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 MARCH 31, 2003
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.)
4101 Ravenswood Road, Suite 128, Ft. Lauderdale, Florida 33312
(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 March 31, 2003 there were issued and outstanding 25,793,825 shares of Common
Stock.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
NorStar Group, Inc. and Subsidiaries
Table of Contents
Part I- Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis or Plan of Operation
Item 3. Controls and Procedures
Part II - Other Information
Item 1. Legal proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Certifications
Part I- Financial Information:
Item 1. Financial Statements
Index to Unaudited Condensed Financial Statements
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PAGE
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Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheet at March 31, 2003
(Unaudited) F-2
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2003 and 2002 (Unaudited) F-3
Condensed Statement of Changes in Stockholders' Deficiency
Three Months Ended March 31, 2003 (Unaudited) F-4
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2003 and 2002 (Unaudited) F-5
Notes to Condensed Consolidated Financial Statements (Unaudited) F-6/8
F-1
NorStar Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
March 31, 2003 (Unaudited)
Assets
Current assets - cash $ 5,489
Equipment, net of accumulated depreciation of $3,845 349
Capitalized web site development costs, at estimated net realizable value -
Mineral rights, at estimated net realizable value -
--------------
Total $ 5,838
==============
Liabilities and Stockholders' Deficiency
Current liabilities:
Noninterest bearing demand notes payable to stockholders $ 237,444
Accounts payable and accrued expenses 49,838
--------------
Total 287,282
--------------
Commitments and contingencies
Stockholders' deficiency:
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; 25,793,825 shares issued and outstanding 257,938
Additional paid-in capital 6,273,090
Accumulated deficit (6,779,594)
Unearned compensation (32,878)
--------------
Total stockholders' deficiency (281,444)
--------------
Total $ 5,838
==============
See Notes to Condensed Consolidated Financial Statements.
F-2
NorStar Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2003 and 2002
(Unaudited)
2003 2002
------------- -------------
Revenues $ - $ -
------------- -------------
Operating expenses:
Selling 25,250
General and administrative 8,989 21,240
Research and development 4,000
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Totals 34,239 25,240
------------- -------------
Net loss $(34,239) $(25,240)
============= =============
Basic net loss per common share $( - ) $( - )
============= =============
Basic weighted average common
shares outstanding 25,793,825 20,743,825
============= =============
See Notes to Condensed Consolidated Financial Statements.
F-3
NorStar Group, Inc. and Subsidiaries
Condensed Consolidated Statement of Changes in Stockholders' Deficiency
Three Months Ended March 31, 2003
(Unaudited)
Common Stock
------------------------- Additional Unearned
Number of Paid-in Accumulated Compen-
Shares Amount Capital Deficit sation Total
------------ --------- -------------- -------------- ----------- ----------
Balance, January 1, 2003 25,793,825 $257,938 $6,273,090 $(6,745,355) $(58,128) $(272,455)
Amortization of unearned
compensation 25,250 25,250
Net loss (34,239) (34,239)
---------- -------- ---------- ----------- -------- ---------
Balance, March 31, 2003 25,793,825 $257,938 $6,273,090 $(6,779,594) $(32,878) $(281,444)
========== ======== ========== =========== ======== =========
See Notes to Condensed Consolidated Financial Statements.
F-4
NorStar Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2003 and 2002
(Unaudited)
2003 2002
---------- ----------
Operating activities:
Net loss $(34,239) $(25,240)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization of unearned compensation 25,250
Depreciation 350 350
Changes in operating liabilities - accounts payable
and accrued expenses 4,906 (2,233)
---------- ----------
Net cash used in operating activities (3,733) (27,123)
Financing activities - proceeds from issuance of notes
payable to stockholders 9,000 28,000
---------- ---------
Net increase in cash 5,267 877
Cash, beginning of period 222 2,486
----------- ----------
Cash, end of period $ 5,489 $ 3,363
========= =========
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 March 31, 2003, and the Company's results of
operations and cash flows for the three months ended March 31, 2003
and 2002 and changes in stockholders' deficiency for the three
months ended March 31, 2003. 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,
2002 and for the years ended December 31, 2002 and 2001 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, 2002.
