U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT FOR THE TRANSITION PERIOD FROM _________ TO __________
COMMISSION FILE NUMBER
NORSTAR GROUP, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
UTAH 59-1643698
------------------------------- -------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
6365 NW 6th WAY, SUITE 160, FORT LAUDERDALE, FLORIDA 33309
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (954) 772-0240
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act during the past 12 months
(or 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 [ ]
At October 31, 2001 there were issued and outstanding 18,743,825
shares of Common Stock.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
NorStar Group, Inc. and Subsidiaries
Index to Unaudited Condensed Consolidated Financial Statements
PAGE
----
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheet at September 30, 2001
(Unaudited) F-2
Condensed Consolidated Statements of Operations
Nine and Three Months Ended September 30, 2001 and 2000 (Unaudited) F-3
Condensed Consolidated Statement of Changes in Stockholders' Equity
Nine Months Ended September 30, 2001 (Unaudited) F-4
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2001 and 2000 (Unaudited) F-5
Notes to Condensed Consolidated Financial Statements F-6/8
F-1
NorStar Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
September 30, 2001 (Unaudited)
Assets
Current assets - cash $ 4,783
Equipment, net of accumulated depreciation of $1,749 2,445
Capitalized web site and development costs 238,391
Mineral rights, at estimated net realizable value --
-----------
Total $ 245,619
===========
Liabilities and Stockholders' Equity
Current liabilities:
Noninterest bearing demand notes payable to stockholders $ 98,809
Accounts payable and accrued expenses 68,491
-----------
Total liabilities 167,300
-----------
Commitments and contingencies
Stockholders' equity:
Class A convertible preferred stock, par value $10 per
share; 1,000,000 shares authorized; none issued --
Class B preferred stock, par value $10 per share;
1,000,000 shares authorized; none issued --
Common stock, par value $.01 per share; 150,000,000
shares authorized; 18,743,825 shares issued and outstanding 187,438
Additional paid-in capital 6,162,590
Accumulated deficit (6,271,709)
-----------
Total stockholders' equity 78,319
-----------
Total $ 245,619
===========
See Notes to Condensed Consolidated Financial Statements.
F-2
NorStar Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Nine and Three Months Ended September 30, 2001 and 2000
(Unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
--------------------------- ---------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Revenues $ -- $ -- $ -- $ --
---------- ---------- ---------- ----------
Operating expenses:
Selling 142,375 10,623 1,000 3,138
General and administrative 66,622 126,502 16,420 33,688
Research and development 47,799 15,000
---------- ---------- ---------- ----------
Totals 256,796 137,125 32,420 36,826
---------- ---------- ---------- ----------
Net loss $ (256,796) $ (137,125) $ (32,420) $ (36,826)
========== ========== ========== ==========
Basic net loss per common share $ (.01) $ (.01) $ ( -- ) $ ( -- )
========== ========== ========== ==========
Basic weighted average common
shares outstanding 18,743,825 15,493,825 18,743,825 15,493,825
========== ========== ========== ==========
See Notes to Condensed Consolidated Financial Statements.
F-3
NorStar Group, Inc. and Subsidiaries
Condensed Consolidated Statement of Changes in Stockholders' Equity
Nine Months Ended September 30, 2001
(Unaudited)
Common Stock
-------------------------- Additional
Number of Paid-in Accumulated Unearned
Shares Amount Capital Deficit Compensation Total
---------- ----------- ----------- -------------- ------------ -----------
Balance, January 1, 2001 18,743,825 $ 187,438 $ 6,162,590 $ (6,014,913) $ (141,375) $ 193,740
---------- ----------- ----------- -------------- ----------- -----------
Amortization of unearned
compensation 141,375 141,375
Net loss (256,796) (256,796)
---------- ----------- ----------- -------------- ----------- -----------
Balance, September 30, 2001 18,743,825 $ 187,438 $ 6,162,590 $(6,271,709) $ -- $ 78,319
=========== =========== =========== ============== =========== ===========
See Notes to Condensed Consolidated Financial Statements.
