<PAGE> 1
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, 2000
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)
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UTAH 59-1643698
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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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 November 10, 2000, there were issued and outstanding 15,493,825 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
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NorStar Group, Inc. and Subsidiaries
Index to Financial Statements
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PAGE
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Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at September 30, 2000
(Unaudited) and December 31, 1999 F-2
Condensed Consolidated Statements of Operations
Nine and Three Months Ended September 30, 2000 and 1999 (Unaudited) F-3
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2000 and 1999 (Unaudited) F-4
Notes to Condensed Consolidated Financial Statements F-5/7
Item 2. Management's Discussion and Analysis or Plan of Operations F-8
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
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F-1
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NorStar Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
September 30, 2000 (Unaudited) and December 31, 1999
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September December
Assets 30, 2000 31, 1999
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(Note 1)
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Current assets - cash $ 17,202 $ 179,176
Equipment, net of accumulated depreciation of $450 3,744
Capitalized software development costs 70,215 44,936
Mineral rights, at estimated net realizable value -- --
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Totals $ 91,161 $ 224,112
=========== ===========
Liabilities and Stockholders' Equity (Deficiency)
Current liabilities:
Noninterest bearing demand notes payable to stockholders $ 113,809 $ 123,309
Accounts payable and accrued expenses 13,674
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Total liabilities 127,483 123,309
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Commitments
Stockholders' equity (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; 15,493,825 shares issued and
outstanding 154,938 154,938
Additional paid-in capital 5,410,090 5,410,090
Accumulated deficit (5,601,350) (5,464,225)
----------- -----------
Total stockholders' equity (deficiency) (36,322) 100,803
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Totals $ 91,161 $ 224,112
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See Notes to Condensed Consolidated Financial Statements.
F-2
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NorStar Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Nine and Three Months Ended September 30, 2000 and 1999
(Unaudited)
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Nine Months Ended Three Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
2000 1999 2000 1999
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Revenues $ -- $ -- $ -- $ --
------------ ------------ ------------ ------------
Operating expenses:
Selling 10,623 11,944 3,138 9,497
General and administrative 126,502 2,131,903 33,688 941,495
------------ ------------ ------------ ------------
Totals 137,125 2,143,847 36,826 950,992
------------ ------------ ------------ ------------
Net loss $ (137,125) $ (2,143,847) $ (36,826) $ (950,992)
============ ============ ============ ============
Basic net loss per common share $ (.01) $ (.22) $ ( - ) $ (.06)
============ ============ ============ ============
Basic weighted average common
shares outstanding 15,493,825 9,659,329 15,493,825 15,493,825
============ ============ ============ ============
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See Notes to Condensed Consolidated Financial Statements.
F-3
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NorStar Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2000 and 1999
(Unaudited)
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2000 1999
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Operating activities:
Net loss $ (137,125) $(2,143,847)
Adjustments to reconcile net loss to net cash
used in operating activities:
Services, compensation and other expenses paid
through the issuance of common stock 2,079,225
Depreciation 450
Changes in operating assets and liabilities - accounts
payable and accrued expenses 13,674 (959)
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Net cash used in operating activities (123,001) (65,581)
----------- -----------
Investing activities:
Software development costs capitalized (25,279) (28,823)
Purchase of equipment (4,194)
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Net cash used in investing activities (29,473) (28,823)
----------- -----------
Financing activities:
Proceeds from issuance of notes payable to stockholders 500
Repayments of notes payable to stockholders (10,000) (33,072)
Net proceeds from issuance of common stock 550,000
----------- -----------
Net cash provided by (used in) financing activities (9,500) 516,928
----------- -----------
Net increase (decrease) in cash (161,974) 422,524
Cash, beginning of period 179,176 --
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Cash, end of period $ 17,202 $ 422,524
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See Notes to Condensed Consolidated Financial Statements.
F-4
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NorStar Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Unaudited interim financial statements:
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, 2000, and their results of operations for the nine and
three months ended September 30, 2000 and 1999 and cash flows for the
nine months ended September 30, 2000 and 1999. Information included in
the condensed consolidated balance sheet as of December 31, 1999 has
been derived from, and certain terms used herein are defined in, the
audited financial statements of the Company as of December 31, 1999 and
for the years ended December 31, 1999 and 1998 (the "Audited Financial
Statements") included in the Company's Annual Report on Form 10-KSB
(the "10-KSB") for the year ended December 31, 1999 that was previously
filed with the United States Securities and Exchange Commission (the
"SEC"). Pursuant to the rules and regulations of the SEC, certain
information and disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted from these condensed 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 Financial Statements and the other
information also included in the 10-KSB.
