SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
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NORSTAR GROUP, INC.
--------------------------------
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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4) Date Filed: _
NORSTAR GROUP, INC.
4101 Ravenswood Rd., Suite 128
Fort Lauderdale, FL 33312
(954) 772-0240
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
A special meeting of the stockholders of NorStar Group, Inc., a Utah
corporation, will be held at the Westin Hotel, 400 Corporate Drive, Fort
Lauderdale, Florida 33312, on January 12, 2004, at 10:00 a.m., local time, for
the following purposes:
1. To amend our Amended Articles of Incorporation, in the manner set forth
in Annex A to the attached proxy statement, to effect a reverse split of our
issued and outstanding common stock at an exchange ratio of 1:24.852732;
2. To approve the Agreement and Plan of Reorganization between NorStar
Group, Inc. and Gaming & Entertainment Group, Inc. and the share exchange
between the two companies contemplated therein;
3. To amend our Amended Articles of Incorporation, in the manner set forth
in Annex A to the attached proxy statement, to change the name of the
corporation to Gaming & Entertainment Group, Inc.;
4. To elect two new directors to serve on our Board of Directors. The
directors will serve for a period of two years and until his successor is
elected and qualified; and
5. To transact any other business as may properly come before the meeting
or at any adjournment thereof.
Our board of directors has fixed the close of business on October 31, 2003 as
the record date for determining stockholders entitled to notice of, and to vote
at, the meeting. Only stockholders of record at the close of business on October
31, 2003, 2003 will be entitled to notice of, and to vote at, the special
meeting of the stockholders. A list of stockholders eligible to vote at the
meeting will be made available for inspection at the meeting and for a period of
10 days prior to the meeting during regular business hours at our corporate
headquarters, 4101 Ravenswood Rd., Suite 128, Fort Lauderdale, Florida, 33312.
All of our stockholders are cordially invited to attend the meeting in
person. Whether or not you expect to attend the special meeting of stockholders,
your proxy vote is important. To ensure your representation at the meeting,
please sign and date the enclosed proxy card and return it promptly in the
enclosed envelope, which requires no additional postage if mailed in the United
States. Should you receive more than one proxy because your shares are
registered in different names or addresses, each proxy should be signed and
returned to ensure that all of your shares will be voted. You may revoke your
proxy at any time prior to the meeting. If you attend the meeting and vote by
ballot, your proxy will be revoked automatically and only your vote at the
meeting will be counted.
YOUR VOTE IS IMPORTANT
IF YOU ARE UNABLE TO BE PRESENT PERSONALLY, PLEASE MARK, SIGN AND DATE THE
ENCLOSED PROXY, WHICH IS BEING SOLICITED BY THE BOARD OF DIRECTORS, AND RETURN
IT PROMPTLY IN THE ENCLOSED ENVELOPE.
By order of the board of directors,
/s/ Jay Sanet
---------------------------
Jay Sanet
Chief Executive Officer
December 22, 2003
NORSTAR GROUP, INC.
4101 RAVENSWOOD RD., SUITE 128
FORT LAUDERDALE, FLORIDA 33312
(954) 772-0240
PROXY STATEMENT
SUMMARY TERM SHEET
This summary highlights selected information from this Proxy Statement and may
not contain all of the information that is important to you. To better
understand the terms and conditions of the reverse stock split, the Agreement
and Plan of Reorganization and share exchange between NorStar Group, Inc. and
Gaming & Entertainment Group, Inc., and the amendment to our Articles of
Incorporation, you should carefully read this entire document, its appendices
and the other documents to which we refer.
GENERAL
o Time and Place of Special Meeting: Westin Hotel, 400 Corporate
Drive, Fort Lauderdale, Florida 33312, on January 12, 2004, at
10:00 a.m., local time (See cover page, Notice of Special
Meeting of Shareholders).
o Record Date for the Meeting: You can vote at the special
meeting if you owned our common stock at the close of business
on October 31, 2003 (See page 4).
o Proposals to be Voted Upon: We are proposing a reverse stock
split of 1:24.852732, to approve the Agreement and Plan of
Reorganization with Gaming & Entertainment Group, Inc., to
amend our articles of incorporation to change our name to
Gaming & Entertainment Group, Inc., and to appoint Tibor N.
Vertes and Gregory L. Hrncir to our board of directors (See
cover page, Notice of Special Meeting of Shareholders and
pages 5-16).
o Required Vote: Approval of each of the proposals will require
the affirmative vote of the holders of a majority of all of
the votes entitled to be cast by the holders of our common
stock (See page 4).
o How to Vote Your Shares: Complete, date and sign the enclosed
proxy card and mail it in the enclosed return envelope as soon
as possible so that your shares may be represented at the
special meeting. In order to assure that your vote is
obtained, please send us your completed, dated and signed
proxy even if you currently plan to attend the special meeting
in person (See pages 4 and 18).
o How to Revoke Your Proxy: You may revoke your proxy at any
time prior to the special stockholder's meeting by providing
written notice of revocation to our Chief Executive Officer,
or by attending the meeting and voting in person (See page 4
and page 18).
o Voting of Shares Held in "Street Name": Your broker will not
be permitted, without your instructions, to vote your shares
held in street name on the proposals being solicited. You
should, therefore, be sure to provide your broker with
instructions on how to vote your shares (See page 4).
WHAT IS THE PRINCIPAL PURPOSE OF THE PROPOSED REVERSE STOCK SPLIT?
o To reduce the number of shares of our outstanding common stock
from 34,793,825 to 1,400,000 to allow us to enter into the
Agreement and Plan of Reorganization with Gaming &
Entertainment Group, Inc. (See page 5).
WHAT WILL I RECEIVE IF THE REVERSE STOCK SPLIT IS APPROVED?
If the reverse stock split is approved by the stockholders and implemented:
o You will receive one share of common stock for each 24.852732
shares you currently hold (See pages 5-6).
o You will be notified in writing by our transfer agent
following the closing requesting you to surrender your
certificates for new stock certificates reflecting the reduced
number of shares (See page 6).
o The procedure for this exchange is described in "Procedure For
Effecting the Reverse Stock Split" (See page 6).
2
o No new certificates representing fractional shares will be
issued. Instead, all fractional shares will be rounded up to
the nearest whole share (See page 7).
WHAT ARE THE PRINCIPAL TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION WITH
GAMING & ENTERTAINMENT GROUP, INC.?
o The stockholders of Gaming & Entertainment Group, Inc. will
exchange 100% of their common stock for 14,600,000 shares of
common stock of NorStar Group, Inc. We will have 16,000,000
shares of common stock outstanding following the closing, with
our current stockholders holding 1,400,000 shares of common
stock (See page 5 and 8).
o The holders of all outstanding options and warrants to
purchase shares of common stock of Gaming & Entertainment
Group, Inc. will exchange their options and warrants for an
identical number of options and warrants to purchase shares of
our common stock. The exercise terms of the options and
warrants will remain identical (See page 5 and 8).
o We will change our name to Gaming & Entertainment Group, Inc.
(See pages 5 and 8).
o Gaming & Entertainment Group, Inc will pay no cash
consideration to us (See page 8).
o We will assume the assets and liabilities of Gaming &
Entertainment Group, Inc. (See Appendices C and F).
o Tibor N. Vertes and Gregory L. Hrncir will be appointed to our
board of directors. The management team of Gaming &
Entertainment Group, Inc. will become our management team
following the closing (See page 15).
o Following the closing, our common stock will continue to be
traded on the Over The Counter Bulletin Board. A new stock
symbol will be procured immediately following the closing.
WHAT ARE THE ADVANTAGES AND DISADVANTAGES OF THE REVERSE STOCK SPLIT AND THE
APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION?
o Advantages. Assuming all other proposals submitted to a vote
of our stockholders are approved, the reverse stock split will
allow us to effect the contemplated transactions with Gaming &
Entertainment Group, Inc. Gaming and Entertainment Group is an
operational company with significant business opportunities in
the United States, Canadian and European gaming markets.
Alternatively, we do not have an ongoing business (See pages
11-14 and Appendices C and F).
o Disadvantages. The number of shares held by you will be
significantly reduced. Such reduction in the number of shares
held by you may not be offset by a corresponding increase in
share price (See page 5).
OTHER EFFECTS OF APPROVING THE PROPOSALS.
o If all the proposals are approved and the transactions
contemplated are consummated, we will remain incorporated in
Utah, but our headquarters will be relocated to Las Vegas,
Nevada and we will have additional offices in Sydney,
Australia, and London, United Kingdom. Our Ft. Lauderdale,
Florida office will be closed. The business, jobs, number of
employees, taxes payable, assets, liabilities and net worth
will be consolidated with Gaming & Entertainment Group, Inc.
We will also have one wholly owned subsidiary, Gaming &
Entertainment Technology Pty Ltd., an Australia corporation,
which will handle all of our research and development efforts
(See pages 11-14).
EFFECT OF NOT APPROVING EACH OF THE PROPOSALS.
o If any of the proposals fail to obtain the vote required for
approval, the transaction contemplated with Gaming &
Entertainment Group, Inc. will not be consummated (See page
4).
WHAT ARE THE TAX IMPLICATIONS OF THE REVERSE STOCK SPLIT?
o You will receive one share of common stock for each 24.852732
shares held by you. The reverse stock split will not, however,
be a taxable event for you. In addition, your aggregate tax
basis in your shareholdings will remain the same following the
reverse stock split and the transactions contemplated (See
page 7).
o Tax Effects of the Reorganization: We believe that the
reincorporation will be tax-free to our stockholders and you
will be entitled to the same aggregate tax basis. Given that
each person's tax situation is different, we suggest that you
consult with your personal tax advisor regarding the tax
effects of the transactions contemplated (See page 7).
3
HOW WILL THE ARTICLES OF INCORPORATION BE AMENDED?
o Our Amended Articles of Incorporation will be amended to
reflect the reverse stock split and the change of our name to
Gaming & Entertainment Group, Inc. (See page 19 - Annex A).
WHAT CONFLICTS OF INTEREST EXIST?
o No conflicts of interest exist in the transactions
contemplated. Additionally, while no special committee of
independent directors was appointed to consider the
transactions contemplated, the terms of the proposed reverse
stock split, the Agreement and Plan of Reorganization, the
amendment to the Articles of Incorporation, and the
appointment of Tibor N. Vertes and Gregory L. Hrncir to the
board of directors, our Board of Directors did consider
alternatives and the fairness of the proposed reverse stock
split and recommends the adoption of each of the proposals
being submitted to the stockholders.
DO I HAVE APPRAISAL OR DISSENTER'S RIGHTS?
o Under Utah law, you do not have the right to demand the
appraised value of your shares (dissenter's rights) if you
vote against the proposed transactions (See page 7).
CHANGES IN SHAREHOLDER RIGHTS
o Other than the reduction in shares of common stock
contemplated by the reverse stock split, following the closing
of the transaction with Gaming & Entertainment Group, Inc.,
your rights as a stockholders will remain the same. (See page
6).
RECOMMENDATION OF OUR BOARD OF DIRECTORS.
o Our Board of Directors recommends that you vote "For" each of
the proposals on the ballot.
WHO SHOULD YOU CALL WITH QUESTIONS?
o If you have any questions, you may contact Jay Sanet, Chief
Executive Officer, at (954)772-0240.
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GENERAL INFORMATION
SOLICITATION OF PROXIES. This proxy statement is being furnished to the
stockholders of NorStar Group, Inc., a Utah corporation, in connection with the
solicitation of proxies by our board of directors for use at our special meeting
of stockholders to be held at the Westin Hotel, 400 Corporate Drive, Fort
Lauderdale, Florida, 33312, at 10:00 a.m., local time, on January 12, 2004, or
at any adjournment thereof. A copy of the notice of meeting accompanies this
proxy statement. It is anticipated that the mailing of this proxy statement will
commence on December 31, 2003.
COST OF SOLICITATION. We will bear the costs of soliciting proxies. In addition
to the use of the mails, we may solicit proxies by telephone, telegram,
facsimile, cable or personal contact. Upon request, we will reimburse brokers,
dealers, banks and trustees, or their nominees, for reasonable expenses incurred
by them in forwarding proxy material to beneficial owners of shares of our
common stock.
OUTSTANDING VOTING SHARES. Only stockholders of record at the close of business
on October 31, 2003, the record date for the meeting, will be entitled to notice
of and to vote at the meeting. On the record date, we had 34,793,825 outstanding
shares of common stock, par value $.01 per share, which are our only securities
entitled to vote at the meeting, each share being entitled to one vote.
VOTE REQUIRED FOR APPROVAL. Shares of common stock will vote with respect to the
proposals set forth in this proxy statement. Under our Bylaws, Proposals 1, 2, 3
and 4 require the affirmative vote of a majority of the votes eligible to be
voted by holders of shares represented at the Special Meeting in person or by
proxy. With respect to Proposals 1, 2, 3 and 4, a stockholder in favor or
against the respective Proposals may cast votes, or a stockholder may elect to
abstain. Since votes withheld and abstentions will be counted for quorum
purposes and are deemed to be present for purposes of the respective proposals,
they will have the same effect as a vote against each matter.
Under the NASD Rules of Fair Practice, brokers who hold shares in street name
have the authority, in limited circumstances, to vote on certain items when they
have not received instructions from beneficial owners. A broker will only have
such authority if (i) the broker holds the shares as executor, administrator,
guardian, trustee or in a similar representative or fiduciary capacity with
authority to vote or (ii) the broker is acting under the rules of any national
securities exchange of which the broker is also a member. Broker abstentions or
non-votes will be counted for purposes of determining the presence or absence of
a quorum at the meeting. Abstentions are counted in tabulations of the votes
cast on proposals presented to stockholders, but broker non-votes are not
counted for purposes of determining whether a proposal has been approved.
VOTING YOUR PROXY. Proxies in the accompanying form, properly executed and
received by us prior to the Special Meeting and not revoked, will be voted as
directed. In the absence of direction from the stockholder, properly executed
proxies received prior to the Special Meeting will be voted FOR Proposals 1, 2,
3 and 4. You may revoke your proxy by giving written notice of revocation to our
Chief Executive Officer at any time before it is voted, by submitting a
later-dated proxy or by attending the Special Meeting and voting your shares in
person. Stockholders are urged to sign and date the enclosed proxy and return it
as promptly as possible in the envelope enclosed for that purpose.
5
PROPOSAL ONE:
AMENDMENT TO OUR AMENDED ARTICLES
OF INCORPORATION TO EFFECT A REVERSE SPLIT
OF OUR COMMON STOCK
You are being asked to vote upon an amendment to our Amended Articles of
Incorporation which would authorize our board of directors to effect a reverse
split of all outstanding shares of our common stock at an exchange ratio of
1:24.852732.
The form of amendment to our Amended Articles of Incorporation to effect the
proposed reverse stock split is attached to this proxy statement as Annex A. If
the reverse stock split is approved, the number of issued and outstanding shares
of common stock would be reduced in accordance with the exchange ratio for the
reverse stock split. The par value of the common stock would remain unchanged at
$.01 per share and the number of authorized shares of common stock would remain
unchanged. The reverse stock split will become effective upon the filing of the
amendment to our Amended Articles of Incorporation with the Utah Secretary of
State and upon commencement of trading of our stock under the new stock symbol
that will be assigned by the NASD.
REASONS FOR THE REVERSE STOCK SPLIT
By effecting a reverse split of our common stock, we will significantly reduce
the number of shares outstanding. As of October 31, 2003, there were 34,793,825
outstanding shares of common stock. If the reverse stock split is approved,
there will be 1,400,000 shares of common stock outstanding.
A vote on the reverse split is being sought in conjunction with the recent
execution of an Agreement and Plan of Reorganization (the "Agreement") with
Gaming & Entertainment Group, Inc., a Nevada corporation ("G&EG"). The Board of
Directors of NorStar Group, Inc. ("NorStar" or the "Company") and G&EG have
approved the Agreement. The Agreement is expressly subject to approval of the
reverse stock split by a majority of the NorStar common stockholders. The
Agreement provides that G&EG will exchange 100% of its issued and outstanding
capital stock for 14,600,000 shares of common stock of NorStar. Following the
close of the transaction with G&EG, there will be 16,000,000 shares of common
stock issued and outstanding. All issued and outstanding options and warrants to
purchase shares of common stock of G&EG will be exchanged for an identical
number of options and warrants to purchase shares of common stock of NorStar.
The exercise terms for such options and warrants will remain identical. G&EG
will pay no cash consideration to NorStar. Following the closing, NorStar will
continue to be publicly traded and quoted on the Over The Counter Bulletin
Board. A new stock symbol will be obtained following the close of the
transaction.
G&EG is a supplier of server-based gaming systems and networked interactive
electronic bingo games for the Indian gaming market in the United States as well
as the Canadian gaming market. G&EG designs and develops gaming systems,
software, game content and networks to offer a comprehensive gaming system. In
conjunction with a major UK-based strategic partner, G&EG also supplies its
server-based gaming system and game content library to the Amusement With Prize
(AWP) gaming market in the United Kingdom and throughout Europe. In addition,
G&EG develops and licenses its comprehensive government accredited online gaming
system to major U.S. casino operators for utilization outside of the United
States.
CERTAIN EFFECTS OF THE REVERSE STOCK SPLIT
The immediate effects of a reverse stock split would be to reduce the number of
shares of common stock outstanding and to increase the trading price of our
common stock. However, the effect of any reverse stock split upon the market
price of our common stock cannot be predicted, and the history of reverse stock
splits for companies in similar circumstances is widely varied. We cannot assure
you that the trading price of our common stock after the reverse stock split
will rise in exact proportion to the reduction in the number of shares of our
common stock outstanding as a result of the reverse stock split. Also, as stated
above, we cannot assure you that a reverse stock split will lead to a sustained
increase in the trading price of our common stock, or improve the marketability
of NorStar. The trading price of our common stock may change due to a variety of
other facts, including our operating results, other factors related to our
business and general market conditions.
The following table reflects the number of shares of common stock that would be
outstanding as a result of the proposed reverse stock split, and the approximate
percentage reduction in the number of outstanding shares, based on 34,793,825
shares of common stock outstanding as of the record date for the special meeting
of stockholders: _
Proposed Reverse Percentage Shares of Common Stock
Stock Split Ratio Reduction to be Outstanding
----------------- ---------- ----------------------
1:24.852732 95.98% 1,400,000
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The resulting decrease in the number of shares of our common stock outstanding
could potentially impact the liquidity of our common stock on the Over the
Counter Bulletin Board, especially in the case of larger block trades.
EFFECTS ON OWNERSHIP BY INDIVIDUAL STOCKHOLDERS
If the common stock is reverse split, the number of shares held by each
stockholder would be reduced by multiplying the number of shares held
immediately before the reverse stock split by the exchange ratio, and then
rounding up to the nearest whole share. We will issue one whole share to each
stockholder in lieu of any fractional interest in a share to which each
stockholder would otherwise be entitled as a result of the reverse stock split,
as described in further detail below. The reverse stock split will affect our
common stock uniformly and will not affect any stockholder's percentage
ownership interests in our company or proportionate voting power, except to the
extent that interests in fractional shares would be paid in whole shares.
EFFECT ON OPTIONS, WARRANTS AND OTHER SECURITIES
In addition, all outstanding options, warrants and other securities entitling
holders to purchase shares of our common stock, if any, will be adjusted as a
result of the reverse stock split, as required by the terms of these securities.
In particular, the conversion ratio for each instrument would be reduced, and
the exercise price, if applicable, would be increased in accordance with the
terms of each instrument and based on the exchange ratio of the reverse stock
split. Also, the number of shares reserved for issuance under our existing stock
option and employee stock purchase plans would be reduced proportionally based
on the exchange ratio of the reverse stock split. None of the rights currently
accruing to holders of the common stock, options, warrants or other securities
convertible into common stock would be affected by the reverse stock split.
OTHER EFFECTS ON OUTSTANDING SHARES
The rights and preferences of the outstanding shares of common stock would
remain the same after the reverse stock split. Each share of common stock issued
pursuant to the reverse stock split would be fully paid and nonassessable.
The reverse stock split will result in some stockholders owning "odd-lots" of
less than 100 shares of common stock. Brokerage commissions and other costs of
transactions in odd lots are generally higher than the costs of transactions in
"round-lots" of even multiples of 100 shares.
_
The common stock is currently registered under Section 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). As a result, we are
subject to the periodic reporting and other requirements of the Exchange Act.
The proposed reverse stock split would not affect the registration of the common
stock.
PROCEDURE FOR EFFECTING THE REVERSE STOCK SPLIT
The reverse stock split will be accomplished by filing the appropriate amendment
to our Amended Articles of Incorporation with the Utah Secretary of State. The
reverse stock split will become effective upon the filing of the amendment to
our Amended Articles of Incorporation with the Utah Secretary of State and upon
commencement of trading of our stock under a new stock symbol that will be
assigned by the NASD.
As of the effective date of the reverse stock split, each certificate
representing shares of our common stock before the reverse stock split would be
deemed, for all corporate purposes, to evidence ownership of the reduced number
of shares of common stock resulting from the reverse stock split, except that
holders of unexchanged shares would not be entitled to receive any dividends or
other distributions payable by us after the effective date until they surrender
their old stock certificates for exchange. All options, warrants, convertible
debt instruments and other securities would also be automatically adjusted on
the effective date.
Our transfer agent will act as the exchange agent for purposes of implementing
the exchange of stock certificates. As soon as practicable after the effective
date, stockholders and holders of securities convertible into our common stock
will be notified of the effectiveness of the reverse split. Stockholders of
record will receive a letter of transmittal requesting them to surrender their
stock certificates for new stock certificates reflecting the adjusted number of
shares as a result of the reverse stock split. Persons who hold their shares in
brokerage accounts or "street name" will not be required to take any further
actions to effect the exchange of their certificates. No new certificates will
be issued to a stockholder until the stockholder has surrendered the
stockholder's outstanding certificate(s) together with the properly completed
and executed letter of transmittal to the exchange agent. Until surrender, each
certificate representing shares before the reverse stock split will continue to
be valid and will represent the adjusted number of shares of the reverse stock
split, rounded up to the nearest whole share. Stockholders should not destroy
any stock certificate and should not submit any certificates until they receive
a letter of transmittal from our transfer agent.
7
FRACTIONAL SHARES
We will not issue fractional shares in connection with the reverse stock split.
Instead, any fractional share resulting from the reverse stock split will be
rounded up to the nearest whole share. Stockholders who otherwise would be
entitled to receive fractional shares because they hold a number of shares not
evenly divisible by the exchange ratio will instead receive a whole share upon
surrender to the exchange agent of the certificates and a properly completed and
executed letter of transmittal.
NO DISSENTERS' RIGHTS
No dissenters' rights are available under the Utah Revised Business Corporation
Act or under our Amended Articles of Incorporation or bylaws to any stockholder
who dissents on the proposals described herein.
ACCOUNTING CONSEQUENCES
The par value of our common stock would remain unchanged at $.01 per share after
the reverse stock split. Also, our capital account would remain unchanged, and
the Company does not anticipate that any other accounting consequences will
arise as a result of the reverse stock split.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of material federal income tax consequences of the
reverse stock split and does not purport to be complete. It does not contemplate
any state, local, foreign or minimum income or other tax consequences. Also, it
does not address the tax consequences to holders that are subject to special tax
rules, including banks, insurance companies, regulated investment companies,
personal holding companies, foreign entities, nonresident alien individuals,
broker-dealers and tax-exempt entities. The discussion is based on the
provisions of the United States federal income tax law as of the date hereof,
which is subject to change retroactively as well as prospectively. This summary
also assumes that the shares are held as a "capital asset," as defined in the
Internal Revenue Code of 1986, as amended (generally, property held for
investment). The tax treatment of a stockholder may vary depending upon the
particular facts and circumstances of the stockholder. Each stockholder is urged
to consult with the stockholder's own tax advisor with respect to the
consequences of the reverse stock split.
No gain or loss should be recognized by a stockholder upon the stockholder's
exchange of shares pursuant to the reverse stock split. The aggregate tax basis
of the shares received in the reverse stock split, including any fraction of a
share deemed to have been received, would be the same as the stockholder's
aggregate tax basis in the shares exchanged. The stockholder's holding period
for the shares would include the period during which the stockholder held the
pre-split shares surrendered in the reverse stock split.
Our beliefs regarding the tax consequence of the reverse stock split are not
binding upon the Internal Revenue Service or the courts, and there can be no
assurance that the Internal Revenue Service or the courts will accept the
positions expressed above. The state and local tax consequences of the reverse
stock split may, as to each stockholder, depend upon the state in which he or
she resides.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the outstanding shares of
our common stock is required to approve the proposed amendment to our Amended
Articles of Incorporation to effect a reverse stock split.