F-4
NorStar Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2001 and 2000
(Unaudited)
2001 2000
--------- ---------
Operating activities:
Net loss $(256,796) $(137,125)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization of unearned compensation 141,375
Depreciation 1,050 450
Changes in operating assets and liabilities - accounts
payable and accrued expenses 2,862 13,674
--------- ---------
Net cash used in operating activities (111,509) (123,001)
---------
Investing activities:
Web site and development costs capitalized (25,279)
Purchases of equipment (4,194)
---------
Net cash used in investing activities (29,473)
---------
Financing activities - proceeds from issuance (repayments)
of notes payable to stockholders 98,809 (9,500)
--------- ---------
Net decrease in cash (12,700) (161,974)
Cash, beginning of period 17,483 179,176
--------- ---------
Cash, end of period $ 4,783 $ 17,202
========= =========
See Notes to Condensed Consolidated Financial Statements.
F-5
NorStar Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Business and basis of presentation:
In the opinion of management, the accompanying unaudited
condensed consolidated financial statements reflect all
adjustments, consisting of normal recurring accruals, necessary
to present fairly the financial position of NorStar Group, Inc.
and its subsidiaries (the "Company") as of September 30, 2001,
and the Company's results of operations for the nine and three
months ended September 30, 2001 and 2000, changes in
stockholders' equity for the nine months ended September 30, 2001
and cash flows for the nine months ended September 30, 2001 and
2000. Pursuant to the rules and regulations of the United States
Securities and Exchange Commission (the "SEC"), certain
information and disclosures normally included in financial
statements prepared in accordance with accounting principles
generally accepted in the United States of America have been
condensed in or omitted from these consolidated financial
statements unless significant changes have taken place since the
end of the most recent fiscal year. Accordingly, these unaudited
condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements as
of December 31, 2000 and for the years ended December 31, 2000
and 1999 and the notes thereto (the "Audited Financial
Statements") and the other information included in the Company's
Annual Report on Form 10-KSB (the "Form 10-KSB") for the year
ended December 31, 2000.
The results of operations for the nine and three months ended
September 30, 2001 are not necessarily indicative of the results
to be expected for the full year ending December 31, 2001.
The accompanying condensed consolidated financial statements have
been prepared assuming that the Company will continue as a going
concern. However, the Company has not generated any significant
revenues on a sustained basis from its current operations.
Management estimates that the Company will not begin to generate
revenues from sales of memberships to subscribers until the first
quarter of the year ending December 31, 2002. As shown in the
accompanying condensed consolidated financial statements, the
Company incurred net losses of approximately $257,000 and
$137,000 for the nine months ended September 30, 2001 and 2000,
respectively, although a substantial portion of the loss in 2001
was attributable to noncash charges for the fair value of shares
and stock options issued for services, compensation and other
expenses. As of September 30, 2001, the Company had a cash
balance of only $4,800, a working capital deficiency of
approximately $163,000 and an accumulated deficit of $6,272,000.
Management believes that the Company will continue to incur net
losses through at least September 30, 2002 and that it will need
additional equity and/or debt financing of at least $2,000,000 to
enable it to fully develop its web services and its proprietary
virtual reality products as initially planned and sustain its
operations until it can achieve profitability and generate cash
flows from its operating activities on a recurring basis. These
matters raise substantial doubt about the Company's ability to
continue as a going concern.
F-6
NorStar Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Business and basis of presentation (concluded):
Management is attempting to obtain additional financing for the
Company through the issuance of equity securities, loans from
financial institutions and/or agreements with strategic partners.
However, management cannot assure that the Company will be able
to sell equity securities, obtain loans from financial
institutions and/or form strategic alliances that will generate
financing on acceptable terms. If the Company is not able to
obtain adequate financing, it may have to curtail or terminate
some or all of its operations.
The accompanying condensed consolidated financial statements do
not include any adjustments related to the recoverability and
classification of assets or the amounts and classification of
liabilities that might be necessary should the Company be unable
to continue its operations as a going concern.
