FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

               /X/ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

                       THE SECURITIES EXCHANGE ACT OF 1934
                   For the Fiscal Year Ended December 31, 1999

                                       OR

             / /TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

                       THE SECURITIES EXCHANGE ACT OF 1934
                        For the transition period from to

                        Commission File Number 033-78252

                            FIVE STAR PRODUCTS, INC.

             (Exact name of registrant as specified in its charter)


Delaware                                                     13-3729186
(State  of Incorporation)                                (I.R.S. Employer
                                                          Identification No.)

9 West 57th Street, New York, NY                               10019
(Address of principle executive offices)                     (Zip code)

Registrant's telephone number, including area code:         (212) 826-8976

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 whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                    Yes      X                         No

Indicate  by  check  mark if  disclosure  of  delinquent  filers  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. /X/

As of March 3, 2000, the aggregate market value of the outstanding shares of the
Registrant's  Common Stock, par value $.01 per share, held by non-affiliates was
approximately  $2,538,422  based on the closing price of the Common Stock on the
OTC  Bulletin  Board,  which is operated by the NASDAQ  Stock Market on March 3,
2000.

Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.

Class                                             Outstanding at March 3, 2000
Common Stock, par value $.01 per share                  13,020,195 shares

DOCUMENTS INCORPORATED BY REFERENCE:                          None


<PAGE>




                                TABLE OF CONTENTS

PART I                                                                      Page

     Item 1. Business.........................................................1

     Item 2. Properties.......................................................6

     Item 3. Legal Proceedings................................................7

     Item 4. Submission of Matters to a Vote of Security Holders..............7

PART II

     Item 5. Market for the Registrant's Common

     Equity and Related Stockholder Matters...................................8

     Item 6. Selected Financial Data..........................................9

     Item 7.  Management's Discussion and Analysis of

     Financial Condition and Results of Operations...........................10

     Item 7A. Quantitative and Qualitative Disclosures About Market Risk.....13

     Item 8. Financial Statements and Supplementary Data.....................14

     Item 9.  Changes in and Disagreements with

     Accountants on Accounting and Financial Disclosure......................37

PART III

     Item 10. Directors and Executive Officers of the Registrant.............38

     Item 11. Executive Compensation.........................................40

     Item 12. Security Ownership of Certain Beneficial

     Owners and Management...................................................44

     Item 13. Certain Relationships and Related Transactions.................45

PART IV

     Item 14. Exhibits, Financial Statement Schedules, and

     Reports on Form 8-K.....................................................47


<PAGE>




                                     PART I

Item 1.  Business

(a)      General Development of Business

         On September 30, 1998, a newly formed  wholly owned  subsidiary of Five
Star  Products,  Inc.  (the  "Company"),  Five Star Group,  Inc.  ("Five  Star")
purchased from JL  Distributors,  Inc.  ("JL"),  a wholly owned subsidiary of GP
Strategies  Corporation ("GP  Strategies"),  substantially  all of the operating
assets of JL. The assets were purchased for $16,476,000 in cash and a $5,000,000
unsecured  senior note. The unsecured  senior note bears interest at the rate of
8% payable quarterly, with the principal due on September 30, 2003. Five Star is
a leading distributor of home decorating, hardware and finishing products in the
northeast.  For the  year  ended  December  31,  1999  Five  Star  had  sales of
approximately $83,000,000.

         The Company was organized in 1993, as a  wholly-owned  subsidiary of GP
Strategies to initiate marketing and sales activities for generic pharmaceutical
and medical products in Russia and the  Commonwealth of Independent  States (the
"CIS").  NPD Trading (USA) Inc. ("NPD  Trading") was formed in January 1990 as a
wholly-owned  subsidiary  of GP  Strategies  to provide  consulting  services to
American and Western  corporations in Russia and Eastern Europe. The Company now
has two wholly  owned  subsidiaries,  Five Star and NPD  Trading.  On August 10,
1999,  the Company  changed its name to Five Star  Products,  Inc. from American
Drug Company to reflect its new industry focus.

         The  purchase  by the  Company of the assets of Five Star  changed  the
focus of the  Company.  The  Company  plans to focus its  efforts on growing the
distribution  business and has scaled back the  operations  of its Prague office
with respect to the business of NPD Trading.

         (b) Financial Information about Industry Segments

         This item is not applicable  because the Company has only a single line
of business.

         (c) Narrative Description of Business


<PAGE>


Five Star

                  Five Star is engaged  in the  wholesale  distribution  of home
decorating,  hardware  and  finishing  products.  Five Star is  composed  of two
strategically located warehouse distribution centers and office locations in New
Jersey and  Connecticut  with over 360,000 square feet of space.  All operations
are coordinated by senior  management from the headquarters in New Jersey,  with
each strategically located facility having its own sales force.

         In  January  2000,  Five Star  expanded  its sales  territory  with the
addition of an  established,  dedicated  sales force  servicing the Mid Atlantic
States, as far south as Virginia.  This new sales force is currently  generating
revenues  in excess of  $8,000,000  on an annual  basis.  Five Star  intends  to
service this new territory from its 250,000 square foot East Hanover, New Jersey
facility, from which it currently services the Northeast. Five Star's ability to
service this  territory  from its existing New Jersey  facility will enable Five
Star to leverage its fixed costs over a broader revenue base.

         Five Star is a leading distributor of paint sundry items,  interior and
exterior stains,  brushes,  rollers,  caulking  compounds and hardware products.
Five Star  offers  products  from  leading  manufacturers  such as Cabot  Stain,
William Zinsser & Company,  DAP,  General Electric  Corporation,  American Tool,
USG, Stanley Tools,  Minwax and Minnesota Mining Company.  Five Star distributes
its products to retail  dealers,  which include lumber yards,  "do-it  yourself"
centers,  hardware stores and paint stores  principally in the northeast region.
It carries an extensive  inventory of the products it  distributes  and provides
delivery,  generally within 24 to 72 hours. Five Star has grown to be one of the
largest  independent  distributors in the Northeast by providing a complete line
of  competitively  priced products,  timely delivery and attractive  pricing and
financing terms to its customers.  Much of Five Star's success can be attributed
to a continued  commitment to provide customers with the highest quality service
at reasonable prices.

         As one  of the  largest  distributors  of  paint  sundry  items  in the
Northeast,  Five Star enjoys cost advantages and favorable  supply  arrangements
over the smaller distributors in the industry. This enables Five Star to compete
as a "low cost" provider.  Five Star uses a fully computerized  warehouse system
to track all facets of its distribution  operations.  Five Star has enhanced the
sophistication  of its warehouse and office facilities to take full advantage of
economies  of  scale,  speed  the flow of orders  and to  compete  as a low cost
distributor.  Nearly all phases of the selling process from inventory management
to  receivable   collection   are  automated  and  tracked  at  each   facility.
Furthermore,  all operations are overseen by senior management at the New Jersey
facility.  Five  Star  is  able  to  capitalize  on  manufacturer  discounts  by
strategically timing purchases involving large quantities.

         Management takes a proactive approach in coordinating all phases of the
Company's   operations.   For  example,   sales   managers   require  all  sales
representatives  to call on  customers  once  every  week.  Each  representative
transmits their orders through Five Star's  automated  sales system,  to the IBM
AS400  computer  located  at the New Jersey  facility.  The  salesperson  system

<PAGE>

combines  the  ability to scan  product  codes in the stores  and  download  the
information to a laptop computer for final transmission. Based on the floor plan
of each warehouse and the location of products therein, the computer designs the
most efficient pattern for the orders to be picked.  The orders are then relayed
to the appropriate  location and picked in the evening. The warehouse facilities
are well-maintained and skillfully  organized.  A bar-coded part number attached
to the racking  shelves  identifies  the  location of each of the  approximately
22,000 stock keeping units (SKUs).  This numbering system allows the computer to
arrange picking in the most efficient  order.  The products are loaded onto Five
Star's  trucks in the evening in the order that they will be  unloaded,  and are
then delivered directly to the customers' locations.

Customers

      Five Star's  largest  customer  accounted for  approximately  2.79% of its
sales in 1999 and its 10 largest customers accounted for approximately 12.21% of
such sales.  All such customers are  unaffiliated  and Five Star does not have a
long-term contractual relationship with any of them.

Management Information System

      All of Five Star's  inventory  control,  purchasing,  accounts payable and
accounts  receivable  are now being  fully  automated  on an IBM AS400  computer
system. The Computer Associates  Warehouse Boss System installed in 1994 located
at the New  Jersey and the  Connecticut  facilities  allows  Five Star to obtain
maximum  efficiency and cost savings by  coordinating  the processing of orders,
the selection of optimal picking routines and the tracking of inventory  levels.
In  addition,  Five Star's  software  alerts  buyers to  purchasing  needs,  and
monitors  payables and  receivables.  This system  allows  senior  management to
closely  control  all  phases of Five  Star's  operations.  Five  Star  recently
implemented a new  salesperson-order-entry  system, which allows the salesman to
scan product and then  download  the  information  to a laptop.  The laptop will
contain all product and customer information and will interact with the AS400.

      Five Star has developed strong,  long-term  relationships with the leading
suppliers  since its  predecessor  company,  J. Leven was founded in 1912.  As a
major  distributor  of  paint  sundry  items,  suppliers  rely on  Five  Star to
introduce  new products to market.  Furthermore,  suppliers  have grown to trust
Five Star's  ability to penetrate  the market.  As a result,  Five Star is often
called on first by manufacturers to introduce new products into the marketplace.
For  example,  Minwax,  Best Liebco and Cabot Stain have  utilized  Five Star to
introduce and distribute some of their new product innovations.

Purchasing

      Five  Star  relies  heavily  upon its  purchasing  capabilities  to gain a
competitive advantage relative to its competitors. Five Star's capacity to stock
the  necessary  products in  sufficient  volume and its ability to deliver  them
promptly  upon  demand is one of the  strongest  components  of  service  in the
distribution business, and is a major factor in Five Star's success.


<PAGE>

      Since retail  outlets  depend upon their  distributor's  ability to supply
products  quickly  upon  demand,   inventory  is  the  primary  working  capital
investment for most  distribution  companies,  including Five Star.  Through its
strategic purchasing decisions,  Five Star carries large quantities of inventory
relative to its competitors and thus can boast fill ratios of approximately 95%,
as  compared  to  industry  averages  as  reported  in  trade   publications  of
approximatety 87%.

      All  purchasing   decisions  based  on  current  inventory  levels,  sales
projections,    manufacturer    discounts   and   recommendations   from   sales
representatives,  are made by the merchandising group, located in New Jersey, in
order to effectively  coordinate Five Star's activities.  Notwithstanding senior
management's active  involvement,  the sales managers play an extremely critical
role in this day-to-day process.