_
OUR BOARD RECOMMENDS THAT OUR STOCKHOLDERS VOTE "FOR" THE APPROVAL OF THE
PROPOSED AMENDMENT TO OUR AMENDED ARTICLES OF INCORPORATION TO EFFECT THE
PROPOSED REVERSE STOCK SPLIT.
PROPOSAL TWO:
APPROVAL OF THE AGREEMENT AND PLAN
OF REORGANIZATION AND SHARE EXCHANGE
WITH GAMING & ENTERTAINMENT GROUP, INC.
The following information is being provided to our stockholders for
their consideration of Proposal Two:
Item 14. Mergers, consolidations, acquisitions and similar matters.
(a)(2) NorStar Group, Inc. ("NorStar") has entered into an Agreement
and Plan of Reorganization (the "Agreement") with Gaming & Entertainment Group,
Inc. The Agreement is attached as Appendix A. As a result of this Agreement, and
upon the affirmative vote of a majority of the common stockholders of NorStar,
NorStar will acquire G&EG.
8
(b)(1) Summary of the terms of the Agreement.
NorStar will effect a reverse split of its common stock such that its 34,793,825
shares of issued and outstanding common stock will be reduced to 1,400,000
shares, a reverse split of 1:24.852732.
G&EG will exchange 100% of its issued and outstanding common stock for
14,600,000 shares of common stock of NorStar.
G&EG will exchange 100% of its issued and outstanding warrants and options to
purchase shares of common stock for an identical number of warrants and options
to purchase shares of common stock of NorStar, with all exercise terms remaining
identical.
No cash consideration will be paid by G&EG to NorStar.
(b)(2) Contact Information.
NorStar Group, Inc., Jay Sanet, Chief Executive Officer, 4101 Ravenswood Rd.,
Suite 128, Fort Lauderdale, Florida 33312, (954) 772-0240.
Gaming & Entertainment Group, Inc., Gregory L. Hrncir, President, 6094 S.
Sandhill Rd., Suite 400, Las Vegas, Nevada 89120, (818) 986-1721.
(b)(3) Business Conducted.
For information regarding NorStar's business, please see Item 1 of NorStar's
annual report on Form 10-KSB, for the fiscal year ended December 31, 2002, as
filed with the Securities and Exchange Commission on April 15, 2003 and attached
as Appendix B.
G&EG is a supplier of server-based gaming systems and networked interactive
electronic bingo games to the Indian gaming market in the United States as well
as the Canadian gaming market. G&EG designs and develops its own gaming systems,
software, game content and networks to offer a comprehensive gaming system. In
conjunction with a United Kingdom-based strategic partner, G&EG supplies its
server-based gaming system and game content library to the amusement with prize
and other gaming markets in the United Kingdom and Europe. In addition, G&EG
develops and licenses its comprehensive government accredited online gaming
system to major United States and international casino operators for utilization
outside of the United States.
(b)(4) Terms of the transaction.
(i) A vote on the reverse split is being sought in conjunction with the
Agreement such that, following the reverse stock split, the 34,793,825 shares of
issued and outstanding common stock will be reduced to 1,400,000 shares of
common stock. The Board of Directors of NorStar and G&EG have approved the
Agreement, but the Agreement is expressly subject to approval of the reverse
stock split by the NorStar stockholders. The Agreement provides that G&EG will
exchange 100% of its issued and outstanding capital stock for 14,600,000 shares
of common stock of NorStar. The shares issuable to G&EG will be issued pursuant
to an exemption from the registration requirements of the Securities Act of
1933, as amended. All such shares issued to G&EG shall have the same voting
rights as existing stockholders in that each stockholder is entitled to one vote
for each share of stock held. Shares of common stock have no dividend and no
pre-emption rights. Following the close of the transaction with G&EG, there will
be 16,000,000 shares of common stock issued and outstanding (exclusive of
options to purchase 2,262,989 shares of common stock, all at an exercise price
of $0.75 per share, and outstanding warrants to purchase 1,476,039 shares of
common stock, all at an exercise price of $1.50 per share). All issued and
outstanding options and warrants to purchase shares of common stock of G&EG will
be exchanged for an identical number of options and warrants to purchase shares
of common stock of NorStar. The exercise terms for such options and warrants
shall remain identical. G&EG will pay no cash consideration to NorStar. In
addition, Tibor N. Vertes and Gregory L. Hrncir will become members of the Board
of Directors, and NorStar will change its name to Gaming & Entertainment Group,
Inc.
(ii) No cash or other form of consideration will be paid to the
stockholders of NorStar in connection with the Agreement.
(iii) NorStar believes that the transaction with G&EG fits well
with its objective of providing its stockholders with a long-term value
opportunity.
(iv) The board of directors of NorStar has approved this
transaction pending stockholder approval of the reverse stock split. Shareholder
approval of the transaction is not required, but NorStar has elected to solicit
the share exchange to a vote of its stockholders.
9
(v) The reverse stock split and the issuance of 14,600,000
shares to G&EG will result in the dilution of the percentage equity interest of
our existing shareholders and will result in a change in control of NorStar and
the addition of two new members to the board of directors.
(vi) This transaction will be accounted for as a capitalization.
(vii)For Federal income tax purposes, the Agreement is intended
to constitute as a "plan of reorganization" under Section 368 of the Internal
Revenue Code of 1986, as amended.
(b)(5) Regulatory approvals.
The transaction between NorStar and G&EG is subject to applicable laws and
regulations at both the Federal and state level. Regulatory approval from a
specific Federal or state authority is not required in connection with the
transaction.
(b)(6) Reports, opinions, appraisals.
Not applicable.
(b)(7) Past contacts, transactions or negotiations.
In May 2003, Gregory L. Hrncir, President of Gaming & Entertainment
Group, Inc. ("G&EG") initiated contact with Jay Sanet, President and Chief
Executive Officer of NorStar, to inquire as to the possibility of effecting a
transaction with NorStar. In early 2003, the Board of Directors of G&EG made a
strategic decision to become a publicly traded company to better access the
capital markets. Additionally, G&EG was intrigued by NorStar's intellectual
property assets, namely as potentially relates to gaming.
Several discussions were had telephonically between Messrs. Hrncir and Sanet
during the period late-May 2003 to late-July 2003 as to (i) the future prospects
of each company, (ii) the intellectual property assets of each company, (iii)
the best way to structure a transaction to allow for, if at all possible,
maintenance of the Company's net operating losses, (iv) minimization of the
dilutive effect of a transaction to the stockholders of the Company, (v) the
capitalization structure of the respective companies, (vi) the 2003 private
placement undertaken by G&EG, and (vii) whether stockholder approval had been
previously obtained by NorStar for a transaction of the type contemplated
between the parties, namely from a proxy statement filed by the Company with the
Securities and Exchange Commission in 2001.
On July 30, 2003, G&EG submitted a due diligence request asking for certain
documents and other information regarding NorStar, and G&EG provided certain
information and documentation to NorStar as requested. Following a thorough
review of the due diligence documentation by the parties, a draft letter of
intent was circulated by G&EG on August 27, 2003 for consideration by NorStar.
Following a series of comments and discussions, and the approval of the
respective Board of Directors, the parties entered into a letter of intent on
September 10, 2003. On September 12, 2003, the Company issued a press release
regarding the execution of the letter of intent and that the Parties were
concluding their respective due diligence investigations and anticipated
entering into a definitive agreement shortly thereafter.
On September 17, 2003, the Board of Directors of NorStar approved the definitive
agreement, otherwise known as the Agreement and Plan of Reorganization (the
"Agreement"). On September 18, 2003, the Board of Directors and a majority of
the stockholders of G&EG approved the Agreement. On September 19, 2003, the
Company issued a press release announcing the execution of the Agreement by the
parties. On September 26, 2003, the Company issued a further press release
stating that a proxy solicitation was to be made to the stockholders of the
Company to approve the acquisition of G&EG. On October 8, 2003, the Company
filed a preliminary proxy statement with the Securities and Exchange Commission
on Schedule 14A regarding the proposed transaction with G&EG.
The Agreement provides for the following: (i) a vote on the reverse split of the
outstanding shares of common stock of the Company such that, following the
reverse stock split, the 34,793,825 shares of issued and outstanding common
stock will be reduced to 1,400,000 shares of common stock, (ii) approval of the
reverse stock split by the Company's stockholders, (iii) the exchange by G&EG of
100% of its issued and outstanding capital stock for 14,600,000 shares of common
stock of the Company with the shares of common stock issuable to G&EG to be
issued pursuant to various exemptions from the registration requirements of the
Securities Act of 1933, as amended, and all such shares issuable to G&EG to have
the same voting rights as existing stockholders of the Company such that each
stockholder is entitled to one vote for each share of stock held, (iv) shares of
common stock of the Company issued to G&EG shall have no dividend or preemption
rights, (v) following the close of the transaction with G&EG, there will be
16,000,000 shares of common stock issued and outstanding, options to purchase
2,262,989 shares of common stock, all at an exercise price of $0.75 per share,
and warrants to purchase 1,476,039 shares of common stock, all at an exercise
price of $1.50 per share, (vi) G&EG will pay no cash consideration to the
Company, (vii) Tibor N. Vertes and Gregory L. Hrncir will become members of the
Board of Directors, and (viii) the Company will change its name to Gaming &
Entertainment Group, Inc.
10
In addition, as part of the Agreement, following the closing of the transaction
between the Parties, the Company will retain the services of Tibor Vertes as its
Chairman and Chief Executive Officer, and Gregory L. Hrncir as its President,
Secretary and a member of the Company's Board of Directors. Messrs. Vertes and
Hrncir will have employment contracts with the Company, each with a term of four
years concluding on August 31, 2007, providing for an annual salary of $185,000
and $175,000 per annum, respectively. Messrs. Vertes and Hrncir will each serve
on the Board of Directors for a term of two years. In addition, Jay Sanet, Chief
Executive Officer, President and Chairman of the Board of Directors of the
Company, will resign from each of his officer capacities with the Company, but
will remain as a member of the Company's Board of Directors.
(b)(8) Selected financial data.
The information required by this section for NorStar includes the Annual Reports
on Form 10-KSB for the fiscal years ended December 31, 2001 and 2002, as well as
the Quarterly Reports on Form 10-QSB for the fiscal quarters ended March 31,
2003 and June 30, 2003, all of which have been filed with the Securities and
Exchange Commission and are included as Appendix B. There are no disagreements
with Norstar's accountants regarding accounting and financial disclosure.
Representatives of the principal accountants of NorStar are not expected to be
present (in-person) at the special meeting, but will have the opportunity to
make a statement if they desire to do so (via teleconference) and will be made
available (via teleconference) to respond to appropriate questions.
The information required by this section for G&EG includes its audited financial
statements for the fiscal years 2000, 2001 and 2002. This information is
included in Appendix C.
(b)(9) Pro forma selected financial data.
The information required by this section consists of the pro forma condensed
combined selected financial data of NorStar for the six months ended June 30,
2003 and the fiscal years ended December 31, 2001 and 2002 and is included in
Appendix D.
(b)(10) Pro forma information.
The information required by this section consists of the pro forma condensed
combined financial statements of NorStar for the six months ended June 30, 2003
and the fiscal years ended December 31, 2001 and 2002. This information is
included in Appendix E.
(b)(11) Financial Information.
Not applicable.
(c) Information about the parties to this transaction.
(c)(1) The information required by this section for NorStar includes
the Annual Reports on Form 10-KSB for the fiscal years ended December 31, 2001
and 2002, as well as the Quarterly Reports on Form 10-QSB for the fiscal
quarters ended March 31, 2003 and June 30, 2003, all of which have been filed
with the Securities and Exchange Commission and are included in Appendix B.
(c)(2) G&EG is not subject to the reporting requirements of either
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended.
Pursuant to Part C, Item 17(b) of Form S-4, the following information relating
to G&EG is hereby provided:
(b)(1) Gaming & Entertainment Group, Inc. is a Nevada corporation and
was incorporated on December 5, 2000. G&EG has one wholly owned subsidiary,
Gaming & Entertainment Technology Pty Ltd., an Australian corporation, which
handles all of its research and development. G&EG was formerly known as GET USA,
Inc., and amended its articles of incorporation on June 4, 2003 to take on its
present name. G&EG is a supplier of server-based gaming systems and networked
interactive electronic bingo games to the Indian gaming market in the United
States as well as the Canadian gaming market. G&EG designs and develops its own
gaming systems, software, game content and networks to offer a comprehensive
gaming system. In conjunction with a United Kingdom-based strategic partner,
G&EG supplies its server-based gaming system and game content library to the
amusement with prize and other gaming markets in the United Kingdom and Europe.
In addition, G&EG develops and licenses its comprehensive government accredited
online gaming system to major United States and international casino operators
for utilization outside of the United States.
(b)(2) G&EG's common stock is not listed on any exchange and has no
stated market value. No dividends have been paid since inception.
(b)(3) The information required by this section for G&EG includes the
audited financial statements for the fiscal years 2000, 2001 and 2002. This
information is included in Appendix C.
(b)(4) The information required by this section for G&EG includes the
unaudited financial statements for the six months ended June 30, 2003. This
information is set forth in Appendix F.
11
(b)(5) Management's discussion and analysis of financial condition.
Overview
Gaming & Entertainment Group, Inc. is a supplier of server-based gaming systems
and networked interactive electronic bingo games for the Indian gaming market in
the United States as well as the Canadian gaming market. G&EG designs and
develops its own gaming systems, software, game content and networks to offer a
comprehensive gaming system. In conjunction with a major UK-based strategic
partner, G&EG supplies its server-based gaming system and game content library
to the gaming market in the United Kingdom and throughout Europe. In addition,
G&EG develops and licenses its comprehensive government accredited online gaming
system to major U.S. casino operators for utilization outside of the United
States.
Description of Revenues
Historically, G&EG has received its revenues from the development of Internet
gaming sites for regulated land-based casino operators for utilization
exclusively outside of the United States and expressly subject to the gaming
regulations of the countries in which its clients are licensed.
While G&EG expects to continue to develop Internet gaming sites for regulated
land-based gaming operators, its primary focus is to offer its central server
gaming system and games to the Indian gaming market in the United States and
Canada, as well as to the gaming markets in the United Kingdom and throughout
Europe in conjunction with its U.K.-based strategic partner.
G&EG expects to generate revenues from the placement of its gaming system and
products in the foregoing markets through revenue sharing agreements as well
sale and licensing arrangements. G&EG intends to place its products on a revenue
sharing basis whenever possible, which, along with licensing arrangements, will
result in recurring revenue streams for G&EG.
G&EG's dependence on the gaming industry, including its customers, makes it
vulnerable to downturns caused by the general economic environment. Such a
downturn could result in some gaming operators delaying or declining to purchase
or place its products. Alternatively, it could result in less gambling by
patrons of the casinos in which its products will be placed, all of which could
potentially negatively affect its results of operations.
When G&EG installs its gaming products under a revenue sharing agreement, it
will share in the revenues derived from the performance of the gaming devices on
the casino floor. These gaming devices will be installed at little or no upfront
cost to G&EG's casino customers. G&EG will, however, retain ownership of the
gaming devices and, upon the conclusion of the respective revenue sharing
agreements, the gaming devices will be returned to G&EG, reconditioned, and
re-deployed in other casinos.
Revenue Recognition
Licensing, maintenance and game content refreshment revenues from Internet
gaming site development is recognized upon receipt of payment. Revenue from the
placement of its gaming devices under a revenue-sharing agreement will be
accounted for similar to an operating lease, with the revenues recognized as
earned over the term of the agreement. Sales revenue from the sale of its gaming
devices will be recognized upon completion of installation and acceptance by the
customer.
Description of Expenses
Cost of product sales consists primarily of manufacturing, shipping,
installation and commission costs. Cost of revenue-sharing arrangements consists
primarily of depreciation of capitalized costs for the products placed in
service. G&EG will capitalize the manufacturing, shipping, installation and
sales commissions related to the placement of its gaming devices under
revenue-sharing agreements.
Selling, general and administrative expenses include selling expenses consisting
primarily of advertising, promotional activities, trade shows, travel and
personnel-related expenses and general and administrative expenses consisting
primarily of professional fees, salaries and related costs for accounting,
administration, finance, human resources, information systems and legal
personnel.
Research and development expenses consist of payroll and related costs for
hardware and software engineers, quality assurance specialists, graphic
designers, management personnel, and the costs of materials used by these
employees in the development of new or enhanced product offerings.
In accordance with Financial Accounting Standards Board, or FASB, Statement of
Financial Accounting Standards, or SFAS, No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed," development costs
incurred in the research and development of new software products to be sold,
leased or otherwise marketed are expensed as incurred until technological
feasibility in the form of a working model has been established.
12
Results of Operations. The following table includes selected statement of
operations data of G&EG as a percentage of total revenues for the years
indicated:
Fiscal year ended December 31,
2002 2001
--------------------- ---------------------
Statement of Operations Data:
Revenue:
Site development and license fees .................................... 100.0% 95.4%
Sales, less returns and allowances.................................... 0.0 4.6
--------------------- ---------------------
Total revenue......................................................... 100.0 100.0
--------------------- ---------------------
Cost of revenue:
Purchases............................................................. 0.0% 4.0%
Wages and benefits.................................................... 54.0 67.5
--------------------- ---------------------
Total cost of revenue................................................. 54.0 71.5
--------------------- ---------------------
Gross margin (loss)................................................... 46.0% 28.5%
--------------------- ---------------------
Operating expenses:
Selling and general and administrative................................ 89.0% 74.8%
--------------------- ---------------------
Loss from operations.................................................. (43.0%) (46.3%)
--------------------- ---------------------
Other income (expense):
Gain (loss) on foreign currency exchange.............................. 2.6% (3.9%)
Interest income/dividends............................................. 2.0 5.8
Loss on disposal of assets............................................ 0.0 (2.2)
Miscellaneous income (expense)........................................ 0.2 0.1
--------------------- ---------------------
Other expense, net.................................................... 4.8% (0.4)
--------------------- ---------------------
Net loss (39.5%) (52.0)
===================== =====================
Fiscal Years Ended December 31, 2001 and 2002
Revenues
Site development and license fees -- G&EG revenue was $1,820,265 in 2002 as
compared to $1,474,068 in 2001, representing an increase of $346,197, or 23.5%.
Sales, less returns and allowances - G&EG revenue was zero in 2002 as compared
to $71,558 in 2001.
Cost of Sales
G&EG's cost of sales revenue was $982,646 for 2002 compared to $1,105,711 for
2001, representing a decrease of $123,065, or 11.1%. The gross margin percentage
on revenue from product sales revenue was 46.0% in 2002 compared to 28.5% for
2001. The changes and percentage changes with respect to revenues and cost of
revenue for the years ended December 31, 2002 and 2001 are as follows:
13
For the Years Ended
December 31,
------------------------------------
2002 2001 Change Percent Change
---------------- ---------------- --------------- ----------------
Revenue
Site development and license
fees....................................... $1,820,265 $1,474,068 $346,197 23.5%
Sales, less returns and
allowances................................. - 71,558 (71,558) (100.0%)
---------------- ---------------- ---------------
Total Revenue.............................. 1,820,265 1,545,626 274,639 17.8%
---------------- ---------------- ---------------
Cost of Revenue
Purchases.................................. - 61,866 (61,866) (100.0%)
Wages and benefits......................... 982,646 1,043,845 (61,199) (5.9%)
---------------- ---------------- ---------------
Total Cost of Revenue...................... 982,646 1,105,711 (123,065) (11.1%)
---------------- ---------------- ---------------
Gross Margin............................... 837,619 439,915 397,704 25.7%
Although the preceding table summarizes the net changes and percent changes with
respect to G&EG's revenue and cost of revenue for the years ended December 31,
2002 and 2001, the trends contained therein are limited to a two-year comparison
and should not be viewed as a definitive indication of its future results.
Operating Expenses
Selling, General and Administrative -- Selling, general and administrative
expenses were $1,619,634 for 2002 and $1,156,706 for 2001, representing an
increase of $462,928, or 40.0%. Selling, general and administrative expenses
represented 89.0% of our total revenues in 2002 and 74.8% of its total revenues
in 2001.
Other Income (Expense), Net -- Other expense, net was $87,725 for 2002 and a
deficit of $6,421 for 2001, representing a decrease of $94,136. The increase was
due, in large part, in the gain on foreign currency exchange.
Loss Attributable to Common Stockholders
G&EG incurred losses attributable to common stockholders of $641,442 and
$763,101 during 2002 and 2001, respectively. The $121,659 decrease was
attributable to the increase in the gross margin.
G&EG has continued to incur losses subsequent to December 31, 2002 and, as a
result, has experienced an increase in accumulated deficit.
Liquidity and Capital Resources
In August 2000, Entertainment Media Ventures, LLC, a California limited
liability company ("EMV"), purchased $1,000,000 of securities from G&EG. The EMV
investment was made on the basis of a $20,000,000 post-money valuation.
On January 29, 2001, Trans-Global Interactive, Ltd., an Australian corporation,
purchased $1,000,000 of securities from G&EG on the basis of a $20 million
post-money valuation.
Commencing in December 2002, G&EG undertook a private placement of units, each
unit priced at $7,500, and consisting of 10,000 shares of common stock and a
warrant to purchase 10,000 shares of common stock, exercisable at $1.50 per
share for a period of two (2) years from the termination of the private
placement. G&EG received subscriptions for $957,055 of units, of which $358,281
related to the conversion of debts of G&EG into units. G&EG issued the investors
in the private placement, collectively, 1,276,073 shares of common stock, and
warrants to purchase an equal number of shares of common stock. The private
placement was made pursuant to the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 of
Regulation D as promulgated thereunder.
At December 31, 2002, G&EG had $281,992 of cash and short-term investments and
working capital of $587,888 compared to $1,577,365 of cash and short-term
investments and $763,761 of working capital at December 31, 2001. In addition,
G&EG stockholders' equity was $701,786 at December 31, 2002, compared to
stockholders' equity of $902,448 at December 31, 2001, a decrease of $200,662.
The decrease in cash, working capital and stockholders' equity reflects the
continued use of cash by G&EG's operations in anticipation of its product
rollout in the land-based gaming markets. G&EG's accumulated deficit increased
from $815,161 at December 31, 2001 to $1,485,362 at December 31, 2002. The
increase in accumulated deficit resulted primarily from the net loss from
operations for the year ended December 31, 2002.
14
G&EG used net cash of $1,400,911 in operating activities during the year ended
December 31, 2002 compared to $1,462,170 of net cash used by operating
activities during the year ended December 31, 2001. The decrease in cash used in
operating activities was not material.
Investing activities for the year ended December 31, 2002 amounted to $22,611 of
net cash compared to $99,886 used during the year ended December 31, 2001. The
decrease in net cash used in investing activities resulted primarily from a
decrease in the acquisition of property, plant and equipment.
Financing activities provided $37,500 during the year ended December 31, 2002
compared to net cash of $1,901,294 provided during the year ended December 31,
2001. The primary source of cash during the year ended December 31, 2002 was
based on the issuance of five (5) units in the private placement of G&EG, while
the financing proceeds from the year ended December 31, 2001 related to the
investments of EMV and Trans-Global Interactive, Ltd.
The placement of gaming devices under revenue-sharing arrangements will be
capital intensive. To this end, immediately following the closing of the
transaction with NorStar, G&EG will actively seek a financing line to finance
the gaming devices to be placed at casinos on a revenue sharing basis. G&EG will
likely require additional cash to finance its planned expansion and capital
expenditures depending upon the speed at which it introduces products into the
target land-based gaming markets.
Qualitative and Quantitative Disclosures About Market Risk
All of G&EG's gaming devices (hardware) will be manufactured by third parties on
a turnkey basis. For placements in the United States, G&EG will utilize a Las
Vegas-based manufacturer. Second source manufacturing is currently being
procured as well. Regarding its placements in Europe, G&EG will utilize a United
Kingdom-based entity to manufacturer such products. G&EG will pay its U.S.
manufacturer in U.S. dollars and its U.K. manufacturer in United Kingdom Pounds,
or GBP.
G&EG's financial results could be affected by weak economic conditions in
foreign markets. Because all of its revenues will be denominated in U.S.
Dollars, a strengthening of the dollar could make its products less competitive
in foreign markets.
As G&EG expands operations internationally, it will continue to evaluate its
foreign currency exposures and risks and develop appropriate hedging or other
strategies to manage those risks.
(b)(6) G&EG retained the independent certified public accounting firm of
Kafoury, Armstrong & Co., with offices in Reno, Nevada, to audit the financial
statements of G&EG for fiscal years 2000, 2001 and 2002. G&EG has had no
disagreements with its accountants regarding accounting and financial
disclosure. There have been no changes in G&EG's accounting firm since its
inception. Representatives of the principal accountants of G&EG are not expected
to be present (in-person) at the special meeting, but will have the opportunity
to make a statement if they desire to do so (via teleconference) and will be
made available to respond (via teleconference) to appropriate questions.
