,500
                        (4)
                    0
                        (5)
                    1,500Carll
                        Tucker
                    26,500
                        (4)
                    0
                        (5)
                    26,500
 
 (1)
                    Messrs.
                        Feldman, Dawson, Moran and Tucker resigned from the Board
                        effective March
                        1, 2007.(2)
                    Messrs.
                        Dawson and Sherman did not receive any additional compensation
                        for their
                        services as Company directors because employees of the Company
                        or its
                        subsidiaries do not receive additional compensation for serving
                        as
                        directors. Information regarding compensation paid to Messrs.
                        Dawson and
                        Sherman in fiscal 2006 is located in the Summary Compensation
                        Table
                        above.(3)
                    Mr.
                        Feldman did not receive any additional compensation for his
                        services as a
                        director or as Chairman of the Company’s Board during fiscal 2006.
                        However, Mr. Feldman is the Chairman and Chief Executive
                        Officer of NPDC,
                        the Company’s parent. As discussed above under “Transactions with Related
                        Persons, Promoters and Certain Control Persons”, the Company and NPDC have
                        entered into a Management Agreement through which the Company
                        pays NPDC
                        fees for services provided to the Company by employees of
                        NPDC. The
                        Company estimates that the amount allocable under this Management
                        Agreement for Mr. Feldman in fiscal 2006 was $200,000. This
                        amount is part
                        of Mr. Feldman’s compensation as Chief Executive Officer of
                        NPDC.(4)
                    During
                        2006, directors who were not employees of the Company or
                        its subsidiaries
                        received $1,500 for each meeting of the Board of Directors
                        attended, and
                        generally did not receive any additional compensation for
                        service on the
                        committees of the Board of Directors, except for Mr. Tucker,
                        who received
                        $25,000 for serving as the sole member of a Special Committee.(5)
                    No
                        equity awards were granted to Company directors in fiscal
                        2006. However,
                        certain directors had exercisable options awards outstanding
                        at 2006
                        fiscal year end: Mr. Feldman, 150,000 options outstanding;
                        Mr. Moran,
                        150,000 options outstanding; and Mr. Tucker, 50,000 options
                        outstanding.
                        Mr. Tucker exercised his options in March
                        2007.
  18
 **Agreement
              with Our Current Chairman, S. Leslie Flegel**
  In
              connection with his appointment as Chairman of the Company effective March
              2, 2007, S. Leslie Flegel entered into a three-year agreement with
              the Company
              ending on March 1, 2010 (the “Flegel Agreement”). Under the Flegel Agreement,
              Mr. Flegel will receive an annual fee of $100,000 and will be reimbursed
              (i) for
              all travel expenses incurred in connection with his performance of
              services to
              the Company and (ii) beginning in November 2007, for up to $125,000
              per year of
              the cost of maintaining an office. In addition, pursuant to the Flegel
              Agreement, Mr. Flegel was issued 2,000,000 shares of the Company’s common stock,
              all of which are fully vested and not subject to forfeiture.
  During
              the term of the Flegel Agreement, Mr. Flegel has agreed not to serve
              in an
              operating capacity as an executive officer with any other unaffiliated
              company.
              The Flegel Agreement also contains non-compete and non-solicitation
              covenants.
  The
              Company may terminate the Flegel Agreement:
  ·
                  upon
                      Mr. Flegel’s death or disability;  ·
                  if
                      Mr. Flegel engages in conduct that is materially monetarily
                      injurious to
                      the Company;  ·
                  if
                      Mr. Flegel willfully and continually fails to perform his duties
                      or
                      obligation under the Flegel Agreement; or  ·
                  upon
                      a change of control (as defined in the Flegel Agreement) of
                      the Company or
                      NPDC.  If
              the
              Flegel Agreement is terminated by the Company in accordance with the
              foregoing,
              the Company is required to pay Mr. Flegel his fee accrued, and reimburse
              him for
              any expense incurred only through the date the Flegel Agreement is
              terminated.
  On
              the
              same date, Mr. Flegel also entered into the “NPDC Agreement” with NPDC. Under
              the NPDC Agreement, Mr. Flegel purchased 200,000 shares of NPDC’s common stock,
              which he has the right to exchange any or all of into shares of Company
              common
              stock (which is held by NPDC) at the rate of six shares of Company
              common stock
              for each share of NPDC common stock.
  NPDC
              and
              the Company have each granted Mr. Flegel certain demand and piggy-back
              registration rights pursuant to a NPDC registration rights agreement
              and a
              Company registration rights agreement; provided, that prior to the
              expiration of
              the Flegel Agreement, Mr. Flegel only has the right to include his
              Company
              common stock in a registration statement that includes shares of Company
              common
              stock owned by the Company and then only in proportion to the number
              of shares
              of Company common stock being registered for the benefit of the Company.
  During
              the term of the Flegel Agreement, Mr. Flegel has agreed not to sell
              or otherwise
              dispose of the 200,000 shares of NPDC common stock purchased by him
              pursuant to
              the NPDC Agreement or any shares of Company common stock into which
              they may
              have been exchanged or the 2,000,000 shares of Company common stock
              issued to
              him pursuant to the Flegel Agreement, except as part of a registered
              public
              offering, as set forth above.
  19
 **ITEM
              12.**  **Security
              Ownership of Certain Beneficial Owners and Management and Related Stockholder
              Matters**
  **Principal
              Stockholders**
  The
              following table sets forth the number of shares of common stock beneficially
              owned as of April 20, 2007 by each person who is known by the Company
              to own
              beneficially more than five percent of the Company’s outstanding common stock
              other than executive officers or directors of the Company, whose beneficial
              ownership is reflected in the Security Ownership of Directors and Executive
              Officers table below.
  **Name
                        and Address**
                      **of
                        Beneficial Owner**
                    **Amount
                        and Nature of Beneficial Ownership**
                    **Percent
                        of Class**National
                        Patent Development Corporation/
                      JL
                        Distributors, Inc.
                      10
                        East 40thStreet, Suite 3110
                      New
                        York, NY 10016
                    16,438,584
                        (1)
                    70.26%
 
