FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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 SEPTEMBER 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 Management's 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. Defaults under 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
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheet at September 30, 2003
(Unaudited) F-2
Condensed Consolidated Statements of Operations
Nine and Three Months Ended September 30, 2003 and 2002 (Unaudited) F-3
Condensed Statement of Changes in Stockholders' Deficiency
Nine Months Ended September 30, 2003 (Unaudited) F-4
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2003 and 2002 (Unaudited) F-5
Notes to Condensed Consolidated Financial Statements (Unaudited) F-6/12
F-1
NorStar Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
September 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 $ 27,190
---------
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 6,514,782
Accumulated deficit (6,889,910)
----------
Total stockholders' deficiency (27,190)
----------
Total $ -
==========
See Notes to Condensed Consolidated Financial Statements.
F-2
NorStar Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Nine and Three Months Ended September 30, 2003 and 2002
(Unaudited)
Nine Months Three Months
Ended September 30, Ended September 30,
------------------------- -------------------------
2003 2002 2003 2002
------------ ------------ ----------- ------------
Revenues $ - $ - $ - $ -
------------ ------------ ----------- ------------
Operating expenses:
Selling 58,128 17,622 17,622
General and administrative 107,168 45,700 2,500 16,896
Research and development 4,641
------------ ------------ ----------- ------------
Totals 165,296 67,963 2,500 34,518
------------ ------------ ----------- ------------
Operating loss (165,296) (67,963) (2,500) (34,518)
Gain on settlement of accounts payable 20,741
------------ ------------ ----------- ------------
Net loss $(144,555) $(67,963) $ (2,500) $(34,518)
============ ============ =========== ============
Basic net loss per common share $( - ) $( - ) $( - ) $( - )
============ ============ =========== ============
Basic weighted average common
shares outstanding 30,277,341 21,964,704 34,793,825 24,366,651
============ ============ =========== ============
See Notes to Condensed Consolidated Financial Statements.
F-3
NorStar Group, Inc. and Subsidiaries
Condensed Consolidated Statement of Changes in Stockholders' Deficiency
Nine Months Ended September 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 241,692 241,692
Net loss (144,555) (144,555)
------------ ------------ --------- ------------- ----------- -----------
Balance, September 30, 2003 34,793,825 $ 347,938 $6,514,782 $ (6,889,910) $ - $ (27,190)
============ ============ ========= ============= =========== ===========
See Notes to Condensed Consolidated Financial Statements.
F-4
NorStar Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2003 and 2002
(Unaudited)
2003 2002
------------ ---------
Operating activities:
Net loss $ (144,555) $ (67,963)
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 17,622
Depreciation 699 1,050
Gain on settlement of accounts payable (20,741)
Changes in operating liabilities - increase (decease) in
accounts payable and accrued expenses 2,999 (10,485)
------------ ---------
Net cash used in operating activities (13,470) (59,776)
Financing activities - proceeds from issuance of notes
payable to stockholders 13,248 61,500
------------ ---------
Net increase (decrease) in cash (222) 1,724
Cash, beginning of period 222 2,486
------------ ---------
Cash, end of period $ - $ 4,210
============ =========
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 September 30, 2003, and the Company's results of
operations for the nine and three months ended September 30, 2003 and
2002, changes in stockholders' deficiency for the nine months ended
September 30, 2003 and cash flows for the nine months ended September
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 nine and three months ended
September 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.
F-6
As shown in the accompanying condensed consolidated financial
statements, the Company incurred net losses of approximately $145,000
and $68,000 for the nine months ended September 30, 2003 and 2002,
respectively, although a substantial portion of the loss in 2003 was
attributable to the amortization of noncash charges for the fair value
of shares and stock options issued for services, compensation and
other expenses. As of September 30, 2003, the Company had no cash, a
working capital deficiency of $27,000 and an accumulated deficit of
$6,890,000. Management believes that the Company will continue to
incur net losses through at least September 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-7
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 nine and
three months ended September 30, 2003 and 2002.
Note 3 - Income taxes:
As of September 30, 2003, the Company had net operating loss
carryforwards of approximately $6,890,000 available to reduce
future Federal taxable income which, if not used, will expire at
various dates
F-8
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 $2,756,000 from the
utilization of those net operating loss carryforwards by an
equivalent valuation allowance as of September 30, 2003.
F-9
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 $57,000 and $27,000 during the nine months ended
September 30, 2003 and 2002, respectively, and $1,000 and $14,000
during the three months ended September 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 nine months ended September 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 nine months ended September 30, 2003, the Company's
principal stockholders (i) made additional loans to the Company
totaling $13,248, which increased the balance of the Company's
noninterest bearing demand notes payable to stockholders to
$241,692 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-10
Note 7 - Plan of reorganization:
On September 18, 2003, the Company and Gaming & Entertainment
Group, Inc. ("G&EG"), a Nevada corporation in the internet gaming
industry, entered into an agreement and plan of reorganization (the
"Plan of Reorganization"). Under the Plan of Reorganization, the
Company, subject to the approval of its stockholders, will amend
its articles of incorporation to (i) effect a reverse split of its
outstanding common stock as a result of which it will have not more
than 1,400,000 shares of common stock outstanding immediately prior
to the closing of the agreement and (ii) change its name to G&EG
effective after the closing of the agreement.
