1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 MARCH 31, 2001 THERE WERE ISSUED AND OUTSTANDING 18,743,825 SHARES OF COMMON
STOCK.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES [ ] NO [X]
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NorStar Group, Inc. and Subsidiaries
INDEX TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
PAGE
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Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheet at March 31, 2001
(Unaudited) F-2
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2001 and 2000 (Unaudited) F-3
Condensed Statement of Changes in Stockholders' Equity
Three Months Ended March 31, 2001 (Unaudited) F-4
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2001 and 2000 (Unaudited) F-5
Notes to Condensed Consolidated Financial Statements F-6/8
F-1
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NorStar Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
March 31, 2001 (Unaudited)
ASSETS
Current assets - cash $ 12,297
Equipment, net of accumulated depreciation of $1,049 3,145
Capitalized web site development costs 238,391
Mineral rights, at estimated net realizable value --
-----------
Total $ 253,833
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Noninterest-bearing demand notes payable to stockholders $ 34,809
Accounts payable and accrued expenses 72,429
-----------
Total 107,238
-----------
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 (6,187,725)
Unearned compensation (15,708)
-----------
Total stockholders' equity 146,595
-----------
Total $ 253,833
===========
See Notes to Condensed Consolidated Financial Statements.
F-2
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NorStar Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2001 and 2000
(Unaudited)
2001 2000
----------- ----------
Revenues $ -- $ --
----------- ----------
Operating expenses:
Selling 125,667 3,369
General and administrative 30,145 22,056
Research and development 17,000
----------- ----------
Totals 172,812 25,425
----------- ----------
Net loss $ (172,812) $ (25,425)
=========== ==========
Basic net loss per common share $ (.01) $ --
=========== ==========
Basic weighted average common shares outstanding 18,743,825 15,493,825
=========== ==========
See Notes to Condensed Consolidated Financial Statements.
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NorStar Group, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders' Equity
Three Months Ended March 31, 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 125,667 125,667
Net loss (172,812) (172,812)
---------- -------- ---------- ----------- ---------- ---------
Balance, March 31, 2001 18,743,825 $187,438 $6,162,590 $(6,187,725) $ (15,708) $ 146,595
========== ======== ========== =========== ========== =========
See Notes to Condensed Consolidated Financial Statements.
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NorStar Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2001 and 2000
(Unaudited)
2001 2000
---------- ------------
Operating activities:
Net loss $(172,812) $(25,425)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization of unearned compensation 125,667 --
Depreciation 350 --
Changes in operating liabilities - accounts payable
and accrued expenses 6,800 --
----------- -----------
Net cash used in operating activities (39,995) (25,425)
Investing activities - web site development costs capitalized 26,342
Financing activities - proceeds from issuance of notes
payable to stockholders 34,809 --
---------- -----------
Net decrease in cash (5,186) (51,767)
Cash, beginning of period 17,483 179,176
---------- -----------
Cash, end of period $ 12,297 $127,409
========== ===========
See Notes to Condensed Consolidated Financial Statements.
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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, 2001, and
the Company's results of operations and cash flows for the three
months ended March 31, 2001 and 2000 and changes in stockholders'
equity for the three months ended March 31, 2001. 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 three months ended March 31,
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 third
quarter of the year ending December 31, 2001. As shown in the
accompanying condensed consolidated financial statements, the
Company incurred net losses of approximately $173,000 and $25,000
for the three months ended March 31, 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 March 31, 2001, the Company had a cash balance of
only $12,000, a working capital deficiency of approximately
$95,000 and an accumulated deficit of $6,188,100. Management
believes that the Company will continue to incur net losses
through at least March 31, 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 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.
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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 (i) the
Company had a net loss for the three months ended March 31, 2001
and, accordingly, the assumed effects of the exercise of options
granted in April 2000 (see Note 5 herein) would have been
anti-dilutive and (ii) the Company did not have any potentially
dilutive common shares outstanding during the three months ended
March 31, 2000.
Note 3 - Income taxes:
As of March 31, 2001, the Company had net operating loss
carryforwards of approximately $6,188,000 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
$2,475,000 from the utilization of those net operating loss
carryforwards by an equivalent valuation allowance as of March
31, 2001.
The Company had also offset the potential benefits from net
operating loss carryforwards by equivalent valuation allowances
during 2000. Accordingly, although the Company had pre-tax losses
in the three months ended March 31, 2001 and 2000, it did not
recognize a credit for Federal income taxes in either period as a
result of increases in the valuation allowance of $69,000 and
$10,000 in the three months ended March 31, 2001 and 2000,
respectively.
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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"), 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 8, 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 May 10, 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. The
unamortized balance of unearned compensation of $15,708 is
reflected as a reduction of stockholders' equity in the
accompanying condensed consolidated balance sheet as of March 31,
2001.
F-8
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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 March 31, 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 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:
Three months ended March 31, 2001 as compared to three months ended
March 31, 2000.
During the three months ended March 31, 2001, the Company's operating
expenses increased by approximately $148,000 to approximately $173,000 from
approximately $25,000 for the three months ended March 31, 2000. The primary
cause of the increase was non-cash charges of approximately $126,000 relating to
amortization of unearned compensation which resulted from the issuance of stock
options to consultants relating to the agreements described below.
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 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.
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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.
As a result of the above, the Company incurred a loss of approximately
$173,000 for the three months ended March 31, 2001 as compared to approximately
$25,000 for the comparable period ended March 31, 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 March
31, 2001, the Company had a cash balance of only $12,000, a working capital
deficiency of approximately $95,000 and an accumulated deficit of $6,188,000.
Management believes that the Company will continue to incur net losses through
at least March 31, 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
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.
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
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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.
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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 March 31, 2001.
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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: March 31, 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: March 31, 2001
------------------------ of the Board
Harry DiFrancesco
By: /s/ Andrew S. Peck Vice President of Finance Date: March 31, 2001
------------------------ Secretary and Director
Andrew S. Peck
By: /s/ Maynard Neil Abogov Vice President of Sales Date: March 31, 2001
------------------------ and Management and Director
Maynard Neil Abogov
By: /s/ Jay Sanet Vice President of Date: March 31, 2001
------------------------ Corporate Development and
Jay Sanet Director
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