Note 2 - Earnings (loss) per common share:
As further explained in Note 2 of the notes to the Audited
Financial Statements, the Company presents basic earnings (loss)
and, if appropriate, diluted earnings per share in accordance
with the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings per Share". Diluted per share
amounts have not been presented in the accompanying unaudited
condensed consolidated statements of operations because the
Company had net losses for the nine and three months ended
September 30, 2001 and 2000 and, accordingly, the assumed effects
of the exercise of outstanding stock options (see Note 5 herein)
would have been anti-dilutive.
Note 3 - Income taxes:
As of September 30, 2001, the Company had net operating loss
carryforwards of approximately $6,272,000 available to reduce
future Federal taxable income which, if not used, will expire at
various dates through 2021. The Company had no other material
temporary differences as of that date. Due to the uncertainties
related to, among other things, the changes in the ownership of
the Company, which could subject those loss carryforwards to
substantial annual limitations, and the extent and timing of its
future taxable income, the Company offset the deferred tax assets
attributable to the potential benefits of approximately
$2,509,000 from the utilization of those net operating loss
carryforwards by an equivalent valuation allowance as of
September 30, 2001.
The Company had also offset the potential benefits from net
operating loss carryforwards by equivalent valuation allowances
during 2000. As a result of the increases in the valuation
allowance of $103,000 and $54,000 during the nine months ended
September 30, 2001 and 2000, respectively, and $14,000 during the
three months ended September 30, 2001 and 2000, respectively, the
Company did not recognize any credits for income taxes in the
accompanying condensed consolidated statements of operations to
offset its pre-tax losses in any of those periods.
F-7
NorStar Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4 - Stock option plan:
On April 17, 2000, the Board of Directors approved a Stock Option
Plan (the "Plan") whereby up to 2,000,000 shares of the Company's
common stock may be granted to key personnel in the form of
incentive stock options and nonstatutory stock options, as
defined under the Internal Revenue Code. Key personnel eligible
for these awards may include all present and future employees of
the Company and individuals who are consultants to the Company as
well as nonemployee directors of the Company. Under the Plan, the
exercise price of options must be at least 100% of the fair
market value of the common stock on the date of grant (the
exercise price of an incentive stock option for an optionee that
holds more than 10% of the combined voting power of all classes
of stock of the Company must be at least 110% of the fair market
value on the date of grant). The maximum term of any stock option
granted may not exceed ten years (or five years for an optionee
that holds 10% or more of the Company's stock) from the date of
grant.
As of October 25, 2001, no stock options had been awarded under
the Plan.
Note 5 - Consulting agreements
On April 17, 2000, the Company entered into agreements with three
consultants that expired on April 17, 2001. Under these
agreements, the consultants were, among other things, assisting
the Company in finding businesses located primarily in England,
other European countries and the Northeastern section of the
United States that would advertise in and/or link to the
Company's online community. As of October 25, 2001, management of
the Company and the consultants were negotiating, but had not
consummated, extensions of these agreements.
As consideration for their services, the three consultants
received options to purchase a total of 1,300,000 shares of the
Company's common stock that were exercisable at $.40 per share at
any time during the terms of the consulting agreements. The
options expired on April 17, 2001. As further explained in Note 2
of the notes to the Audited Financial Statements, the aggregate
fair value of the options granted to the consultants as of the
date of grant was $377,000. The Company recorded the aggregate
fair value as unearned compensation which it amortized to expense
over the period from April 17, 2000 to April 17, 2001.
* * *
F-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS ON PLAN OF OPERATION
The following discussion regarding NorStar and its business and operations
contains "forward-looking statements" within the meaning of Private Securities
Litigation Reform Act 1995. Such statements consists of any statement other than
a recitation of historical fact and can be identified by the use of
forward-looking terminology such as "may," "expect," "anticipate," "estimate" or
"continue" or the negative thereof of other variations thereon or comparable
terminology. The reader is cautioned that all forward-looking statements are
necessarily speculative and there are certain risks and uncertainties that could
cause actual events or results to differ materially from those referred to in
such forward-looking statements. NorStar does not have a policy of updating or
revising forward-looking statements and thus it should not be assumed that
silence by management of NorStar over time means that actual events are bearing
out as estimated in such forward-looking statements.