F-11
NorStar Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 7 - Plan of reorganization (concluded):
The Plan of Reorganization provides for the issuance of approximately
12,600,000 shares of the Company's common stock to G&EG in exchange
for all of G&EG's outstanding shares of common stock in a reverse
acquisition. Upon consummation of the exchange (i) the stockholders
of the Company prior to the exchange will own approximately 10% of
the outstanding shares of common stock of the combined companies and,
accordingly, the Company will be the legal acquirer and (ii) the
stockholders of G&EG prior to the exchange will own approximately 90%
of the outstanding shares of common stock of the combined companies
and, accordingly, G&EG will be the accounting acquirer.
* * *
F-12
* * *
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 principles 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:
Nine and Three months ended September 30, 2003 as compared to Nine and Three
months ended September 30, 2002.
We did not have any revenues during either period ending September 30, 2003 or
2002. Management estimates that we will not begin to generate revenues from
sales of memberships to subscribers for the near future, or if at all.
During the nine and three months ended September 30, 2003, our operating
expenses were approximately $165,000 and $3,000, respectively, as compared to
approximately $68,000 and $35,000 for the nine and three months ended
September 30,2002. Our operating expenses for the nine months ended September
30, 2003, were comprised of approximately $148,000 of non-cash charges
relating to(i) $90,000 of compensation which arose from the issuance of shares
of our common stock at fair value for services and (ii) $58,000 of
amortization of unearned compensation( $18,000 for the nine and three months
ended September 30,2002) which resulted from the issuance of shares of common
stock to consultants for services rendered relating to the agreement described
below:
On July 25, 2002, we entered into agreements with certain consultants. Under
these agreements, the consultants were 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 expired 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 were amortized to expense over the period from July 25,
2002 to July 25, 2003.
In addition to the aforementioned non-cash item, our operating expenses also
were impacted by a reduction in corporate overhead and research and development
costs due to our cash position, during the nine and three months ended September
30, 2003.
LIQUIDITY AND CAPITAL RESOURCES:
Our condensed consolidated financial statements have been prepared assuming
that we will continue as a going concern. However, we have not generated any
significant revenues on a sustained basis from our current operations. As
shown in the condensed consolidated financial statements, we have incurred net
losses of approximately $145,000 and $68,000 for the nine months
ended September 30,2003 and 2002, respectively, although a substantial portion
of the loss in 2003 was attributable to the amortization of noncash charges
for the fair value of shares and stock options previously issued for services,
compensation and other expenses. As of September 30, 2003, we had no cash, a
working capital deficiency of approximately $27,000 and an accumulated deficit
of $6,890,000. Management believes that we will continue to incur net losses
through at least September 30, 2004 and that we will need
additional equity and/or debt financing of at least $2,000,000 to enable us to
fully develop our web services as initially planned and sustain our operations
until we 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 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
operation.
On September 18, 2003, we entered into an agreement and plan of reorganization
with Gaming & Entertainment Group, Inc. ("G&EG"), a Nevada Corporation in the
internet gaming industry (the "Plan of Reorganization"). Under the Plan of
Reorganization, we will, subject to the approval of our stockholders, amend our
articles of incorporation to (i) effect a reverse split of our outstanding
common stock as a result of which we will have not more than 1,400,000 shares of
common stock outstanding immediately prior to the closing of the agreement and
(ii) change our name to G&EG effective after the closing of the agreement.
The Plan of Reorganization provides for the issuance of approximately 12,600,000
shares of our common stock to G&EG in exchange for all of G&EG's outstanding
shares of common stock in a reverse acquisition. Upon consummation of the
exchange (i) our stockholders prior to the exchange will own approximately
10% of the outstanding shares of common stock of the contained companies and,
accordingly, we will be the legal acquirer and (ii) the stockholders of G&EG
prior to the exchange will own approximatly 90% of the outstanding shares of
common stock of the combined companies and, accordingly, G&EG will be the
accounting acquirer.
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, complete The aforementioned Plan of Reorganization, 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, we may have
to curtail or terminate some or all of our operations.
During the nine months ended September 30, 2003, we financed our operations with
$13,000 of advances from our principal stockholders , who then contributed
$241,692 of these advances and other advances previously made 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
submitted 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 September 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. Defaults Under 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
Number Description
------- -----------
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 September
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: November 18, 2003