The results of operations for the three months ended March 31, 2003
are not necessarily indicative of the results to be expected for the
full year ending December 31, 2003.
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. As shown
in the accompanying condensed consolidated financial statements, the
Company incurred net losses of approximately $34,000 and $25,000 for
the three months ended March 31, 2003 and 2002, respectively,
although a substantial portion of the loss in 2003 was attributable
to the amortization of noncash charges for the fair value of shares
and stock options previously issued for services, compensation and
other expenses. As of March 31, 2003, the Company had a cash balance
of only $5,000, a working capital deficiency of $282,000 and an
accumulated deficit of $6,780,000. Management believes that the
Company will continue to incur net losses through at least March 31,
2004 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 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 is also evaluating an alternative whereby it
would suspend the development of the Company's internet technology,
at least temporarily, and search for another company that has had
ongoing commercial operations that would merge with the Company and
continue its business operations. 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 for the further development of the Company's
internet technology or enter into a merger agreement with an
operating company on acceptable terms. If the Company is not able to
obtain adequate financing or consummate a merger, 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 did not have any
potentially dilutive common shares outstanding during the three
months ended March 31, 2003 and 2002.
Note 3 - Income taxes:
As of March 31, 2003, the Company had net operating loss
carryforwards of approximately $6,780,000 available to reduce future
Federal taxable income which, if not used, will expire at various
dates through 2023. 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 $2,712,000 from the utilization
of those net operating loss carryforwards by an equivalent valuation
allowance as of March 31, 2003.
F-7
NorStar Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 3 - Income taxes (concluded):
The Company had also offset the potential benefits from net
operating loss carryforwards by equivalent valuation allowances
during 2002. As a result of the increases in the valuation allowance
of $14,000 and $10,000 during the three months ended March 31, 2003
and 2002, 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.
Note 4 - Stock option plan:
On April 17, 2000, the Board of Directors approved a Stock Option
Plan (the "Plan"), subject to ratification by the Company's
stockholders, 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 May 13, 2003, no stock options had been awarded under the
Plan.
* * *
F-8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion regarding our business and operations contains
"forward-looking statements" within the meaning of Private Securities Litigation
Reform Act of 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. We do not have a policy of updating or revising
forward-looking statements and thus it should not be assumed that silence by
management, over time, means that actual events are bearing out as estimated in
such forward-looking statements
CRITICAL ACCOUNTING POLICIES AND ESTIMATES:
Our condensed consolidated financial statements have been prepared in accordance
with accounting principals generally accepted in the United States of America.
The preparation of these condensed consolidated financial statements requires us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues, and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates. We base our
estimates on historical experience and on other assumptions that are believed to
be reasonable under the circumstances. Accordingly, actual results could differ
from these estimates under different assumptions or conditions. No events have
occurred during the current period, which in our judgment would impact, either
positively or negatively, our critical accounting policies and estimates that
were detailed in our Annual Report previously filed with The Securities and
Exchange Commission on Form 10-KSB.
RESULTS OF OPERATIONS:
Three months ended March 31, 2003 as compared to the Three months ended March
31, 2002.
The Company did not have any revenues during either period. Management estimates
that the Company will not begin to generate revenues from sales of memberships
to subscribers for the near future.
3
During the three months ended March 31, 2003, our operating expenses increased
by approximately $9,000 to approximately $34,000 from approximately $25,000 for
three months ended March 31, 2002. The primary cause of the increase was
non-cash charges of approximately $25,000 relating to amortization of unearned
compensation which resulted from the issuance of shares of common stock to
consultants relating to the agreements described below.
On July 25, 2002, we entered into various agreements with certain consultants.