The results of the Company's operations for the nine and three months
ended September 30, 2000 are not necessarily indicative of the results
of operations for the full year ending December 31, 2000.
As of September 30, 2000, the Company had not generated significant
revenues on a sustained basis, and its operations had generated losses
and cash flow deficiencies from its inception, although a substantial
portion of the losses was attributable to noncash charges for the fair
value of shares issued for services, compensation and other expenses.
As of September 30, 2000, the Company had a working capital deficiency
of approximately $110,000; however, the Company had a cash balance of
$17,202 and its only significant current liabilities were attributable
to noninterest bearing demand notes payable to its stockholders which
had an aggregate balance of $113,809. Management is attempting to
obtain additional financing for the Company to enable it to fully
develop its web services as initially planned through the issuance of
equity securities, loans from financial institutions and/or strategic
alliances. Management believes, but cannot assure, that the Company's
stockholders will not require the repayment of the demand notes and
that the Company will be able to continue to operate on at least a
limited basis during the year ending September 30, 2001 without any
additional financing. However, if the Company is not able to obtain
additional financing, its operations may have to be curtailed during
that period and, eventually, it may not be able to continue to operate.
F-5
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NorStar Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 net losses for the nine and
three months ended September 30, 2000 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 nine and
three months ended September 30, 1999.
Note 3 - Income taxes:
As of September 30, 2000, the Company had net operating loss
carryforwards of approximately $5,601,000 available to reduce future
Federal taxable income which, if not used, will expire at various dates
through 2020. 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 $2,240,000 from the utilization of those net operating
loss carryforwards by an equivalent valuation allowance as of September
30, 2000.
The Company had also offset the potential benefits from net operating
loss carryforwards by equivalent valuation allowances during 1999. As a
result of the increases in the valuation allowance of $54,000 and
$858,000 during the nine months ended September 30, 2000 and 1999,
respectively, and $14,000 and $38,000 during the three months ended
September 30, 2000 and 1999, respectively, no credits for income taxes
are included in the accompanying condensed consolidated statements of
operations.
F-6
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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 November 9, 2000, no stock options had been awarded under the
Plan.
Note 5 - Commitments:
Software development contracts:
During the nine months ended September 30, 2000, the Company entered
into contracts which obligate it to make payments aggregating
approximately $1,100,000 for services to be rendered subsequent to
September 30, 2000 in connection with the on-going development of
its web service.
Employment agreements:
On April 17, 2000, the Company entered into agreements with three
consultants that will expire on April 17, 2001. 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 that will advertise in
and/or link to the Company's online 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 Company did not record any compensation expense in connection with
the issuance of the options to the consultants because the estimated
aggregate value of the options determined by the Company using a fair
value based method of accounting for stock options, as required by
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," was not material.
* * *
F-7
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the condensed
financial statements and notes thereto appearing elsewhere in this report.
OVERVIEW
GENERAL
The Company was originally incorporated in March 1961 under the name
Florist Accounting Service, Inc. and changed its name in 1971 to Luxor Group
N.A., Inc and in 1992 to NorStar Group, Inc. In April 1992, NorStar acquired 680
acres (17 gold mining claims) in Nevada. NorStar is presently seeking a joint
venture partner to work its mining claims. During the period from April 1992
through March 31, 2000 the Company acquired and/or began to develop and dispose
of, several businesses and certain other investments. Since 1999, the Company is
creating an Internet online community of "One Stop Shopping" for products,
entertainment, education and business services from a network of providers.
NorStar's portal will provide the subscriber with access to several web
browsers, a directory of thousands of stores, an Internet shopping mall, three
dimensional virtual reality chat rooms, forums, game rooms, a virtual reality
dating service, business conference rooms using virtual reality chat room
technology, specialty advertising rooms with virtual reality activities, and
global e-mail service which can be accessed through the web anywhere in the
world.
