FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER
000-28399
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 June 30, 2003 there were issued and outstanding 34,793,825 shares of
Common Stock.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
Item 1 Financial Statements
Item 2 Managements discussion and analysis of Plans of Operation
Item 3 Controls and Procedures
Part II - Other Information
Item 1. Legal proceedings
Item 2. Changes in Securities
Item 3. Default in 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
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 June 30, 2003
(Unaudited) F-2
Condensed Consolidated Statements of Operations
Six and Three Months Ended June 30, 2003 and 2002 (Unaudited) F-3
Condensed Statement of Changes in Stockholders' Deficiency
Six and Three Months Ended June 30, 2003 (Unaudited) F-4
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 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
June 30, 2003 (Unaudited)
Assets
Equipment, net of accumulated depreciation of $4,194 $ --
Capitalized web site development costs, at estimated net realizable value --
Mineral rights, at estimated net realizable value --
-----------
Total $ --
===========
Liabilities and Stockholders' Deficiency
Current liabilities - accounts payable and accrued expenses $ 28,938
-----------
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; 34,793,825 shares issued and outstanding 347,938
Additional paid-in capital 6,510,534
Accumulated deficit (6,887,410)
-----------
Total stockholders' deficiency (28,938)
-----------
Total $ --
===========
See Notes to Condensed Consolidated Financial Statements.
F-2
NorStar Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Six and Three Months Ended June 30, 2003 and 2002
(Unaudited)
Six Months Three Months
Ended June 30, Ended June 30,
---------------------------- ----------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Revenues $ -- $ -- $ -- $ --
------------ ------------ ------------ ------------
Operating expenses:
Selling 58,128 32,878
General and administrative 104,668 28,804 95,679 7,564
Research and development 4,641 641
------------ ------------ ------------ ------------
Totals 162,796 33,445 128,557 8,205
------------ ------------ ------------ ------------
Operating loss (162,796) (33,445) (128,557) (8,205)
Gain on settlement of accounts payable 20,741 20,741
------------ ------------ ------------ ------------
Net loss $ (142,055) $ (33,445) $ (107,816) $ (8,205)
============ ============ ============ ============
Basic net loss per common share $ (.01) $ ( - ) $ ( - ) $ ( - )
============ ============ ============ ============
Basic weighted average common
shares outstanding 27,782,235 20,743,825 29,749,329 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
Six Months Ended June 30, 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 58,128 58,128
Shares issued for services 9,000,000 90,000 90,000
Contribution to capital of notes
payable to stockholders 237,444 237,444
Net loss (142,055) (142,055)
---------- -------- ---------- ------------ ---------- ----------
Balance, June 30, 2003 34,793,825 $347,938 $6,510,534 $(6,887,410) $ -- $ (28,938)
========== ======== ========== ============ ========== ==========
See Notes to Condensed Consolidated Financial Statements.
F-4
NorStar Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2003 and 2002
(Unaudited)
2003 2002
--------- ---------
Operating activities:
Net loss $(142,055) $ (33,445)
Adjustments to reconcile net loss to net cash
used in operating activities:
Shares of common stock issued for services 90,000
Amortization of unearned compensation 58,128
Depreciation 699 700
Gain on settlement of accounts payable (20,741)
Changes in operating liabilities - increase
(decrease) in accounts payable and
accrued expenses 4,747 (8,597)
--------- ---------
Net cash used in operating activities (9,222) (41,342)
Financing activities - proceeds from issuance of notes
payable to stockholders 9,000 41,000
--------- ---------
Net decrease in cash (222) (342)
Cash, beginning of period 222 2,486
--------- ---------
Cash, end of period $ -- $ 2,144
========= =========
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 June 30, 2003, and the Company's results of
operations for the six and three months ended June 30, 2003 and 2002,
changes in stockholders' deficiency for the six months ended June 30,
2003 and cash flows for the six months ended June 30, 2003 and 2002.
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 six and three months ended June 30,
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 $142,000 and $33,000 for the six
months ended June 30, 2003 and 2002, respectively, although a
substantial portion of the loss in 2003 was attributable to noncash
charges for the fair value of shares and stock options issued for
services, compensation and other expenses. As of June 30, 2003, the
Company had no cash, a working capital deficiency of $29,000 and an
accumulated deficit of $6,887,000. Management believes that the
Company will continue to incur net losses through at least June 30,
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 six and
three months ended June 30, 2003 and 2002.
Note 3 - Income taxes:
As of June 30, 2003, the Company had net operating loss carryforwards
of approximately $6,887,000 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 $2,755,000 from the utilization of those net operating
loss carryforwards by an equivalent valuation allowance as of June 30,
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 $56,000 and
$13,000 during the six months ended June 30, 2003 and 2002,
respectively, and $43,000 and $3,000 during the three months ended
June 30, 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 - Gain on settlement of accounts payable:
During the six months ended June 30, 2003, the Company agreed to
settle certain of its accounts payable with a carrying value of
$25,741 for $5,000 and, as a result, it recorded a gain of $20,741.