Marketing

      The  do-it-yourself  industry relies on  distributors to effectively  link
manufacturer's  products  to the various  retail  networks.  The  do-it-yourself
market operates on this two-step distribution process, i.e.,  manufacturers deal
through  distributors  who in turn service  retailers.  This occurs  principally
because most retailers are not equipped to carry  sufficient  inventory in order
to be cost effective in their purchases from manufacturers.  Thus,  distributors
add significant value by effectively  coordinating and transporting  products to
retail outlets on a timely basis.  Five Star  distributes  and markets  products
from hundreds of  manufacturers  to all of the various  types of retailers  from
regional paint stores, to lumber yards to independent paint and hardware stores.

      The marketing  efforts are directed by the Vice President of Sales at each
facility.  These  individuals are responsible  for designing,  implementing  and
coordinating  marketing  policies.  The Vice President of Sales at each facility
works closely with senior management to coordinate  company-wide marketing plans
as well as to service Five Star's major multi-state customers. In addition, each
Vice  President of Sales is  responsible  for overseeing the effort of his sales
representatives.

      The sales  representatives,  by virtue of daily  contact  with Five Star's
customers,  are the most integral part of Five Star's marketing strategy.  It is
their  responsibility  to generate  revenue,  ensure customer  satisfaction  and
expand the customer  base.  Each  representative  covers an assigned  geographic
area. The representatives are compensated based on a draw plus commission.  Five
Star has  experienced a very low turnover in its sales force as evidenced by the
fact that most  representatives  have over five  years of  experience  with Five
Star.  Many sales reps often have  retail  experience  in the paint or  hardware
industry when they are hired by Five Star.

      Five Star's size,  solid  reputation  for  service,  large  inventory  and
attractive  financing  terms  provide  sales   representatives  with  tremendous
advantages relative to competing sales  representatives from other distributors.
In addition, the representatives'  efforts are strengthened by company-sponsored
marketing events.  For example,  each year in January,  Five Star invites all of

<PAGE>

its customers to a special trade show for Five Star's major  suppliers,  so that
suppliers  may  display  their   products  and   innovations.   Five  Star  also
participates in a profitable  advertising circular program in the spring and the
fall which contains  discount  specials and  information  concerning new product
innovations.

         Five Star has  continually  enhanced its growth  through  complementary
acquisitions  which  have  allowed it to preempt  much of its  competition  as a
high-quality, competitively priced distributor.

Industry Dynamics

The Do-It-Yourself Industry

         The paint sundry items distribution  industry is closely related to the
do-it-yourself    market    which   has   tended   to   exhibit    elements   of
counter-cyclicality.  In times of  recession,  consumers  tend to spend  more on
home-improvements  because they cannot afford contractor services or the cost to
trade up to  bigger  homes and in times of  economic  strength  consumers  spend
heavily in home  improvements  because  they believe they can afford to complete
their home improvement  projects.  In 1999,  Americans  purchased more than $164
billion on home improvement products.  These purchases are expected to grow at a
compounded rate of 4.2% till 2003.

         Painting is the quintessential  do-it-yourself project. Painting has to
be done  more  frequently  than most  remodeling  jobs,  and it is a  relatively
inexpensive way to update the appearance of a home. For these reasons, the paint
and paint sundry items industry tends to be counter-cyclical  and a solid growth
segment of the do-it-yourself market.

Competition

         Competition  within the  industry  is  intense.  There are much  larger
national companies commonly  associated with national franchises such as Ace and
TruServ  as well as smaller  regional  distributors,  all of whom offer  similar
products  and  services.  Other than paint sundry item  distributors,  Five Star
faces  stiff  competition  from  Home  Depot,   which  purchases  directly  from
manufacturers   and   dealer-owned   distributors   such  as  Ace  and  TruServ.
Additionally,  in some instances  manufacturers  will bypass the distributor and
choose to sell and ship  their  products  directly  to the  retail  outlet.  The
principal  means of  competition  for Five  Star  are its  strategically  placed
distribution centers and its extensive inventory of quality name brand products.
Five Star will  continue to focus its efforts on  supplying  its products to its
customers at a competitive  price and on a timely,  and consistent basis. In the
future,  Five Star will  attempt to acquire  complementary  distributors  and to
expand the  distribution  of its line of  private-label  products sold under the
"Five  Star"  name.  Through  internal  growth and  acquisitions,  Five Star has
captured  a  leading  share  in  its  principal  market,  the  Northeast.   This
growth-oriented acquisition strategy of acquiring complementary distributors has
allowed Five Star to  effectively  compete  against a substantial  number of its
competitors. While other paint sundry items distributors sell to the same retail
networks as Five Star,  they are at a distinct  disadvantage  versus Five Star's
experience, sophistication and size.


<PAGE>

         Concomitantly,  hardware  stores  that are  affiliated  with the large,
dealer-owned  distributors such as Ace also utilize Five Star's services because
they are  uncomfortable  with  relying  solely  on their  dealer  network.  Most
cooperative-type  distributors  lack the level of service and  favorable  credit
terms  that  independent  hardware  stores  enjoy  with  Five  Star.  Five  Star
effectively competes with the dealer-owned distributors because it provides more
frequent sales calls, faster deliveries,  better financing terms and a full line
of vendors and products to choose from.

NPD Trading

         NPD Trading  provided ICF Kaiser  International  ("ICF") with technical
and  commercial  assistance on a contract for a $250 million hot strip mini mill
in the Czech  Republic.  To date,  the Company has  received $1 million for this
assistance. The Company expects to receive another $1 million payment contingent
upon the completed construction on the mini mill.

         On March 17,  1998 and April 2,  1998,  the  Company  was  informed  by
holders of an aggregate of $1,000,000 of the  Company's  convertible  notes (the
"Notes")  that they had  elected  to  convert  $1,000,000  of the Notes  into an
aggregate of 82,306 shares of GP Strategies common stock. In accordance with the
terms of the original  agreement,  the Company and GP Strategies had agreed that
if the Notes were used to  exercise  the  warrants  issued by GP  Strategies  in
connection  with the Note offering,  GP Strategies had the right to receive from
the Company in exchange for the Notes shares of the Company's  common stock at a
price equal to 60% of its then current market value. However, on April 30, 1998,
the Company and GP Strategies  agreed that instead of issuing  additional shares
of the Company's  common stock which GP Strategies  was entitled to, the Company
would  assign to GP  Strategies  its expected  future  payments in the amount of
approximately  $1,000,000  from  ICF as a  success  fee in  connection  with the
completion of the Company's consulting project in the Czech Republic.

Employees

         The  Company  employs  250 people.  Management-employee  relations  are
considered  excellent  at both  of  Five  Star's  warehouse  facilities.  Unions
represent  approximately 120 of Five Star's employees,  warehouse  personnel and
drivers.  The Teamsters  union  represent the 120 union employees at New Jersey.
Connecticut is completely non-unionized. Five Star has never experienced a labor
strike at its  facilities.  Five Star's  contract with Local No. 11,  affiliated
with the International Brotherhood of Teamsters expires on December 15, 2000.

(d) Financial Information about Foreign and Domestic Operations and Export
    Sales

         Not Applicable.


<PAGE>

Item 2. Properties

         Five Star leases  250,000  square feet in New Jersey and 110,000 square
feet in  Connecticut.  Five Star's  operating  lease for the New Jersey facility
expires in March 2007 and the annual rent is $885,731. Five Star's lease for the
Connecticut  facility  expires in February  2007 and its annual rent is $379,780
through February 28, 2001 and $402,120 thereafter. The Company's New York office
space  is  provided  by  GP  Strategies  pursuant  to  the  Management  Services
Agreement.  As part of the Management Services Agreement, GP Strategies receives
$10,000  a month for  services  provided  by GP  Strategies  employees,  such as
management,   legal,   tax,   accounting,   insurance   and   employee   benefit
administration services.

         The facilities leased by the Company and Five Star are considered to be
suitable and  adequate for their  intended  uses and are  considered  to be well
maintained and in good condition.

Item 3. Legal Proceedings

         The  Company  is not a party to any legal  proceedings  the  outcome of
which are believed by management  to have a reasonable  likelihood of having any
material adverse effect upon the financial condition of the Company

Item 4. Submission of Matters to a Vote of Security Holders

         No matters  were  submitted  to a vote of security  holders  during the
fourth quarter of the fiscal year covered by this report.


<PAGE>


                                     Part II

Item 5. Market for the Registrant's Common Equity and Related Stockholder
        Matters

         The  following  table  presents  the high and low prices for the Common
Stock for 1999 and 1998. The Company's  Common Stock,  $.01 par value, is quoted
on the OTC Bulletin Board, which is operated by the NASDAQ Stock Market.

            Quarter                        High                        Low

1999        First                          $0.42                       $0.32

            Second                         $0.39                       $0.30

            Third                          $0.38                       $0.30

            Fourth                         $0.32                       $0.19

1998        First                          $0.14                       $0.05

            Second                         $0.42                       $0.11

            Third                          $0.45                       $0.25

            Fourth                         $0.45                       $0.30

----------

         The number of shareholders of record of the Common Stock as of March 3,
2000 was 4,532.  On March 3, 2000,  the  average  of the  closing  bid and asked
prices on the OTC  Bulletin  Board was $0.36.  The Company has not  declared any
cash  dividends  during or since its two most recent fiscal  years.  The current
policy of the  Company's  Board of Directors is to retain  earnings,  if any, to
finance the operation of the Company's  business.  The payment of cash dividends
on the  Common  Stock in the  future  will  depend  on the  Company's  earnings,
financial  condition and capital needs and on other factors deemed  pertinent by
the Company's Board of Directors.


<PAGE>


                    FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES

Item 6.  Selected Financial Data

                      SELECTED CONSOLIDATED FINANCIAL DATA

                    (in thousands, except per share amounts)
<TABLE>

                                                         Years Ended December 31,
<CAPTION>

                                                1999        1998        1997        1996      1995
                                                ----        ----        ----        ----      ----

Statement of Operations Data:

<S>                                          <C>         <C>          <C>        <C>          <C>
Revenue                                      $83,232     $17,184      $2,047     $ 1,104      $ 529
Cost of goods sold                            68,646      13,686         936         496        155
General and administrative

 expenses                                     11,627       3,187       1,385       1,674      1,690
Net income (loss)                                647        (664)       (857)    (1,498)     (1,604)

Income (loss) per share:
Basic and diluted

 before extraordinary item                       .05       (.03)       (.07)       (.12)      (.12)
Basic and diluted                                .05       (.05)       (.07)       (.12)      (.12)

                                                                 December 31,
                                                    -------------------------

                                                1999        1998        1997        1996      1995
                                                ----        ----        ----        ----      ----

Balance Sheet Data:

Current assets                             $  32,810   $  32,291      $  514      $1,018     $  550
Current liabilities                           27,598      27,596         199         152        356
Non current liabilities                        5,000       5,000       4,933       4,739      2,633
Working capital                                5,212       4,695         315         866        194
Total assets                                  33,828      33,179         552       1,088        602
Total stockholders' equity (deficiency)        1,230         583      (4,580)     (3,803)    (2,387)

</TABLE>

<PAGE>


Item 7.           Management's Discussion and Analysis of
                  Financial Condition and Results of Operations

                              Results of Operations

Overview

On September 30, 1998 a newly formed wholly-owned subsidiary of the Company, the
Five Star Group,  Inc. (Five Star)  purchased from JL  Distributors,  Inc. (JL),
(formerly  Five  Star  Group,  Inc.)  certain  operating  assets  of JL. JL is a
wholly-owned subsidiary of GP Strategies Corporation (GP Strategies). The assets
were  purchased for  $16,476,000  in cash and a $5,000,000  unsecured  five year
senior note. Five Star is a leading distributor of home decorating, hardware and
finishing  products in the  northeast.  For the year ended December 31, 1997 and
the nine months ended September 30, 1998,  Five Star had sales of  approximately
$82,300,000 and $64,148,000, respectively.