(b)(7) The information required by this section is set forth in Appendix C.
PROPOSAL THREE:
AMENDMENT TO OUR AMENDED ARTICLES
OF INCORPORATION TO CHANGE THE NAME OF THE CORPORATION TO
GAMING AND ENTERTAINMENT GROUP, INC.
You are being asked to vote upon an amendment to our Amended Articles of
Incorporation for the purpose of authorizing our board of directors to change
the name of the corporation to Gaming & Entertainment Group, Inc. If the name
change is approved, it will become effective upon the filing of the amendment to
our Amended Articles of Incorporation with the Utah Secretary of State.
The name change to Gaming & Entertainment Group, Inc. is being sought in
conjunction with the proposed transaction between NorStar and Gaming &
Entertainment Group, Inc. as detailed in Proposal One above.
OUR BOARD RECOMMENDS THAT OUR STOCKHOLDERS VOTE "FOR" THE APPROVAL OF THE
PROPOSED AMENDMENT TO OUR AMENDED ARTICLES OF INCORPORATION TO CHANGE THE NAME
OF THE CORPORATION TO GAMING & ENTERTAINMENT GROUP, INC.
15
PROPOSAL FOUR:
ELECTION OF DIRECTORS
The current board of directors contains one member. Following the election of
directors held at the Special Meeting of Stockholders, the Board of Directors
will consist of three members.
The following persons have been nominated to serve as directors for a period of
two years and until his successor is chosen and qualified.
Tibor N. Vertes, 54, is the founder of G&EG and serves as its Chief Executive
Officer and Chairman. Mr. Vertes was a practicing attorney from 1972 to 1989, at
which time he retired as the senior partner of the Yellands law firm, Melbourne,
Australia. During his legal career, Mr. Vertes specialized in financial services
having represented many financial institutions. Thereafter, Mr. Vertes worked as
an international business consultant in Hong Kong, specializing in financial
services and telecommunications related matters. Commencing in 1995, Mr. Vertes
became an officer of Ezi Phonecard Pty Ltd, a leading pre-paid
telecommunications entity and was instrumental in reorganizing its capital and
business structure before its sale to RSL Com, a global telecommunications
concern based in New York. Upon the sale of Ezi Phonecard, Mr. Vertes founded
G&EG. Mr. Vertes is admitted to practice as a Barrister and Solicitor of the
High Court of Australia, and Supreme Court of NSW and Victoria. Mr. Vertes
presently serves as Chairman of the Capital First Group (mortgage banking and
financial services). Mr. Vertes received a Bachelor of Laws from Sydney
University Law School.
Gregory L. Hrncir, 36, serves as President and as a Director of G&EG.
Previously, Mr. Hrncir served as Chief Operating Officer and General Counsel of
a publicly traded provider of proprietary software and hardware products to the
hotel industry. Formerly, Mr. Hrncir held the position of General Counsel and
Secretary of PayStation America, Inc., an e-commerce company that provided a
proprietary automated bill payment solution in the United States prior to its
sale. Mr. Hrncir commenced his professional career in private legal practice in
Los Angeles, California, specializing in corporate and securities matters
representing issuers and small investment banks in a variety of transactions.
Mr. Hrncir serves on the Board of Directors of Pacific Payment Systems, Inc., a
privately held company that is the successor to PayStation. Mr. Hrncir received
a Bachelor of Science from Arizona State University and a Juris Doctor from
Whittier Law School. Mr. Hrncir is a member of the Arizona and California State
Bars and several philanthropic and industry associations.
Management does not expect that any nominee will become unavailable for election
as a director, but, if for any reason that should occur prior to the Special
Meeting, the person named in the proxy will vote for such substitute nominee, if
any, as may be recommended by management of NorStar.
There were no material transactions between our company and any of our officers,
directors or the nominees for election as director, any stockholder holding more
than 5% of our common stock or any relative or spouse of any of the foregoing
persons.
VOTE REQUIRED
Approval of the nominees for election to the Board of Directors will require the
affirmative vote of a majority of the votes entitled to be cast by the holders
of the outstanding shares of common stock represented at the Special Meeting in
person or by proxy. The proxies that are executed and returned will be voted
(unless otherwise directed) for the election as director of the foregoing
nominees.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES
LISTED ABOVE
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the beneficial ownership of our common stock as
of October 31, 2003, for each director and nominee, the Chief Executive Officer,
the other executive officers, and for all directors and executive officers as a
group.
16
--------------------------------------------------------------------------------
Options Currently
Shares of Percentage Exercisable or
Name Common Stock of Class within 60 days
--------------------------------------------------------------------------------
Jay Sanet 3,125,000 8.98% -0-
4101 Ravenswood Rd., Suite 128
Fort Lauderdale, Florida, 33312
Tibor N. Vertes -0- -0- -0-
Level 8, 77 Pacific Highway
North Sydney, NSW 2060 Australia
Gregory L. Hrncir
6094 S. Sandhill Rd., Suite 400 -0- -0- -0-
Las Vegas, NV 89120
Officers and Directors 3,125,000 8.98% -0-
(as a Group)
--------------------------------------------------------------------------------
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of October 31, 2003, our records and other information made available by
outside sources indicated that Jay Sanet, the Estate of Harry DeFrancesco,
Ledyard Dewees, and Andrew S. Peck beneficially own more than five percent of
our outstanding shares of common stock.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors currently has no standing committees. During fiscal year
2002 there were two meetings of the board of directors. All directors attended
100% of the meetings of the board of directors.
COMPENSATION OF DIRECTORS
To date, no director has received any compensation for his services on the board
of directors. We currently have not adopted any type of director compensation
plan.
OTHER MATTERS
We know of no other matters that are to be presented for action at the special
meeting of stockholders other than those set forth above. If any other matters
properly come before the special meeting of stockholders, the persons named in
the enclosed proxy form will vote the shares represented by proxies in
accordance with their best judgment on such matters.
WHERE STOCKHOLDERS CAN FIND MORE INFORMATION
NorStar Group, Inc. has filed, with the Securities and Exchange Commission,
Quarterly Reports on Form 10-QSB for the fiscal quarters ended March 31, 2003
and June 30, 2003, and Annual Reports on Form 10-KSB for the fiscal years ended
December 31, 2001 and December 31, 2002. Each of the foregoing public filings is
included in Appendix B.
17
The exhibits to the Forms 10-QSB and 10-KSB are available upon payment of
charges that approximate our reproduction costs. If you would like to request
documents, please do so by January 7, 2004 to receive them before the special
meeting of stockholders.
By order of the board of directors,
/s/ Jay Sanet
-------------------------------------------
JAY SANET
Chief Executive Officer
DECEMBER 22, 2003
STOCKHOLDERS ARE REQUESTED TO MARK, DATE AND SIGN THE ENCLOSED PROXY AND RETURN
IT IN THE ENCLOSED, SELF-ADDRESSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN
THE UNITED STATES. YOUR PROMPT RESPONSE WILL BE HELPFUL, AND YOUR COOPERATION
WILL BE APPRECIATED.
18
NORSTAR GROUP, INC.
PROXY
The undersigned appoints Jay Sanet, Chief Executive Officer of NorStar Group,
Inc., with power of substitution, to represent and to vote on behalf of the
undersigned all of the shares of common stock, par value $.01 per share ("Common
Stock"), of NorStar Group, Inc., (the "Company") which the undersigned is
entitled to vote at the special meeting of stockholders to be held at the Westin
Hotel, 400 Corporate Drive, Fort Lauderdale, Florida 33312, at 10:00 a.m., local
time, on January 12, 2004, and at any adjournments or postponements thereof,
hereby revoking all proxies heretofore given with respect to such stock, upon
the following proposals more fully described in the notice of the meeting
(receipt whereof is hereby acknowledged).
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" THE PROPOSALS
DESCRIBED IN THE PROXY STATEMENT. IF A PROXY IS SIGNED AND DATED BUT NOT MARKED,
YOU WILL BE DEEMED TO HAVE VOTED "FOR" THE PROPOSALS DESCRIBED IN THE PROXY
STATEMENT.
1. Approval of the proposed amendment to the Amended Articles of Incorporation
to effect a reverse stock split at an exchange ratio of 1:24.852732:
|_| FOR |_| AGAINST |_| ABSTAIN
2. Approval of the Agreement and Plan of Reorganization and share exchange with
Gaming & Entertainment Group, Inc.:
|_| FOR |_| AGAINST |_| ABSTAIN
3. Approval of the proposed amendment to the Amended Articles of Incorporation
to change the name of the Company to Gaming & Entertainment Group, Inc.:
|_| FOR |_| AGAINST |_| ABSTAIN
4. To elect the following directors to our Board of Directors to serve for a
period of two years and until their successors shall be elected and qualified:
Tibor N. Vertes |_| FOR |_| ABSTAIN
Gregory L. Hrncir |_| FOR |_| ABSTAIN
5. Authority to vote in their discretion on such other business as may properly
come before the meeting:
|_| FOR |_| AGAINST |_| ABSTAIN
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned stockholder. If you do not sign and return this proxy card or
attend the meeting and vote by ballot, your shares cannot be voted. If you wish
to vote in accordance with the board of directors' recommendations, just sign
where indicated. You need not mark any boxes. You may revoke your proxy at any
time prior to the meeting. If you attend the meeting and vote by ballot, your
proxy will be revoked automatically and only your vote at the meeting will be
counted.
Please sign your name below exactly as it appears hereon. When joint tenants
hold shares of common Stock of record, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full title
as such. If a corporation, please sign in full corporate name as its authorized
officer. If a partnership, please sign in partnership name as its authorized
person.
Dated: __________________________
___________________________________ ________________________________________
Print Name Signature (Title, if any)
__________________________________ ________________________________________
Number of Shares Signature (if held jointly)
(Please sign exactly as name appears on the certificate or certificates
representing shares to be voted by this proxy. When signing as executor,
administrator, attorney, trustee or guardian, please give full titles as such.
If a corporation, please sign in full corporate name by president or other
authorized officer. If a partnership, please sign in partnership name by
authorized persons).
PLEASE SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
19
ANNEX A
Certificate of Amendment to the
Amended Articles of Incorporation of
NorStar Group, Inc.,
a Utah corporation
AMENDMENT TO THE
AMENDED ARTICLES OF INCORPORATION OF
NORSTAR GROUP, INC.
NorStar Group, Inc., a corporation organized under the laws of the State of
Utah on February 16, 1961, hereby adopts the following Amendments to its Amended
Articles of Incorporation pursuant to the provisions of the Utah Revised
Business Corporation Act, Section 16-10a-1006.
I
The Amended Articles of Incorporation shall be amended to read as follows:
ARTICLE I - CORPORATE NAME
The name of the corporation shall be: Gaming & Entertainment Group, Inc.
II
The shareholders approved a reverse split in the ratio of 1:24.852732 of
the outstanding common shares of the Corporation. The authorized shares of
common stock will remain at 150,000,000, $.01 par value common voting shares and
authorized preferred shares shall remain unchanged. There are currently
34,793,825 shares issued and outstanding in the Corporation. Following the
reverse split there will be 1,400,000 shares of common stock issued and
outstanding.
III
The date of the adoption of the foregoing amendment and reverse split by
the shareholders was January __, 2004. The number of shares outstanding in the
Corporation and entitled to vote, as of the record date, on the amendment was
34,793,825. All issued and outstanding shares of common stock in the Corporation
are entitled to one vote per share for each matter coming before a vote of the
shareholders.
IV
The number of shares that voted in favor of the above amendments was
___________. The number of shares that voted against the above amendments was
___________________.
Dated this ____ day of January ___, 2004.
NORSTAR GROUP, INC.
By: _______________________________
Jay Sanet
Chief Executive Officer
20
STATE OF FLORIDA
COUNTY OF ___________)
On the ____ day of January ___, 2004, Jay Sanet personally appeared before me
and duly acknowledged that he is the person who signed the foregoing instrument
as Chief Executive Officer and that he has read the foregoing instrument and
knows the contents thereof and that the same is true of his own knowledge.
________________________________
NOTARY PUBLIC
Residing in: ______________________
My Commission Expires: __________________
_____________________________________________________
21
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") made and
entered into as of September 18, 2003, is by and among NorStar Group, Inc., a
Utah corporation (hereinafter referred to as the "Company"), Gaming &
Entertainment Group, Inc., a Nevada corporation (hereinafter referred to as
"G&EG") and each of the holders of shares of Common Stock of G&EG listed on
Exhibit A to be attached hereto as hereinafter provided (individually, a "G&EG
Stockholder", and collectively, the "G&EG Stockholders").
RECITALS
WHEREAS, the G&EG Stockholders own a total of not less than 90% of all
of the issued and outstanding Common Stock of G & EG; and WHEREAS, the Company
desires to acquire all but not less than 90% of the issued and outstanding
common stock of G&EG and the G&EG Stockholders desire to exchange all of their
shares of Common Stock of G&EG for shares of Common Stock of the Company in a
transaction intended to qualify as a so-called "tax-free" reorganization under
Section 368 of the Internal Revenue Code of 1986, as amended (the "Code").
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and in reliance upon the representations and warranties
hereinafter set forth, the parties agree as follows:
1. EXCHANGE OF THE SHARES AND CONSIDERATION
1.1 Shares Being Exchanged. Subject to the terms and conditions of
this Agreement, at the closing provided for in Section 2 hereof (the "Closing"),
each of the G&EG Stockholders shall sell, assign, transfer and deliver to the
Company the number of shares of Common Stock of G&EG set forth opposite each
such G&EG Stockholder's name on Exhibit A to be attached hereto prior to the
Closing (the shares of Common Stock of G&EG sold, assigned and transferred to
the Company hereunder are hereinafter referred to as the "G&EG Shares").
1.2 Consideration. Subject to the terms and conditions of this
Agreement and in consideration of the sale, assignment, transfer and delivery of
the G&EG Shares to the Company, at the Closing the Company shall issue, sell and
deliver to the G&EG Stockholders a number of shares of Common Stock of the
Company determined by multiplying fourteen million six hundred thousand
(14,600,000) times a fraction, the numerator of which is the total number of
G&EG Shares sold and delivered to the Company at the Closing and the denominator
of which is the total number of shares of Common Stock of G&EG issued and
outstanding immediately prior to the Closing (the shares of Common Stock of the
Company issued, sold and delivered to the G&EG Stockholders hereunder are
1
hereinafter referred to as the "Company Shares"). The Company Shares shall be
issued after the date on which the Company has effected the reverse split of its
issued and outstanding Common Stock described in Section 8.4 hereof. Each G&EG
Stockholder shall receive, in consideration for the G&EG Shares sold, assigned,
transferred and delivered to the Company by such G&EG Stockholder, a pro rata
portion of the Company Shares based on the number of G&EG Shares set forth
opposite such G&EG Stockholder's name on Exhibit A hereto. In lieu of any
fractional Company Share to which a G&EG Stockholder would otherwise be
entitled, the Company shall round such fractional share up to a whole Company
Share.
2. THE CLOSING
2.1 Time and Place. The Closing of the transactions contemplated
by this Agreement shall be held not more than three (3) business days following
the later of (a) the date of the special meeting of the stockholders of the
Company held to approve the reverse split of the Company's outstanding Common
Stock described in Section 8.4 hereof, and (b) satisfaction of all other
conditions precedent to the obligations of the parties specified in this
Agreement, unless duly waived by the party entitled to satisfaction thereof. In
any event, if the Closing has not occurred by December 31, 2003, this Agreement
may be terminated as provided in Section 12 below. The date on which the Closing
is to be held is referred to herein as the "Closing Date". The Closing shall be
held at the offices of Day & Campbell, LLP, 18881 Von Karman, Suite 1500,
Irvine, CA 92612, at 10:00 a.m. on such date, or at such other time and place as
the parties may agree upon in writing.
2.2 Deliveries by the G&EG Stockholders. At the Closing, each G&EG
Stockholder shall deliver to the Company the following: (a) stock certificates
representing the number of G&EG Shares set forth opposite the name of such G&EG
Stockholder on Exhibit A hereto, duly endorsed or accompanied by stock powers
duly executed in blank and otherwise in form acceptable for transfer on the
books of G&EG, and (b) an investment letter in the form attached hereto as
Exhibit B executed by such G&EG Stockholders.
2.3 Deliveries by G&EG. At the Closing, G&EG shall deliver to the
Company the documents referred to in Section 9.1 hereof.
2.4 Deliveries by the Company. At the Closing, in addition to the
documents referred to in Section 9.2 hereof, the Company shall deliver to the
G&EG Stockholders or their Agent (as defined in Section 14 below) a stock
certificate issued in the name of each G&EG Stockholder representing the number
of Company Shares each G&EG Stockholder is entitled to receive in accordance
with Section 1.2 above, and shall deliver to G&EG the Company's minute book,
corporate seal and copies of all corporate and financial books and records.
2
2.5 Exchange of Options and Warrants.
(a) At the Closing, the Company shall enter into an
agreement (an "Option Exchange Agreement") with each holder of an outstanding
option to purchase shares of common stock of G&EG (a "G&EG Option") who elects
to exchange such holder's G&EG Option for an option to purchase shares of the
Company's common stock (a "Company Option", and collectively, the "Company
Options"). If a holder of a G&EG Option (a "G&EG Option Holder") elects to enter
into an Option Exchange Agreement with the Company, the number of option shares,
the exercise price and other material terms and conditions of the Company Option
to be granted to such G&EG Option Holder shall be the same as the number of
option shares, the exercise price and other material terms and conditions of the
G&EG Option, including, without limitation, any vesting requirements with
respect to the shares subject to the G&EG Option, except as otherwise agreed to
by the G&EG Option Holder and the Company.
(b) At the Closing, the Company shall enter into an
agreement (a "Warrant Exchange Agreement") with each holder of an outstanding
warrant to purchase shares of common stock of G&EG (a "G&EG Warrant") who elects
to exchange such holder's G&EG Warrant for a warrant to purchase shares of the
Company's common stock (a "Company Warrant", and collectively, the "Company
Warrants"). If a holder of a G&EG Warrant (a "G&EG Warrant Holder") elects to
enter into a Warrant Exchange Agreement with the Company, the number of warrant
shares, the exercise price and other material terms and conditions of the
Company Warrant to be granted to such G&EG Warrant Holder shall be the same as
the number of warrant shares, the exercise price and other material terms and
conditions of the G&EG Warrant, except as otherwise agreed to by the G&EG
Warrant Holder and the Company.
3. INDIVIDUAL REPRESENTATIONS AND WARRANTIES OF THE G&EG
STOCKHOLDERS
Each of the G&EG Stockholders, severally but not jointly,
represents and warrants to the Company as follows:
3.1 Title. Such G&EG Stockholder owns the number of G&EG Shares
set forth opposite such Stockholder's name on Exhibit A to be attached hereto
prior to Closing, and shall transfer to the Company at the Closing good and
valid title to said number of G&EG Shares, free and clear of all restrictions on
transfer (other than any restrictions under federal and state securities laws),
liens, claims, options, charges, pledges, security interests, and encumbrances
of every kind, character or description. Such G&EG Stockholder is not a party to
any voting trust, proxy, or other agreement or understanding with respect to the
voting of any capital stock of G&EG.
3.2 Valid and Binding Agreement. Such G&EG Stockholder has the
full and unrestricted right, power and authority and capacity to execute and
deliver this Agreement and consummate the transactions contemplated herein. This
Agreement has been duly executed and delivered by such G&EG Stockholder and
constitutes the valid and binding obligation of such G&EG Stockholder,
enforceable in accordance with its terms.
3
3.3 Noncontravention. The execution and delivery of this Agreement
and consummation of the transactions contemplated hereby do not violate or
conflict with or constitute a default under any contract, commitment, agreement,
understanding, arrangement or restriction of any kind to which such G&EG
Stockholder is a party or by which such G&EG Stockholder or such G&EG
Stockholder's property is bound, or to the knowledge of such G&EG Stockholder
any existing applicable law, rule, regulation, judgment, or court order. Such
G&EG Stockholder is not and will not be required to give any notice to or obtain
any consent from any Person in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated herein.
3.4 Investment Representations. Such G&EG Stockholder intends to
acquire the Company Shares for investment and not with a view to the public
distribution or resale thereof, and such G&EG Stockholder shall confirm such
intention to the Company by delivering to the Company at the Closing an
investment letter in the form attached as Exhibit B hereto executed by such G&EG
Stockholder. Such G&EG Stockholder agrees that the Company may endorse on any
stock certificate for the Company Shares to be delivered pursuant to this
Agreement an appropriate legend referring to the provisions of the investment
letter attached as Exhibit B hereto, and that the Company may instruct its
transfer agent not to transfer any Company Shares unless advised by the Company
that such provisions have been complied with.
4. REPRESENTATIONS AND WARRANTIES OF G&EG
G&EG represents and warrants to the Company as follows:
4.1 Authority. G&EG has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated herein. The execution and delivery of this Agreement and the
consummation of the transactions contemplated herein have been duly authorized
and approved by all necessary corporate action on the part of G&EG. This
Agreement has been duly executed and delivered by G&EG and constitutes the valid
and binding obligation of G&EG, enforceable in accordance with its terms.
4.2 Organization.
(a) G&EG is a corporation duly organized, validly existing
and in good standing under the laws of the State of Nevada. G&EG has the
corporate power and authority to carry on its business as presently conducted
and is qualified to do business as a foreign corporation in each jurisdiction in
which the failure to be so qualified would have a material adverse effect on
G&EG or its business.
(b) The copies of the Articles of Incorporation of G&EG and
all amendments thereto, as certified by the Secretary of State of Nevada, and
the Bylaws of G&EG and all amendments thereto, as certified by the Secretary of
G&EG, which have heretofore been
4
delivered to the Company, are complete and correct copies of the Articles of
Incorporation and Bylaws of G&EG as amended and in effect on the date hereof.
4.3 Capitalization.
(a) The authorized capital stock of G&EG consists of
50,000,000 shares of Common Stock, par value $0.001 per share, and 10,000,000
shares of blank check preferred stock, par value $0.001 per share. As of the
date of this Agreement,11,847,872 shares of Common Stock of the Company are
issued and outstanding. As of the Closing Date, the number of issued and
outstanding shares of Common Stock of the Company shall be the number of shares
set forth on Schedule 4.3(a) to be attached hereto prior to the Closing. All of
the issued and outstanding shares of Common Stock of G&EG are duly authorized,
validly issued, fully paid and nonassessable, and are not subject to preemptive
rights created by statute, G&EG's Articles of Incorporation or Bylaws or any
agreement to which G&EG is a party or by which it is bound.
(b) Except as set forth on Schedule 4.3(b), there are no
options, warrants, subscriptions, calls, rights, commitments or agreements of
any character to which G&EG is a party or by which it is bound obligating G&EG
to issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock of G&EG or obligating G&EG to grant, extend or enter
into any such option, warrant, subscription, call, right, commitment or
agreement.
4.4 Equity Investments. Except as set forth on Schedule 4.4, G&EG
has no subsidiaries and does not own any equity interest in any other
corporation or in any partnership, limited liability company or other form of
business entity.
4.5 Financial Statements. G&EG has delivered to the Company copies
of its audited balance sheet for the fiscal year ended December 31, 2002 and the
related audited statements of operations, changes in stockholders' equity and
cash flows for the two years ended December 31, 2002 together with appropriate
notes to such financial statements, and copies of its unaudited balance sheet as
of June 30, 2003 and the related unaudited statements of operations, changes in
stockholders' equity and cash flows for the six month period ended June 30, 2003
(collectively, the "G&EG Financial Statements"), copies of which are attached
hereto as Schedule 4.5. The G&EG Financial Statements have been prepared in
accordance with generally accepted accounting principals consistently applied,
and present fairly the financial condition and results of operations of G&EG at
the dates and for the periods covered by the G&EG Financial Statements, subject
in the case of the unaudited portion of the G&EG Financial Statements to normal
year-end audit adjustments, which will not be material, and the absence of
certain footnote disclosures.
4.6 Intellectual Property. G&EG owns or has the right to use
pursuant to license, sublicense, agreement or permission all patents, patent
applications, trademarks, service marks, trade names, copyrights, computer
software (including data and related documentation), trade secrets, Internet
Websites, domain names and other proprietary rights and processes necessary for
its business as now conducted and as proposed to be conducted. To the best of
G&EG's knowledge, the business as conducted and as proposed to be conducted by
G&EG does not and will not cause
5
G&EG to infringe or violate any of the patents, trademarks, service marks, trade
names, copyrights, computer software, licenses, trade secrets, domain names or
other proprietary rights of any other Person.