 (1)
                    NPDC
                        has sole voting power and sole dispositive power with respect
                        to 9,438,584
                        shares. NPDC and JL have shared voting power and shared distributive
                        power
                        with respect to 7,000,000 shares.
 
 **Security
              Ownership of Directors and Executive Officers**
  The
              following table sets forth the beneficial ownership of the Company’s common
              stock as of April 20, 2007 by each Company director, each of the Company’s named
              executive officers, and all Company directors and executive officers
              as a
              group.
  **Name**
                    **Amount
                        and Nature of Beneficial Ownership**
                    **Percent
                        of Class**John
                        C. Belknap
                    0
                    *Neal
                        W. Collins
                    0
                    *Charles
                        Dawson
                    0
                    *S.
                        Leslie Flegel
                    2,933,336
                        (1)
                    20.5%Steven
                        Schilit (2)
                    0
                    *Bruce
                        Sherman
                    0
                    *Directors
                        and Executive Officers
                      as
                        a Group (6 persons) (2)
                    2,933,336
                    20.5%
 ______________
 *The
                        number of shares owned is less than one percent of the outstanding
                        shares.(1)
                    This
                        amount includes the 1,200,000 shares of Company common stock
                        Mr. Flegel
                        has the right to acquire pursuant to an agreement with NPDC.
                        Under the
                        NPDC Agreement, Mr. Flegel has the right to exchange up to
                        200,000 shares
                        of NPDC common stock into shares of Company common stock
                        held by NPDC at
                        the rate of six shares of Company common stock for each share
                        of NPDC
                        common stock. Mr. Flegel has sole voting power and sole dispositive
                        power
                        over all of the shares beneficially owned.(2)
                    On
                        April 20, 2007, Mr. Schilit was not an employee of the
                        Company.
  20
 **Ownership
              of Related Companies**
  Some
              of
              our directors and executive officers own equity securities of NPDC,
              our parent.
              The following table and footnotes set forth the beneficial ownership,
              as of
              April 20, 2007, of the shares of common stock of NPDC held by each
              of our
              directors, each named executive officer and all of our current directors
              and
              executive officers as a group. All information is taken from or based
              upon
              ownership filings made by such individuals with the SEC or upon information
              provided by such individuals.
  **Name**
                    **Amount
                        and Nature of Beneficial Ownership**
                    **Percent
                        of Class**John
                        C. Belknap
                    0
                    0%Neal
                        W. Collins
                    0
                    0%Charles
                        Dawson
                    0
                    0%S.
                        Leslie Flegel
                    200,000(1)
                    1.12%Steven
                        Schilit
                    0
                    0%Bruce
                        Sherman
                    0
                    0%Directors
                        and Executive Officers
                      as
                        a Group (6 persons)
                    200,000
                    1.12%
 ______________
 *The
                        number of shares owned is less than one percent of the outstanding
                        shares.(1)
                    This
                        amount represents the 200,000 shares of Company common stock
                        Mr. Flegel
                        acquired pursuant to an agreement with NPDC. Under the NPDC
                        Agreement, Mr.
                        Flegel has the right to exchange up to 200,000 shares of
                        NPDC common stock
                        into shares of Company common stock held by NPDC at the rate
                        of six shares
                        of Company common stock for each share of NPDC common stock.
                        See footnote
                        (1) to the “Security Ownership of Directors and Executive Officers” table
                        directly above.
 