The purchase by the Company of certain assets of Five Star has changed the focus
of the  Company.  The  Company has to focus its efforts in the future on growing
the distribution business, and has taken several steps to reduce its traditional
operations  from both a business  and cost  perspective  including  closing  its
Washington,  DC and Moscow offices and scaling back the operations of its Prague
office with respect to the business of NPD Trading.  For the year ended December
31, 1999, the Company incurred losses of $105,000 before income taxes related to
business of NPD  Trading.  Of this total,  approximately  $74,000  pertained  to
severance and shut down costs related to Washington and Prague offices.

Liquidity and Capital Resources

During the third quarter of 1998 GP Strategies deemed that the Company would not
have the  ability to repay its loan to GP  Strategies,  and  therefore  made the
decision  to  contribute  the  amount  due to  Capital  in excess of par  value.
Therefore GP Strategies did not charge the Company interest in the third quarter
of 1998.

At December 31, 1999,  the Company had cash of $97,000.  On September  30, 1998,
Five Star entered into a $25,000,000 loan and security agreement with a group of
banks.  The credit  facility  allowed  Five Star to borrow up to 50% of eligible
inventory and up to 80% of eligible  accounts  receivable.  The Company borrowed
$16,476,000 on September 30, 1998 to fund the cash portion of the purchase price
in  connection  with the purchase of JL. At December  31, 1999,  the Company had
borrowed  $16,324,000  and had $1,263,000 of additional  availability  under the
loan agreement.

The Company  believes it has sufficient  borrowing  availability  under existing
credit  agreements,  and cash anticipated to be generated through the operations
of the Company, to fund the working capital requirements of Five Star.


<PAGE>


Results of operations

Because of the  September  30, 1998  purchase of the assets of Five Star and the
change  in  focus of the  Company,  results  of  operations  for the year  ended
December 31, 1999 are not comparable to results for the prior years.

In 1998 loss before  income  taxes and  extraordinary  item was  $(420,000),  as
compared to a loss of $(857,000) before income taxes and extraordinary  item for
1997. The reduced loss for 1998 was  principally the result of the income earned
by Five Star since September  30,1998,  as well as reduced selling,  general and
administrative  expenses  incurred by the Company due to the curtailing of their
operations  in Moscow  during the year.  The income  earned by Five Star and the
reduced cost structure of the Company was partially  offset by the effect of the
consulting  revenues earned by the Company in 1997 totaling $840,000 relating to
a success fee  attributable  to a project with ICF Kaiser  International  in the
Czech Republic.

Sales

The Company had sales of $83,134,000 in 1999 compared to sales of $17,080,000 in
1998  and  $1,123,000  in  1997.  The  increased  sales  in  1999  were  totally
attributable  to the operations of Five Star.  The increased  sales in 1998 were
the result of $16,476,000 of sales earned by Five Star since September 30, 1998.

Consulting revenues

The Company  had  consulting  revenues of $98,000 in 1999,  $104,000 in 1998 and
$924,000 in 1997. The decrease in consulting revenues from 1997 to 1998 and 1999
was  primarily due to $840,000 in the form of a success fee related to a project
with ICF Kaiser International in the Czech Republic during 1997.

Gross margin

The Company  had gross  margin of  $14,488,000  in 1999,  $3,394,000  in 1998 to
$187,000  in 1997.  The gross  margin  percentage  in 1999 was 17.4%,  which was
attributable  to the sales of Five Star. The increased  gross margin in 1998 was
due to the gross margin earned on the sales volume  generated by Five Star since
September 30, 1998.


<PAGE>


Selling, general and administrative expense

The  Company  had  Selling,   general  and  administrative   (SG&A)  expense  of
$11,529,000  in 1999,  $3,187,000 in 1998 and  $1,385,000 in 1997. The increased
SG&A in  1999  and  1998  is due to the  acquisition  of  substantially  all the
operating  assets of Five Star on  September  30, 1998,  partially  mitigated by
reduced  SG&A  incurred by the rest of the  Company  due to reduced  consulting,
personnel costs and facility costs in Washington D.C., Moscow and Prague.

Interest expense

The Company had interest  expense of  $1,692,000  in 1999,  $611,000 in 1998 and
$463,000 in 1997. The increased  interest expense in 1999 and 1998 is the result
of both the  short-term  borrowings  incurred  by Five  Star  (see Note 3 to the
consolidated  financial  statements),  as  well  as  interest  incurred  on  the
$5,000,000  unsecured  senior  note  (see Note 1 to the  consolidated  financial
statements).  The increased  interest  expense in 1998 was  partially  offset by
reduced interest expense due to GP Strategies as a result of the contribution to
Capital  in excess  of par  value of the  amount  owed to GP  Strategies  by the
Company during the third quarter of 1998.

Forward-Looking   Statements.   This  report  contains  certain  forward-looking
statements  reflecting  management's current views with respect to future events
and  financial  performance.  These  forward-looking  statements  are subject to
certain  risks and  uncertainties  that  could  cause  actual  results to differ
materially  from  those in the  forward-looking  statements,  all of  which  are
difficult  to predict and many of which are beyond the  control of the  Company,
but not limited to the risk that the  acquisition  of Five Star will achieve the
projected   levels  of   profitability   and  revenues,   and  those  risks  and
uncertainties  detailed  in the  Company's  periodic  reports  and  registration
statements filed with the Securities and Exchange Commission.

Inflation

               Inflation  is not  expected to have a  significant  impact on the
Company's business.


<PAGE>



Item 7A.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.


               The  information  required  by Item 7A is not  applicable  to the
Company's business.


<PAGE>




Item 8.           Financial Statements and Supplementary Data

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                    Page

Independent Auditors' Reports                                        15

Financial Statements:

   Consolidated Balance Sheets - December 31, 1999 and

     1998                                                            17

   Consolidated Statements of Operations - Years ended

     December 31, 1999, 1998 and 1997                                19

   Consolidated Statements of Changes in Stockholders'
     Equity (Deficiency) - Years ended December 31,
     1999, 1998 and 1997                                             20

   Consolidated Statements of Cash Flows - Years ended

     December 31, 1999, 1998 and 1997                                21

   Notes to Consolidated Financial Statements                        22


<PAGE>



         INDEPENDENT AUDITORS' REPORT

         The Board Directors and Stockholders
         Five Star Products, Inc.

         We have audited the  accompanying  consolidated  balance sheets of Five
         Star Products,  Inc. and subsidiaries as of December 31, 1999 and 1998,
         and the  related  consolidated  statements  of  operations,  changes in
         stockholders'  equity and cash flows for the years  then  ended.  These
         financial   statements   are  the   responsibility   of  the  Company's
         management.  Our  responsibility  is to  express  an  opinion  on these
         financial statements based on our audits.

         We conducted our audits in accordance with generally  accepted auditing
         standards.  Those standards  require that we plan and perform the audit
         to obtain reasonable  assurance about whether the financial  statements
         are free of material  misstatement.  An audit includes examining,  on a
         test basis,  evidence  supporting  the amounts and  disclosures  in the
         financial  statements.  An audit also includes assessing the accounting
         principles used and significant  estimates made by management,  as well
         as evaluating the overall financial statement presentation.  We believe
         that our audit provides a reasonable basis for our opinion.

         In our opinion,  the  financial  statements  enumerated  above  present
         fairly, in all material respects,  the consolidated  financial position
         of Five Star Products,  Inc. and  subsidiaries at December 31, 1999 and
         1998, and the  consolidated  results of their operations and their cash
         flows for the years then ended, in conformity  with generally  accepted
         accounting principles.

                        Richard A. Eisner & Company, LLP

         New York, New York
         March 8, 2000


<PAGE>


                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Five Star Products, Inc.:

We  have  audited  the   consolidated   statement  of  operations,   changes  in
stockholders'  deficiency  and cash  flows  for Five  Star  Products,  Inc.  and
subsidiaries  (formerly  American Drug Company) for the year ended  December 31,
1997. These  consolidated  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the results of their operations and their cash
flow of Five Star Products, Inc and subsidiaries for the year ended December 31,
1997, in conformity with generally accepted accounting principles.

The  consolidated  financial  statements  referred  to above have been  prepared
assuming that the Company will continue as a going concern. As discussed in Note
3  accompanying  the 1997  consolidated  financial  statements,  the Company has
suffered  recurring  losses from operations and has an accumulated  deficit that
raise  substantial  doubt  about its  ability to  continue  as a going  concern.
Management's plans in regard to these matters are also described in the Notes to
those consolidated  financial statements.  The consolidated financial statements
do not  include  any  adjustments  that might  result  from the  outcome of this
uncertainty.

New York, New York
March 27, 1998


<PAGE>


                    FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                 (in thousands)

                                                    December 31,    December 31,
                                                       1999             1998
                                                    -----------      --------
                 ASSETS

Current assets

Cash                                                 $       97       $     119
Accounts receivable, trade, less allowance
 for doubtful accounts of $616 and $1,630
 in 1999 and 1998                                        10,108           9,697
Inventory                                                22,554          22,446
Prepaid expenses and other current assets                    51              29
                                                    -----------     -----------

Total current assets                                     32,810          32,291
                                                       --------        --------

Machinery and equipment, net                                942             812
                                                     ----------      ----------

Other assets                                                 76              76
                                                    -----------     -----------
                                                      $  33,828       $  33,179
                                                      =========       =========






        See accompanying notes to the consolidated financial statements.


<PAGE>




                    FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (Continued)

                          (in thousands, except shares)

                                                December 31,        December 31,
                                                   1999                  1998
                                               -------------          ------


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Short-term borrowings                            $  16,324         $  16,971
Accounts payable and accrued expenses               11,274            10,625
                                                  --------        ----------

Total current liabilities                           27,598            27,596
                                                  --------        ----------

Long-term debt to GP Strategies                      5,000             5,000
                                                 ---------         ---------

Stockholders' equity

Common stock, authorized 30,000,000 shares,
 par value $.01 per share
 13,020,155 shares issued and outstanding              130               130
Capital in excess of par value                       7,589             7,589
Accumulated deficit                                 (6,489)           (7,136)
                                                  --------         ---------

Total stockholders' equity                           1,230               583
                                                  --------        ----------
                                                  $ 33,828          $ 33,179
                                                  ========          ========






        See accompanying notes to the consolidated financial statements.