4.7 Litigation. Except as set forth on Schedule 4.7 attached
hereto, there is no claim, action, suit or proceeding, at law or in equity,
pending against G&EG that might result, either in any case or in the aggregate,
in any material adverse change in the business, assets or financial condition of
G&EG, nor is there any judgment, decree, injunction, order or writ of any court,
governmental authority or arbitrator outstanding against G&EG having, or which
insofar as can be reasonably foreseen, in the future may have, any such effect.
4.8 Compliance with Contracts. G&EG is not in violation or default
of any material term or provision of any material agreement, contract, lease,
license or instrument to which G&EG is a party or by which it or any of its
properties or assets are bound.
4.9 No Conflict. The execution and delivery of this Agreement and
the consummation of the transactions contemplated herein do not and will not
conflict with, or result in a breach of any term or provision of, or constitute
a default under or result in a violation of, the Articles of Incorporation or
Bylaws of G&EG, as amended, or any material agreement, contract, lease, license
or instrument to which G&EG is a party or by which it or any of its properties
or assets are bound.
4.10 Compliance with Applicable Law. G&EG has, in all material
respects, complied with all laws, regulations and orders applicable to its
business, except in any case where the failure to comply would not have a
material adverse effect on G&EG or its business, and G&EG has all permits and
licenses required by such laws, regulations and orders.
4.11 Governmental Consent. No consent, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority is required
by or with respect to G&EG in connection with the execution and delivery of this
Agreement or the consummation by G&EG of the transactions contemplated herein.
4.12 Third Party Consent. G&EG has obtained or prior to Closing
will obtain all consents required to be obtained by G&EG from third parties
material to the business of G&EG in connection with the execution and delivery
of this Agreement and the consummation of the transactions contemplated herein,
other than such consents which if not obtained would not have a material adverse
effect on the Company or its business.
4.13 Brokers or Finders. G&EG has not incurred, and will not
incur, directly or indirectly, as a result of any action taken by G&EG, any
liability for any brokerage or finders' fees or agents' commissions or any
similar charges in connection with this Agreement or any transaction
contemplated herein.
6
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to G&EG and the G&EG
Stockholders as follows:
5.1 Authority. The Company has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated herein. The execution and delivery of this Agreement, the
consummation of the transactions contemplated herein, and the issuance of the
Company Shares in accordance with the terms hereof, have been duly authorized by
all necessary corporate action on the part of the Company. This Agreement has
been duly executed and delivered by the Company and constitutes the valid and
binding obligation of the Company, enforceable in accordance with its terms.
5.2 Organization.
(a) The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Utah. The Company
has the corporate power and authority to carry on its business as presently
conducted and is qualified to do business as a foreign corporation and is in
good standing under the laws of each state in which either the ownership or use
of the properties owned or used by it, or the nature of the activities conducted
by it, requires such qualification, except where the failure to be so qualified
would not have a material adverse effect on the business or financial condition
of the Company.
(b) The copies of the Articles of Incorporation, and all
amendments thereto, of the Company, as certified by the Secretary of State of
Utah, and the Bylaws of the Company and all amendments thereto, as certified by
the Secretary of the Company, which have heretofore been delivered to G&EG for
examination, are complete and correct copies of the Articles of Incorporation
and Bylaws of the Company as amended and in effect on the date hereof. All
minutes of meetings and actions in writing without a meeting of the Board of
Directors and stockholders of the Company are contained in the minute book of
the Company heretofore delivered to G&EG for examination, and no minutes or
actions in writing without a meeting have been included in such minute book
since such delivery to G&EG that have not also been delivered to G&EG. The
minute book of the Company contains complete and accurate records of all
meetings and other corporate actions of its Board of Directors and stockholders.
5.3 Capitalization.
(a) The authorized capital stock of the Company consists of
150,000,000 shares of Common Stock, par value $.01 per share; 1,000,000 shares
of Class A convertible preferred stock, par value $10 per share; and 1,000,000
shares of Class B convertible preferred stock, par value $10 per share. As of
the date of this Agreement, 34,793,825 shares of Common Stock of the Company are
issued and outstanding and no shares of Class A convertible preferred stock or
Class B convertible preferred stock of the Company are issued and outstanding.
As of the Closing Date, there will be no more than One Million Four Hundred
Thousand (1,400,000) shares of
7
Common Stock of the Company issued and outstanding, excluding up to One Thousand
(1,000) shares of Common Stock which may be issued by the Company in connection
with the rounding up of fractional shares resulting from the reverse stock split
referred to in Section 8.4 hereof, and there will be no shares of Class A
convertible preferred stock or Class B convertible preferred stock of the
Company issued and outstanding. All of the issued and outstanding shares of
Common Stock of the Company are duly authorized, validly issued, fully paid and
nonassessable, are not subject to preemptive rights created by statute, the
Company's Articles of Incorporation or Bylaws or any agreement to which the
Company is a party or by which it is bound, and were offered and sold in
compliance with applicable state and federal securities laws.
(b) There are no outstanding options, warrants,
subscriptions, calls, rights, demands, commitments, convertible securities or
other agreements or arrangements of any character or kind whatsoever to which
the Company is a party or by which it is bound obligating the Company to issue,
deliver or sell, or cause to be issued, sold or delivered, additional shares of
capital stock of the Company or obligating the Company to grant, extend or enter
into any such option, warrant, subscription, call, right, demand, commitment,
convertible security or other agreement.
(c) The Company Shares to be sold to the G&EG Stockholders,
when issued and delivered in accordance with the terms of this Agreement, will
be duly authorized, validly issued, fully paid and nonassessable.
5.4 Equity Investments.
(a) As of the date hereof, the Company has no subsidiaries
and does not own any capital stock or have any interest in any other corporation
or in any partnership, limited liability company or other form of business
entity, except as set forth on Schedule 5.4 attached hereto.
(b) As of the date of Closing, the Company will not have
any subsidiaries and will not own any capital stock or have any interest in any
of the entities described on Schedule
5.4 attached hereto or in any other corporation, partnership or
other form of business entity.
5.5 Financial Statements.
(a) The Company has delivered to G&EG copies of its audited
balance sheet for the fiscal year ended December 31, 2002 and the related
audited statements of operations, changes in stockholders' equity and cash flows
for the two years ended December 31, 2002 together with appropriate notes to
such financial statements, and copies of its unaudited balance sheet as of June
30, 2003 (the "Company Balance Sheet") and the related unaudited statements of
operations, changes in stockholders' equity and cash flows for the six month
period ended June 30, 2003 (collectively, the "Company Financial Statements"). A
copy of the Company's audited financial statements delivered to G&EG pursuant to
this Section 5.5 is included in the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 2002 filed by the Company with the Securities
and Exchange Commission ("SEC"), and a copy of the Company's unaudited financial
8
statements delivered to G&EG pursuant to this Section 5.5 is included in the
Company's Quarterly Report on Form 10-QSB for the six month period ended June
30, 2003 filed by the Company with the SEC. The Company Financial Statements
have been prepared in accordance with generally accepted accounting principles
consistently applied, and present fairly the financial condition and results of
operations of the Company at the dates and for the periods covered by the
Company Financial Statements.
(b) The books and records, financial and otherwise, of the
Company are in all material respects complete and correct and have been
maintained in accordance with sound business and bookkeeping practices so as to
accurately and fairly reflect, in reasonable detail, the transactions and
dispositions of the assets of the Company.
5.6 Absence of Liabilities.
(a) As of the date hereof, the Company does not have any
debts, liabilities or obligations of any kind, whether accrued, absolute,
contingent or otherwise, and whether due or to become due, that are not set
forth on Schedule 5.6(a) attached hereto.
(b) As of the Closing Date, the Company will not have any
debts, liabilities or obligations of any kind, whether accrued, absolute,
contingent or otherwise, and whether due or to become due.
5.7 Absence of Certain Changes or Events. Since the date of the
Company Balance Sheet, the Company has not:
(a) Conducted any business or engaged in any activities
other than activities related to the negotiation and execution of this
Agreement;
(b) Declared or made any payment of dividends or other
distributions to its stockholders or upon or in respect of any shares of its
capital stock or purchased, or obligated itself to purchase, retire or redeem,
any shares of its capital stock or other securities;
(c) Issued or sold or agreed to issue or sell any shares of
its capital stock or other securities, or issued, granted or sold or agreed to
issue, grant or sell, any options rights or warrants with respect thereto;
(d) Amended its Articles of Incorporation or Bylaws;
(e) Entered into or become bound by or agreed to enter into
or become bound by any contract, instrument, lease, license, agreement,
transaction, commitment or undertaking;
(f) Borrowed or agreed to borrow any funds; incurred or
agreed to incur or become subject to any debts, liabilities or obligations of
any kind whatsoever; subjected or agreed
9
to subject any of the assets or properties of the Company to any lien, security
interest, charge, interest or other encumbrance or suffered such to be imposed;
or guaranteed or agreed to guarantee the debts or obligations of others; or
(g) Paid or made any accrual or arrangement for payment of
compensation of any kind to any of its past or present directors, officers or
employees.
5.8 Assets. The Company does not own or have any interest in any
assets or properties other than the mineral rights attributable to the gold
mining claims described on Schedule 5.8 attached hereto (the "Claims"). Except
as set forth on Schedule 5.8 hereto, the Claims and all other assets and
properties of the Company are free and clear of all liens, security interests or
encumbrances of any kind whatsoever.
5.9 Mining Operations. The Company is holding the Claims for
investment purposes and is not conducting and has never conducted any mining
operations on any property which is the subject of any of the Claims. The
Company has not received any notice of any investigation, claim or proceeding
against the Company relating to Hazardous Materials, and the Company is not
aware of any fact or circumstance which could involve the Company in any
environmental litigation, proceeding, investigation or claim or impose any
environmental liability upon the Company. As used herein, "Hazardous Materials"
shall mean any substance regulated or prohibited by any law or designated by any
governmental agency to be hazardous, toxic, radioactive or otherwise a danger to
health, safety or the environment.
5.10 Tax Returns. Within the times and in the manner prescribed by
law, the Company has filed all federal, state, and local tax returns required by
law and has paid in full all taxes, including, without limitation, all net
income, gross receipts, sales, use, withholding, payroll, employment, social
security, unemployment, excise and property taxes, plus applicable penalties and
interest thereon (all such items are collectively referred to as "Taxes") due
to, or claimed to be due by, any governmental authority. The Company Balance
Sheet fully accrues all current and deferred Taxes. The Company has not been
delinquent in the payment of any Taxes and has no tax deficiency or claim
outstanding, proposed or assessed against it, and there is no basis for any such
deficiency or claim. As of the Closing Date, the Company will not have any
liability for Taxes.
5.11 Litigation. There is no claim, action, suit, proceeding or
investigation, at law or in equity, pending or threatened against the Company or
involving, affecting or relating to any of its properties or assets, nor is
there any judgment, decree, injunction, order or writ of any court, governmental
authority or arbitrator outstanding against the Company or any of its property
or assets.
5.12 Compliance with Applicable Law. The Company has complied with
all laws, regulations and orders applicable to its business and has all permits
and licenses required thereby.
5.13 Contracts and Agreements. Except as set forth on Schedule
5.13 attached hereto, the Company is not a party to or bound by nor are any of
its properties and assets subject to
10
or bound by any contract, instrument, lease, license, agreement, guaranty,
commitment or other arrangement.
5.14 Employees; Employee Plans. Except as set forth on Schedule
5.14 attached hereto, the Company does not have any employees, consultants or
advisors and is not a party to or bound by any employment, consulting, or
retainer agreement, or any profit-sharing, deferred compensation, bonus,
savings, stock option, stock bonus, stock purchase, severance, benefit,
retirement, disability, insurance, vacation or any other similar employee
benefit plans, funds, programs, agreements or arrangements which cover, are
maintained for the benefit of, or related to any or all current or former
employees, officers or directors of the Company.
5.15 No Conflict. The execution and delivery of this Agreement and
the consummation of the transactions contemplated herein do not and will not
conflict with or result in a breach of any term or provision of, constitute a
default under or result in a violation of, the Articles of Incorporation or
Bylaws of the Company, as amended, or any agreement, contract, lease, license,
or instrument to which the Company is a party or by which it or any of its
properties or assets are bound.
5.16 Third Party Consent. The Company has obtained or prior to the
Closing will obtain all consents required to be obtained by the Company from
third parties in connection with the execution and delivery of this Agreement
and the consummation of the transactions contemplated by this Agreement.
5.17 Governmental Consent. Except as set forth on Schedule 5.17
attached hereto, the Company is not required to submit any notice, report,
statement, or other filing with and no consent, approval, order or authorization
by any court, administrative agency or commission or other governmental
authority is required to be obtained by the Company in connection with the
execution and delivery of this Agreement and the sale and issuance of the
Company Shares pursuant hereto, other than (a) the filing of a proxy statement
with the SEC in accordance with Section 14 of the Securities Exchange Act of
1934 (the "Exchange Act") and the rules and regulations promulgated thereunder,
and such other filings as may be required under the Exchange Act in connection
with the reverse stock split described in Section 8.4 hereof, (b) such filings
as may be required to be made under federal and applicable state securities laws
after the issuance of the Company Shares, and (c) the filing of a Certificate of
Amendment to its Articles of Incorporation with the Secretary of State of Utah
in accordance with applicable provisions of the Utah Corporation Code in order
to effect the reverse stock split described in Section 8.4 hereof.
5.18 Stockholder List. A complete and accurate list of the
stockholders of record of the Company as of July 31, 2003, which stockholder
list accurately reflects the number of outstanding shares of the Company's stock
and the number of such shares which bear a restrictive legend or are subject to
stop transfer orders or other restrictions on transfer, has been delivered to
G&EG.
5.19 Registration Rights. No Person has demand or other rights to
cause the
11
Company to file any registration statement under the Securities Act of 1933
relating to any securities of the Company or any right to participate in any
such registration statement.
5.20 Compliance with Securities Laws.
(a) All reports required to be filed by the Company with
the Securities and Exchange Commission (collectively, the "Reports") have been
properly filed and fully comply with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder with respect to such Reports. The information contained in the
Reports fairly presents, in all material respects, the financial condition and
results of operations of the Company. None of the filed Reports contain any
untrue statement of a material fact, or fail to state any material fact required
to be stated therein or necessary to make the statements made therein not
misleading.
(b) No formal or informal investigation or examination by
the Securities and Exchange Commission or by the securities administrator of any
state is pending or threatened against the Company.
(c) The Company has not been convicted of any felony or
misdemeanor in connection with the purchase and sale of any security or
involving the making of any false filing with the Securities and Exchange
Commission.
(d) The Company is not subject to any order, judgment or
decree of any court of competent jurisdiction, temporarily or preliminarily
restraining or enjoining, or subject to any order, judgment or decree of any
court of competent jurisdiction, permanently restraining or enjoining, the
Company from engaging in or continuing any conduct or practice in connection
with the purchase or sale of any security or involving the making of any false
filing with the Securities and Exchange Commission.
5.21 Investment Company. The Company is not required to be
registered as an investment company under the Investment Company Act of 1940, as
amended, and neither the Company nor its officers or directors are required to
be registered as investment advisors under the Investment Advisor Act of 1940,
as amended.
6. COVENANTS RELATING TO CONDUCT OF BUSINESS OF G&EG
During the period from the date of this Agreement and continuing
until the Closing, G&EG agrees (except to the extent that the Company shall
otherwise consent in writing) that:
6.1 Ordinary Course. G&EG shall carry on its business in the usual
and ordinary course, in substantially the same manner as heretofore conducted.
12
7. COVENANTS RELATING TO CONDUCT OF BUSINESS OF THE COMPANY
During the period from the date of this Agreement and continuing
until the Closing, the Company agrees (except as expressly contemplated by this
Agreement or to the extent that G&EG shall otherwise consent in writing) that:
7.1 Ordinary Course. The Company shall not conduct any business or
engage in any activities other than activities related to the closing of the
transactions contemplated by this Agreement.
7.2 Dividends or Other Distributions. The Company shall not and
shall not propose to (i) declare or pay any dividends on or make other
distributions to its stockholders or upon or in respect of any shares of its
capital stock, or (ii) purchase or obligate itself to purchase, retire or redeem
any shares of its capital stock or other securities.
7.3 Issuance of Securities. The Company shall not issue, deliver
or sell or authorize or agree to issue, deliver or sell any shares of its
capital stock or other securities, or issue, grant or sell, or agree to issue,
grant or sell, any options, rights or warrants with respect thereto.
7.4 Governing Documents. The Company shall not amend its Articles
of Incorporation, except to effect the reverse stock split referred to in
Section 8.4 of this Agreement, or amend its Bylaws.
7.5 No Contracts or Undertakings. The Company shall not enter into
or become bound by or agree to enter into or become bound by any contract,
instrument, lease, license, agreement, transaction, commitment or undertaking.
7.6 No Obligations or Liabilities. The Company shall not borrow or
agree to borrow any funds or incur or agree to incur or become subject to any
debts, obligations or liabilities of any kind whatsoever, except obligations for
legal fees, accounting fees and other fees, costs and expenses incurred in
connection with the negotiation and execution of this Agreement and the
consummation of the transactions contemplated herein (the "Permitted
Obligations"), provided that all such Permitted Obligations are fully paid or
otherwise satisfied or discharged by the Company on or prior to the Closing
Date.
7.7 No Liens or Guarantees. The Company shall not subject or agree
to subject any of the assets or properties of the Company to any lien, security
interest, charge, interest or other encumbrance of any kind or suffer such to be
imposed, or guarantee or agree to guarantee the debts or obligations of others.
7.8 No Compensation Payments. The Company shall not pay or make
any accrual or arrangement for payment of compensation of any kind to any of its
past or present directors, officers or employees.
13
8. ADDITIONAL AGREEMENTS
8.1 Access to Information.
(a) G&EG shall afford to the Company and shall cause its
independent accountants to afford to the Company, and its accountants, counsel
and other representatives, reasonable access during normal business hours during
the period prior to the Closing to all information concerning G&EG, as the
Company may reasonably request, provided that G&EG shall not be required to
disclose any information which it is legally required to keep confidential. The
Company will not use such information for purposes other than this Agreement and
will otherwise hold such information in confidence (and the Company will cause
its consultants and advisors also to hold such information in confidence) until
such time as such information otherwise becomes publicly available, and in the
event of termination of this Agreement for any reason the Company shall promptly
return, or cause to be returned, to the disclosing party all documents obtained
from G&EG, and any copies made of such documents, extracts and copies thereof.
(b) The Company shall afford to G&EG and the G&EG
Stockholders and shall cause its independent accountants to afford to G&EG and
the G&EG Stockholders, and their accountants, counsel and other representatives,
reasonable access during normal business hours during the period prior to the
Closing to all of the Company's properties, books, contracts, commitments and
records and to the audit work papers and other records of the Company's
independent accountants. During such period, the Company shall use reasonable
efforts to furnish promptly to G&EG and the G&EG Stockholders such information
concerning the Company as G&EG and the G&EG Stockholders may reasonably request,
provided that the Company shall not be required to disclose any information that
it is legally required to keep confidential. G&EG and the G&EG Stockholders will
not use such information for purposes other than this Agreement and will
otherwise hold such information in confidence (and G&EG and the G&EG
Stockholders will cause their respective consultants and advisors also to hold
such information in confidence) until such time as such information otherwise
becomes publicly available, and in the event of termination of this Agreement
for any reason G&EG and the G&EG Stockholders shall promptly return, or cause to
be returned, to the disclosing party all documents obtained from the Company,
and any copies made of such documents, extracts and copies thereof.
8.2 Communications. Between the date hereof and the Closing Date,
neither G&EG nor the Company will, without the prior written approval of the
other party, furnish any communication to the public if the subject matter
thereof relates to the other party or to the transactions contemplated by this
Agreement, except as may be necessary, in the opinion of their respective
counsel, to comply with the requirements of any law, governmental order or
regulation.
8.3 Securities Laws. The Company shall take such actions as may be
necessary to comply with the federal securities laws and the securities laws of
all states which are applicable in connection with the issuance of the Company
Shares, the Company Options and the Company Warrants to the G&EG Stockholders,
the G&EG Option Holders and the G&EG Warrant Holders, respectively, pursuant to
this Agreement.
14
8.4 Reverse Stock Split. Prior to the Closing, the Company shall
effect a reverse split of its outstanding Common Stock, as a result of which the
Company will have not more than one million four hundred thousand (1,400,000)
shares of Common Stock outstanding immediately prior to the Closing, excluding
up to One Thousand (1,000) shares of Common Stock which may be issued by the
Company in connection with rounding up fractional shares resulting from the
reverse stock split.
8.5 Name Change. Prior to the Closing, the Company's Board of
Directors and the holders of a majority of the Company's issued and outstanding
common stock shall duly and lawfully authorize and approve, subject to and
contingent upon consummation of the transactions contemplated by this Agreement,
an amendment to the Company's Articles of Incorporation to change the name of
the Company to Gaming & Entertainment Group, Inc.
8.6 Meeting of Stockholders. Prior to the Closing, the Company
shall hold a meeting of its stockholders (the "Stockholders Meeting") for the
purpose of approving amendments to the Company's Articles of Incorporation which
have been authorized and approved by the Company's Board of Directors to (a)
effect a reverse split of the Company's outstanding Common Stock as a result of
which the Company will have not more than one million four hundred thousand
(1,400,000) shares of Common Stock outstanding immediately prior to the Closing,
excluding up to One Thousand (1,000) shares of Common Stock which may be issued
by the Company in connection with rounding up fractional shares resulting from
the reverse stock split, and (b) change the name of the Company to Gaming &
Entertainment Group, Inc. after the consummation of the transactions
contemplated by this Agreement. All actions taken in connection with the
Stockholders Meeting shall be in compliance with all applicable provisions of
the Utah Corporations Code and all applicable provisions of the federal
securities laws, including, without limitation, Section 14 of the Securities
Exchange Act of 1934 and the rules and regulations promulgated thereunder.
8.7 Change in Board of Directors. The Company shall, not less than
10 days prior to the Closing Date, file with the Securities and Exchange
Commission ("SEC") and transmit to all holders of record of the Company's
outstanding Common Stock, the information required by Rule 14f-1 of the
Securities Exchange Act of 1934 concerning the change in the Company's Board of
Directors which will occur upon consummation of the transactions contemplated by
this Agreement.
8.8 Payment of Liabilities. Prior to the Closing, the Company
shall pay or otherwise satisfy or discharge all of its debts, obligations and
liabilities of any kind whatsoever, including, without limitation, all of the
debts, obligations and liabilities set forth on Schedule 5.6(a) attached hereto
or reflected on the Company Balance Sheet, and all of the Permitted Obligations
referred to in Section 7.6 hereof.
9. CONDITIONS PRECEDENT
9.1 Conditions to Obligations of the Company. The obligations of
the Company to consummate the transactions contemplated by this Agreement are
subject to the satisfaction on or before the date of Closing of the following
conditions, unless waived by the Company:
15
(a) List of G&EG Stockholders. G&EG shall have delivered to
the Company for attachment as Exhibit A to this Agreement a true and correct
copy of a list of the G&EG Stockholders who are parties to this Agreement and
the number of G&EG Shares owned by each such Stockholder, and the total number
of G&EG Shares set forth opposite the names of all of the Stockholders listed on
Exhibit A shall constitute not less than 90% of the total number of issued and
outstanding shares of Common Stock of G&EG immediately prior to the Closing, as
set forth on Schedule 4.3(a) to be delivered by G&EG to the Company for
attachment hereto prior to the Closing.
(b) Schedule of Outstanding Shares. G&EG shall have
delivered to the Company for attachment to this Agreement a copy of Schedule
4.3(a) which sets forth the total number of issued and outstanding shares of
Common Stock of G&EG immediately prior to the Closing.
(c) Minimum Number of G&EG Shares. G&EG Stockholders
holding at least 90% of the issued and outstanding shares of Common Stock of
G&EG shall have executed and delivered a copy of this Agreement and shall have
delivered to the Company the stock certificates and investment letters referred
to in Section 2.2 above.
(d) Representations and Warranties of the G&EG
Stockholders. The representations and warranties of the G&EG Stockholders set
forth in Article 3 of this Agreement shall be true and correct in all material
respects as of the date of this Agreement and on the date of the Closing.
(e) Representations and Warranties of G&EG. The
representations and warranties of G&EG set forth in Article 4 of this Agreement
shall be true and correct in all material respects as of the date of this
Agreement and on the date of Closing, and the Company shall have received a
certificate to such effect signed by the chief executive officer of G&EG.
(f) Additional Closing Documents. The Company shall have
received the following documents and instruments:
(1) Certified resolutions of the G&EG Board of Directors
authorizing the execution and delivery of this Agreement and the performance by
G&EG of its obligations hereunder; and
(2) Such other documents and instruments as are required to
be delivered pursuant to the provisions of this Agreement or otherwise
reasonably requested by the Company.