PLAN OF OPERATION
The Company's business strategy is comprised of the following:
Membership. The Company intends to offer membership to the 100 million
consumers who currently have, or who will have some form of access to the
Internet. Consumers subscribing to the Company's network will be offered
discounts for products and services through the Company's provider network. The
Company's strategy is to address the trend toward rising out of pocket costs by
bringing together a provider network that offers quality products and services
at reduced prices. The Company believes that by having access to an extensive
multi-service provider network in a region its members will be able to receive
quality services and products at less than market prices. As a result, the
Company believes that it can establish a market niche where the discounts
obtained by the membership will far outweigh the cost of membership to join the
Company's network. The Company's discounts are designed not to be related in any
way to the dollar amount of purchases, volume of buying or products so members
will not be subject to any minimum requirements or other restrictions. The
member is simply being provided these programs based on the willingness of
service and product providers to offer their services and products to customers
of the Company at a discount.
Providers. The foundation of the Company's business will be the
development and maintenance of a
<PAGE> 11
network of providers comprised of manufacturers, wholesalers, retailers and
service providers. The Company intends that providers who participate in the
Company's network will receive some of the following benefits, including but not
limited to: elimination of paper order form preparation and supporting
documentation, reduction of bad debt, new customers with no additional
advertising expense, and more efficient utilization of personnel and equipment.
The national and regional marketing planned by the Company should give providers
an increased level of exposure. The Company will also contract with reliable
suppliers who offer computer network accessible products and services. It is the
Company's objective to establish a national network of providers within three
years through direct contracts, affiliations with national organizations and
other regional networks. The Company anticipates having an appropriate number of
providers under contract and available on the net by the first quarter of 2001.
The distribution method of these products and services to holders of membership
will be via the Internet. No assurances can be given that the Company will be
successful in establishing a national network. The failure to establish a
national network would have a material adverse effect on the Company's business,
financial condition and results of operations.
The Cybervisor(TM) IPD (Interactive Personal Display). The Company
intends to complete the development of the Cybervisor (TM), a head mounted
display unit with interactive virtual reality capabilities by the fourth quarter
of 2000. The Company plans to aggressively market the Cybervisor (TM) for home,
business and school use. The Cybervisor (TM) IPD will allows the consumer to
interact in a fully immersive synthetic 3-dimensional environment. The Company
plans to introduce three IPD models: The Cybervisor (TM), The Super Cybervisor
(TM), and the Cybervisor Jr.(TM). The Cybervisor (TM) is the Company's standard
model complete with high fidelity audio, built-in microphone and 360 degree
tracking. The Super Cybervisor (TM) has all of the same features as the standard
model and includes upgraded optics, sound and controls. The Cybervisor Jr.(TM)
Is a monocular IPD built in a head set style with high fidelity audio,
microphone and 360 degree tracking. The physical tooling developed for the
VeeAreCity Head Mounted Display ("HMD") appearance and certain patents will be
owned by the Company.
VeeAreCity. Com. The Company has completed development of a new Web
based community called "VeeAreCity.Com". VeeAreCity.Com, Inc., a Delaware
corporation and wholly-owned subsidiary of the Company ("VeeAreCity") owns and
will operate the Web site.
Cybernizer. The Company also plans to begin construction of its
"Cybernizer" a web pager. In addition, the Cybernizer will be a Internet
navigation tool that will include such features as voice chat and instant access
to all major search engines.
The source for funding the research and development of Cybervisor (TM)
IPD, VeeAreCity.Com and Cybernizer will come from additional equity and/or debt
financing. No assurance can be given that the Company will raise the necessary
capital to complete this project, or if completed that it will be accepted in
the marketplace.