   21
  **Equity
              Compensation Plan Information**
  The
              following table provides information about the Company’s common stock that may
              be issued upon the exercise of options, warrants and rights under all
              of the
              Company’s equity compensation plans as of December 31, 2006.
  **Plan
                        category**
                    **Number
                        of securities to be issued upon exercise of outstanding options,
                        warrants and rights**
                      **(a)**
                    **Weighted-average
                        exercise price of outstanding options, warrants and
                        rights**
                      **(b)**
                    **Number
                        of securities remaining available for future issuance under equity
                        compensation plans (excluding securities reflected in column
                        (a))**
                      **(c)**Equity
                        compensation plans not approved by security holders (1)
                    1,050,000
                    $0.16
                    2,950,000**Total**
                    1,050,000
                    $0.16
                    2,950,000
 
 (1)
                    The
                        Company’s 1994 stock option plan, as amended, became effective on
                        January
                        1, 1994 (the “Plan”). The Plan was approved by the Board and the then-sole
                        shareholder of the Company. The Plan was amended by the Board
                        on January
                        1, 2002 to increase the number of shares of common stock
                        available
                        thereunder from 2 million to 4 million. The Plan provides
                        for grants of
                        non-qualified stock options, and prior to the 2002 amendment
                        provided for
                        grants of incentive stock options, to employees and consultants
                        of the
                        Company and its subsidiaries. After the 2002 amendment, the
                        Company could
                        not grant further incentive stock options under the Plan.
                        After January 1,
                        2004, no options may be granted under the Plan. All stock
                        option grants
                        have an exercise price per share of no less than the fair
                        market value per
                        share of common stock on the grant date and may have a term
                        of no longer
                        than 10 years after the grant date.
  **ITEM
              13.**  **Certain
              Relationships and Related Transactions** **,
              and Director Independence**
  **Transactions
              with Related Persons, Promoters and Certain Control
              Persons**
  The
              Company has no written policies and procedures for the review, approval,
              or
              ratification of any transaction required to be reported under this
              item, but its
              Board adheres to the following practices in assessing whether to enter
              into an
              agreement with a related person, promoter or control person:
  §
                  The
                      Board convenes a quorum;  §
                  The
                      Board considers the relative merits of the transaction, including
                      whether
                      the cost of the transaction is market value and whether the
                      Company could
                      reach an agreement with a non-related party that is, from a
                      financial
                      perspective, equally or more beneficial to the Company than
                      the
                      transaction in question;  §
                  The
                      Board votes, with the abstention of any interested directors;
                      and  §
                  If
                      a majority of the Board votes in favor of the transaction,
                      the Company
                      enters into the transaction.   22
  ***Management
              Agreement***
 