Note 5 - Contribution to capital:
During the six months ended June 30, 2003, the Company's principal
stockholders (i) made additional loans to the Company totaling $9,000,
which increased the balance of the Company's noninterest bearing
demand notes payable to stockholders to $237,444 and (ii) made a
contribution in that amount by canceling the notes payable. The
contribution to capital was a noncash transaction that is not
reflected in the accompanying 2003 condensed consolidated statement of
cash flows.
Note 6 - Common stock issued for services:
On May 21, 2003, the Board of Directors authorized the issuance of
9,000,000 shares of common stock to certain members of the Board and
the Company's general counsel for services rendered. The Shares had a
fair value of approximately $90,000 which was charged to general and
administrative expenses. This was a noncash transaction that is not
reflected in the accompanying 2003 condensed consolidated statement of
cash flows.
* * *
F-8
OVERVIEW
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion regarding NorStar and its 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. 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
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. Our critical
accounting polices and estimates have not changed from those described in our
annual report filed on Form 10-KSB.
RESULTS OF OPERATIONS:
Six and Three months ended June 30, 2003 as compared to Six and Three months
ended June 30, 2002.
We did not have any revenues during either period ending June 30, 2003 or 2002.
Management estimates that we will not begin to generate revenues from sales of
memberships to subscribers for the near future.
During the six and three months ended June 30, 2003, our operating expenses
increased by approximately $129,000 and $120,000, respectively, to approximately
$163,000 and $128,000 from approximately $33,000 and $8,000 for the six and
three months ended June 30,2002. The primary cause of the increase were non-cash
charges of approximately $58,000 and $33,000 relating to amortization of
unearned compensation which resulted from the issuance of shares of common stock
to consultants for services rendered relating to the agreement described below:
3
On July 25, 2002, we entered into agreements with certain consultants. Under
these agreements, the consultants will be required to, among things, assist the
Company in finding businesses located primarily in Europe that would advertise
in and/or link to the Company's online community in addition to performing web
site 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 will
amortize to expense over the period from July 25, 2002 to July 25, 2003.
Additionally, we issued 9,000,000 shares of our common stock to certain members
of The Board and The Company's General Counsel for services rendered and
recording a non-cash charge of $90,000, the approximate fair value of the shares
issued.
In addition to the aforementioned non-cash items, our operating expenses also
were impacted by a reduction in corporate overhead and research and development
costs of approximately $19,000 and $3,000 for the six and three months ended
June 30, 2003, respectively, due to our cash position.
During the six months ended June 30, 2003, we agreed to settle certain of our
accounts payable with a carrying value of $25,741 for $5,000 and, as a result,
recorded a gain of $20,741.
As a result of the aforementioned, we incurred a net loss of approximately
$142,000 and $108,000 for the six and three months ended June 30, 2003,
respectively, as compared to $33,000 and $8,000 for comparable prior periods.
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 incurred net losses
of approximately $142,000 and $33,000 for the six months ended June 30,2003 and
2002, respectively, although a substantial portion of the loss in 2003 was
attributable to noncash charges for the fair value of shares and stock options
previously issued for services, compensation and other expenses. As of June 30,
2003, we had no cash, a working capital deficiency of approximately $29,000 and
an accumulated deficit of $6,887,000. Management believes that we will continue
to incur net losses through at least June 30, 2004 and that the Company 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 our ability to continue as a going concern.
Management 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, management is also evaluating an
alternative where by it would suspend the development of our Internet
technology, at least temporarily, and search for another company that has had
ongoing commercial operations that would merge with us and continue its business
operations.
However, management 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
Internet technology or enter into a merger agreement with an operating company
on acceptable terms. If we are not able to obtain adequate financing or
consummate a merger,, it may have to curtail or terminate some or all of its
operations.
4
During the six months ended June 30, 2003, we financed our operations with
$9,000 of advances from our principal stockholders, which increased the balance
to $237,444 such amount was then contributed to capital.
Item 3. Control and Procedures
As of the end of the period covered by this report, management, including our
principal executive officer and principal financial officer, evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures. Based upon, and as of the date of that evaluation, our principal
executive officer and principal financial officer concluded that our disclosure
controls and procedures effectively provided reasonable assurance that
information required to be disclosed in the reports that we file or submit under
the Securities Exchange Act of 1934 are recorded, processed and summarized and
reported within the time specified by the Securities and Exchange Commission's
rules and forms. There was no change in our internal controls over financial
reporting during the quarter ended June 30, 2003 that has materially affected,
or that is reasonably likely to materially affect, our internal control over
financial reporting.
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) Exhibits
5
Exhibit
Number Description
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31 Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32 Certification 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 June 30, 2003
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: August 18, 2003
6