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RESULTS OF OPERATIONS FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2000
COMPARED TO THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1999
The Company had no revenues for the nine and three months ended
September 30, 2000 or the nine and three months ended September 30, 1999. The
Company does not expect any revenues until the beginning of its first quarter of
2001 when it expects its game rooms and virtual reality chat rooms to be
completed. The Company expects revenues to primarily consist of advertising
sales, pay-per-view usage fees and annual membership fees for joining the
Company's network. The cost for an annual family member ship is $120. Selling,
general and administrative expenses decreased from $2,143,847 to $137,125 and
from $950,992 to $36,826 for the nine and three months ended September 30, 1999
as compared to the nine and three month months ended September 30, 2000,
respectively. This decrease was attributable to $2,079,225 and $902,057 of
non-cash charges resulting from the issuance of shares of common stock for
services during the nine and three months ended September 30, 1999, respectively
as oppose to none for the nine and three months ended September 30, 2000. As a
result, the Company's net loss for the nine and three months ended September 30,
2000, decreased in line with the selling general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had cash of $17,202 as compared to
$179,176 at December 31, 1999. This decrease in cash is a result of selling,
general and administrative expenses as well as software development costs.
Recently, the Company's only source of cash has been proceeds received from the
issuance of its shares of common stock. In July 1999, the Company issued
4,400,000 shares of common stock for $550,000 in cash.
On April 17, 2000, the Company entered into agreements with three
consultants that will expire on April 17, 2001. 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 that will advertise in and/or link to the Company's
online community. The three consultants will receive options to purchase a total
of 1,300,000 shares of the Company's common stock, exercisable at $.40 per share
through the end of the terms of the consulting agreements, as consideration for
such services.
During the nine months ended September 30,2000, the Company entered
into contracts obligated it to expend approximately $1,100,000 for services
rendered in connection with the on-going development of its web services. In
addition, the Company's current sources of liquidity and cash are insufficient
to satisfy its cash need through the next twelve months. The Company will
require additional capital to fund its operations and pursue its business
strategies. The Company expects to raise or obtain additional capital through
the sale of securities and through the exercise of outstanding options. There
can be no assurance that additional financing will be available. If adequate
funds are not available, there will be a material adverse effect on the
Company's business and financial conditions.
The Company does not believe that its business is subject to seasonal
trends or inflation. On an ongoing basis the Company will attempt to minimize
any effect of
<PAGE> 13
inflation on its 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. The Company'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 the
Company at a discount, the Company ability to develop and maintain distribution
channels to sell memberships to consumers. The failure of providers or consumers
to participate in the Company's programs or substantial increases in the
adequacy or availability of other programs could have a material and adverse
impact on the Company's business, operating results and financial condition. In
addition, the Company does not have long term contracts and needs to establish
relationships with new vendors. As a result, providers of discounted services or
products to the Company's members may unilaterally reduce the scope of, or
terminate their relationships with the Company. The termination of the Company'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 the
Company's failure to develop significant new provider relationships would
materially and adversely affect its business, operating results and financial
condition.
The Company 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 the Company's existing service practices and
methodologies obsolete; (ii) the Company's success will depend, in large part,
on its ability to improve its existing services, develop new services that
address the increasingly sophisticated and varied needs of the Company's
clients, and respond to technological advances, emerging industry standards and
practices, and competitive service offerings; and (iii) the Company may not be
successful in responding quickly, cost-effectively and sufficiently to these
developments. If the Company 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.
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The statements contained in the section captioned Management's Discussion and
Analysis of Financial Condition and Results of Operations which are not
historical are "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as
<PAGE> 14
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
These forward-looking statements represent the Company's present expectations or
beliefs concerning future events. The Company cautions that such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among other things, the uncertainty as to the Company's future profitability;
the uncertainty as to the demand for Internet virtual communities; increasing
competition; the ability to hire, train and retain sufficient qualified
personnel; the ability to obtain financing on acceptable terms to finance the
Company's growth.
<PAGE> 15
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: Exhibit 27.1 Financial Data Schedule.
(b) There were no Current Reports on Form 8-K filed
by the registrant during the quarter ended September
30, 2000.
<PAGE> 16
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 14, 2000
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.
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Signature Position Date
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By: /s/Harry DiFrancesco President and Chairman Date: November 14, 2000
------------------------ of the Board
Harry DiFrancesco
By: /s/Andrew S. Peck Vice President of Finance Date: November 14, 2000
------------------------ Secretary and Director
Andrew S. Peck
By: /s/Maynard Neil Abogov Vice President of Sales Date: November 14, 2000
------------------------ and Management and Director
Maynard Neil Abogov
By:/s/ Jay Sanet Vice President of Date: November 14, 2000
------------------------ Corporate Development and
Jay Sanet Director
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