<PAGE>


                    FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                 (in thousands)
<TABLE>

<CAPTION>
                                                         Year Ended December 31,

                                                     1999             1998            1997
                                                   --------        ---------       -------
<S>                                               <C>              <C>             <C>
Sales                                             $   83,134       $   17,080      $    1,123
Cost of goods sold                                    68,646           13,686             936
                                                    --------        ---------      ----------
Gross margin                                          14,488            3,394            187

Selling, general and

 administrative expenses                             (11,627)          (3,187)        (1,385)

Management fee to GP Strategies                         (120)            (120)          (120)

Consulting revenues                                       98              104            924

Interest expense                                      (1,692)            (611)          (463)
                                                    --------         --------        -------


Income (loss) before income taxes
 and extraordinary item                                1,147             (420)          (857)

Income tax expense                                      (500)             (40)
                                                    --------       ----------

Income (loss) before extraordinary item                  647             (460)          (857)

Extraordinary item

Early extinguishment of debt                                             (204)
                                                ------------       ----------

Net income (loss)                                   $    647         $   (664)      $   (857)
                                                    ========         ========       ========

Income (loss) per share
 Basic and diluted before extraordinary item       $     .05        $   (.03)        $ (.07)
                                                   ---------        --------         ------
 Basic and diluted net income (loss) per share           .05            (.05)          (.07)
                                                   ----------        --------        -------


        See accompanying notes to the consolidated financial statements.

</TABLE>

<PAGE>




                    FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES

               CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'

                               EQUITY (DEFICIENCY)

                  Years Ended December 31, 1999, 1998 and 1997

                     (in thousands, except number of shares)
<TABLE>
<CAPTION>

                                            Shares of                         Capital in                         Total
                                          Common Stock            Common        Excess of                     Stockholders'
                                           Outstanding            Stock         Par Value      Deficit           Deficiency
<S>                                         <C>                     <C>            <C>         <C>                  <C>
Balance at December 31, 1996               13,020,155              $130           $1,682      $(5,615)             $(3,803)

Net loss                                                                                                   (857)               (857)
Officers' compensation                                                                          80                               80

Balance at December 31, 1997               13,020,155               130            1,762       (6,472)              (4,580)

Net loss                                                                                         (664)                (664)
Contribution to capital by GP Strategies                                           5,407                             5,407
Contribution to capital by GP Strategies
 by issuance of warrants                                                              330                               330
Issuance of compensatory stock options                                                90                                90

Balance at December 31, 1998               13,020,155               130            7,589      $(7,136)                 583

Net income                                                                                        647

Balance at December 31, 1999               13,020,155              $130           $7,589      $(6,489)             $ 1,230




        See accompanying notes to the consolidated financial statements.

</TABLE>

<PAGE>




                    FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (in thousands)
<TABLE>

<CAPTION>
                                                                         Years Ended December 31,
                                                                        -------------------------
                                                                 1999              1998          1997
                                                               -------            ---------    ------
Cash flows from (used in) operations:
<S>                                                            <C>              <C>              <C>
Net income (loss)                                              $    647         $  (664)         $(857)
Adjustments to reconcile net loss
  to net cash used in operating activities:
Depreciation and amortization                                       196             191             33
Non cash compensation                                                                90             80
Loss from extinguishment of debt                                                    204

Changes in other operating items:

Accounts receivable                                                (411)          2,310            (55)
Inventory                                                          (108)         (1,906)           177
Prepaid expenses and other current assets                           (22)            235             20
Accounts payable and accrued expenses                               649          (1,608)           338
                                                             ----------       ---------       --------

Net cash provided by (used in) operations                           951          (1,148)          (264)
                                                             ----------      ----------          -----

Cash flows from financing activities:
(Repayments of) net proceeds from
 short-term borrowings                                             (647)         16,971
Loans from GP Strategies                                                            474
Repayment of loans from GP Strategies                                                              (97)
                                                         --------------     -------------     --------
Net cash used in (used for) provided
 by financing activities                                           (647)         17,445            (97)
                                                            -----------        --------       --------

Cash flows from investing activities:

Net assets of Five Star, less cash acquired                                     (16,291)
Additions to machinery and equipment                               (326)           (112)
                                                            -----------     -----------
Net cash used in investing activities                              (326)        (16,403)
                                                            -----------       ---------

Net decrease in cash                                                (22)           (106)          (361)
Cash at beginning of period                                         119             225            586
                                                            -----------      ----------       --------
Cash at end of period                                        $       97      $      119       $    225
                                                             ==========      ==========       ========

Non cash financing and investing activities:

 Senior note issued in Five Star acquisition                                  $   5,000
                                                                              ---------
7% convertible notes retired by
  issuance of GP Strategies common stock                                          1,000
                                                                             ----------
Contributions to capital by GP Strategies                                         5,737
                                                                             ----------

           See accompanying notes to theolidated financial statements.

</TABLE>

<PAGE>


                    FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

1.       Acquisition of the assets and business of Five Star

         Five Star  Products,  Inc.  (the  "Company")  (formerly  American  Drug
         Company) has two  subsidiaries,  NPD Trading (USA),  Inc. (NPD Trading)
         and Five Star Group,  Inc. (Five Star).  NPD Trading  provides  limited
         consulting services in Eastern Europe.

         On August 10, 1999, the Company changed its name to Five Star Products,
         Inc. from American Drug Company to reflect its new industry focus.

         On September  30, 1998, a newly formed  wholly-owned  subsidiary of the
         Company, Five Star purchased from JL Distributors, Inc. (JL), (formerly
         the Five Star Group,  Inc.)  substantially  all the operating assets of
         JL, for  approximately  $16,476,000 in cash and a $5,000,000  unsecured
         senior note. The unsecured senior note bears interest at the rate of 8%
         payable  quarterly,  with the principal due on September 30, 2003. Five
         Star  is a  distributor  of home  decorating,  hardware  and  finishing
         products in the northeast.  As part of this transaction,  GP Strategies
         Corporation (GP Strategies) sold a 16.5% interest in the Company to the
         employees and  management of Five Star.  GP Strategies  currently  owns
         approximately 37% of the Company. JL is a wholly-owned subsidiary of GP
         Strategies. The acquisition was accounted for as a purchase. The excess
         of the fair value of the net assets  acquired  over the purchase  price
         was applied to reduce the  recorded  value of fixed  assets.  Since the
         acquisition of Five Star occurred on September 30, 1998, the results of
         operations  for Five Star prior to that date have not been  included in
         the operations of the Company for the periods presented.

         The  following  shows on a proforma  basis the results of operations of
         the Company had the above  transaction  occurred on January 1, 1997 and
         1998 (in thousands, except per share data):

                                                        Year ended December 31,
                                                         (unaudited)

                                                            1998          1997
                                                          --------      ------
                  Sales                                  $81,091       $83,423
                  Income before extraordinary item           371            49
                  Net income                                 167            24
                  Basic income per share                     .01
                  Diluted income per share                   .01

         Such  information  is not  indicative of what actual results might have
         been nor of what future results would be.


<PAGE>


                    FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

2.       Summary of significant accounting policies

         Inventory.  Inventory  is  valued  at the  lower  of  cost,  using  the
         first-in, first-out (FIFO) method, or market. Inventory consists solely
         of finished products.

         Fixed  assets.  Fixed assets are carried at cost.  Major  additions and
         betterments are capitalized,  while maintenance and repairs that do not
         extend the lives of the assets are expensed currently.  Gain or loss on
         the disposition of fixed assets is recognized  currently in operations.
         Depreciation is calculated on a straight-line  basis over the estimated
         useful lives of the assets.

         Principles of  consolidation.  The  consolidated  financial  statements
         include the accounts of the Company and its wholly-owned  subsidiaries,
         NPD Trading and Five Star. All  significant  intercompany  balances and
         transactions have been eliminated in consolidation.

         Income  taxes.  Income  taxes are  provided  for based on the asset and
         liability  method of  accounting  pursuant to  Statement  of  Financial
         Accounting  Standards  No. 109,  "Accounting  for Income  Taxes" ("SFAS
         109").  Under  SFAS  109,  deferred  tax  assets  and  liabilities  are
         recognized for the estimated  future tax  consequences  attributable to
         differences   between  the  financial  statement  carrying  amounts  of
         existing  assets  and  liabilities  and  their  respective  tax  bases.
         Deferred  tax assets and  liabilities  are measured  using  enacted tax
         rates in effect for the year in which those  temporary  differences are
         expected  to be  recovered  or settled.  Under SFAS 109,  the effect on
         deferred  tax  assets  and  liabilities  of a  change  in tax  rates is
         recognized in income in the period that includes the enactment date.

         Statement of cash flows.  For purposes of the  statement of cash flows,
         the Company considers all liquid  investments with original  maturities
         of three months or less to be cash equivalents.


<PAGE>


                    FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

         Use of estimates. The preparation of financial statements in conformity
         with generally accepted  accounting  principles  requires management to
         make  estimates  and  assumptions  that affect the reported  amounts of
         assets  and  liabilities  and  disclosure  of  contingent   assets  and
         liabilities  at the date of the financial  statements  and the reported
         amounts of revenues and expenses  during the reporting  period.  Actual
         results could differ from these estimates.

         Concentration  of credit risk.  Financial  instruments that potentially
         subject  the  Company  to  significant  concentrations  of credit  risk
         consist primarily of accounts receivable. Sales are made principally to
         independently  owned paint and hardware stores in the northeast  United
         States.

         Financial  instruments.  The carrying amounts of financial  instruments
         including cash,  trade accounts  receivable and trade accounts  payable
         approximated fair value as of December 31, 1999 and 1998 because of the
         relatively short maturity of these instruments.  The carrying amount of
         short-term   borrowings   and  of  long-term   debt  to  GP  Strategies
         approximated fair value because interest is charged at market rates.

         Stock  based  compensation.  The  Company  has  adopted  SFAS No.  123,
         Accounting  for  Stock-Based  Compensation,  which permits  entities to
         recognize  as  expense  over the  vesting  period the fair value of all
         stock-based  awards on the date of grant.  Alternatively,  SFAS No. 123
         also allows entities to continue to apply the provisions of APB Opinion
         No. 25 and  provide  pro forma net  income and pro forma  earnings  per
         share   disclosures   for  employee  stock  option  grants  as  if  the
         fair-value-based  method defined in SFAS No. 123 had been applied.  The
         Company has elected to continue to apply the  provisions of APB Opinion
         No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.


<PAGE>


                    FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

2.       Summary of significant accounting policies (Continued)

         Earnings per share.  Basic  earnings per share (EPS) are based upon the
         weighted average number of common shares outstanding during the period.
         Diluted EPS are based upon the weighted average number of common shares
         outstanding  during the period  assuming the issuance of common  shares
         for all dilutive  potential  common shares  outstanding.  For the years
         ended  December  31,  1998 and 1997 the  Company  did not  include  any
         potential  common stock in its  calculation  of diluted EPS because all
         options and warrants were anti-dilutive.

