<PAGE>
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, 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)
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 May 11, 2000, there were issued and outstanding 15,493,825 shares of
Common Stock.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NorStar Group, Inc. and Subsidiaries
Index to Financial Statements
PAGE
Item 1. Financial Statements
Report of Independent Public Accountants F-2
Condensed Consolidated Balance Sheets at March 31, 2000
(Unaudited) and December 31, 1999 F-3
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2000 and 1999 (Unaudited) F-4
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999 (Unaudited) F-5
Notes to Condensed Consolidated Financial Statements F-6/8
F-1
<PAGE>
Report of Independent Public Accountants
To the Board of Directors and Stockholders
NorStar Group, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
NorStar Group, Inc. and Subsidiaries as of March 31, 2000, and the related
condensed consolidated statements of operations and cash flows for the three
months ended March 31, 2000. These financial statements are the responsibility
of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review of the condensed consolidated financial statements referred
to above, we are not aware of any material modifications that should be made to
the accompanying condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of the Company as of December 31,
1999, and the related consolidated statements of operations and cash flows for
the year then ended which are not presented herein, and in our report dated
March 13, 2000, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 1999, is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
The accompanying condensed consolidated statements of operations and cash flows
for the three months ended March 31, 1999 were not audited or reviewed by us
and, accordingly, we do not express an opinion or any other form of assurance on
them.
J.H. Cohn LLP
Roseland, New Jersey
May 5, 2000
F-2
<PAGE>
NorStar Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
March 31, 2000 (Unaudited) and December 31, 1999
<TABLE>
<CAPTION>
March December
Assets 31, 2000 31, 1999
------ -------- --------
(Note 1)
<S> <C> <C>
Current assets - cash $ 127,409 $ 179,176
Capitalized software development costs 71,278 44,936
Mineral rights, at estimated net realizable value - -
----------- -----------
Totals $ 198,687 $ 224,112
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities - noninterest bearing demand notes payable
to stockholders $ 123,309 $ 123,309
----------- -----------
Commitments
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; 15,493,825 shares issued and
outstanding 154,938 154,938
Additional paid-in capital 5,410,090 5,410,090
Accumulated deficit (5,489,650) (5,464,225)
----------- -----------
Total stockholders' equity 75,378 100,803
----------- -----------
Totals $ 198,687 $ 224,112
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-3
<PAGE>
NorStar Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
--------- --------
<S> <C> <C>
Revenues $ - $ -
---------- ----------
Operating expenses:
Selling 3,369 1,029
General and administrative 22,056 923,910
---------- ----------
Totals 25,425 924,939
---------- ----------
Net loss $ (25,425) $(924,939)
========== ==========
Basic net loss per common share $ ( - ) $ (.18)
========== ==========
Basic weighted average common shares outstanding 15,493,825 5,023,741
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-4
<PAGE>
NorStar Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
--------- --------
<S> <C> <C>
Operating activities:
Net loss $ (25,425) $(924,939)
Adjustments to reconcile net loss to net cash
used in operating activities:
Services, compensation and other expenses
paid through the issuance of common stock 919,168
Changes in operating assets and liabilities -
accrued expenses (959)
---------- ----------
Net cash used in operating activities (25,425) (6,730)
---------- ----------
Investing activities - software development costs capitalized (26,342)
----------
Financing activities:
Net proceeds from issuance of common stock 2,500
Proceeds from issuance of notes payable to
stockholders 4,550
----------
Net cash provided by financing activities 7,050
----------
Net increase (decrease) in cash (51,767) 320
Cash, beginning of period 179,176 -
---------- ----------
Cash, end of period $127,409 $ 320
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-5
<PAGE>
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 March 31, 2000, and their results of operations and
cash flows for the three months ended March 31, 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 three months ended
March 31, 2000 are not necessarily indicative of the results of
operations for the full year ending December 31, 2000.
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 and, if appropriate, diluted
earnings (loss) per share in accordance with the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128"). 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, 2000
and 1999.
F-6
<PAGE>
NorStar Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 3 - Income taxes:
As of March 31, 2000, the Company had net operating loss carryforwards
of approximately $5,490,000 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 $2,196,000 from the utilization of those net operating
loss carryforwards by an equivalent valuation allowance as of March
31, 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 $10,000 and
$370,000 during the three months ended March 31, 2000 and 1999,
respectively, no credits for income taxes are included in the
accompanying condensed consolidated statements of operations.
Note 4 - Software development costs:
During the three months ended March 31, 2000, the Company entered into
contracts which obligate it to make payments aggregating approximately
$1,100,000 for services to be rendered in connection with the on-going
development of its web service.
Note 5 - 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 5, 2000, no stock options had been awarded under the Plan.
F-7
<PAGE>
NorStar Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 6 - Subsequent events:
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.
* * *
F-8
<PAGE>
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 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,
<PAGE>
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. The estimated cost for the development of this project is
between $900,000 and $1.1 million.
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.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000
COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1999
The Company had no revenues for the three months ended March 31, 2000
or the three months ended March 31, 1999. The Company does not expect any
revenues until the beginning of its fourth quarter 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 the Company's network. The cost for an
annual family member ship is $120. Selling, general and administrative expenses
decreased 3,635% from $924,939 for the three months ended March 31, 1999 to
$25,425 for the three months ended March 31, 2000. This decrease was
attributable to $919,168 of non-cash charges resulting from the issuance of
shares of common stock for services in 1999. As a result, the Company's net
loss for the three months ended March 31, 2000, decreased in line with the
selling general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company had cash of $127,409 as compared to
cash of $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.
<PAGE>
The Company does not have pending any material commitments regarding
capital expenditures. However, 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 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.
<PAGE>
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 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.
Item 4. Submission of Matters to Vote of Security Holders.
The Company's Proxy Statement on Schedule 14A filed with the U.S.
Securities and Exchange Commission on April 12, 2000 is hereby incorporated by
reference.
<PAGE>
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: May 18, 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.
Signature Position Date
By: /s/ Harry DiFrancesco President and Chairman Date: May 18, 2000
------------------------ of the Board
Harry DiFrancesco
By: /s/ Andrew S. Peck Vice President of Finance Date: May 18, 2000
------------------------ Secretary and Director
Andrew S. Peck
By: /s/ Maynard Neil Abogov Vice President of Sales Date: May 18, 2000
------------------------ and Management and Director
Maynard Neil Abogov
By:/s/ Jerome R. Saver Vice President of Sales Date: May 18, 2000
------------------------ and Director
Jerome R. Saver
By:/s/Jay Sanet Vice President of Date: May 18, 2000
------------------------ Corporate Development and Director
Jay Sanet
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 127409
<SECURITIES> 0
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0
0
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<OTHER-EXPENSES> 25425
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