 Since
              2004, NPDC, the Company’s parent, has provided legal, tax, business development,
              insurance and employee benefit administration services to the Company
              pursuant
              to a management services agreement for fees which have ranged from
              $10,000 to
              $25,000 per month and are currently capped at $14,167 per month. The
              agreement
              is automatically renewable for successive one-year terms unless one
              of the
              parties notifies the other in writing at least six months prior to
              the end of
              any renewal thereof. In addition, the Company agreed to reimburse NPDC
              for
              $16,666 per month for Mr. Feldman’s (NPDC’s Chief Executive Officer) service to
              the Company effective October 1, 2004. The agreement was renewed for
              2007. Fees
              incurred under the Agreement totaled $370,000, $500,000 and $215,000,
              for the
              years ended December 31, 2006, 2005 and 2004, respectively. The largest
              aggregate amount of principal outstanding and due during fiscal 2006
              was
              $84,451, of which the Company paid $84,451. At December 31, 2006 and
              2005, the
              amounts due to NPDC under the Agreement were $58,000 and $43,000,
              respectively.
  In
              addition, NPDC incurred certain expenses on behalf of the Company,
              primarily
              involving insurance, legal and other professional expenses. The Company
              reimbursed NPDC for such expenses, which amounted to approximately
              $234,000,
              $242,000, $239,000, $338,000 and $98,000 for the years ended December
              31, 2006,
              2005, 2004, 2003 and 2002, respectively.
  ***Related
              Party Debt***
  The
              Company’s wholly-owned subsidiary, Five Star Group, has a $2,800,000 unsecured
              note payable (the “Note”) to JL Distributors, Inc., a wholly-owned subsidiary of
              NPDC. The Note, as amended, bore interest at eight percent, which is
              payable
              quarterly, and was scheduled to mature on June 30, 2005. On June 30,
              2005, the
              Company and NPDC agreed to extend the Note for a one-year term maturing
              on June
              30, 2006. In consideration of NPDC extending the Note, the Company
              paid NPDC a
              fee of $28,000, representing one percent of the Note’s $2.8 million outstanding
              balance. In addition, the interest rate on the Note was increased to
              nine
              percent. On July 28, 2006, the Company and NPDC agreed to extend the
              Note’s
              maturity terms to June 30, 2007. In consideration of NPDC extending
              the Note,
              the Company paid NPDC a fee of $28,000, representing one percent of
              the Note’s
              approximately $2.8 million outstanding balance.
  On
              March
              2, 2007, the Company and NPDC agreed to amend the Note (i) to extend
              the
              maturity date from June 30, 2007 to June 30, 2009, (ii) to add a conversion
              feature such that the holder of the Note, at its option, may convert
              the
              principal of the Note, and any accrued interest, into shares of the
              Company’s
              common stock at a fixed conversion price of $0.40 per share, and (iii)
              to modify
              the Note to eliminate the right of the Company to prepay the Note prior
              to
              maturity. The Company also has granted NPDC and JL certain demand and
              piggy-back
              registration rights with respect to the shares of the Company’s common stock
              issuable upon exercise of the Note pursuant to a registration rights
              agreement,
              dated as of March 2, 2007, between the Company and JL.
  The
              Note
              is subordinated to Five Star Group’s indebtedness under its Loan Agreement with
              Bank of America Business Capital. The Loan Agreement has a five-year
              term, with
              a maturity date of June 30, 2008.
  23
  ***Other
              Related Party Transactions***
  *Grad
              Agreement*
  On
              February 8, 2002, the Company entered into a Consulting and Severance
              Agreement
              (the “Grad Agreement”) with Richard Grad, the former President and Chief
              Executive Officer of the Company. Pursuant to the Grad Agreement, Mr.
              Grad
              received $145,000 per year for consulting services to be rendered to
              the Company
              and a severance fee at the rate of $5,000 per year, for a five-year
              period
              ending February 8, 2007. In addition, in August, 2002, Mr. Grad was
              granted
              options to purchase 150,000 shares of the Company’s common stock at the quoted
              market price on the date of grant, which options will vest annually
              over the
              term of the Grad Agreement in equal installments. Such options were
              valued at an
              aggregate amount of $13,000. The Grad Agreement also provided for the
              repurchase
              by the Company of 192,308 shares of the Company’s common stock held by Mr. Grad
              for an aggregate purchase price of $25,000. During this five-year period,
              Mr.
              Grad also received certain benefits, including medical benefits, life
              insurance
              and use of an automobile.
  *Kampner
              Agreement*
  On
              April
              5, 2007, Five Star Group entered into an Employment Agreement dated
              as of April
              5, 2007 with Ronald Kampner (the “Kampner Agreement”) pursuant to which Mr.
              Kampner serves as Five Star Group’s Senior Vice President of Sales. The Kampner
              Agreement has a three-year term (subject to earlier termination). During
              the
              term of the agreement, Five Star Group will pay Mr. Kampner (i) a minimum
              annual
              base salary of $200,000, (ii) two percent of all sales related to the
              business
              of Right-Way Dealer Warehouse, Inc. (“Right-Way”) booked by December 31 of each
              year during the term above a threshold (the threshold is $8,000,000
              (pro-rated
              for the period of April 5, 2007 and December 31, 2007) in 2007 and
              increases
              annually during the term of the agreement by five percent over the
              prior year’s
              threshold amount, partial years being pro-rated) and (iii) (a) one-half
              of one
              percent of all sales booked from certain qualified Right-Way customers
              up to a
              threshold (the threshold is $15,000,000 (pro-rated for the period of
              April 5,
              2007 and December 31, 2007) in 2007 and increases annually during the
              term of
              the agreement by five percent over the prior year’s threshold amount, partial
              years being pro-rated (the “Distribution Threshold”)) and (b) one percent of all
              sales booked from certain qualified Right-Way customers above the Distribution
              Threshold. In addition, Mr. Kampner was granted an option to purchase
              200,000
              shares of Company common stock, at an exercise price equal to the fair
              market
              value of the Company's common stock on April 5, 2007, the date of the
              grant.
  *Other
              Agreements*
  For
              details of agreements with Messrs. Belknap, Sherman, Dawson and Schilit,
              see the
              summaries of such agreements in the narrative following the Summary
              Compensation
              Table.
    24
 **ITEM
              14.**  **Principal
              Accountant Fees and Services**
  The
              fees
              billed for services rendered for 2006 and 2005 by Eisner LLP were as
              follows:
  2006
                    