3.       Short-term borrowings

         On September 30, 1998, the Company's wholly-owned  subsidiary Five Star
         entered into a new three year Loan and Security  Agreement  dated as of
         September 30, 1998 (the "Loan Agreement") by and among three banks. The
         Loan Agreement  provides for a $25,000,000  revolving  credit facility,
         which  allows Five Star to borrow  based upon a formula of up to 50% of
         eligible inventory and 80% of eligible accounts receivable,  as defined
         in the Loan  Agreement.  The  interest  rate on any loan under the Loan
         Agreement  is  based  on an  adjusted  prime  rate or  LIBOR  rate,  as
         described in the Loan Agreement.  At December 31, 1999, $16,324,000 was
         outstanding under the Loan Agreement and  approximately  $1,263,000 was
         available to be  borrowed.  Of the amount  outstanding  at December 31,
         1999, $12,500,00 was borrowed at the adjusted LIBOR rate of 8.349% and
         $3,824,000 was borrowed at adjusted prime rate of 9%. Substantially all
         of the Company's assets are pledged as collateral for these borrowings.

4.       401(k) plan

         The  Company's  employees  are  included  in the GP  Strategies  401(k)
         pension  plan.  The  Company  pays  its  allocable  share  of  costs as
         incurred.  Such  costs,  including   administrative  expenses  and  the
         employer's contributions,  amounted to approximately $132,000,  $36,000
         and $13,000  for the years  ended  December  31,  1999,  1998 and 1997,
         respectively.


<PAGE>


                    FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

5.       Machinery and equipment

         Major classes of machinery  and equipment  consist of the following (in
thousands):

                                                December 31,         Estimated
                                            ------------------      ---------
                                              1999      1998      useful lives
                                              ----      ----      ------------

         Machinery and equipment            $  250      $ 50         3 years
         Furniture and fixtures                285       318         5 years
         Leasehold improvements                663       617         3-9 years
                                             -----      ----
                                             1,198       985

         Less accumulated depreciation        (256)     (173)
                                             -------    -----
                                           $   942      $ 812
                                           =======      ======

         Depreciation  expense for the years ended  December 31, 1999,  1998 and
         1997 was $196,000, $60,000 and $10,000, respectively.

6.       Long-term debt

         On March 17,  1998 and April 2,  1998,  the  Company  was  informed  by
         holders of an  aggregate of  $1,000,000  of the  Company's  convertible
         notes (the "Notes") that they had elected to convert all the Notes into
         an  aggregate  of  82,306  shares of GP  Strategies  common  stock.  In
         accordance with the terms of the original  agreement the Company and GP
         Strategies  had  agreed  that if the Notes  were used to  exercise  the
         warrants  issued by GP Strategies in connection with the Note offering,
         GP Strategies had the right to receive from the Company in exchange for
         the Notes, shares of the Company's common stock at a price equal to 60%
         of its then current market value.

         The  company  recorded  during  1998  the  $330,000  fair  value of the
         warrants  issued by GP  Strategies  to the  noteholders  as a credit to
         capital in excess of par value. The unamortized  balance of the related
         debt  issuance  expense at the date of  conversion  of the Notes in the
         amount of $204,000 has been  recorded as an  extraordinary  charge upon
         early extinguishment of debt.


<PAGE>


                    FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

6.       Long-term debt (Continued)

         On April 30, l998, the Company and GP Strategies agreed that instead of
         issuing  additional  shares of the Company's  common stock, the Company
         would  assign to GP  Strategies  its  expected  future  payments in the
         amount of approximately  $1,000,000 from ICF Kaiser  International as a
         success  fee  in  connection  with  the  completion  of  the  Company's
         consulting project in the Czech Republic.

         Since this fee is  contingent  upon the  successful  completion  of the
         project,  it has not been  recorded by the Company.  Only the amount of
         the fee, if any, collected by the Company is required to be remitted to
         GP  Strategies.  Accordingly,  no liability to GP  Strategies  has been
         recorded for any amount which may ultimately be collected in connection
         with this project

7.       Transactions with affiliates

         Transactions with GP Strategies and its subsidiaries,  other than loans
         and capital  contributions  received,  as  disclosed  elsewhere  in the
         financial  statements,  during the years ended December 31, 1999, 1998,
         and 1997 are summarized below (in thousands):

                                                                 December 31,
                                                     --------------------------
                                                      1999       1998      1997
                                                      ----       ----      ----
         Consulting fees earned from affiliate        $ 98       $101      $ 65
                                                     ======      =====     ====

         Transactions with GP Strategies

                  Management fees incurred            $120       $120      $120
                  Interest expense incurred            400        177       291

         From inception  through September 30, 1998, the Company was financed by
         GP   Strategies,   by  means  of  capital   contributions,   short-term
         non-interest   bearing   advances  and   long-term   interest   bearing
         obligations.  The Company received $2,500,000 under its $2,500,000 loan
         agreement  with  GP  Strategies,   plus  additional   funding  totaling
         $5,407,000 including accrued interest through September 30, 1998.


<PAGE>


                    FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

7.       Transactions with affiliates (Continued)

         The Company provided services to GSE Systems, Inc. (GSES), an affiliate
         of GP  Strategies,  in assisting that affiliate to obtain a contract to
         provide the Temelin Nuclear Power Plant and the St. Petersburg  Nuclear
         Power Plant with full scope simulators.  GSES is a successor to General
         Physics  International  Engineering and Simulation,  Inc. Revenues from
         GSES amounted to $98,000, $101,000 and $65,000,  respectively,  for the
         years ended December 31, 1999, 1998, and 1997.

         In 1994 the Company  commenced paying $150,000 annually as compensation
         to an  officer  of GP  Strategies,  in  view  of  the  additional  time
         allocated by this officer to the Company. This agreement was terminated
         effective December 31, 1998.

         As of January 1, 1994,  the Company and GP  Strategies  entered  into a
         three-year  Management  Services  Agreement  pursuant to which  certain
         direct and  indirect  services  will be  provided  to the Company by GP
         Strategies.  The  services  to be  provided  by GP  Strategies  include
         management,  legal,  tax,  accounting,  insurance and employee  benefit
         administration  services.  The  Company  paid  GP  Strategies  a fee of
         $10,000 per month during the term of the  agreement.  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 the  initial  term of any renewal  thereof.  The  Agreement  was
         renewed for 2000.  Fees incurred to GP Strategies  under this agreement
         totaled  $120,000 for each of the years ended  December 31, 1999,  1998
         and 1997.

         At December  31,  1999 and 1998,  the amount due to GP  Strategies  for
         expenses  and  interest,  which is  included  in  Accounts  payable and
         accrued expenses on the consolidated  balance sheets,  was $602,000 and
         $361,000, respectively.

8.       Income taxes

         For the year ended  December  31,  1999,  the  Company  has  recorded a
         current  Federal and State tax expense of $500,000.  For the year ended
         December 31, 1998,  the Company  recorded a current State and Local tax
         expense of $40,000.  No Federal or State tax expense has been  provided
         for the year ended December 31, 1997.


<PAGE>


                    FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

8.       Income taxes (Continued)

         A reconciliation  between the Company's effective tax rate and the U.S.
         statutory rate follows:

         Years ended December 31,        1999              1998         1997
         -------------------------------------------------------------------
         Tax at U.S. statutory rate      $390             $(212)       $(283)
         State and local taxes net of
          Federal benefit                 111                40
         Net operating loss utilization   (42)            1,608
         Valuation allowance

          adjustment                       41            (1,396)         283
         -------------------------------------------------------------------
         Taxes                           $ 500               $40      $
         -------------------------------------------------------------------

         Under SFAS No. 109, a valuation  allowance is provided  when it is more
         likely than not that some  portion of  deferred  tax assets will not be
         realized. The Company has determined,  based upon the Company's history
         of operating  losses,  that 100% valuation  reserves are required as of
         December 31, 1999 and 1998.

         As of  December  31,  1999 and  1998,  the  Company  had  approximately
         $345,000  and  $304,000,  respectively,  of deferred  tax assets and no
         deferred  tax  liabilities.  The tax  effects  that  gave rise to these
         deferred  tax  assets  and  the  valuation  allowance  consist  of  the
         following (in thousands):

                                                December 31,       December 31,
                                                   1999            1998
                                                --------           -------
         Deferred tax assets

         Organization costs                   $                   $      3
         Allowance for doubtful accounts              56                40
         Net operating loss carryforwards                               42
         Property, plant and equipment                75                21
         Deferred compensation                       160               160
         Inventory                                    54                38
                                                --------          --------
         Deferred tax assets                         345               304
                                                --------           -------

         Valuation allowance                        (345)             (304)
                                               ---------           -------
         Net deferred tax assets after

          valuation allowance                 $                   $
                                              ==========          ========



<PAGE>


                    FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

8.       Income taxes (Continued)

         The  change in the  valuation  allowance  for the year  ended  December
         31,1999  amounted to an increase of $41,000,  attributable to property,
         plant and equipment and inventory.

9.       Major customers

         For the years ended  December  31, 1999 and 1998 no customer  accounted
         for more than 10% of the Company's revenue. For the year ended December
         31,  1997,  two  customers  accounted  for  41%  and 27 % of  revenues,
         respectively.

         Export revenues  represented  approximately  $1,123,000 and $842,000 of
         the Company's  revenues in 1998 and 1997. There were no export revenues
         for the year ended December 31, 1999.


<PAGE>


                    FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

10.      Stock options and warrants

         (a)      Stock option plan

         On  January  1,  1994,  the  Company's  Board  of  Directors  and  sole
         stockholder adopted the Five Star Products, Inc. 1994 Stock Option Plan
         (the "Stock Option Plan"), which became effective August 5, 1994. Under
         the Stock Option Plan, a total of 2,000,000 shares of Common Stock have
         been reserved for issuance, subject to adjustment in the event of stock
         splits, stock dividends, recapitalizations,  reclassifications or other
         capital  adjustments.  Unless  designated as "incentive  stock options"
         intended to qualify  under  Section 422 of the Internal  Revenue  Code,
         options  granted  under  the  Stock  Option  Plan  are  intended  to be
         nonqualified options.  Options may be granted to any director,  officer
         or other key  employee  of the  Company  and its  subsidiaries,  and to
         consultants and other individuals providing services to the Company.

         The  Compensation  Committee of the Board of Directors will  administer
         the Stock  Option  Plan and will  determine,  among other  things,  the
         persons  to be granted  options,  the number of shares to be subject to
         each option,  the exercise  price and vesting  schedule of each option,
         whether to  accelerate  the exercise date of the option for any reason,
         and whether to cause the Company to make loans which enable an optionee
         to pay the purchase price of any option. No options are transferable by
         the optionee other than by will.