OVERVIEW
NorStar Group, Inc. was originally incorporated in the State of Utah in March
1961 as Florist Accounting Services, Inc., a finance company that was primarily
engaged in factoring accounts receivables for florists in Utah. The Company was
unable to develop a profitable operation and became inactive until April 1992.
During the period from April 1992 through September 30, 2001 the Company
acquired and/or began to develop and dispose of, several businesses and certain
other investments. In 1998, the company began the development of its Internet
business which involves the creation of a portal to a cyber-city, an on-line
community of "One Stop Shopping" for products, entertainment, education and
business services. The on-line community is being developed through VeeAreCity
and the Burbs. The portal is designed to provide subscriber/member with access
to several web browsers, a directory to thousands of stores, three dimensional
virtual reality ("VR") chat rooms, forums and game rooms, a VR dating service,
VR business conference room, specialty advertising rooms with VR activities and
global e-mails. The Company is developing and expanding its Internet portal
services. Norstar is also continuing with ongoing research and development of
its proprietary virtual reality products. The Company also holds mineral rights
attributable to 17 claims that were acquired for gold mines located in the Gold
Mountain mining district of Esmeralda County Nevada. However, management does
not expect mining operations to become one of the Company's core businesses.
RESULTS OF OPERATIONS:
Nine and Three months ended September 30, 2001 as compared to the Nine and Three
months ended September 30, 2000.
During the nine months ended September 30, 2001, the Company's operating
expenses increased by approximately $120,000 to approximately $257,000 from
approximately $137,000 for the nine months ended September 30, 2000. The primary
cause of the increase was non-cash charges of approximately $141,000 relating to
amortization of unearned compensation which resulted from the issuance of stock
options to consultants relating to the agreements described below. This increase
was offset by a slight reduction in corporate overhead.
On April 17, 2000, the Company entered into agreements with three consultants.
Under these agreements, the consultants will, among other things, assist the
Company in finding businesses located primarily in England, other European
countries and the Northeastern section of the United States of America that will
advertise in and/or link to
2
the Company's on-line community. The three consultants received options to
purchase a total of 1,300,000 shares of the Company's common stock that will be
exercisable at $.40 per share at any time during the term of the consulting
agreements as consideration for their services.
The aggregate fair value of the options granted to the consultants of $377,000
as of the date of grant, as determined based on the Black-Scholes option-pricing
model, was recorded as unearned compensation, which will be amortized to expense
over the periods in which the related services are rendered, as required by
generally accepted accounting principles in the United States of America.
During the Three months ended September 30, 2001, the Company's operating
expenses decreased by approximately $5,000 to approximately $32,000 from
approximately $37,000 for the three months ended September 30, 2000. This
decrease was primarily a result of the company reducing its corporate spending
until which time its financing is in place.
As a result of the above, the Company incurred a loss of approximately $257,000
and $32,000 for the nine and three months ended September 30, 2001,
respectively, as compared to approximately $137,000 and $37,000 for the
comparable period ended September 30, 2000.
(a) Liquidity and Capital Resources
NorStar's consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. However, the Company has not generated
any significant revenues on a sustained basis from its current operations. As
shown in the condensed consolidated financial statements, the Company has
continued to incur net losses, although a substantial portion of the losses was
attributable to noncash charges for the fair value of shares and stock options
issued for services, compensation and other expenses. As of September 30, 2001,
the Company had a cash balance of only $5,000, a working capital deficiency of
approximately $163,000 and an accumulated deficit of $6,272,000. Management
believes that the Company will continue to incur net losses through at least
September 30, 2002 and that it will need additional equity and/or debt financing
of at least $2,000,000 to enable it to fully develop its web services and
development of its proprietary virtual reality products as initially planned and
sustain its operations until it can achieve profitability and generate cash
flows from its operating activities on a recurring basis. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
Management is attempting to obtain additional financing for the Company through
the issuance of equity securities, loans from financial institutions and/or
agreements with strategic partners. However, management cannot assure that the
Company will be able to sell equity securities, obtain loans from financial
institutions and/or form strategic alliances that will generate financing on
acceptable terms. If the Company is not able to obtain adequate financing, it
may have to curtail or terminate some or all of its operations.