9.2 Conditions to Obligations of G&EG and the G&EG Stockholders.
The obligations of G&EG and the G&EG Stockholders to consummate the transactions
contemplated by this Agreement are subject to the satisfaction on or before the
Closing Date of the following conditions unless waived by G&EG and the G&EG
Stockholders or their Agent:
(a) Representations and Warranties of the Company. The
representations and warranties of the Company set forth in Article 5 of this
Agreement shall be true and correct in
16
all material respects as of the date of this Agreement and on the Closing Date,
and G&EG and the G&EG Stockholders shall have received a certificate to such
effect signed by the chief executive officer of the Company.
(b) Performance of Obligations of the Company. The Company
shall have performed in all material respects all obligations required to be
performed by it under this Agreement prior to the Closing Date, and G&EG and the
G&EG Stockholders shall have received a certificate to such effect signed by the
chief executive officer of the Company.
(c) Reverse Stock Split. The Board of Directors and
stockholders of the Company shall have duly and lawfully approved, in accordance
with the Utah Corporations Code and Section 14 of the Securities Exchange Act of
1934 and the rules and regulations promulgated thereunder, a reverse split of
the Company's outstanding Common Stock, as a result of which the Company will
have not more than one million four hundred thousand (1,400,000) shares of
Common Stock outstanding immediately prior to the Closing, excluding up to One
Thousand (1,000) shares of Common Stock which may be issued by the Company in
connection with rounding up fractional shares resulting from the reverse stock
split, and a Certificate of Amendment to the Company's Articles of Incorporation
describing such reverse split shall have been duly filed with the Secretary of
State of Utah and a certified copy thereof shall have been provided to G&EG.
(d) Information Concerning Change in Company's Board of
Directors. At least 10 days prior to the Closing Date, the Company shall have
filed with the SEC and transmitted to the holders of record of the Company's
outstanding Common Stock the information required by Rule 14f-1 of the
Securities Exchange Act of 1934 concerning the change in the Company's Board of
Directors which will occur at the Closing.
(e) Absence of Liabilities. The Company shall have paid or
otherwise satisfied or discharged all of its debts, obligations and liabilities
of any kind whatsoever, including, without limitation, all of the debts,
obligations and liabilities set forth on Schedule 5.6(a) hereto or reflected on
the Company Balance Sheet and all of the Permitted Obligations referred to in
Section 7.6 hereof, and G&EG and the G&EG Stockholders shall have received a
certificate signed by the chief executive officer of the Company that as of the
Closing Date, the Company does not have any debts, obligations or liabilities of
any kind whatsoever, whether accrued, absolute, contingent or otherwise, and
whether due or to become due.
(f) Resignations. The Company shall have received and
accepted the written resignations of all of the Company's officers and directors
as of the Closing Date, and shall have delivered such resignations to G&EG.
(g) Election of Directors and Officers. The Board of
Directors of the Company shall have elected persons designated by G&EG to serve
as directors and officers of the Company effective as of the Closing Date.
(h) Change of Name. The Company's Board of Directors and
stockholders shall have duly authorized and approved, in accordance with the
Utah Corporations Code and Section 14 of the Securities Exchange Act of 1934 and
the rules and regulations
17
promulgated thereunder, an amendment to the Company's Articles of Incorporation
to change the name of the Company to Gaming & Entertainment Group, Inc.
(i) Option Exchange Agreements. The Company shall have
entered into an Option Exchange Agreement with each G&EG Option Holder which
provides that (a) such G&EG Option Holder agrees to assign and transfer such
holder's G&EG Option to the Company for cancellation in exchange for a Company
Option, and (b) the number of shares issuable upon exercise of the Company
Option and the exercise price and other material terms and conditions of the
Company Option to be granted to such G&EG Option Holder shall be the same as the
number of shares issuable upon exercise of the G&EG Option and the exercise
price and other material terms and conditions of the G&EG Option, except as
otherwise agreed to by such G&EG Option Holder and the Company.
(j) Warrant Exchange Agreements. The Company shall have
entered into a Warrant Exchange Agreement with each G&EG Warrant Holder which
provides that (a) such G&EG Warrant Holder agrees to assign and transfer such
holder's G&EG Warrant to the Company for cancellation in exchange for a Company
Warrant, and (b) the number of shares issuable upon exercise of the Company
Warrant and the exercise price and other material terms and conditions of the
Company Warrant to be issued to such G&EG Warrant Holder shall be the same as
the number of shares issuable upon exercise of the G&EG Warrant and the exercise
price and other material terms and conditions of the G&EG Warrant, except as
otherwise agreed to by the G&EG Warrant Holder and the Company.
(k) Opinion of Counsel. The Company shall have delivered to
G&EG and the G&EG Stockholders an opinion of its counsel dated the Closing Date
on the matters set forth on Schedule 9.2(k) attached hereto.
(l) Additional Closing Documents. G&EG shall have received
the following documents and instruments:
(1) Certified resolutions of the Company's Board of
Directors (a) authorizing the execution and delivery of this Agreement and the
performance by the Company of its obligations hereunder, (b) authorizing the
execution and delivery of the Option Exchange Agreements and the Company Options
described in Section 9.2(i) above, (c) authorizing the execution and delivery of
the Warrant Exchange Agreements and the Company Warrants described in Section
9.2(j) above, (d) electing the persons designated by G&EG as officers and
directors of the Company effective as of the Closing Date, (e) authorizing an
amendment to the Company's Articles of Incorporation to effect the reverse stock
split described in Section 9.2(c) above, and (f) authorizing an amendment to the
Company's Articles of Incorporation to change the Company's name in accordance
with Section 9.2(h) above;
(2) Certified resolutions of the Company's stockholders
approving an amendment to the Company's Articles of Incorporation to (i) effect
the reverse stock split described in Section 9.2(c) above, and (ii) to change
the name of the Company in accordance with Section 9.2(h) above;
18
(3) A certificate of good standing of the Company from the
Secretary of State of Utah dated as of the most recent practicable date;
(4) A list of the Company's stockholders as of a date
within two days of Closing certified by the Company's stock transfer agent; and
(5) Such other documents and instruments as are required to
be delivered pursuant to the provisions of this Agreement or otherwise
reasonably requested by G&EG. (m) Minimum Number of G&EG Shares. G&EG
Stockholders holding at least 90% of the issued and outstanding Common Stock of
G&EG shall have executed and delivered a copy of this Agreement and shall have
delivered to the Company the stock certificates and investment letters referred
to in Section 2.2 above.
19
10. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
10.1 Survival of Representations and Warranties. The
representations and warranties contained herein shall survive the Closing, but
shall expire on the first anniversary date following the date of Closing, unless
a specific claim in writing with respect to these matters shall have been made,
or any action at law or in equity shall have been commenced or filed before such
anniversary date. Any investigations made by or on behalf of any of the parties
prior to the date of Closing shall not affect any of the parties' obligations
hereunder. Completion of the transactions contemplated herein shall not be
deemed or construed to be a waiver of any right or remedy of any of the parties.
11. INDEMNIFICATION
11.1 Indemnification. The Company agrees to indemnify, defend and
hold harmless G&EG and the G&EG Stockholders from and against any and all
demands, claims, actions or causes of action, assessments, losses, damages,
liabilities, costs and expenses, including interest, penalties and reasonable
attorneys' fees and expenses (collectively "Damages") asserted against,
resulting to, imposed upon or incurred by G&EG or the G&EG Stockholders,
directly or indirectly, by reason of or resulting from (i) any breach by the
Company of this Agreement, or (ii) any inaccuracy in or breach of any of the
representations, warranties, covenants or agreements made by the Company in this
Agreement.
11.2 Limitation. The liability of the Company pursuant to this
Section 11 shall be limited to claims for damages made by G&EG or the G&EG
Stockholders in writing within one (1) year after the date of this Agreement or,
with respect to claims relative to tax liabilities for periods ending on or
prior to the date of this Agreement, within the period of any applicable statute
of limitations.
11.3 Claims. In the event that G&EG or the G&EG Stockholders
(hereinafter collectively referred to as the "Indemnified Party") shall
reasonably believe that it has a claim for Damages ("Claim"), it shall give
prompt notice in accordance herewith to the Company (the "Indemnifying Party")
of the nature and extent of such Claim and the Damages incurred by it. If the
Damages are liquidated in amount, the notice shall so state, and such amount
shall be deemed the amount of such Claim of the Indemnified Party against the
Indemnifying Party. If the amount is not liquidated, the notice shall so state
and, in such event, such Claim shall be deemed asserted against the Indemnifying
Party but no payment or satisfaction shall be made on account thereof until the
amount of such claim is liquidated.
If the Indemnifying Party shall not, within thirty (30) days after
the giving of such notice by the Indemnified Party, notify the Indemnified Party
in accordance herewith that the Indemnifying Party disputes the right of the
Indemnified Party to indemnity in respect of such Claim, then any such Claim
shall be paid or satisfied as follows: (i) if said Claim is liquidated, then
payment of such Claim to the Indemnified Party shall be made by the Indemnifying
Party at the end of such period; or (ii) if the amount of such Claim is
unliquidated at the time notice is originally given to the Indemnifying Party,
the Indemnified Party shall give a second notice to the Indemnifying Party when
the liquidated amount of such Claim is known and, unless the
20
Indemnifying Party shall object in writing to such amount (as opposed to the
Claim itself, as to which the right to dispute had expired) within twenty (20)
days after the giving of said second notice, payment of such Claim to the
Indemnified Party shall be made by the Indemnifying Party. If the Indemnifying
Party shall not have made payment to the Indemnified Party of any Claim when
said payment is due, then the Indemnified Party shall have the right to take any
and all actions required to collect from the Indemnifying Party the amount of
such Claim. Any portion of the amount of Damages asserted by the Indemnified
Party in connection with a Claim shall, if not objected to by the Indemnifying
Party in accordance with the procedures established herein, be considered to be
subject to satisfaction without further objection, as may be appropriate.
If the Indemnifying Party shall notify the Indemnified Party that
the Indemnifying Party disputes any Claim or the amount thereof (which notice
shall only be given if the Indemnifying Party has a good faith belief that the
Indemnified Party is not entitled to indemnity or the full amount of indemnity
as claimed) then the parties hereto shall endeavor to settle and compromise such
Claim, or may agree to submit the same to arbitration, and, if unable to agree
on any settlement or compromise or on submission to arbitration, such claim
shall be settled by appropriate litigation, and any liability and the amount of
the Damages established by reason of such settlement, compromise, arbitration or
litigation, or incurred as a result thereof, shall be paid and satisfied as
provided herein.
11.4 Conditions of Indemnification with Respect to Third Party
Claims. The Indemnified Party shall promptly give notice to the Indemnifying
Party of any claim of a third party which may reasonably be expected to result
in a Claim by the Indemnified Party. The Indemnifying Party shall have the right
to participate in and, with respect to a third party Claim as to which the
Indemnifying is "wholly at risk," direct the defense, compromise or settlement
of such claim with counsel selected by the Indemnifying Party, provided the
Indemnifying Party gives written notice to the Indemnified Party of the
Indemnifying Party's election to do so within thirty (30) days after receipt of
notice in accordance with the preceding sentence. For the purposes of this
Section 11.4, the Indemnifying Party shall be deemed to be "wholly at risk"
except as to (i) Claims as to which the Indemnified Party may have any direct
monetary risk for which it is not fully indemnified by the terms hereof or (ii)
Claims as to which the Indemnified Party in its reasonable judgment has any risk
or liability for which compensation by monetary damages would not be adequate.
If the Indemnifying Party fails to so notify the Indemnified Party of its
election to defend any such third party claim, the Indemnified Party will (upon
further notice to the Indemnifying Party) have the right to undertake the
defense, compromise or settlement of such claim on behalf of and for the account
and expense of the Indemnifying Party, subject to the right of the Indemnifying
Party to assume the defense of such claim at any time prior to settlement,
compromise or final determination thereof.
If the proceeding involves matters as to which the Indemnifying
Party is not "wholly at risk," then the defense, compromise or settlement of the
Claim shall be the responsibility of the Indemnified Party, but such defense,
compromise and settlement by the Indemnified Party shall be for the expense and
account of the Indemnifying Party. Counsel for the Indemnifying Party shall
21
consult and cooperate at all times with counsel for the Indemnified Party in
defending against any such third party claim. The Indemnifying Party shall not
under any circumstances, without the written consent of the Indemnified Party,
settle or compromise any claim or consent to the entry of any judgment which
does not include as an unconditional term thereof the giving by the claimant or
the plaintiff to the Indemnified Party a release from all liability in respect
of such claim.
12. TERMINATION
12.1 Termination. This Agreement may be terminated at any time
prior to the Closing Date:
(a) by mutual written consent of the Company, G&EG and the
G&EG Stockholders or their Agent;
(b) by the Company if there has been a material breach of
any representation, warranty, covenant or agreement contained in this Agreement
by G&EG or the G&EG Stockholders;
(c) by G&EG and the G&EG Stockholders or their Agent if
there has been a material breach of any representation, warranty, covenant or
agreement contained in this Agreement by the Company; or
(d) by either the Company or G&EG and the G&EG Stockholders
or their Agent if the Closing shall not have occurred by December 31, 2003, or
such later date as shall have been approved by the Company, G&EG and the G&EG
Stockholders or their Agent. 12.2 Effect of Termination. Termination of this
Agreement in accordance with Section 12.1 may be effected by written notice from
either the Company or G&EG and the G&EG Stockholders or their Agent, as
appropriate, specifying the reasons for termination and shall not subject the
terminating party to any liability for any valid termination.
13. MISCELLANEOUS
13.1 Tax Treatment. The transaction contemplated herein is
intended to qualify as a "tax-free" reorganization under the provisions of
Section 368 of the Internal Revenue Code of 1986, as amended. The Company, G&EG
and the G&EG Stockholders acknowledge, however, that no party hereto has made
any representation or warranty to the other with respect to the treatment of
such transaction or the effect thereof under applicable tax laws, regulations,
or interpretations; and that no attorney's opinion or private revenue ruling has
been obtained with respect to the effects thereof under the Internal Revenue
Code of 1986, as amended.
13.2 Further Assurances. From time to time, at the other party's
request and without further consideration, each of the parties will execute and
deliver to the others such documents and take such action as the other party may
reasonably request in order to consummate
22
more effectively the transactions contemplated hereby.
13.3 Attorney's Fees and Expenses. If any legal action or any
arbitration or other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default, or
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing party or parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or they may be entitled.
13.4 Parties in Interest. Except as otherwise expressly provided
herein, all the terms and provisions of this Agreement shall be binding upon,
shall inure to the benefit of and shall be enforceable by the respective heirs,
beneficiaries, personal and legal representatives, successors and assigns of the
parties hereto.
13.5 Entire Agreement; Amendments. This Agreement, including the
Schedules, Exhibits and other documents and writings referred to herein or
delivered pursuant hereto, which form a part hereof, contains the entire
understanding of the parties with respect to its subject matter. There are no
representations, warranties or covenants other than those expressly set forth
herein or therein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to its subject matter. This
Agreement may be amended only by a written instrument duly executed by the
parties or their respective successors or assigns.
13.6 Headings. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
13.7 Pronouns. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person, persons, entity or entities may require.
13.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. Facsimile transmission of
any signed original document and/or retransmissions of any signed facsimile
transmission will be deemed the same as delivery of an original. At the request
of any party, the parties will confirm facsimile transmission by signing a
duplicate original document.
13.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada.
13.10 Person. For purposes of this Agreement, the term "Person"
shall mean any individual, corporation, partnership, joint venture or other
business enterprise or entity and any governmental agency, federal, state or
local.
13.11 Notices. Any and all notices, demands or other
communications required or desired to be given hereunder by any party shall be
in writing and shall be validly given or made to
23
another party if given by personal delivery, telex, facsimile, telegram or if
deposited in the United States mail, certified or registered, postage prepaid,
return receipt requested. If such notice, demand or other communication is given
by personal delivery, telex, facsimile or telegram, service shall be
conclusively deemed made at the time of receipt. If such notice, demand or other
communication is given by mail, such notice shall be conclusively deemed given
forty-eight (48) hours after the deposit thereof in the United States mail
addressed to the party to whom such notice, demand or other communication is to
be given as hereinafter set forth:
If to G&EG: At the address set forth below its name on
the signature page of this Agreement.
If to the G&EG Stockholders: At the addresses set forth below their names
on Exhibit A attached hereto.
If to the Company: At the address set forth below its name on
the signature page of this Agreement.
13.12 Payment of Expenses.
(a) At or prior to the Closing, the Company shall pay and
fully satisfy all of its own legal fees, accounting fees and other fees, costs
and expenses incurred in connection with the negotiation and execution of this
Agreement and the consummation of the transactions contemplated herein,
including, without limitation, all Permitted Obligations described in Section
7.6 hereof.
(b) G&EG shall pay for all of its own legal fees,
accounting fees and all other fees, costs and expenses incurred in connection
with the negotiation and execution of this Agreement and the consummation of the
transactions contemplated herein.
13.13 Waiver. Any term or condition of this Agreement may be
waived at any time by the party that is entitled to the benefit thereof, but no
such waiver shall be effective unless set forth in a written instrument duly
executed by or on behalf of the party waiving such condition. No waiver by any
party of any term or condition of this Agreement, in any one or more instances,
shall be deemed to be or construed as a waiver of the same or any other term or
condition of this Agreement on any future occasion.
14. APPOINTMENT OF AGENT
The G&EG Stockholders hereby irrevocably constitute and appoint
Gregory L. Hrncir as their true and lawful attorney (the "Agent") with full
right and power in their names and stead to take any and all action by and on
behalf of them necessary or desirable to consummate the transactions
contemplated by this Agreement, including without limitation, the right and
power to receive certificates representing the Company Shares on behalf of each
of the G&EG Stockholders, to deliver to the Company the certificates
representing the G&EG Shares, to waive performance of any of the obligations of
the Company or waive satisfaction of any of the conditions to Closing specified
in Section 9.2 hereof, to deliver investment letters of the G&EG Stockholders
referred to in
24
Section 2.2(a) hereof, and to amend or terminate this Agreement as herein
provided. Any such action taken by the Agent on behalf of a G&EG Stockholder
shall be binding upon such G&EG Stockholder. The Company shall not have any
responsibility to the G&EG Stockholders or any of them for the distribution by
the Agent of the certificates representing the Company Shares to be delivered to
the G&EG Stockholders, nor shall the Company be liable in any manner whatsoever
to the G&EG Stockholders or any of them by or on account of any act or omission
of the Agent.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the parties hereto as of the date first above written.
COMPANY
NorStar Group, Inc.,
a Utah corporation
By: /s/ Jay Sanet
-----------------
Jay Sanet
President
Address: 4101 Ravenswood Rd., Suite 128
Ft. Lauderdale, FL 33312
Gaming & Entertainment Group, Inc.,
a Nevada corporation
By: /s/ Gregory L. Hrncir
-------------------------
Gregory L. Hrncir
President
Address: 6094 S. Sandhill Rd., Suite 400
Las Vegas, NV 89120
25
APPENDIX B
NORSTAR GROUP, INC.
ANNUAL REPORTS ON FORM 10-KSB FOR THE FISCAL YEARS ENDED
DECEMBER 31, 2001 AND 2002
QUARTERLY REPORTS FOR THE FISCAL QUARTERS ENDED
MARCH 31, JUNE 30 AND SEPTEMBER 30, 2003
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-28399
NORSTAR GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) UTAH
(I.R.S. EMPLOYER IDENTIFICATION NO.) 59-1643698
6365 NW 6TH WAY, SUITE 160, FT. LAUDERDALE FLORIDA 33309
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (954) 772-0240
SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
NONE N/A
SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:
COMMON SHARES, PAR VALUE $0.01 PER SHARE
(TITLE OF CLASS)
CUMULATIVE PREFERRED SHARES
CLASS A PREFERRED
CLASS B PREFERRED
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for 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
Indicate by check mark if disclosure of delinquent files pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [X]
As of March 18, 2002, 20,743,825 shares of NorStar Group, Inc. common
stock were outstanding. The approximate aggregate market value of the voting and
non-voting common equity held by non-affiliates of the registrant, based upon
the last sale price of the Common Stock reported on the Over-the-Counter
Bulletin Board was $829,753 as of March 19, 2001.
Included in this computation are shares held by directors and executive
officers of the Company and their associates as a group. Such inclusion does
signify that members of this group are "affiliates" of or controlled by the
Company.
TABLE OF CONTENTS
PART I.................................................................. 3
Item 1. Business.................................................... 3
(b) Business of the Company................................. 3
(i) Membership............................................. 3
(ii) Providers.............................................. 4
(iii) Market Overview....................................... 4
(iv) Summary of Product Research and Development............ 5
Item 2. Properties.................................................. 6
Item 102 (a) 1. Small Business Issuer engaged in significant mining
operations:................................................. 6
Item 3. Legal Proceedings........................................... 7
Item 4. Submission of Matters to a Vote of Security Holders......... 7
PART II................................................................. 8
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 8
Item 6. Management's Discussion and Analysis or Plan of Operations.. 8
Item 7. Financial Statements........................................ 9
Item 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.................................... 8
PART III................................................................ 10
Item 9. Directors and Executive Officers of the Registrant.......... 10
Item 10. Executive Compensation...................................... 11
Item 11. Security Ownership of Certain Beneficial Owners and
Management.................................................. 12
Item 12. Certain Relationships and Related Transactions.............. 12
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 13
SIGNATURES.............................................................. 14
PART I
Item 1. Business
(a) General Development of Business
NorStar Group, Inc., a Utah Corporation ("NorStar" or the
"Company") was originally formed in March 1961 as Florist
Accounting Service, Inc. The Company changed its name in 1971
to Luxor Group N.A., Inc. and in 1992 to NorStar Group, Inc.
NorStar has not been the subject of any bankruptcy,
receivership or similar proceeding. There has been no material
reclassification, merger, consolidation, or sale of a
significant amount of assets not in the ordinary course of the
Company's business. NorStar has made a number of acquisitions
over the last few years of businesses and investment
opportunities. In January, 1998, NorStar entered into an
agreement to acquire in their entirety, the Institute of
Metabolic Medicine, Metabolic Treatment Center, Inc., JBA
Medical Management, Inc., and Medical Providers of South West
Florida, Inc. In April, 1992, NorStar also acquired 680 acres
(17 gold mining claims) in Nevada. In March of 1999 NorStar
abandoned the medical venture to concentrate on its Internet
on-line business. NorStar is seeking a joint venture partner
to work its mining claims.
(b) Business of the Company: The business of NorStar is an
Internet online-community of "One Stop Shopping" for products,
entertainment, education and business services from a network
of providers. NorStar's portal provides the subscriber/member
with access to several web browsers, a directory of thousands
of stores, an Internet shopping mall, three dimensional
virtual reality chat rooms, telephone chat, forums, game
rooms, a virtual reality dating service, virtual reality
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.
(i) Membership :
NorStar offers membership to the 100 million consumers who
currently have, or who will have some form of access to the
Internet. Consumers subscribing to NorStar's network are
offered discounts for products and services through the
Company's provider network. NorStar'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, NorStar 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 NorStar network. The cost for annual family membership is
$120.00. NorStar 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.
(ii) 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. NorStar intends that providers who participate in
the NorStar 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 3 years through direct contracts,
affiliations with national organizations and other regional
networks. NorStar anticipates having an appropriate number of
providers under contract and available on the net in the near
future. 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.
(iii) Market Overview :
The market for discount products and services via the Internet
is in its infancy. The level of demand and acceptance of
discount products and services programs is dependent upon a
number of factors, including growth of consumer access to the
Internet, the Company's ability to develop and maintain
distribution channels to sell memberships to consumers,
acceptance of discounted products and services and the
willingness of service and product providers to offer their
services and products to customers at a discount. The Company
believes that competition will intensify and increase in the
future. NorStar views its primary direct competitors as AOL,
Compuserve, Prodigy, Yahoo, and GeoCities.
(iv) Summary of Product Research and Development :
NorStar's publicly announced new product and service includes
the Cybervisor(TM) which is still in the research and
development stage. NorStar filed a Trademark Application for
The "Cybervisor(TM)" a head mounted display unit with related
hardware and software INT. Class:009 The mark consists of text
letters (the Cybervisor) Serial number 75/710459. NorStar
announced that its Cybervisor (TM) IPD (Interactive Personal
Display) unit will be offered in the marketplace for home,
business and school use. NorStar plans to introduce three IPD
models: The Cybervisor (TM), The Super Cybervisor (TM), and
the Cybervisor Jr.(TM). In addition, NorStar 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. The physical tooling developed
for the VeeAreCity Head Mounted Display ("HMD") appearance
will be owned by VeeAreCity.
The head gear will be manufactured by a third party, at the
anticipated volume levels of 100,000 units/year. VeeAreCity
estimates that it will be able to manufacture the HMD for at a
per unit cost of approximately $200. This price is subject to
change up or down based on the final product specifications.