                    2005Audit
                        Fees (1)
                    $
                    160,000
                    $
                    111,000Audit-Related
                        Fees
                    $
                    0
                    $
                    0Tax
                        Fees
                    $
                    0
                    $
                    0All
                        Other Fees
                    $
                    0
                    $
                    0Total
                    $
                    160,000
                    $
                    111,000
 _______________
 
 (1)
                    Audit
                        fees consisted principally of fees for the audit of the annual
                        financial
                        statements and reviews of the condensed consolidated financial
                        statements
                        included in the Company’s quarterly reports on Form 10-Q and review of
                        registration statements.
 
 **Policy
              on Pre-Approval of Services Provided by Independent Auditor**
  Pursuant
              to the requirements of the Sarbanes-Oxley Act of 2002, the terms of
              the
              engagement of Eisner LLP are subject to specific pre-approval policies
              by the
              Company's Board of Directors, which serves as the Company's Audit Committee.
              In
              fiscal 2006, all audit services to be performed by Eisner LLP required
              pre-approval by the Board in accordance with pre-approval policies
              established
              by the Board. The procedures required all proposed engagements of Eisner
              LLP for
              services of any kind be directed to the Board for approval prior to
              the
              beginning of any service.
 
 All
              services provided by the independent registered public accounting firm
              for 2006
              were approved in advance by the Board of Directors.
  
 **PART
              IV**
  **ITEM
              15.**  **Exhibits
              and Financial Statement Schedules**
  See
              accompanying Index to Exhibits.
  
  25
 
  **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.
  **FIVE
                        STAR PRODUCTS, INC.**Date: April
                      30, 2007
                    By:
                    /s/ JOHN
                      C.
                      BELKNAPJohn C. BelknapPresident
                      and
                      Chief Executive Officer(Principal
                      Executive Officer)
  
  26
  **INDEX
              TO EXHIBITS**
 
 **Number**
                    
                    **Description**31.1
                    *
                    Certification
                        of Chief Executive Officer31.2
                    *
                    Certification
                        of Chief Financial Officer
  *
                    Filed
                        herewith