Under these agreements, the consultants will be required to, among things,
assist us in finding businesses located primarily in Europe that would advertise
in and/or link to the our online community in addition to performing website
development services. These agreements will expire on July 25, 2003. As
consideration for their services, the consultants received a total of 5,050,000
shares of common stock with an aggregate fair market value of $101,000. We
recorded the aggregate fair market value as unearned compensation, which is
being amortized to expense over the period from July 25, 2002 to July 25, 2003.
LIQUIDITY AND CAPITAL RESOURCES:
Our condensed consolidated financial statements have been prepared assuming that
we will continue as a going concern. However, we have not generated any
significant revenues on a sustained basis from our current operations. As shown
in the condensed consolidated financial statements, we have continued to incur
net losses of approximately $34,000 and $25,000 for the three months ended March
31, 2003 and 2002, respectively, although a substantial portion of the loss in
2003 was attributable to the amortization of non-cash charges for the fair value
of shares and stock options previously issued for services, compensation and
other expenses. As of March 31, 2003, we had a cash balance of only $5,000, a
working capital deficiency of approximately $282,000 and an accumulated deficit
of $6,780,000. We believe that we will continue to incur net losses through at
least March 31, 2004 and that we will need additional equity and/or debt
financing of at least $2,000,000 to enable it to fully develop our web services
as initially planned and sustain our operations until we can achieve
profitability and generate cash flows from our operating activities on a
recurring basis. These matters raise substantial doubt about our ability to
continue as a going concern.
We are is attempting to obtain additional financing for us through the issuance
of equity securities, loans from financial institutions and/or agreements with
strategic partners. However, we are is also evaluating an alternative where we
would suspend the operations of our Internet technology, at least temporarily,
and look for another company that has had ongoing commercial operations, that
would merge with us and continue its business operation. We cannot assure that
we will be able to sell equity securities, obtain loans from financial
institutions and/or form strategic alliances that will generate financing for
the further development of our
4
Internet technology or enter into a merger agreement with an operating company
on acceptable terms. If we are not able to obtain adequate financing, we may
have to curtail or terminate some or all of its operations.
During the three months ended March 31, 2003 and 2002, we financed our
operations from our existing cash reserves and/or the proceeds generated from
the sale of notes to our stockholders of approximately $9,000 and $28,000,
respectively.
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
Item 3. Control and Procedures
(a) Evaluation of disclosure controls and procedures. We maintain disclosure
controls and procedures designed to provide reasonable assurance that
information required to be disclosed in the reports filed with the SEC is
recorded, processed, summarized and reported within the time periods
specified in the rules of the SEC. Within 90 days prior to the filing of
this Quarterly Report on Form 10-QSB, we carried out an evaluation, under
the supervision and the participation of our management including our Chief
Executive Officer of the design and operation of these disclosure controls
and procedures pursuant to Exchange Act Rule 13a-14. Based upon that
evaluation, our Chief Executive Officer concluded that our disclosure
controls and procedures are effective in alerting them on a timely basis to
material information relating to the Company required to be in our periodic
SEC filings.
(b) Changes in internal controls. There were no significant changes in internal
controls or other factors that could significantly affect our internal
controls subsequent to the date of our evaluation.
PART II - OTHER INFORMATION
Item 1. Legal proceedings
None.
Item 2. Changes in Securities
None.
5
Item 3. Default in Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
On May 4, 2003, our Chairman, Harry DiFrancesco, passed away.
Our Board of Directors has appointed Jay Sanet , its Chief Executive Officer, as
its new Chairman.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------- -----------
99.1 Certification of the Chief Executive Officer of
Norstar Group, Inc. Pursuant to 18 U.S.C. Section
1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification of the Chief Financial Officer of
Norstar Group, Inc. Pursuant to 18 U.S.C. Section
1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) There were no Current Reports on Form 8-K filed by
the registrant during the quarter ended March 31,
2003
6
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NORSTAR GROUP, INC.
--------------------------------
(Registrant)
By: /s/ Jay Sanet
Jay Sanet
CEO
Date: May 15, 2003