         The term of any option  granted  under the Stock  Option  Plan will not
         exceed ten years from the date of the grant of the option  and,  in the
         case of incentive  stock options  granted to a 10% or greater holder in
         the total  voting  stock of the  Company,  three years from the date of
         grant.  The exercise price of any option will not be less than the fair
         market  value of the Common  Stock on the date of grant or, in the case
         of incentive  stock options  granted to a 10% or greater  holder in the
         total voting stock, 110% of such fair market value.

         In June  1998,  the  Company  cancelled  1,440,000  options  and issued
         1,500,000  common  stock  options  at a price of $.13 per share to both
         employees  of the Company and  employees of GP  Strategies  who provide
         services to the Company under the management  services  agreement.  The
         Company recorded a deferred  compensation expense of $90,000 related to
         the issuance of the options to the employees of GP Strategies.


<PAGE>


                    FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

10.      Stock options and warrants (Continued)

         (a)      Stock option plan (Continued)

         The per share  weighted-average  fair  value of stock  options  granted
         during 1999 and 1998 were $.30 and $.06, respectively,  on the dates of
         grant using the modified  Black Scholes  option-pricing  model with the
         following  assumptions:  1999 - expected  dividend yield 0%,  risk-free
         interest rate of 5.05%,  expected  volatility of 146% and expected life
         of 3 years; 1998 - expected dividend yield 0%, risk-free  interest rate
         of 5.6%, expected volatility of 66.7% and an expected life of 3 years.

         The Company  applies APB Opinion No. 25 in accounting for its Plan and,
         accordingly,  no compensation cost has been recognized in the financial
         statements  for stock options  issued to employees of the Company.  Had
         the Company determined compensation cost based on the fair value at the
         grant date for its stock  options under SFAS No. 123, the Company's net
         income  (loss)  would  have  been  changed  to the  pro  forma  amounts
         indicated below (in thousands, except per share amounts):

                                                       1999     1998       1997
                                                       ----     ----       ----
         Net income (loss) As reported               $  647    $(664)     $(857)
                                    Pro forma           606     (670)      (869)
         Basic and diluted income
          (loss) per share As reported                  .05    (.05)      (.07)
                                    Pro forma           .04    (.05)      (.07)

         Stock option activity during the periods indicated is as follows:

                           Number of Weighted-Average

                              Shares Exercise Price

Balance at December 31, 1996          1,600,000            $      .50
         Expired                          (60,000)                .50
                                     ------------            --------
Balance at December 31, 1997          1,540,000                   .50
                                    -----------              --------
         Granted                      1,500,000                   .13
         Cancelled                   (1,440,000)                  .50
                                     -----------             --------
Balance at December 31, 1998          1,600,000                   .15
                                    -----------              --------
         Granted                        650,000                   .33
         Cancelled                     (100,000)                  .50
                                    -----------                 -----------
Balance at December 31, 1999          2,150,000                   .19
                                    ===========           ===========


<PAGE>


                    FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

10.      Stock options and warrants (Continued)

         At  December  31,  1999 and 1998,  the  range of  exercise  prices  and
         weighted-average  remaining contractual life of outstanding options was
         $.33 and $.13 and 4 years and 3 years, respectively.

         At December 31, 1999, 1998 and 1997, the number of options  exercisable
         was  1,380,000,   1,350,000  and  1,509,996,   respectively,   and  the
         weighted-average  exercise price of exercisable  options was $.15, $.17
         and $.50, respectively.

         (b)      Warrants to purchase common stock

         In August 1994, GP Strategies  entered into a Transfer and Distribution
         Agreement  with the Company  whereby GP Strategies  transferred  to the
         Company (the  "Distribution")  immediately  prior to the closing of the
         Distribution,  all of its  interest in NPD Trading in exchange  for (i)
         the issuance by the Company of  6,990,900  shares of Common Stock to GP
         Strategies (ii) the issuance of 6,017,775  shares of Common Stock to be
         distributed  to GP Strategies  stockholders,  and (iii) the issuance of
         6,017,775  warrants to be  distributed  to GP Strategies  stockholders.
         Each warrant was initially  exercisable  for a period of two years from
         August 5, 1994 at an exercise price per share of $1.00. In August 1996,
         the Board of Directors  approved an extension of the Company's warrants
         until August 5, 1999 and a reduction of the exercise  price to $.50 per
         share,  subject to  adjustment in certain  circumstances  and in August
         1998 the  Board of  Directors  approved  a  two-year  extension  of the
         Company's warrants until August 5, 2000 and an increase in the exercise
         price  to  $.75  per   share,   subject   to   adjustment   in  certain
         circumstances.

         The Company has the right to cancel the  warrants if the closing  price
         of the  Company's  common  stock as  quoted by the OTC  Bulletin  Board
         during any ten consecutive trading days shall equal or exceed $1.00 per
         share.


<PAGE>


                    FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

11.      Earnings (loss) per share

         Earnings  (loss) per share (EPS) for the years ended December 31, 1999,
         1998 and 1997 are as follows (in thousands, except per share amounts):

<TABLE>
                                                                     Year ended December 31,
<CAPTION>
                                                                    ------------------------
                                                          1999           1998                1997
                                                          ----           ----                ----
         Basic EPS

<S>                                                  <C>           <C>                  <C>
         Net income (loss)                           $     647     $     (664)          $    (857)
         Weighted average shares
          Outstanding                                   13,020         13,020              13,020
         Basic earnings (loss) per share            $      .05      $   (.05)           $   (.07)
                                                    ----------      --------            --------

         Diluted EPS

         Net income (loss)                           $     647     $     (664)           $   (857)

         Weighted average shares

          outstanding                                   13,020         13,020              13,020
         Dilutive effect of stock options
          and warrants (a)                                 806
                                                    ----------
         Weighted average shares

          outstanding, diluted                          13,826         13,020              13,020
                                                      --------       --------             -------

         Diluted earnings (loss)
          per share                                 $      .05     $    (.05)           $   (.07)
                                                    ----------     ---------            --------
</TABLE>

         Basic earnings per share are based upon the weighted  average number of
         common shares outstanding during the period. Diluted earnings per share
         are based upon the weighted average number of common shares outstanding
         during the  period,  assuming  the  issuance  of common  shares for all
         dilutive potential common shares outstanding.

         (a) For the years ended December 31, 1998 and 1997, presentation of the
         effect of stock  options and warrants  are not included  since they are
         anti-dilutive.


<PAGE>


                    FIVE STAR PRODUCTS, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

12.      Loans and advances from GP Strategies

         In  August  1994,  GP  Strategies  entered  into  a $2.5  million  loan
         agreement  with NPD Trading,  under which GP Strategies  would fund the
         loan with either  securities or cash,  at its option.  At September 30,
         1998,  the  Company had  borrowed  the full  $2,500,000  under its loan
         agreement with GP Strategies  and therefore had no remaining  borrowing
         availability under this agreement.  GP Strategies  advanced  additional
         funds to the Company,  until the third quarter of 1998,  when the total
         amount  due  to  GP  Strategies,  including  accrued  interest  totaled
         approximately  $5,407,000.   During  the  third  quarter  of  1998,  GP
         Strategies  deemed that the Company would not have the ability to repay
         its  loan  to  GP  Strategies,  and  therefore  made  the  decision  to
         contribute the amount due to capital in excess of par value.

13.      Commitments and contingencies

         The  Company  has  several   noncancellable  leases  which  cover  real
         property,  machinery and equipment. Such leases expire at various dates
         with, in some cases, options to extend their terms.

Minimum rentals under long-term operating leases are as follows(in thousands):

                          Real             Machinery and
                     property                  equipment                Total
-----------------------------------------------------------------------------
2000                  $ 1,284                    $ 1,177               $ 2,461
2001                    1,288                        982                 2,270
2002                    1,335                      1,026                 2,361
2003                    1,347                        578                 1,925
2004                    1,347                        380                 1,727
After 2004              4,102                        185                 4,287
------------------------------------------------------------------------------
Total                 $10,703                    $ 4,328               $15,031
------------------------------------------------------------------------------

During  1999,  1998 and 1997,  the Company  incurred  $3,359,000,  $804,000  and
$158,000,  respectively,  of rental  expenses.  GP Strategies has guaranteed the
leases  for  the  Company's  New  Jersey  and  Connecticut  warehouses,  totally
approximately $1,288,000 per year through 2007.


<PAGE>





Item 9. Changes in and Disagreements with Accountants and Financial Disclosure.

         KPMG LLP was  previously the Company's and its  subsidiaries  principal
accountants.   On  November  10,  1998  that  firm's  appointment  as  principal
accountants  was terminated and Richard A. Eisner & Company,  LLP was engaged as
principal  accountants to audit the accounts of the Company and subsidiaries for
the year ending  December  31,  1998.  The  decision to change  accountants  was
recommended by the Board of Directors of the Company.

         In  connection  with the audits of the fiscal year ended  December  31,
1997, and the subsequent  interim periods  through June 30, 1998,  there were no
disagreements  through  November  10,  1998  with  KPMG  LLP  on any  matter  of
accounting principles or practices,  financial statement disclosure, or auditing
scope or procedures, which disagreements, if not resolved to their satisfaction,
would have caused them to make reference in connection with their opinion to the
subject matter of the disagreement.

         The audit report of KPMG LLP on the consolidated  financial  statements
of the Company for the year ended  December 31, 1997 did not contain any adverse
opinion or  disclaimer  of  opinion,  nor was it  qualified  or  modified  as to
uncertainty, audit scope or accounting principles, except as follows: KPMG LLP's
auditors' report on the consolidated financial statements of the Company and its
subsidiary for the year ended  December 31, 1997 contained a separate  paragraph
stating that "the Company has suffered  recurring losses from operations and has
an  accumulated  deficit  that  raise  substantial  doubt  about its  ability to
continue  as a going  concern.  The  consolidated  financial  statements  do not
include any adjustments that might result from the outcome of this uncertainty."


<PAGE>


                                    PART III

Item 10.        Directors and Executive Officers of the Registrant

         The  following  table sets forth  certain  information  concerning  the
directors and officers of the Company:

Name                     Age     Position
-----------------------------------------
Jerome I. Feldman        71      Chairman of the Board
Richard T. Grad          62      President, Chief Executive Officer and Director
Charles Dawson           43      Vice President and Director
Bruce Sherman            47      Vice President and Director
Steven Schilit           53      Vice President and Director
Joseph Leven             47      Vice President
Cindy Krugman            39      Vice President and Controller
Scott N. Greenberg       43      Director
Michael Feldman          32      Director

     Jerome I. Feldman has been Chairman of the Board of the Company since 1994.
He is founder of, and since 1959, has been President and Chief Executive Officer
and a director of GP  Strategies  Corporation  ("GPS") and Chairman of the Board
since June 1999,  a global  provider of  performance  improvement  services  and
products.  He has been a director of GSE Systems,  Inc.,  ("GSE") since 1994 and
Chairman  of the Board of GSE since 1997.  Mr.  Feldman is also a Trustee of the
New England Colleges Fund and the Northern Westchester Hospital.