NorStar 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 estimated
cost for the development of this project is between $900,000
and $1.1 million. The source for funding the research and
development of this project 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.
NorStar has awarded distributorship agreements totaling $451
million of product to be developed over five years.
NorStar has spent approximately $72,000 during the last two
fiscal years on research and development activities.
NorStar employs five full time employees, four of whom serve
as Officers and Directors of NorStar and two clerical
personnel.
Item 2. Properties
NorStar's place of business is located at 6365 N.W. 6th Way, Fort
Lauderdale, Florida 33309. The premises is described as a CBS and steel class A
building/shared executive suite. NorStar subleases approximately 900 square feet
on a month to month tenancy from American Network Realty. Item 102 (a) 1. Small
Business Issuer engaged in significant mining operations:
NorStar acquired 680 acres (17 gold mining claims) in Nevada and is
seeking a joint venture partner to work the claims.*
Description of Property pursuant to Guide 7, Section 229.801(g) and Section
229.802(g)
The seventeen (17) lode claims are located in the Gold Mountain Mining
District of Esmeralda County, Nevada. Esmeralda County is noted only for its
mining industry. The mines located on the edge of Goldfield, Nevada have
continued to operate on a limited basis until the end of March 1992 when the
Black Hawk mine closed its underground operations. There continues to be several
leach operations in full swing.
Claim Location
The seventeen (17) unpatented claims are located 180 miles north of Las
Vegas, Nevada on state Highway 95 to Lida Junction, south to Gold Point then
south by southeast approximately 8 miles. The claims are situated in Township
8S, Range 41, Sections 11, 14, and 22. The Eastern Group (7 claims) is located
at the elevation of 6,500 to 7,000 feet and is the most mountainous area. The
Western Group (10 claims) is located on a gentle rolling terrain for the most
part. In either case walking is the only way to gain access to the greatest
portion of the claims.
Geology
The rock is primarily Tertiary age quartz monzonite. There are several
visible fault zones and you find that they contain quartz veins and stringers.
Mineralization is easily located on most of the claims and there appear to be
several areas that should be excellent prospects for geologic exploration. There
exists on the claims one (1) 250 foot adit with mineralization showing and four
(4) shafts. The deepest shaft is located on the Western Group of claims and has
been plumbed to 185 feet. Some of the underground workings have been mapped
prior to it filling with water.
Climate
The climate is arid, dry and hot in summertime and windy and cold
November through January. However, snowfall is limited and in most cases would
not interfere with mining operations.
Ore Dumps
There is a 2500 ton dump located near the main shaft. Sampling of this
dump shows that the ore lends itself to the leaching process for recovery of
gold and silver. The gold in this area runs .997 fine. There are also several
other smaller ore dumps scattered among the claims. Since ore is not complex it
can be easily extracted by the leaching method or can be transported to a mill
for crushing and processing. Conclusions
Over the years estimates of ore reserves have been made by several
geologists and mining engineers. Donald R. McGregor stated in his report that by
just stripping the mountain on which the main shaft is located would open up
approximately three and one-half million (3,500,000) tons of ore with an average
grade of .116 ounces gold per ton and .23 ounces of silver per ton. The gross
value of this area alone calculates out to over $146,000,000. Using $350.00/oz.
gold and $5.00/oz silver.
This does not take into account the eastern group of claims. The assays
from this area range from .43 ounces gold and 2.26 ounces silver per ton to .83
ounces gold and 14.06 ounces silver per ton. An extensive core drilling program
in this area could easily produce triple the values calculated for the western
group of claims.
The recovery cost for strip mining and heap leach is about $180 per
ounce. Custom milling would run approximately $220 per ounce. A mining operation
is deemed feasible particularly since the ore is not complex.
*The aforementioned investments in gold mining are for investment
purposes only and should not be construed as the core business or core business
activity of NorStar.
Item 3. Legal Proceedings
NorStar is not involved in any legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders of NorStar
Group, Inc. during the fiscal year ended December 31, 2001.
PART II
Item 5. Market for Registrants Common Equity and Related Stockholder Matters
NorStar's common stock is currently traded on the Over-The-Counter
Bulletin Board("OTCBB") under the symbol "NSTG."
The following table indicates the high and low bid sales prices for the
equity for each full quarterly period within the two most recent fiscal years
and any subsequent interim period for which financial statements are included
are as follows:
Year Quarter High Bid Low Bid
2001 1st 0.240 0.095
2001 2nd 0.200 0.060
2001 3rd 0.125 0.042
2001 4th 0.060 0.031
--------------------------------------------
2000 1st 0.85 0.43
2000 2nd 13/16 0.20
2000 3rd 7/16 0.24
2000 4th 0.85 0.85
(b) Holders
As of March 18, 2002, the approximate number of shareholders of record
of NorStar Common Stock is 257. This information was obtained from the
Company's transfer agent.
(c) Dividend
NorStar has not paid dividends on its capital stock and does not
anticipate that it will do so in the foreseeable future. NorStar intends to
retain any future earnings for reinvestment in its business. Payments of
dividends in the future will depend upon NorStar's growth, profitability,
financial condition and other factors that NorStar's Board of Directors may deem
relevant.
ITEM 6. 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.
OVERVIEW
NorStar Group, Inc. was originally incorporated in the State of Utah in
March 1961 as Florist Accounting Services, Inc., a finance company that was
primarily engaged in factoring accounts receivables for florists in Utah. The
name Florist Accounting Services, Inc. was changed to Luxor Group N.S. Inc.
during 1971 and to Norstar Group, Inc during 1992.The Company was unable to
develop a profitable operation and became inactive until April 1992. During the
period from April 1992 through December 31, 1999 the Company acquired and/or
began to develop and dispose of, several businesses and certain other
investments. In 1998, the company began the development of its Internet business
which involves the creation of a portal to a cyber-city, an on-line community of
"One Stop Shopping" for products, entertainment, education and business
services. The on-line community is being developed through its two subsidiaries
VeeAreCity.com, Inc. and VeeAreCity the Burbs.com, Inc.. The portal is designed
to provide subscriber/member with access to several web browsers, a directory to
thousands of stores, three dimensional virtual reality ("VR") chat rooms, forums
and game rooms, a VR dating service, VR business conference room, specialty
advertising rooms with VR activities and global e-mails that can be accessed
through the web anywhere in the world. The company intends to generate revenues
from this business primarily through usage fees from certain of its activities
and the sale of annual memberships to consumers who will be offered discounts on
products and services through a provider network to be developed by the company.
The Company also holds mineral rights attributable to 17 claims that were
acquired for gold mines located in the Gold Mountain mining district of
Esmeralda County Nevada. However, management does not expect mining operations
to become one of the Company's core businesses. Management is attempting to find
a joint venture partner to assist the company in developing these claims.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of estimates:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ from those
estimates.
Web site and development costs:
The Company accounts for costs incurred in connection with the
development of a web site in accordance with Statement of Position 98-1,
"Accounting for Costs of Computer Software Developed or Obtained for Internal
Use" and Emerging Issues Task Force Issue No. 00-2, "Accounting for Web Site
Development Costs." Accordingly, all costs incurred in planning the development
of a web site are expensed as incurred. Costs, other than general and
administrative and overhead costs, incurred in the web site application and
infrastructure development stage, which involves acquiring or developing
hardware and software to operate the web site, are capitalized. Fees paid to an
Internet service provider for hosting a web site on its server(s) connected to
the Internet are expensed over the estimated period of benefit. Other costs
incurred during the operating stage, such as training, administration and
maintenance costs, are expensed as incurred. Costs incurred during the operating
stage for upgrades and enhancements of a web site are capitalized if it is
probable that they will result in added functionality. Capitalized web site and
development costs are amortized on a straight-line basis over their estimated
useful life.
The Company capitalized costs of approximately $193,000 in 2000 and
$45,000 in prior years that were incurred in connection with the acquisition and
development of software in the application and infrastructure development stage
and the enhancement of its web sites. The Company will begin to amortize
capitalized web site and development costs when it begins to generate revenues
from sales of memberships to subscribers which management estimates will be in
the third quarter of the year ending December 31, 2002.
Impairment of long-lived assets:
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"). Under SFAS
121, impairment losses on long-lived assets, such as capitalized web site and
development costs, are recognized when events or changes in circumstances
indicate that the undiscounted cash flows estimated to be generated by such
assets are less than their carrying value and, accordingly, all or a portion of
such carrying value may not be recoverable. Impairment losses are then measured
by comparing the fair value of assets to their carrying amounts.
Stock based compensation:
In accordance with the provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), the
Company will recognize compensation costs as a result of the issuance of stock
options granted to employees based on the excess, if any, of the fair value of
the underlying stock at the date of grant or award (or at an appropriate
subsequent
measurement date) over the amount the employee must pay to acquire the stock.
Therefore, the Company will not be required to recognize compensation expense as
a result of any grants of stock options to employees at an exercise price that
is equivalent to or greater than fair value. The Company will also make pro
forma disclosures, as required by Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), of net income
or loss as if a fair value based method of accounting for stock options granted
to employees had been applied instead if such amounts differ materially from the
historical amounts.
In accordance with SFAS 123, the Company will also recognize the cost
of shares, options, warrants and other equity instruments issued to
non-employees as consideration for services as expense over the periods in which
the related services are rendered by a charge to compensation cost and a
corresponding credit to additional paid-in capital. Generally, cost will be
determined based on the fair value of the equity instruments at the date of
issuance. The fair value of options, warrants and similar equity instruments
will be estimated based on the Black-Scholes option-pricing model, which meets
the criteria set forth in SFAS 123, and the assumption that all of the options
or other equity instruments will ultimately vest. The effect of actual
forfeitures will be recognized as they occur.
RESULTS OF OPERATIONS:
Year ended December 31, 2001 as compared to year ended December 31,
2000.
The company did not have any revenues during either the year ending
December 31, 2001 or 2000. Management estimates that the Company will not begin
to generate revenues from sales of memberships to subscribers until the third
quarter of the year ending December 31, 2002.
During the year ended December 31, 2001, the Company's operating
expenses decreased by approximately $168,000 to approximately $383,000 from
approximately $551,000 for the year ended December 31, 2000. The primary cause
of the decrease was non-cash charges in 2001 and 2000, respectively, of
approximately $221,000 and $500,000. These non-cash charges related to (i)
amortization of unearned compensation which resulted from the issuance of stock
options to consultants relating to the agreements described below and (ii)
services, compensation and other expenses paid through the issuance of common
stock.
On April 17, 2000, the Company entered into agreements with three
consultants. Under these agreements, the consultants will, among other things,
assist the Company in finding businesses located primarily in England,
other European countries and the Northeastern section of the United States of
America that will advertise in and/or link to the Company's on-line community.
The three consultants received options to purchase a total of 1,300,000 shares
of the Company's common stock that will be exercisable at $.40 per share at any
time during the term of the consulting agreements as consideration for their
services.
The aggregate fair value of the options granted to the consultants of
$377,000 as of the date of grant, as determined based on the Black-Scholes
option-pricing model, was recorded as unearned compensation, which will be
amortized to expense over the periods in which the related services are
rendered, as required by generally accepted accounting principles in the United
States of America. The Company incurred amortization expense associated with
these agreements of approximately $141,000 and $236,000 in 2001 and 2000,
respectively. In addition, the Company satisfied $80,000 and $264,000 of
services compensation and other expenses in 2001 and 2000 ,respectively, through
the issuance of common stock. These decreases in non-cash expenses were offset
somewhat by an increase of approximately $72,000 in research and development
costs which were incurred in 2001.
As a result of the above, the Company incurred a loss of approximately
$383,000 or $.02 per common share for the year ended December 31, 2001 as
compared to approximately $551,000 or $.03 per common share for the comparable
period ended December 31, 2000. The basic weighted average common shares
outstanding were 18,924,647 and 15,777,295 for the year ended December 31, 2001
and 2000, respectively.
Liquidity and Capital Resources
NorStar's consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. However, the Company has not
generated any significant revenues on a sustained basis from its current
operations. Management estimates that the Company will not begin to generate
revenues from sales of memberships to subscribers until the third quarter of the
year ending December 31, 2002. As shown in the consolidated financial
statements, the Company has continued to incur net losses, approximately
$383,000 and $551,000 in 2001 and 2000, respectively, although a substantial
portion of the losses was attributable to non-cash charges for the fair value of
shares and stock options issued for services, compensation and other expenses.
As of December 31, 2001, the Company had a cash balance of only $2,500, a
working capital deficiency of approximately $208,000 and an accumulated deficit
of $6,397,000. Management believes that the Company will continue to incur net
losses through at least December 31, 2002 and that it will need additional
equity and/or debt financing of at least $2,000,000 to enable it to fully
develop its web services as initially planned and sustain its operations until
it can achieve profitability and generate cash flows from its operating
activities on a
recurring basis. These matters raise substantial doubt about the Company's
ability to continue as a going concern.
Management is attempting to obtain additional financing for the Company
through the issuance of equity securities, loans from financial institutions
and/or agreements with strategic partners. However, management cannot assure
that the Company will be able to sell equity securities, obtain loans from
financial institutions and/or form strategic alliances that will generate
financing on acceptable terms. If the Company is not able to obtain adequate
financing, it may have to curtail or terminate some or all of its operations.
During 2001, the Company financed its operations primarily from its existing
cash and or the proceeds of approximately $164,000 of notes from its
stockholders.
We do not believe that our business is subject to seasonal trends or
inflation. On an ongoing basis we will attempt to minimize any effect of
inflation on our operating results by controlling operating costs and whenever
possible, seeking to insure that subscription rates and usage fees reflect
increases in costs due to inflation.
The Company believes the following trends, events and uncertainties
could have a material impact on their short-term and/or long-term liquidity. The
market for Internet discount services and product programs is relatively new and
is evolving rapidly. NorStar's future growth is dependent upon its ability to
create, develop and distribute programs that are accepted by its clients as an
integral part of their business model for communicating with their targeted
audiences. Demand and market acceptance of discount products and service
programs is dependent upon a number of factors, including the growth in consumer
access to and acceptance of these programs, the willingness of service and
product providers to offer their services and products to customers of NorStar
at a discount, and NorStar's ability to develop and maintain distribution
channels to sell memberships to consumers. The failure of providers or consumers
to participate in NorStar's programs or substantial increases in the adequacy or
availability of other programs could have a material and adverse impact on
NorStar's business, operating results and financial condition. In addition,
NorStar does not have long-term contracts and needs to establish relationships
with new vendors. As a result, providers of discounted services or products to
NorStar's members may unilaterally reduce the scope of, or terminate their
relationships with NorStar. The termination of NorStar's business relationship
or a material reduction in the availability of services or products from any of
NorStar's significant providers or networks thereof or NorStar's failure to
develop significant new provider relationships would materially and adversely
affect its business, operating results and financial condition.
NorStar believes that within the market niche it seeks to develop, the following
known trends, events or uncertainties that have had or that are reasonably
expected to have a material impact on their net sales or revenues or income from
their continuing operations will include the following: (i) The market for
discounted products and services is characterized by rapid changes in
participating companies, consumers and service provider requirements and
preferences, new service and product introductions and evolving industry
standards that could render NorStar's existing service practices and
methodologies obsolete; (ii) NorStar's success will depend, in large part, on
its ability to improve its existing services, develop new services and solutions
that address the increasingly sophisticated and varied needs of NorStar's
clients, and respond to technological advances, emerging industry standards and
practices, and competitive service offerings; and (iii) NorStar may not be
successful in responding quickly, cost-effectively and sufficiently to these
developments. If NorStar is unable, for technical, financial or other reasons,
to adapt in a timely manner in response to changing market conditions or these
requirements, its business, results of operations and financial condition would
be materially adversely affected.
NORSTAR GROUP, INC AND SUBSIDIARIES
Index to Financial Statements
PAGE
Report of Independent Public Accountants F-2
Consolidated Balance Sheet
December 31, 2001 F-3
Consolidated Statements of Operations
Years Ended December 31, 2001 and 2000 F-4
Consolidated Statements of Stockholders' Equity
Years Ended December 2001 and 2000 F-5
Consolidated Statements of Cash Flows
Years Ended December 31, 2001 and 2000 F-6
Notes to Consolidated Financial Statements F-7/13
F-1
Report of Independent Public Accountants
To the Board of Directors and Stockholders
NorStar Group, Inc.
We have audited the accompanying consolidated balance sheet of NorStar Group,
Inc. and Subsidiaries as of December 31, 2001, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 2001 and 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of NorStar Group, Inc.
and Subsidiaries as of December 31, 2001, and their results of operations and
cash flows for the years ended December 31, 2001 and 2000, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As further discussed in Note
2 to the consolidated financial statements, the Company's operations have
generated recurring losses, its operating activities have also been using cash
and it had a working capital deficiency and an accumulated deficit as of
December 31, 2001. Such matters raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans concerning these
matters are also described in Note 2. The consolidated financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.
J.H. Cohn LLP
Roseland, New Jersey
March 18, 2002
F-2
NorStar Group, Inc. and Subsidiaries
Consolidated Balance Sheet
December 31, 2001
Assets
Current assets - cash $ 2,486
Equipment, net of accumulated depreciation of $2,097 2,097
Capitalized web site and development costs 238,391
Mineral rights, at estimated net realizable value --
------------
Total $ 242,974
============
Liabilities and Stockholders' Equity
Current liabilities:
Noninterest bearing demand notes payable to stockholders $ 163,944
Accounts payable and accrued expenses 46,493
------------
Total liabilities 210,437
------------
Commitments and contingencies
Stockholders' equity:
Class A convertible preferred stock, par value $10 per
share; 1,000,000 shares authorized; none issued --
Class B preferred stock, par value $10 per share;
1,000,000 shares authorized; none issued --
Common stock, par value $.01 per share; 150,000,000
shares authorized; 20,743,825 shares issued and outstanding 207,438
Additional paid-in capital 6,222,590
Accumulated deficit (6,397,491)
------------
Total stockholders' equity 32,537
------------
Total $ 242,974
============
See Notes to Consolidated Financial Statements.
F-3
NorStar Group, Inc. and Subsidiaries
Consolidated Statements of Operations
Years Ended December 31, 2001 and 2000
2001 2000
------------ ------------
Revenues $ -- $ --
------------ ------------
Operating expenses:
Selling 142,375 289,995
General and administrative 168,404 260,693
Research and development 71,799
------------ ------------
Totals 382,578 550,688
------------ ------------
Net loss $ (382,578) $ (550,688)
============ ============
Basic net loss per common share $ (.02) $ (.03)
============ ============
Basic weighted average common shares outstanding 18,924,647 15,777,295
============ ============
See Notes to Consolidated Financial Statements
F-4
NorStar Group, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 2001 and 2000
Common Stock
----------------------- Additional
Number of Paid-in Accumulated Unearned
Shares Amount Capital Deficit Compensation Total
---------- -------- ---------- ----------- ------------ ---------
Balance, January 1, 2000 15,493,825 $154,938 $5,410,090 $(5,464,225) $ 100,803
Issuance of shares for payment
of professional and other
services 2,050,000 20,500 243,500 264,000
Effect of issuance of stock
options to consultants 377,000 $ (377,000)
Amortization of unearned com-
pensation 235,625 235,625
Proceeds from sale of shares 1,200,000 12,000 132,000 144,000
Net loss (550,688) (550,688)
---------- -------- ---------- ----------- ------------ ---------
Balance, December 31, 2000 18,743,825 187,438 6,162,590 (6,014,913) (141,375) 193,740
Issuance of shares for payment
of professional and other
services 2,000,000 20,000 60,000 80,000
Amortization of unearned com-
pensation 141,375 141,375
Net loss (382,578) (382,578)
---------- -------- ---------- ----------- ------------ ---------
Balance, December 31, 2001 20,743,825 $207,438 $6,222,590 $(6,397,491) $ -- $ 32,537
========== ======== ========== =========== ============ =========
See Notes to Consolidated Financial Statements
F-5
NorStar Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 2001 and 2000
2001 2000
------------ ------------
Operating activities:
Net loss $ (382,578) $ (550,688)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Services, compensation and other expenses
paid through the issuance of common stock 80,000 264,000
Amortization of unearned compensation 141,375 235,625
Depreciation 1,398 699
Changes in operating assets and liabilities -
accounts payable and accrued expenses (19,136) 65,629
------------ ------------
Net cash provided by (used in) operating activities (178,941) 15,265
------------ ------------
Investing activities:
Web site and development costs capitalized (193,455)
Purchases of equipment (4,194)
------------
Net cash used in investing activities (197,649)
------------
Financing activities:
Proceeds from notes payable to stockholders 163,944
Repayments of notes payable to stockholders (123,309)
Net proceeds from sale of common stock 144,000
------------ ------------
Net cash provided by financing activities 163,944 20,691
------------ ------------
Net decrease in cash (14,997) (161,693)
Cash, beginning of year 17,483 179,176
------------ ------------
Cash, end of year $ 2,486 $ 17,483
============ ============
Supplemental disclosure of cash flow information:
Income taxes paid $ -- $ --
============ ============
Interest paid $ -- $ --
============ ============
See Notes to Consolidated Financial Statements
F-6
NorStar Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 - Business:
NorStar Group, Inc. ("NorStar") was originally incorporated in the
State of Utah during March 1961 as Florist Accounting Services, Inc.
(the name Florist Accounting Services, Inc. was changed to Luxor Group
N.S. Inc. during 1971 and to NorStar Group, Inc. during 1992). As of
December 31, 2001, NorStar had two subsidiaries, VeeAreCity.com, Inc.
("VeeAreCity") and VeeAreCity The Burbs.com, Inc. ("The Burbs"), both
of which were wholly-owned. As used herein, the "Company" refers to
NorStar or NorStar together with VeeAreCity, The Burbs and/or certain
other subsidiaries that had been acquired and disposed of by NorStar
prior to December 31, 2001.
The Company was originally organized as a finance company that was
primarily engaged in factoring accounts receivable for florists in
Utah. However, the Company was unable to develop profitable financing
operations, and it became substantially inactive until April 1992.
During the period from April 1992 through December 31, 1999, the
Company acquired and/or began to develop, and disposed of, several
businesses and certain other investments.
As of December 31, 2001 and during the years ended December 31, 2001
and 2000, the Company was primarily engaged, through VeeAreCity and The
Burbs, in an attempt to develop an Internet business that it started in
1998. The Internet business involves the creation of a portal to a
cyber-city, online community of "One Stop Shopping" for products,
entertainment, education and business services. The portal is intended
to provide the subscriber/member with access to several web browsers, a
directory of thousands of stores, three dimensional virtual reality
("VR") chat rooms, forums and game rooms, a VR dating service, VR
business conference rooms, specialty advertising rooms with VR
activities and global e-mail services that can be accessed through the
web anywhere in the world. The Company intends to generate revenues
from this business primarily through usage fees from certain of its
activities and the sale of annual memberships to consumers who will be
offered discounts on products and services through a provider network
to be developed by the Company.
As of December 31, 2001, the Company also held the mineral
rights attributable to 17 claims that were acquired on April 29,
1992 for gold mines located in the Gold Mountain mining district
of Esmeralda County, Nevada (see Note 3). However, management
does not expect mining operations to become one of the Company's
core businesses. Management is attempting to find a joint
venture partner to assist the Company in developing these
claims. If a joint venture partner cannot be found, management
expects that the Company will continue to hold the claims as an
investment.
F-7
NorStar Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 2 - Summary of significant accounting policies:
Basis of presentation:
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. However, the Company has not generated any
significant revenues on a sustained basis from its current
operations. Management estimates that the Company will not
begin to generate revenues from sales of memberships to
subscribers until the third quarter of the year ending
December 31, 2002. As shown in the accompanying consolidated
financial statements, the Company incurred net losses of
approximately $383,000 and $551,000 in 2001 and 2000,
respectively, although a substantial portion of the losses was
attributable to noncash charges for the fair value of shares
and stock options issued for services, compensation and other
expenses. As of December 31, 2001, the Company had a cash
balance of only $2,500, a working capital deficiency of
approximately $208,000 and an accumulated deficit of
$6,397,000. Management believes that the Company will continue
to incur net losses through at least December 31, 2002 and
that it will need additional equity and/or debt financing of
at least $2,000,000 to enable it to fully develop its web
services as initially planned and sustain its operations until
it can achieve profitability and generate cash flows from its
operating activities on a recurring basis. These matters raise
substantial doubt about the Company's ability to continue as a
going concern.
Management is attempting to obtain additional financing for
the Company through the issuance of equity securities, loans
from financial institutions and/or agreements with strategic
partners. However, management cannot assure that the Company
will be able to sell equity securities, obtain loans from
financial institutions and/or form strategic alliances that
will generate financing on acceptable terms. If the Company is
not able to obtain adequate financing, it may have to curtail
or terminate some or all of its operations.