We do not believe that our business is subject to seasonal trends or inflation.
On an ongoing basis we will attempt to minimize any effect of inflation on our
operating results by controlling operating costs and whenever possible, seeking
to insure that subscription rates and usage fees reflect increases in costs due
to inflation.
3
The Company believes the following trends, events and uncertainties could have a
material impact on their short-term and/or long-term liquidity. The market for
Internet discount services and product programs is relatively new and is
evolving rapidly. NorStar's future growth is dependent upon its ability to
create, develop and distribute programs that are accepted by its clients as an
integral part of their business model for communicating with their targeted
audiences. Demand and market acceptance of discount products and service
programs is dependent upon a number of factors, including the growth in consumer
access to and acceptance of these programs, the willingness of service and
product providers to offer their services and products to customers of NorStar
at a discount, and NorStar's ability to develop and maintain distribution
channels to sell memberships to consumers. The failure of providers or consumers
to participate in NorStar's programs or substantial increases in the adequacy or
availability of other programs could have a material and adverse impact on
NorStar's business, operating results and financial condition. In addition,
NorStar does not have long-term contracts and needs to establish relationships
with new vendors. As a result, providers of discounted services or products to
NorStar's members may unilaterally reduce the scope of, or terminate their
relationships with NorStar. The termination of NorStar's business relationship
or a material
reduction in the availability of services or products from any of NorStar's
significant providers or networks thereof or NorStar's failure to develop
significant new provider relationships would materially and adversely affect its
business, operating results and financial condition.
NorStar believes that within the market niche it seeks to develop, the following
known trends, events or uncertainties that have had or that are reasonably
expected to have a material impact on their net sales or revenues or income from
their continuing operations will include the following: (i) The market for
discounted products and services is characterized by rapid changes in
participating companies, consumers and service provider requirements and
preferences, new service and product introductions and evolving industry
standards that could render NorStar's existing service practices and
methodologies obsolete; (ii) NorStar's success will depend, in large part, on
its ability to improve its existing services, develop new services and solutions
that address the increasingly sophisticated and varied needs of NorStar's
clients, and respond to technological advances, emerging industry standards and
practices, and competitive service offerings; and (iii) NorStar may not be
successful in responding quickly, cost-effectively and sufficiently to these
developments. If NorStar is unable, for technical, financial or other reasons,
to adapt in a timely manner in response to changing market conditions or these
requirements, its business, results of operations and financial condition would
be materially adversely affected.
4
PART II - OTHER INFORMATION
Item 1. Legal proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Default in Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) There were no Current Reports on Form 8-K filed
by the registrant during the quarter ended SEPTEMBER 30, 2001.
5
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Company duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NORSTAR GROUP, INC.
By: /s/ Harry DiFrancesco
-------------------------------------
Harry DiFrancesco
President
Date: NOVEMBER 6, 2001
In accordance with the Exchange Act, this Report has been signed below by the
following persons on behalf of the Company in the capacities set forth and on
the dates indicated.
Signature Position Date
--------- -------- ----
By: /s/ Harry DiFrancesco President and Chairman Date: September 30, 2001
------------------------------- of the Board
Harry DiFrancesco
By: /s/ Andrew S. Peck Vice President of Finance Date: September 30, 2001
------------------------------- Secretary and Director
Andrew S. Peck
By: /s/ Maynard Neil Abogov Vice President of Sales Date: September 30, 2001
------------------------------- and Management and Director
Maynard Neil Abogov
By:/s/ Jay Sanet Vice President of Date: September 30,2001
--------------------------------- Corporate Development and Director
Jay Sanet
6