     Richard  T. Grad has been  President  and  Chief  Executive  Officer  and a
director of the Company since  September  1999 and President of Five Star Group,
Inc., a wholly-owned subsidiary of the Company ("Five Star") since 1985.

     Charles  Dawson has been Vice President and a director of the Company since
September  1999,  Vice  President of  Merchandising  of Five Star since 1993 and
Merchandising Manager from 1992.

     Bruce  Sherman has been Vice  President and a director of the Company since
September  1999 and Vice  President  of Sales of Five Star since  1993.  He is a
member of the New York and New Jersey Paint and Decorating Association.

     Steven  Schilit has been Vice President and a director of the Company since
September  1999 and since 1981 has held several  executive  positions  with Five
Star.

     Joseph Leven has been Vice President of the Company since  September  1999;
Vice  President  of  Operations  of Five Star since 1995 and since 1976 has held
various  managerial  positions  with Five Star.  Mr.  Leven is the cousin of Mr.
Grad.

     Cindy Krugman has been Vice  President and  Controller of the Company since
September  1999,  and  Controller  of Five Star since 1985.  Ms.  Krugman is the
daughter of Mr. Grad.
<PAGE>

     Scott N. Greenberg has been a director of the Company since September 1999,
a director of GPS since 1987 and Executive  Vice  President and Chief  Financial
Officer since June 1999 and since 1985 has held several executive positions. Mr.
Greenberg is a director of GSE.

     Michael D. Feldman has been a director of the Company since August 1999. He
has served as Executive  Vice  President and a director of Avenue  Entertainment
Group, Inc., an independent entertainment company, since 1997, Vice President of
GPS since June 1999 and Director of  International  Business  Development of GPS
since 1995.

         At each annual meeting of stockholders,  directors are elected to serve
for a term of office to expire at the next annual meeting of stockholders  after
their election. Under the Company's bylaws, the number of directors constituting
the  entire  Board  of  Directors  shall be  fixed,  from  time to time,  by the
directors  then in office,  who may decrease or increase the number of directors
by majority action without soliciting stockholder approval. The Company does not
currently pay compensation to directors for service in that capacity.


<PAGE>


Item 11. Executive Compensation

Executive Compensation

         The following table and notes present the aggregate  compensation  paid
by the Company's  subsidiary,  Five Star Group, Inc., to its President and Chief
Executive Officer and most highly  compensated  executive  officers for services
rendered to Five Star Group in 1999.

                           SUMMARY COMPENSATION TABLE
<TABLE>

<CAPTION>
                                                                                  Long-Term
                                                                                Compensation

                                                                                   Awards

                                                 Annual Compensation Stock        All Other               Salary

         Bonus                           Options Compensation

Name and Principal Position             Year       ($)                   ($)         (#)                    ($)
---------------------------             ----     -------             --------    -----------              -------

<S>                                    <C>       <C>                     <C>           <C>                 <C>
Richard T. Grad                        1999      275,600                -0-           -0-                  5,881(1)
President, Chief Executive             1998       47,594(2)             -0-           -0-                  1,943
Officer, President Five Star
Group, Inc.

Bruce Sherman                          1999      169,745               25,415         -0-                  4,211(3)
Vice President
Vice President of Sales,
Five Star Group, Inc.

Steven Schilit                         1999      164,700                -0-           -0-                  4,540(4)
Vice President
Executive Vice President,
Five Star Group, Inc.

Chuck Dawson                           1999      160,004                -0-           -0-                    296(5)
Vice President
Vice President of Merchandising,
Five Star Group, Inc.

Joseph Leven                           1999      108,375                -0-           -0-                  4,014(6)
Vice President
Vice President of Operations,
Five Star Group, Inc.
------------------

</TABLE>

<PAGE>



     (1) Includes $4,000 and $911 as a matching contribution made by the Company
to the 401(k)  Savings  Plan (the  "401(k)  Savings  Plan") for 1999 and for the
period  September 30, 1998 through  December 31, 1998,  and $1,881 for executive
life insurance premiums in 1999 and $1,032 for Group Term Life Insurance paid by
the Company in for the period September 30, 1998 through December 31, 1998.

     (2) Mr. Grad became the Chief  Executive  Officer of the Company  effective
September 30, 1998 and the above  compensation  relates to the period  September
30, 1998 through December 31, 1998.

     (3)  Includes  $3,840  matching  contribution  to the  401(k)  and $371 for
executive life insurance premiums.

     (4)  Includes  $3,953  matching  contribution  to the  401(k)  and $587 for
executive life insurance premiums.

     (5) Executive life insurance premiums.

     (6)  Includes  $3,790  matching  contribution  to the  401(k)  and $224 for
executive life insurance premiums.

Option Grants in 1999

         The following table and notes contain information  concerning the grant
of stock options in 1999 to the named executive officers.

<TABLE>

<CAPTION>
                                                                                                    Potential Realizable
                                                                                                      Value at Assumed

                                    Percent of                                                          Annual Rates of
                                    Total Options                                                         Stock Price
                                    Granted to       Exercise or                                      Appreciation for

                      Options       Employees        Base Price    Market          Expiration       Option       Term(1)
                                                                                                    --------------------
Name                  Granted(#)     in  1998        ($/Sh)        Value($/Sh)     Date             5%($)      10%($)
----                  ----------     -------------   -----------   -----------     -----------      -----      ------

<S>                     <C>              <C>               <C>          <C>        <C>   <C>         <C>         <C>
Richard Grad            150,000          23%               .33          .19        04/15/03          13,676      30,220
Bruce Sherman            75,000          12%               .33          .19        04/15/03           6,838      15,110
Steven Schilit           75,000          12%               .33          .19        04/15/03           6,838      15,110
Chuck Dawson             75,000          12%               .33          .19        04/15/03           6,838      15,110
Joseph Leven             75,000          12%               .33          .19        04/15/03           6,838      15,110

</TABLE>

(1)  Represents  gain that would be realized  assuming the options were held for
     the entire five year term and the stock price increased at compounded rates
     of 5% and 10% from a base price of $.33 per share. The potential realizable
     values  per  option  or per  share  under  such 5% and 10%  rates  of stock
     appreciation  would  be $.09  and $.20  from a base  price  of $.33.  These
     amounts represent assumed rates of appreciation  only. Actual gain, if any,
     on option  exercise and Common Stock  holdings will be dependent on overall
     market  conditions  and on the future  performance  of the  Company and its
     Common Stock.  There can be no assurance that the amounts reflected in this
     table will be achieved.
<PAGE>

Board Report on Executive Compensation

         During the year ended  December  31,  1999,  the Company did not have a
Compensation Committee.  Accordingly, the full Board of Directors is responsible
for determining and implementing the compensation policies of the Company.

         The  Board's  executive  compensation  policies  are  designed to offer
competitive  compensation  opportunities  for all executives  which are based on
personal  performance,   individual  initiative  and  achievement,  as  well  as
assisting the Company in  attracting  and retaining  qualified  executives.  The
Board  also  endorses  the  position  that stock  ownership  by  management  and
stock-based  compensation  arrangements are beneficial in aligning  management's
and shareholders' interests in the enhancement of shareholder value.

         Compensation  paid  to  the  Company's   executive  officers  generally
consists of the  following  elements:  base salary,  annual bonus and  long-term
compensation  in the form of stock  options  and the 401(k)  Savings  Plan.  The
compensation for the other executive  officers of the Company is determined by a
consideration of each officer's initiative and contribution to overall corporate
performance  and the  officer's  managerial  abilities  and  performance  in any
special projects that the officer may have undertaken. Competitive base salaries
that reflect the individual's  level of responsibility are important elements of
the Company's executive compensation  philosophy.  Subjective  considerations of
individual  performance are considered in establishing  annual bonuses and other
incentive compensation.

         The Company has certain broad-based employee benefit plans in which all
employees,  including the named executives,  are permitted to participate on the
same  terms and  conditions  relating  to  eligibility  and  subject to the same
limitations on amounts that may be  contributed.  In 1999, the Company also made
matching contributions to the 401(k) Savings Plan for those participants.

Mr. Grad's Compensation

         In reviewing Mr. Grad's performance in 1999 and determining appropriate
compensation,   the  Board  took  the  following  major   accomplishments   into
consideration:

         oThe  transformation  of the Company into a leading  distributor in the
United States of home decorating, hardware and finishing products.

         oThe major sales territory expansion.

         Mr. Grad was the driving force behind the Company's transformation into
a leading  distributor  in the United  States of home  decorating,  hardware and
finishing products.  In addition,  Mr. Grad, together with his senior management
team was  instrumental in Five Star's  expansion of its sales territory with the
addition of an  established  dedicated  sales force  servicing  the Mid Atlantic
States,  as for south as Virginia.  Five Star's diverse product line will enable
these established  salespeople immediately to further penetrate this market with
an expanded product line. Five Star's ability to service this territory from its
existing New Jersey  facility  will enable Five Star to leverage its fixed costs
on a broader revenue base. The Board  considered Mr. Grad's integral role in the
above-described  transactions  as well as his  significant  contribution  to the
Company's financial progress.

<PAGE>

     As of January 1, 1997 Five Star Group,  Inc.  entered into a five-year (the
"Employment Term") employment agreement (the "Employment  Agreement") with Bruce
Sherman ("Mr.  Sherman"),  Five Star's Vice President,  Sales,  New York and New
Jersey.  The Employment  Agreement provides for Mr. Sherman to receive an annual
base  salary of  $160,000,  subject to 3% annual  increases.  In  addition,  Mr.
Sherman  shall be  entitled  to  receive a $15,000  annual  bonus.  Mr.  Sherman
received a $25,000 bonus in January 1999 and received a $10,000 bonus in January
1, 2000. The  Employment  Agreement  provides for the  termination of employment
upon Mr.  Sherman's  death,  physical or mental  disability  or  retirement.  In
addition,   Five  Star  may  terminate  Mr.  Sherman's  employment  for  "cause"
(including failing to perform required duties or engaging in gross negligence).

     Upon termination of the Employment  Agreement "for cause",  all obligations
of Five Star under the Employment Agreement terminate.  Upon termination by Five
Star other than "for cause",  disability or retirement,  Mr. Sherman is entitled
to receive as severance pay an amount equal to his annual base salary and annual
bonus for any termination prior to the fourth anniversary of the Employment Term
and 50% of his annual base salary for  termination  at any time after the fourth
anniversary  of the Employment  Term and ending on the fifth  anniversary of the
Employment  Term. The  Employment  Agreement  also contain  non-competition  and
confidentiality provisions.


<PAGE>


Item 12. Security Ownership of Certain Beneficial Owners and Management

                             PRINCIPAL STOCKHOLDERS

         The following table sets forth certain information as of March 3, 2000,
with respect to shares of Common Stock which are beneficially  owned by (a) each
person who owns more than 5% of the Company's Common Stock, (b) each director of
the Company, (c) each of the persons named in the Summary Compensation Table and
(d) all officers and directors of the Company as a group.