The accompanying 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.
Principles of consolidation:
The accompanying consolidated financial statements include the
accounts of NorStar and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Use of estimates:
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
of America requires management to make estimates and
assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from
those estimates.
F-8
NorStar Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 2 - Summary of significant accounting policies (concluded):
Equipment:
Equipment is stated at cost, net of accumulated depreciation.
Depreciation is provided using the straight-line method over
the estimated useful lives of the assets and amounted to
$1,398 and $699 in 2001 and 2000, respectively.
Web site and development costs:
The Company accounts for costs incurred in connection with the
development of a web site in accordance with Statement of
Position 98-1, "Accounting for Costs of Computer Software
Developed or Obtained for Internal Use" and Emerging Issues
Task Force Issue No. 00-2, "Accounting for Web Site
Development Costs." Accordingly, all costs incurred in
planning the development of a web site are expensed as
incurred. Costs, other than general and administrative and
overhead costs, incurred in the web site application and
infrastructure development stage, which involves acquiring or
developing hardware and software to operate the web site, are
capitalized. Fees paid to an Internet service provider for
hosting a web site on its server(s) connected to the Internet
are expensed over the estimated period of benefit. Other costs
incurred during the operating stage, such as training,
administration and maintenance costs, are expensed as
incurred. Costs incurred during the operating stage for
upgrades and enhancements of a web site are capitalized if it
is probable that they will result in added functionality.
Capitalized web site and development costs are amortized on a
straight-line basis over their estimated useful life.
The Company capitalized costs of approximately $193,000 in
2000 and $45,000 in prior years that were incurred in
connection with the acquisition and development of software in
the application and infrastructure development stage and the
enhancement of its web sites. The Company will begin to
amortize capitalized web site and development costs when it
begins to generate revenues from sales of memberships to
subscribers which management estimates will be in the third
quarter of the year ending December 31, 2002.
Impairment of long-lived assets:
The Company has adopted the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" ("SFAS 121"). Under SFAS 121, impairment
losses on long-lived assets, such as capitalized web site and
development costs, are recognized when
events or changes in circumstances indicate that the
undiscounted cash flows estimated to be generated by such
assets are less than their carrying value and, accordingly,
all or a portion of such carrying value may not be
recoverable. Impairment losses are then measured by comparing
the fair value of assets to their carrying amounts.
Advertising:
The Company expenses the cost of advertising and promotions as
incurred. Advertising costs, which are included in selling
expenses and charged to operations, were immaterial during
2001 and 2000.
F-9
NorStar Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 2 - Summary of significant accounting policies (continued):
Income taxes:
The Company accounts for income taxes pursuant to the asset
and liability method which requires deferred income tax assets
and liabilities to be computed annually for temporary
differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and
rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to
the amount expected to be realized. The income tax provision
or credit is the tax payable or refundable for the period plus
or minus the change during the period in deferred tax assets
and liabilities.
Net earnings (loss) per share:
The Company presents "basic" earnings (loss) per share and, if
applicable, "diluted" earnings per share pursuant to the
provisions of Statement of Financial Accounting Standards No.
128, "Earnings per Share" ("SFAS 128"). Basic earnings (loss)
per share is calculated by dividing net income or loss by the
weighted average number of shares outstanding during each
period. The calculation of diluted earnings per share is
similar to that of basic earnings per share, except that the
denominator is increased to include the number of additional
common shares that would have been outstanding if all
potentially dilutive common shares, such as those issuable
upon the exercise of stock options, were issued during the
period. Diluted per share amounts have not been presented in
the accompanying consolidated statements of operations because
the Company had a net loss in 2001 and 2000 and, accordingly,
the assumed effects of the exercise of options that were
granted to consultants in April 2000 and expired in April 2002
(see Note 8) would have been anti-dilutive.
Stock based compensation:
In accordance with the provisions of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"), the Company will recognize compensation
costs as a result of the issuance of stock options granted to
employees based on the excess, if any, of the fair value of
the underlying stock at the date of grant or award (or at an
appropriate subsequent measurement date) over the amount the
employee must pay to acquire the stock. Therefore, the
Company will not be required to recognize compensation expense
as a result of any grants of stock options to employees at an
exercise price that is equivalent to or greater than fair
value. The Company will also make pro forma disclosures, as
required by Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"),
of net income or loss as if a fair value based method of
accounting for stock options granted to employees had been
applied instead if such amounts differ materially from the
historical amounts.
F-10
NorStar Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 2 - Summary of significant accounting policies (concluded):
Stock based compensation (concluded):
In accordance with SFAS 123, the Company will also recognize
the cost of shares, options, warrants and other equity
instruments issued to nonemployees as consideration for
services as expense over the periods in which the related
services are rendered by a charge to compensation cost and a
corresponding credit to additional paid-in capital. Generally,
cost will be determined based on the fair value of the equity
instruments at the date of issuance. The fair value of
options, warrants and similar equity instruments will be
estimated based on the Black-Scholes option-pricing model,
which meets the criteria set forth in SFAS 123, and the
assumption that all of the options or other equity instruments
will ultimately vest. The effect of actual forfeitures will be
recognized as they occur.
Recent accounting pronouncements:
In August 2001, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"). SFAS 144 addresses financial accounting
and reporting for the impairment or disposal of long-lived
assets. Among other things, SFAS 144 provides guidance on the
implementation of SFAS 121 and other previous pronouncements
related to when and how to measure impairment losses and how
to account for discontinued operations. Management does not
believe that the adoption of SFAS 144 will have a material
impact on the Company's consolidated financial position or
results of operations.
The Financial Accounting Standards Board and the Accounting
Standards Executive Committee of the American Institute of
Certified Public Accountants had issued certain other
accounting pronouncements as of December 31, 2001 that will
become effective in subsequent periods; however, management of
the Company does not believe that any of those pronouncements
would have significantly affected the Company's financial
accounting measurements or disclosures had they been in effect
during 2001 and 2000, and it does not believe that any of
those pronouncements will have a significant impact on the
Company's consolidated financial statements at the time they
become effective.
Note 3 - Investment in mineral rights:
The Company acquired the mineral rights attributable to its
gold mining claims (see Note 1) on April 29, 1992 for shares
of common stock with a fair value of $400,000. Subsequently,
the Company also paid total fees of $200,000 to the former
owner for consulting services related to the development of
the claims. Although, as explained in Note 1, management is
still attempting to find a joint venture partner to assist the
Company in developing these claims, it has not been able to
find one. Based on the inability to find a joint venture
partner and the uncertainties related to the Company's ability
to generate profitable mining operations, the Company wrote
off the carrying value of the investment prior to January 1,
2000.
F-11
NorStar Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 4 - Income taxes:
As of December 31, 2001, the Company had net operating loss
carryforwards of approximately $6,397,000 available to reduce
future Federal taxable income which will expire at various
dates through 2021. The Company had no other material
temporary differences as of that date. Due to the
uncertainties related to, among other things, the changes in
the ownership of the Company, which could subject those loss
carryforwards to substantial annual limitations, and the
extent and timing of its future taxable income, the Company
offset the deferred tax assets attributable to the potential
benefits of approximately $2,559,000 from the utilization of
those net operating loss carryforwards by an equivalent
valuation allowance as of December 31, 2001.
The Company had also offset the potential benefits of
approximately $2,406,000 and $2,186,000 from net operating
loss carryforwards by equivalent valuation allowances as of
December 31, 2000 and 1999, respectively. As a result of the
increases in the valuation allowance of $153,000 and $220,000
in 2001 and 2000, respectively, the Company did not recognize
any credits for income taxes in the accompanying consolidated
statements of operations to offset its pre-tax losses in those
years.
Note 5 - Concentrations of credit risk:
Financial instruments which subject the Company to
concentrations of credit risk consist primarily of cash. The
Company maintains cash in bank deposit and other accounts the
balances of which, at times, may exceed Federal insurance
limits. At December 31, 2001, such cash balances did not
exceed Federal insurance limits. Exposure to credit risk is
reduced by placing such deposits in major financial
institutions and monitoring their credit ratings.
Note 6 - Preferred stock:
The Company's Articles of Incorporation authorize the issuance
of up to 1,000,000 shares of Class A preferred stock and
1,000,000 shares of Class B preferred stock. No shares of
preferred stock had been issued as of December 31, 2001. Each
share of Class A and Class B preferred stock is nonvoting; is
entitled to an annual dividend, as may be declared by the
Company's board of directors, of 10% that is cumulative; has a
par value of $10 per share; and has a preference in
liquidation equal to its par value plus all declared but
unpaid dividends. Each share of Class A preferred stock is
convertible at any time into five shares of the Company's
common stock.
F-12
NorStar Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 7 - 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 of an
optionee that holds 10% or more of the Company stock) from the date of grant.
As of March 18, 2002, no stock options had been awarded under the Plan.
Note 8 - Consulting agreements:
On April 17, 2000, the Company entered into agreements with
three consultants that expired on April 17, 2001. Under these agreements, the
consultants were, among other things, assisting the Company in finding
businesses located primarily in England, other European countries and the
Northeastern section of the United States that would advertise in and/or link to
the Company's online community. As of March 18, 2002, management of the Company
and the consultants were negotiating, but had not consummated, extensions of
these agreements.
As consideration for their services, the three consultants received options to
purchase a total of 1,300,000 shares of the Company's common stock that were
exercisable at $.40 per share at any time during the terms of the consulting
agreements. The options expired on April 17, 2001. The aggregate fair value of
the options granted to the consultants of $377,000 as of the date of grant, as
determined based on the Black-Scholes option-pricing model, which was recorded
as unearned compensation and amortized to expense over the period from April 17,
2000 to April 17, 2001, as required by SFAS 123.
Note 9 - Fair value of financial instruments:
The Company's material financial instruments at December 31, 2001 for
which disclosure of estimated fair value is required by certain accounting
standards consisted of cash, accounts payable and notes payable to stockholders.
In the opinion of management, cash and accounts payable were carried at fair
values because of their liquidity and/or short-term maturities. Because of the
relationship of the Company and its stockholders, there is no practical method
that can be used to determine the fair value of the notes payable to
stockholders.
* * *
F-13
PART III
Item 9. Directors and Executive Officers of the Registrant
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE TITLE DIRECTORSHIP FIVE YEARS BUSINESS EXPERIENCE
---- --- ---------- --------------- -----------------------------------------
Harry F. DiFrancesco 75 President Chairman of Bd* In 1965 Mr. DiFrancesco was Chairman, CEO
and President of DiFrancesco Construction
Company. From 1970 to 1975, Mr.
DiFrancesco established and operated a
shoe manufacturing company in Brazil.
From 1979 to 1988, Mr. DiFrancesco was
Chairman of the Board of International
Jewelry Manufacturing Corp. an importer
and wholesaler of diamonds. Mr.
DiFrancesco has more than 40 years of
business experience in real estate
development, importing and jewelry
manufacturing and sales
Andrew S. Peck 56 V.P. of Finance Dir. & Secretary* Since 1990, Mr. Peck has served as
President and Senior Financial Specialist
for Financial Support Services, Inc. Mr.
Peck has more than 20 years of experience
in corporate finance, planning, project
analysis and systems development.
Maynard Neil Aboguv 57 VP of Sales Mgmt Director* Mr. Aboguv has over 15 years of
experience as a sales representative and
manager for various companies
representing several industries.
Jay Sanet 52 V.P. Corp Dev. Director* Mr. Sanet has served as a Director since
December, 1998. From 1996 to 1998, Mr.
Sanet was a branch manager for First
National Equity Group. In 1995 Mr. Sanet
was a branch manager for Vision
Investment Group. From 1994 to 1995 Mr.
Sanet was a registered representative for
Myers, Pollack & Robin. He actively
assists the Company in identifying and
exploring merger candidates.
*Each Director shall hold office until the next annual meeting of
stockholders and until his successor shall have been elected and qualified.
The directors of NorStar hold no other directorship in any other
reporting company. NorStar does not have anyone that it would classify as a
significant employee. There are no family relationships among the directors,
executive officers or persons nominated or chosen by the Company to become
directors or executive officers.
The Company intends to file with the Commission a definitive proxy
statement for the 2002 Annual Meeting of Stockholders pursuant to Regulation 14A
not later than 120 days after December 31, 2001 or a later date to be determined
by the Board of Directors of the Company.
Item 10. Executive Compensation
The following table sets forth certain information concerning the
annual and long-term compensation for services as officers to the Company for
the fiscal year ended December 31, 2001.
2000 Harry DiFrancesco* Pres. & Dir $0.00 1,000,000
Jay Sanet* V.P. & Dir. $0.00 125,000
Andrew S. Peck* Sect, Treas. & Dir $0.00 100,000
50,000
Maynard N. Abguv* V.P. & Dir. $ 0.00
Name of Capacity in Salaries, Fees Deferred Shares of
Fiscal Year Individual which served & Commissions Bonuses Compensation Common Stock
----------- ------------------ ------------------ -------------- ------- ------------ ------------
2001 Harry DiFrancesco* Pres. & Dir $0.00 1,500,000
Jay Sanet* V.P. & Dir. $0.00 225,000
Andrew S. Peck* Sect, Treas. & Dir $0.00 200,000
Maynard N. Abguv* V.P. & Dir. $0.00 50,000
2002 Harry DiFrancesco* Pres. & Dir $0.00 **
Jay Sanet* V.P. & Dir. $0.00 **
Andrew S. Peck* Sect, Treas. & Dir $0.00 **
Maynard N. Abguv* V.P. & Dir. $0.00 **
* The Company has paid no compensation to any of its named executive
officers and directors. In lieu of compensation the officers and directors
received shares of NorStar Common Stock.
** The level of compensation for the Company's named executive officers
and directors will be determined following the next shareholders meeting of the
Company.
Item 11. Security Ownership of Certain Beneficial Owners and Management
(b) Security Ownership of Management
--------------------------------------------------------------------------------------------
Title of Name and address Amount and nature Percentage of
class of beneficial owners of beneficial ownership class
--------------------------------------------------------------------------------------------
Common Stock Harry F. DiFrancesco 1,500,000 shares 9.7%
6365 N.W. 6th Way, Suite 160
Fort Lauderdale, Fl 33309
--------------------------------------------------------------------------------------------
Common Stock Andrew Peck 200,000 1.29%
6365 N.W. 6th Way, Suite 160
Fort Lauderdale, Fl 33309
--------------------------------------------------------------------------------------------
Common Stock Jay Sanet 225,000 .8%
6365 N.W. 6th Way, Suite 160
Fort Lauderdale, Fl 33309
--------------------------------------------------------------------------------------------
Common Stock Maynard Neil Aboguv 50,000 .3%
6365 N.W. 6th Way, Suite 160
Fort Lauderdale, Fl 33309
--------------------------------------------------------------------------------------------
(c) Change in Control
There are no arrangements, including any pledge by any person of
securities of NorStar or any of its parents, the operation of which may at a
subsequent date result in a change in control of the registrant.
Item 12. Certain Relationships and Related Transactions
(a) Transactions With Management and Others:
None
(b) Certain Business Relationships:
None
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The exhibits listed below are incorporated by reference as previously filed
with the Form 10-SB:
Exhibit
No. Description
3.1 Articles of Incorporation as filed with the Utah Secretary of State
3.1(i) By-laws
3.1 (ii) Specimen Stock Certificate
4(a) Certificate of Existence and Good Standing Status
4(b) Certificate to do business as a Foreign Corporation in the State of
Florida
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NORSTAR GROUP, INC.
(Registrant)
By: /s/ Harry DiFrancesco
------------------------------------
Harry DiFrancesco, President and
Chairman of the Board
Date April 2, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the 22nd day of March 2001.
Signature Title
/s/ Harry DiFrancesco
---------------------------------- President and Chairman of the
Harry DiFrancesco Board
/s/ Andrew S. Peck
---------------------------------- Vice President of Finance, Director
Andrew S. Peck and Secretary
/s/ Jay Sanet
---------------------------------- Vice President Corporate
Jay Sanet Development, Director
/s/ Maynard Neil Aboguv
---------------------------------- Vice President Sales Management,
Maynard Neil Aboguv Director
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
ACT OF 1934.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
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, FORT LAUDERDALE, FLORIDA 33312
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (954) 772-0240
SECURITIES REGISTERED UNDER SECTION 12 (B) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED UNDER SECTION 12 (G) OF THE EXCHANGE ACT:
COMMON STOCK $ .01 PAR VALUE
(TITLE OF CLASS)
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 [ ]
CHECK IS THERE IS NO DISCLOSURE OF DELINQUENT FILERS IN RESPONSE TO ITEM 405 OF
REGULATION S-B IS NOT CONTAINED IN THIS FORM, AND NO DISCLOSURE WILL BE
CONTAINED TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR
INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-KSB
OR ANY AMENDMENT TO THIS FORM 10-KSB [X]
STATE ISSUER'S REVENUES FOR ITS MOST RECENT FISCAL YEAR:
NONE
AT, MARCH 15, 2003 THERE WERE ISSUED AND OUTSTANDING
25,793,825 SHARES OF COMMON STOCK. THE APPROXIMATE
AGGREGATE MARKET VALUE OF THE VOTING AND
NON-VOTING COMMON EQUITY HELD BY NON-AFFILIATES OF THE
REGISTRANT, BASED UPON THE LAST SALE PRICE OF THE
COMMON STOCK REPORTED ON THE OVER-THE-COUNTER
BULLETIN BOARD WAS $1,029,593 AS OF MARCH 15, 2002
INCLUDED IN THIS COMPUTATION ARE SHARES HELD BY DIRECTORS AND EXECUTIVE
OFFICERS OF THE COMPANY AND THEIR ASSOCIATES AS A GROUP. SUCH INCLUSION DOES
SIGNIFY THAT MEMBERS OF THIS GROUP ARE "AFFILIATES" OF OR CONTROLLED BY THE
COMPANY.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT
YES__ NO X
TABLE OF CONTENTS
PART I ................................................................... 3
Item 1. Business ......................................................... 3
Item 2. Properties ....................................................... 4
Item 102 (a) 1. Small Business Issuer engaged in significant mining
operations: .............................................................. 4
Item 3. Legal Proceedings ................................................ 4
Item 4. Submission of Matters to a Vote of Security Holders .............. 4
PART II .................................................................. 5
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters ...................................................... 5
Item 6. Management's Discussion and Analysis or Plan of
Operations................................................................ 5
Item 7. Financial Statements ............................................. 8
Item 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure ................................................. 21
PART III.................................................................. 21
Item 9. Directors and Executive Officers of the Registrant ............... 21
Item 10. Executive Compensation .......................................... 21
Item 11. Security Ownership of Certain Beneficial Owners and
Management ............................................................... 21
Item 12. Certain Relationships and Related Transactions .................. 21
Item 13. Exhibits and Financial Statements ............................... 22
Item 14. Controls and Procedures
SIGNATURES ............................................................... 23
2
PART I
Item 1. Business
We were originally incorporated in the State of Utah in March 1961 as Florist
Accounting Services, Inc., a finance company that was primarily engaged in
factoring accounts receivables for florists in Utah. The name Florist Accounting
Services, Inc. was changed to Luxor Group N.S. during 1971 and to Norstar Group,
Inc. during 1992. The Company was unable to develop a profitable operation and
became inactive until April 1992. During the period from April 1992 through
December 31, 1999, the Company acquired and/or began to develop and dispose of,
several businesses and certain other investments. In 1998, the Company began the
development of its Internet business which involves the creation of a portal to
a cyber-city, an on-line community of "One Stop Shopping" for products,
entertainment, education and business services. The on-line community is being
developed through its two subsidiaries VeeAreCity.com, Inc. and VeeAre City the
Burbs.com, Inc. The portal is designed to provide subscriber/member with access
to several web browsers, a directory to thousands of stores, three dimensional
virtual reality ("VR") chat rooms, forums and game rooms, a VR dating service,
VR business conference room, specialty advertising rooms with VR activities and
global e-mails that can be accessed through the web anywhere in the world. The
Company also holds mineral rights attributable to 17 claims that were acquired
for gold mines located in the Gold Mountain mining district of Esmeralda County
Nevada. However, management does not expect mining operations to become one of
the Company's core businesses. Management is attempting to find a joint venture
partner to assist the Company in developing these claims. Presently management
is also evaluating an alternative where it would suspend the operations of the
company's Internet technology, at least temporarily, and shall look for another
company that has had ongoing commercial operations, that would merge with the
company and continue its business operation.
Item 2. Description of Property
NorStar's place of business is located at 4101 Ravenswood Road, Suite 128, Ft.
Lauderdale, Florida 33312. The premises is described as a CBS and steel class A
building/shared executive suite.
Item 102 (a) 1. Small Business Issuer engaged in significant mining operations:
NorStar acquired 680 acres (17 gold mining claims) in Nevada and is seeking a
joint venture partner to work the claims.* Description of Property pursuant to
Guide 7, Section 229.801(g) and Section 229.802(g) The seventeen (17) lode
claims are located in the Gold Mountain Mining District of Esmeralda County,
Nevada. Esmeralda County is noted only for its mining industry. The mines
located on the edge of Goldfield, Nevada have continued to operate on a limited
basis until the end of March 1992 when the Black Hawk mine closed its
underground operations. There continues to be several leach operations in full
swing.
Claim Location
The seventeen (17) unpatented claims are located 180 miles north of Las Vegas,
Nevada on state Highway 95 to Lida Junction, south to Gold Point then south by
southeast approximately 8 miles. The claims are situated in Township 8S, Range
41, Sections 11, 14, and 22. The Eastern Group (7 claims) is located at the
elevation of 6,500 to 7,000 feet and is the most mountainous area. The Western
Group (10 claims) is located on a gentle rolling terrain for the most part. In
either case walking is the only way to gain access to the greatest portion of
the claims.
Geology
The rock is primarily Tertiary age quartz monzonite. There are several visible
fault zones and you find that they contain quartz veins and stringers.
Mineralization is easily located on most of the claims and there appear to be
several areas that should be excellent prospects for geologic exploration. There
exists on the claims one (1) 250 foot adit with mineralization showing and four
(4) shafts. The deepest shaft is located on the Western Group of claims and has
been plumbed to 185 feet. Some of the underground workings have been mapped
prior to it filling with water.
Climate
The climate is arid, dry and hot in summertime and windy and cold in November
through January. However, snowfall is limited and in most cases would not
interfere with mining operations.
Ore Dumps
There is a 2500 ton dump located near the main shaft. Sampling of this dump
shows that the ore lends itself to the leaching process for recovery of gold and
silver. The gold in this area runs .997 fine. There are also several other
smaller ore dumps scattered among the claims. Since ore is not complex it can be
easily extracted by the leaching method or can be transported to a mill for
crushing and processing. Conclusions
Over the years estimates of ore reserves have been made by several geologists
and mining engineers. Donald R. McGregor stated in his report that by just
stripping the mountain on which the main shaft is located would open up
approximately three and one-half million (3,500,000) tons of ore with an average
grade of .116 ounces gold per ton and .23 ounces of silver per ton. The gross
value of this area alone
3
calculates out to over $146,000,000. Using $350.00/oz. gold and $5.00/oz silver.
This does not take into account the eastern group of claims. The assays from
this area range from .43 ounces gold and 2.26 ounces silver per ton to .83
ounces gold and 14.06 ounces silver per ton. An extensive core drilling program
in this area could easily produce triple the values calculated for the western
group of claims. The recovery cost for strip mining and heap leach is about $180
per ounce. Custom milling would run approximately $220 per ounce. A mining
operation is deemed feasible particularly since the ore is not complex.
*The aforementioned investments in gold mining are for investment purposes only
and should not be construed as the core business or core business activity of
NorStar.
Item 3. Legal Proceedings
NorStar is not involved in any legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders of NorStar Group, Inc.
during the fiscal year ended December 31, 2002.
PART II
Item 5. Market for Registrants Common Equity and Related Stockholder Matters:
Our common stock is currently trades on the Over-The-Counter Bulletin
Board("OTCBB") under the symbol "NSTG." The following table indicates the high
and low bid sales prices for the equity for each full quarterly period within
the two most recent fiscal years and any subsequent interim period for which
financial statements are included are as follows:
Year Quarter High Bid Low Bid
2002 1st 0.240 0.095
2002 2nd 0.200 0.060
2002 3rd 0.125 0.042
2002 4th 0.060 0.031
--------------------------------------------
2001 1st 0.85 0.43
2001 2nd 13/16 0.20
2001 3rd 7/16 0.24
2001 4th 0.85 0.85
(b) Holders
As of December 31,2002, the approximate number of shareholders of record of
NorStar Common Stock is 269. This information was obtained from the Company's
transfer agent.