                                                     Beneficial Ownership

                                                Number of           Percentage
Name and Address                            Common Shares            of Class

GP Strategies Corporation                     4,830,104(1)              37%
9 West 57th Street
New York, NY 10019

Jerome I. Feldman                             5,424,740(2)              41

Richard T. Grad                                 254,883(3)             1.9

Charles Dawson                                  222,308(3)             1.7

Bruce Sherman                                   222,308(3)             1.7

Steven Schilit                                  222,308(3)             1.6

Scott N. Greenberg                              179,150(3)             1.4

Michael D. Feldman                               51,441(3)               *

All directors and officers
as a group (9 persons)                        2,066,265(3)            15.1
--------------
* The number of shares owned is less than one percent of the outstanding  shares
of Common Stock.

(1)      GP  Strategies  has entered  into a Voting  Agreement  which limits its
         ability,  to a certain  degree,  to control the affairs of the Company.
         See "Certain  Relationships  and Related  Transactions - GP Strategies'
         Capital Stock Interest."


<PAGE>


(2)      Includes (i) 4,830,104 shares of Common Stock  beneficially owned by GP
         Strategies,  (ii)  93,463  shares of Common  Stock held by Mr.  Feldman
         (iii),  1,173 shares of Common Stock which are held by certain  members
         of Mr.  Feldman's  family  and (iv)  500,000  shares  of  Common  Stock
         issuable upon exercise of currently  exercisable  stock options held by
         Mr. Feldman.  Mr. Feldman disclaims  beneficial ownership of the shares
         owned by GP Strategies and his family.

(3)      Includes  (i)  194,883,  4,150,  1,441  shares of Common  Stock held by
         Messrs.  Grad,  Greenberg and Michael  Feldman,  respectively,  192,308
         shares of Common  Stock held by each of Messrs.  Dawson,  Sherman,  and
         Schilit  and  1,140,092  shares for all  executives  and  officers as a
         group, (ii) 60,000,  175,000 and 50,000 shares of Common Stock issuable
         upon  exercise of currently  exercisable  stock options held by Messrs.
         Grad,  Greenberg and Michael  Feldman,  respectively,  30,000 shares of
         Common Stock  issuable  upon  exercise of currently  exercisable  stock
         options  held by each of Messrs.  Dawson,  Sherman , Schilit  and (iii)
         925,000 shares for all executives and officers as a group.

Item 13.      Certain Relationships and Related Transactions

Transactions with GP Strategies

         On September  30, 1998, a newly formed  wholly owned  subsidiary of the
Company,  Five Star purchased from JL Distributors,  Inc. ("JL"), a wholly owned
subsidiary of GP Strategies,  substantially  all of the operating  assets of JL.
The assets were purchased for approximately $16,476,000 in cash and a $5,000,000
unsecured  senior note. The unsecured senior note payable to GP Strategies bears
interest  at the  rate  of 8%  payable  quarterly,  with  the  principal  due on
September 30, 2003.

         As of January 1, 1994,  the Company and GP  Strategies  entered  into a
three-year  Management  Services  Agreement pursuant to which certain direct and
indirect services will be provided to the Company by GP Strategies. The services
to be provided by GP Strategies  include legal, tax,  accounting,  insurance and
employee benefit  administration  services. The Company pays GP Strategies a fee
of  $10,000  per  month  during  the term of the  agreement.  The  Agreement  is
automatically renewable for successive one-year terms. The Agreement was renewed
for 2000.

         Five Star leases  250,000  square feet in New Jersey and 110,000 square
feet in  Connecticut.  Five Star's  operating  lease for the New Jersey facility
expires in March 2007 and the annual rent is $885,731. Five Star's lease for the
Connecticut  facility  expires in February  2007 and its annual rent is $379,780
through February 28, 2001 and $402,120 thereafter. The Company's New York office
space  is  provided  by  GP  Strategies  pursuant  to  the  Management  Services
Agreement.  GP Strategies  has  guaranteed the leases for two of the Five Star's
warehouses in New Jersey and Connecticut totaling  approximately  $1,288,000 per
year through 2007.


<PAGE>



         GP Strategies  holds  approximately  4,830,104  shares of Common Stock,
representing  approximately  37% of the Common Stock issued and  outstanding  on
March 3, 2000 (without  taking into account  outstanding  options and warrants).
The Company's  by-laws do not provide for cumulative  voting.  GP Strategies has
entered  into a Voting  Agreement  pursuant to which it has agreed  that,  for a
period of three  years from  August  31,  1999 it will vote its shares of Common
Stock  (i) such  that  not more  than  50% of the  Company's  directors  will be
officers or directors of GP Strategies;  and (ii) on all matters  presented to a
vote of stockholders,  other than the election of directors,  in the same manner
and in the same  proportion as the remaining  stockholders  of the Company vote.
See "Principal Stockholders."


<PAGE>


                                     PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)(1) The following financial statements are included in Part II, Item 8:

                                                                          Page

       Independent Auditors' Reports.......................................15

       Financial Statements:

       Consolidated Balance Sheets -
       December 31, 1999 and 1998..........................................17

       Consolidated Statements of
       Operations - Years ended

       December 31, 1999, 1998 and 1997....................................19

       Consolidated Statements of Changes in
       Stockholders' Equity (Deficiency)- Years

       ended December 31, 1999, 1998 and 1997..............................20

       Consolidated Statements of Cash Flows

       Years ended December 31, 1999, 1998 and 1997........................21

       Notes to Consolidated Financial Statements..........................22

(a)(2) Schedules have been omitted because they are not required
       or are not applicable, or the required information has been
       included in the financial statements or the notes thereto.

(a)(3) See accompanying Index to Exhibits

         There  were no  reports  filed  by the  Registrant  on Form 8-K for the
period ended December 31, 1999.


<PAGE>


                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) 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.



                                                     Richard T. Grad, President
                                                     and Chief Executive Officer
Dated:   March 30, 2000

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated.

Signature                          Title


Richard T. Grad            President, Chief Executive Officer and Director
                           (Principal Executive and Operating Officer)



Jerome I. Feldman          Chairman of the Board




Cindy Krugman              Vice President and Controller
                           (Principal Financial and Accounting Officer)



Scott N. Greenberg         Director




Charles Dawson             Director

March 30, 2000


<PAGE>



                                INDEX TO EXHIBITS

Exhibit No.   Document                                                     Page
-----------   --------                                                     ----

3             Amended   Certificate   of   Incorporation   of  the   Registrant.
              Incorporated  herein by reference to Exhibit 3 of the Registrant's
              Annual Report on Form 10-K for the year ended December 31, 1996.

3.1           By-laws of the  Registrant.  Incorporated  herein by  reference to
              Exhibit 3.2 of the Registrant's Registration Statement on Form S-1
              filed on July 22, 1994, Registration Statement No. 33-78252.

10.           1994 Stock Option Plan of the Registrant.  Incorporated  herein by
              reference  to  Exhibit  10.1  of  the  Registrant's   Registration
              Statement  on Form  S-1  filed  on  July  22,  1994,  Registration
              Statement No. 33-78252.

10.1          Management Services Agreement, dated as of August 5, 1994, between
              GP Strategies Corporation and the Registrant.  Incorporated herein
              by  reference  to Exhibit  10.3 of the  Registrant's  Registration
              Statement  on  Form  S-1  filed  on  July  22,1994,   Registration
              Statement No. 33-78252.

10.2          Employment Agreement,  dated as of January 1, 1994, between Martin
              M. Pollak and the Registrant.  Incorporated herein by reference to
              Exhibit 10.4 of the  Registrant's  Registration  Statement on Form
              S-1 filed on July 22, 1994, Registration Statement No. 33-78252.

10.3          Consulting Agreement,  dated as of January 1, 1994, between Jerome
              I. Feldman and the Registrant. Incorporated herein by reference to
              Exhibit 10.5 of the  Registrant's  Registration  Statement on Form
              S-1 filed on July 22, 1994, Registration Statement No. 33-78252.

<PAGE>

10.4          Form of Warrant Agreement, dated as of August 5, 1994, between the
              Registrant,  The  Harris  Trust  Company  of New York,  as Warrant
              Agent, and the holder of Warrants from time to time.  Incorporated
              herein  by  reference   to  Exhibit   10.8  of  the   Registrant's
              Registration  Statement  on  Form  S-1  filed  on July  22,  1994,
              Registration Statement No. 33-78252.

10.5          Voting  Agreement,  dated as of August 31, 1998, from
              GP  Strategies  Corporation.  Incorporated  herein by
              reference  to Exhibit 10.5 of the  Registrant's  Form
              10-K for the year ended December 31, 1998.

10.6          Lease  dated as of February  1, 1986  between  Vernel
              Company and Five Star Group, Inc., as amended on July
              25, 1994. Incorporated herein by reference to Exhibit
              10.6 of the Registrant's Form 10-K for the year ended
              December 31, 1998.

10.7          Lease dated as of May 4, 1983 between Vornado, Inc., and Five Star
              Group,  Inc.  Incorporated  herein by reference to Exhibit 10.7 of
              the Registrant's Form 10-K for the year ended December 31, 1998.

10.8          Lease  Modification  and  Extension  Agreement  dated July 6, 1996
              between Hanover Public Warehousing, Inc. and Five Star Group, Inc.
              Incorporated   herein  by   reference   to  Exhibit  10.8  of  the
              Registrant's Form 10-K for the year ended December 31, 1998.

10.9          Agreement between Five Star Group and Local No. 11 affiliated with
              International  Brotherhood  of Teamsters.  Incorporated  herein by
              reference  to Exhibit 10.9 of the  Registrant's  Form 10-K for the
              year ended December 31, 1998.

10.10         Form  of 7% Convertible  Note due 2001 of the Registrant.
              Incorporated   herein  by   Reference   to  Exhibit   4.1  of  the
              Registrant's Form 10-Q for the second quarter ended June 30, 1996.

<PAGE>

10.11         Asset Purchase  Agreement dated as of August 31, 1998 between Five
              Star Products,  Inc. and Five Star Group, Inc. Incorporated herein
              by  Reference  to  Exhibit 10 of the  Registrant's  Form 8-K dated
              September 15, 1998.

10.12         Loan and  Security  Agreement  by and among Fleet  Bank,  National
              Association  in its  capacity as Agent for the ratable  benefit of
              Lenders  named  Within and The Lenders  named Herein and Five Star
              Group,  Inc.  formerly Five Star  Acquisition  Group  Incorporated
              herein by  reference to the  Registrant's  Form 10-Q for the third
              quarter ended September 30, 1998.

16.           Letter  from  KPMG  LLP  re  change  in   certifying   accountant.
              Incorporated by reference to Exhibit 16 to the Registrant's Report
              on Form 8-K filed on November 18, 1998

21.           Subsidiaries.*

22.           N/A

23.1          Consent of Richard A. Eisner & Company, LLP.*



*Filed herewith