(c) Dividend
NorStar has not paid dividends on its capital stock and does not anticipate that
it will do so in the foreseeable future. NorStar intends to retain any future
earnings for reinvestment in its business. Payments of dividends in the future
will depend upon NorStar's growth, profitability, financial condition and other
factors that NorStar's Board of Directors may deem relevant.
ITEM 6. 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.
4
CRITICAL ACCOUNTING POLICIES AND ESTIMATES:
Our consolidated financial statements have been prepared in accordance with
accounting principals generally accepted in the United States of America. The
preparation of these 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. This section
summarizes the critical accounting policies and the related judgments involved
in their application.
Web site and development costs:
We account for costs incurred in connection with the development of a web site
in accordance with Statement of Position 98-1, "Accounting for Costs of Computer
Software Developed or Obtained for Internal Use" and Emerging Issues Task Force
Issue No. 00-2, "Accounting for Web Site Development Costs." Accordingly, all
costs incurred in planning the development of a web site are expensed as
incurred. Costs, other than general and administrative and overhead costs,
incurred in the web site application and infrastructure development stage, which
involves acquiring or developing hardware and software to operate the web site,
are capitalized. Fees paid to an Internet service provider for hosting a web
site on its server(s) connected to the Internet are expensed over the estimated
period of benefit. Other costs incurred during the operating stage, such as
training, administration and maintenance costs, are expensed as incurred. Costs
incurred during the operating stage for upgrades and enhancements of a web site
are capitalized if it is probable that they will result in added functionality.
Capitalized web site and development costs are amortized on a straight-line
basis over their estimated useful life.
We previously capitalized costs of approximately $238,000 that were incurred
prior to 2001 in connection with the acquisition and development of software in
the application and infrastructure development stage and the enhancement of our
web site. As of December 31, 2002, we had not been able to generate any revenues
from our web site and management was uncertain as to whether we would be able to
obtain sufficient resources to sustain its operations and fully develop our web
services as initially planned. Accordingly, management reviewed the carrying
value of our capitalized web site and development costs for impairment as of
December 31, 2002 and determined the entire remaining carrying value was
impaired. Accordingly, the accompanying 2002 consolidated statement of
operations includes a noncash charge of $238,391 for the write-off of the
carrying value of the impaired web site and development costs.
Impairment of long-lived assets:
Impairment losses on long-lived assets, such as capitalized web site and
development costs, are recognized when events or changes in circumstances
indicate that the undiscounted cash flows estimated to be generated by such
assets are less than their carrying value and, accordingly, all or a portion of
such carrying value may not be recoverable. Impairment losses are then measured
by comparing the fair value of assets to their carrying amounts.
Stock-based compensation:
In accordance with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), we will recognize
compensation costs as a result of the issuance of stock options granted to
employees based on the excess, if any, of the fair value of the underlying stock
at the date of grant or award (or at an appropriate measurement date) over the
amount the employee must pay to acquire the stock. Therefore, we will not be
required to recognize compensation expense as a result of any grants of stock
options to employees at an exercise price that is equivalent to or greater than
fair value. We will also make pro forma disclosures, as required by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), of net income or loss as if a fair value based
method of accounting for stock options granted to employees had been applied
instead if such amounts differ materially from the historical amounts.
In accordance with SFAS 123, we will also recognize the cost of shares, options,
warrants and other equity instruments issued to non-employees as consideration
for services as expense over the periods in which the related services are
rendered by a charge to compensation cost or another appropriate expense or
prepaid expense, and a corresponding credit to additional paid-in capital.
Generally, cost will be determined based on the fair value of the equity
instruments at the date of issuance. The fair value of options, warrants and
similar equity instruments will be estimated based on the Black-Scholes
option-pricing model, which meets the criteria set forth in SFAS 123, and the
assumption that all of the options or other equity instruments will ultimately
vest. The effect of actual forfeitures will be recognized as they occur. As a
result, depending on how the market perceives any news regarding us or our
earnings, as well as market conditions in general, it could have a material
impact on the volatility we use in computing the value we place on these
instruments.
Valuation of deferred tax assets:
We regularly evaluate our ability to recover the reported amount of our deferred
income taxes considering several factors, including our estimate of the
likelihood that we will generate sufficient taxable income
5
in future years in which temporary differences reverse. Due to the uncertainties
related to, among other things, the extent and timing of future taxable income,
we offset net deferred tax assets by an equivalent valuation allowance as of
December 31, 2002.
RESULTS OF OPERATIONS:
Year ended December 31, 2002 as compared to year ended December 31, 2001.
The Company did not have any revenues during either year ended December 31,
2001 or 2002. Management estimates that the Company will not begin to generate
revenues from sales of memberships to subscribers for the near future.
During the year ended December 31, 2002, our operating expenses decreased by
approximately $35,000 to approximately $348,000 from approximately $383,000 for
2001. The primary cause of the decrease was non-cash charges of approximately
$98,000 relating to (i) amortization of unearned compensation which resulted
from the issuance of stock options to consultants relating to the agreements
described below and (ii) services, compensation and other expenses paid through
the issuance of common stock.
On April 17, 2000, we entered into agreements with three consultants. Under
these agreements, the consultants will, among other things, assist us in finding
businesses located primarily in England, other European countries and the
Northeastern section of the United States of America that will advertise in
and/or link to the Company's on-line community. The three consultants received
options to purchase a total of 1,300,000 shares of the Company's common stock
that will be exercisable at $.40 per share at any time during the term of the
consulting agreements as consideration for their services.
The aggregate fair value of the options granted to the consultants of $377,000
as of the date of grant, as determined based on the Black-Scholes option-pricing
model, was recorded as unearned compensation, which will be amortized to expense
over the periods in which the related services are rendered, as required by
generally accepted accounting principles in the United States of America.
On July 25, 2002, we entered into new agreements with certain of these
consultants as well as additional agreements with other 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.
In addition, during 2001, we issued 2,000,000 shares of our common stock for
professional and other services having a fair value of $80,000. The decrease in
the aforementioned non-cash charges was offset by us writing off approximately
$238,000 of previously capitalized web site and development costs.
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 $28,000 and $67,000, respectively, due to our cash
position.
LIQUIDITY AND CAPITAL RESOURCES:
Our 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 its current operations. As shown in the
consolidated financial statements, we have continued to incur net losses,
although a substantial portion of the losses was attributable to noncash charges
for the fair value of shares and stock options issued for services, compensation
and other expenses. As of December 31, 2002, we had a cash balance of only $200,
a working capital deficiency of approximately $273,000 and an accumulated
deficit of $6,745,000. Management believes that we will continue to incur net
losses through at least December 31, 2003 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 and development of its proprietary virtual
reality products 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 also evaluating an alternative where
it would suspend the operations of the Company's Internet technology, at least
temporarily, and shall look for another Company that has had ongoing commercial
operations, that would merge with the Company and continue its business
operation.
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. Management is also
6
evaluating an alternative where it would suspend the operations of our Internet
technology, at least temporarily, and shall look for another company that has
had ongoing commercial operations, that would merge with us and continue its
business operation.
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, it may
have to curtail or terminate some or all of its operations. During 2002, we
financed our operations from its existing cash reserves and/or the proceeds
generated from the sale of notes to its stockholders of approximately $64,500.
We do not believe that our business is subject to seasonal trends or inflation.
On an ongoing basis we will attempt to minimize any effect of inflation on our
operating results by controlling operating costs and whenever possible, seeking
to insure that subscription rates and usage fees reflect increases in costs due
to inflation
Item 7. Financial Statements
NorStar Group, Inc. and Subsidiaries
Index to Financial Statements
-----------------------------
PAGE
----
Report of Independent Public Accountants F-2
Consolidated Balance Sheet
December 31, 2002 F-3
Consolidated Statements of Operations
Years Ended December 31, 2002 and 2001 F-4
Consolidated Statements of Stockholders' Equity (Deficiency)
Years Ended December 2002 and 2001 F-5
Consolidated Statements of Cash Flows
Years Ended December 31, 2002 and 2001 F-6
Notes to Consolidated Financial Statements F-7/14
* * *
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Board of Directors and Stockholders
NorStar Group, Inc.
We have audited the accompanying consolidated balance sheet of NorStar Group,
Inc. and Subsidiaries as of December 31, 2002, and the related consolidated
statements of operations, stockholders' equity (deficiency) and cash flows for
the years ended December 31, 2002 and 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of NorStar Group, Inc.
and Subsidiaries as of December 31, 2002, and their results of operations and
cash flows for the years ended December 31, 2002 and 2001, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As further discussed in Note
2 to the consolidated financial statements, the Company's operations have
generated recurring losses and negative net cash flows from operating
activities, and it had a working capital deficiency and an accumulated deficit
as of December 31, 2002. Such matters raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans concerning
these matters are also described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
J.H. Cohn LLP
Roseland, New Jersey
April 7, 2003
F-2
NorStar Group, Inc. and Subsidiaries
Consolidated Balance Sheet
December 31, 2002
Assets
------
Current assets - cash $ 222
Equipment, net of accumulated depreciation of $3,495 699
Capitalized web site and development costs, at estimated
net realizable value --
Mineral rights, at estimated net realizable value --
-----------
Total $ 921
===========
Liabilities and Stockholders' Deficiency
----------------------------------------
Current liabilities:
Noninterest bearing demand notes payable to stockholders $ 228,444
Accounts payable and accrued expenses 44,932
-----------
Total 273,376
-----------
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; 25,793,825 shares issued and outstanding 257,938
Additional paid-in capital 6,273,090
Accumulated deficit (6,745,355)
Unearned compensation (58,128)
-----------
Total stockholders' deficiency (272,455)
-----------
Total $ 921
===========
See Notes to Consolidated Financial Statements.
F-3
NorStar Group, Inc. and Subsidiaries
Consolidated Statements of Operations
Years Ended December 31, 2002 and 2001
2002 2001
------------ ------------
Revenues $ -- $ --
------------ ------------
Operating expenses:
Selling 42,872 142,375
General and administrative 61,960 168,404
Research and development 4,641 71,799
Write-off of capitalized web site and development costs 238,391
------------ ------------
Totals 347,864 382,578
------------ ------------
Net loss $ (347,864) $ (382,578)
============ ============
Basic net loss per common share $ (.02) $ (.02)
============ ============
Basic weighted average common shares outstanding 22,099,715 18,924,647
============ ============
See Notes to Consolidated Financial Statements.
F-4
NorStar Group, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficiency)
Years Ended December 31, 2002 and 2001
Common Stock
-------------------------- Additional
Number of Paid-in Accumulated Unearned
Shares Amount Capital Deficit Compensation Total
---------- ----------- ----------- ------------ ------------ -----------
Balance, January 1, 2001 18,743,825 $ 187,438 $ 6,162,590 $(6,014,913) $ (141,375) $ 193,740
Issuance of shares for payment
of professional and other
services 2,000,000 20,000 60,000 80,000
Amortization of unearned com-
pensation 141,375 141,375
Net loss (382,578) (382,578)
---------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 2001 20,743,825 207,438 6,222,590 (6,397,491) -- 32,537
Issuance of shares for payment
of consultants 5,050,000 50,500 50,500 (101,000)
Amortization of unearned com-
pensation 42,872 42,872
Net loss (347,864) (347,864)
---------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 2002 25,793,825 $ 257,938 $ 6,273,090 $(6,745,355) $ (58,128) $ (272,455)
========== =========== =========== =========== =========== ===========
See Notes to Consolidated Financial Statements.
F-5
NorStar Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 2002 and 2001
2002 2001
--------- ---------
Operating activities:
Net loss $(347,864) $(382,578)
Adjustments to reconcile net loss to net cash
used in operating activities:
Services, compensation and other expenses
paid through the issuance of common stock 80,000
Amortization of unearned compensation 42,872 141,375
Depreciation 1,398 1,398
Write-off of capitalized web site and development costs 238,391
Changes in operating liabilities - accounts payable
and accrued expenses (1,561) (19,136)
--------- ---------
Net cash used in operating activities (66,764) (178,941)
Financing activities - proceeds from notes payable to stockholders 64,500 163,944
--------- ---------
Net decrease in cash (2,264) (14,997)
Cash, beginning of year 2,486 17,483
--------- ---------
Cash, end of year $ 222 $ 2,486
========= =========
Supplemental disclosure of cash flow information:
Income taxes paid $ -- $ --
========= =========
Interest paid $ -- $ --
========= =========
See Notes to Consolidated Financial Statements.
F-6
NorStar Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 - Business:
NorStar Group, Inc. ("NorStar") was originally incorporated in
the State of Utah during March 1961 as Florist Accounting
Services, Inc. (the name Florist Accounting Services, Inc. was
changed to Luxor Group N.S. Inc. during 1971 and to NorStar
Group, Inc. during 1992). As of December 31, 2002, NorStar had
two subsidiaries, VeeAreCity.com, Inc. ("VeeAreCity") and
VeeAreCity The Burbs.com, Inc. ("The Burbs"), both of which were
wholly-owned. As used herein, the "Company" refers to NorStar or
NorStar together with VeeAreCity, The Burbs and/or certain other
subsidiaries that had been acquired and disposed of by NorStar
prior to December 31, 2002.
The Company was originally organized as a finance company that
was primarily engaged in factoring accounts receivable for
florists in Utah. However, the Company was unable to develop
profitable financing operations, and it became substantially
inactive until April 1992. During the period from April 1992
through December 31, 1999, the Company acquired and/or began to
develop, and disposed of, several businesses and certain other
investments.
As of December 31, 2002 and during the years ended December 31,
2002 and 2001, the Company was primarily engaged, through
VeeAreCity and The Burbs, in an attempt to develop an Internet
business that it started in 1998. The Internet business involves
the creation of a portal to a cyber-city, online community of
"One Stop Shopping" for products, entertainment, education and
business services. The portal is intended to provide the
subscriber/member with access to several web browsers, a
directory of thousands of stores, three dimensional virtual
reality ("VR") chat rooms, forums and game rooms, a VR dating
service, VR business conference rooms, specialty advertising
rooms with VR activities and global e-mail services that can be
accessed through the web anywhere in the world. The Company
intends to generate revenues from this business primarily through
usage fees from certain of its activities and the sale of annual
memberships to consumers who will be offered discounts on
products and services through a provider network to be developed
by the Company.
As of December 31, 2002, the Company also held the mineral rights
attributable to 17 claims that were acquired on April 29, 1992
for gold mines located in the Gold Mountain mining district of
Esmeralda County, Nevada (see Note 3). However, management does
not expect mining operations to become one of the Company's core
businesses. Management is attempting to find a joint venture
partner to assist the Company in developing these claims. If a
joint venture partner cannot be found, management expects that
the Company will continue to hold the claims as an investment.
F-7
NorStar Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 2 - Summary of significant accounting policies:
Basis of presentation:
The accompanying 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 consolidated financial statements, the
Company incurred net losses of approximately $348,000 and
$383,000 and negative net cash flows from operating activities of
$67,000 and $179,000 in 2002 and 2001, respectively, although a
substantial portion of the losses and negative net cash flows
were attributable to noncash charges for the write-off of
previously capitalized web site and development costs and the
fair value of shares and stock options issued for services,
compensation and other expenses. As of December 31, 2002, the
Company had a cash balance of only $200, a working capital
deficiency of approximately $273,000 and an accumulated deficit
of $6,745,000. Management believes that the Company will continue
to incur net losses through at least December 31, 2003 and that
it will need additional equity and/or debt financing of at least
$2,000,000 to enable it to fully develop its web services as
initially planned and sustain its operations until it can achieve
profitability and generate cash flows from its operating
activities on a recurring basis. These matters raise substantial
doubt about the Company's ability to continue as a going concern.
Management is attempting to obtain additional financing for the
Company through the issuance of equity securities, loans from
financial institutions and/or agreements with strategic partners.
However, management cannot assure that the Company will be able
to sell equity securities, obtain loans from financial
institutions and/or form strategic alliances that will generate
financing on acceptable terms. 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. However, management cannot assure that the Company
will be able to sell equity securities, obtain loans from
financial institutions and/or form strategic alliances that will
generate financing 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 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.
F-8
NorStar Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 2 - Summary of significant accounting policies (continued):
Principles of consolidation:
The accompanying consolidated financial statements include the
accounts of NorStar and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Use of estimates:
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Equipment:
Equipment is stated at cost, net of accumulated depreciation.
Depreciation is provided using the straight-line method over the
estimated useful lives of the assets and amounted to $1,398 in
both 2002 and 2001.
Web site and development costs:
The Company accounts for costs incurred in connection with the
development of a web site in accordance with Statement of
Position 98-1, "Accounting for Costs of Computer Software
Developed or Obtained for Internal Use" and Emerging Issues Task
Force Issue No. 00-2, "Accounting for Web Site Development
Costs." Accordingly, all costs incurred in planning the
development of a web site are expensed as incurred. Costs, other
than general and administrative and overhead costs, incurred in
the web site application and infrastructure development stage,
which involves acquiring or developing hardware and software to
operate the web site, are capitalized. Fees paid to an Internet
service provider for hosting a web site on its server(s)
connected to the Internet are expensed over the estimated period
of benefit. Other costs incurred during the operating stage, such
as training, administration and maintenance costs, are expensed
as incurred. Costs incurred during the operating stage for
upgrades and enhancements of a web site are capitalized if it is
probable that they will result in added functionality.
Capitalized web site and development costs are amortized on a
straight-line basis over their estimated useful life.
The Company capitalized costs of approximately $238,000 that were
incurred prior to 2001 in connection with the acquisition and
development of software in the application and infrastructure
development stage and the enhancement of its web sites. As of
December 31, 2002, the Company had not been able to generate any
revenues from its web site and management was uncertain as to
whether the Company would be able to obtain sufficient resources
to sustain its operations and fully develop its web services as
initially planned. Accordingly, management reviewed the carrying
value of the Company's capitalized web site and development costs
for impairment as of December 31, 2002 and determined the entire
remaining carrying value was impaired. Accordingly, the ac-
companying 2002 consolidated statement of operations includes a
noncash charge of $238,391 for the write-off of the carrying
value of the impaired web site and development costs.
F-9
NorStar Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 2 - Summary of significant accounting policies (continued):
Impairment of long-lived assets:
Impairment losses on long-lived assets, such as capitalized web
site and development costs, are recognized when events or changes
in circumstances indicate that the undiscounted cash flows
estimated to be generated by such assets are less than their
carrying value and, accordingly, all or a portion of such
carrying value may not be recoverable. Impairment losses are then
measured by comparing the fair value of assets to their carrying
amounts.
Advertising:
The Company expenses the cost of advertising and promotions as
incurred. Advertising costs, which are included in selling
expenses and charged to operations, were immaterial during 2002
and 2001.
Income taxes:
The Company accounts for income taxes pursuant to the asset and
liability method which requires deferred income tax assets and
liabilities to be computed annually for temporary differences
between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable
income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
The income tax provision or credit is the tax payable or
refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
Net earnings (loss) per share:
The Company presents "basic" earnings (loss) per share and, if
applicable, "diluted" earnings per share pursuant to the
provisions of Statement of Financial Accounting Standards No.
128, "Earnings per Share" ("SFAS 128"). Basic earnings (loss) per
share is calculated by dividing net income or loss by the
weighted average number of shares outstanding during each period.
The calculation of diluted earnings per share is similar to that
of basic earnings per share, except that the denominator is
increased to include the number of additional common shares that
would have been outstanding if all potentially dilutive common
shares, such as those issuable upon the exercise of stock
options, were issued during the period. Diluted per share amounts
have not been presented in the accompanying consolidated
statements of operations because the Company had a net loss in
2002 and 2001 and, accordingly, the assumed effects of the
exercise of options that were granted to consultants in April
2000 and expired in April 2001 (see Note 8) would have been
anti-dilutive.
F-10
NorStar Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 2 - Summary of significant accounting policies (continued):
Stock-based compensation:
In accordance with the provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB
25"), the Company will recognize compensation costs as a result
of the issuance of stock options to employees based on the
excess, if any, of the fair value of the underlying stock at the
date of grant or award (or at an appropriate subsequent
measurement date) over the amount the employee must pay to
acquire the stock. Therefore, the Company will not be required to
recognize compensation expense as a result of any grants of stock
options to employees at an exercise price that is equivalent to
or greater than fair value. The Company will also make pro forma
disclosures, as required by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"), of net income or loss as if a fair value based
method of accounting for stock options granted to employees had
been applied instead if such amounts differ materially from the
historical amounts.
In accordance with SFAS 123, the Company will also recognize the
cost of shares, options, warrants and other equity instruments
issued to nonemployees as consideration for services as expense
over the periods in which the related services are rendered by a
charge to compensation cost (or another appropriate expense or
prepaid expense account) and a corresponding credit to additional
paid-in capital. Generally, cost will be determined based on the
fair value of the equity instruments at the date of issuance. The
fair value of options, warrants and similar equity instruments
will be estimated based on the Black-Scholes option-pricing
model, which meets the criteria set forth in SFAS 123, and the
assumption that all of the options or other equity instruments
will ultimately vest. The effect of actual forfeitures will be
recognized as they occur.
Recent accounting pronouncements:
In August 2001, the Financial Accounting Standards Board (the
"FASB") issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"). SFAS 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets.
Among other things, SFAS 144 provides guidance on the
implementation of Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" and other previous
pronouncements related to when and how to measure impairment
losses and how to account for discontinued operations. The
adoption of SFAS 144 by the Company as of January 1, 2002 did not
have a material impact on the Company's consolidated financial
position or results of operations.
F-11
NorStar Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 2 - Summary of significant accounting policies (concluded):
Recent accounting pronouncements (concluded):
In June 2002, the FASB issued Statement of Financial Accounting
Standards No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities" ("SFAS 146"). SFAS 146 addresses accounting
and reporting costs associated with exit or disposal activities.
This statement requires that a liability for a cost associated
with an exit or disposal activity shall be recognized and
measured initially at its fair value in the period in which the
liability is incurred. SFAS 146 is effective for exit or disposal
activities that are initiated after December 31, 2002. The
Company does not believe that the adoption of SFAS 146 will have
a significant impact on its consolidated financial statements.
The Financial Accounting Standards Board and the Accounting
Standards Executive Committee of the American Institute of
Certified Public Accountants had issued certain other accounting
pronouncements as of December 31, 2002 that will become effective
in subsequent periods; however, management of the Company does
not believe that any of those pronouncements would have
significantly affected the Company's financial accounting
measurements or disclosures had they been in effect during 2002
and 2001, and it does not believe that any of those
pronouncements will have a significant impact on the Company's
consolidated financial statements at the time they become
effective.
Note 3 - Investment in mineral rights:
The Company acquired the mineral rights attributable to its gold
mining claims (see Note 1) on April 29, 1992 for shares of common
stock with a fair value of $400,000. Subsequently, the Company
also paid total fees of $200,000 to the former owner for
consulting services related to the development of the claims.
Although, as explained in Note 1, management is still attempting
to find a joint venture partner to assist the Company in
developing these claims, it has not been able to find one. Based
on the inability to find a joint venture partner and the
uncertainties related to the Company's ability to generate
profitable mining operations, the Company wrote off the carrying
value of the investment prior to January 1, 2001.
Note 4 - Income taxes:
As of December 31, 2002, the Company had net operating loss
carryforwards of approximately $6,745,000 available to reduce
future Federal taxable income which will expire at various dates
through 2022. 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
$2,698,000 from the utilization of those net operating loss
carryforwards by an equivalent valuation allowance as of December
31, 2002.
F-12
NorStar Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 4 - Income taxes (concluded):
The Company had also offset the potential benefits of
approximately $2,559,000 and $2,406,000 from net operating loss
carryforwards by equivalent valuation allowances as of December
31, 2001 and 2000, respectively. As a result of the increases in
the valuation allowance of $139,000 and $153,000 in 2002 and
2001, respectively, the Company did not recognize any credits for
income taxes in the accompanying consolidated statements of
operations to offset its pre-tax losses in those years.
Note 5 - Concentrations of credit risk:
Financial instruments which subject the Company to concentrations
of credit risk consist primarily of cash. The Company maintains
cash in bank deposit and other accounts the balances of which, at
times, may exceed Federal insurance limits. At December 31, 2002,
such cash balances did not exceed Federal insurance limits.
Exposure to credit risk is reduced by placing such deposits in
major financial institutions and monitoring their credit ratings.
Note 6 - Preferred stock:
The Company's Articles of Incorporation authorize the issuance of
up to 1,000,000 shares of Class A preferred stock and 1,000,000
shares of Class B preferred stock. No shares of preferred stock
had been issued as of December 31, 2002. Each share of Class A
and Class B preferred stock is nonvoting; is entitled to an
annual dividend, as may be declared by the Company's board of
directors, of 10% that is cumulative; has a par value of $10 per
share; and has a preference in liquidation equal to its par value
plus all declared but unpaid dividends. Each share of Class A
preferred stock is convertible at any time into five shares of
the Company's common stock.
Note 7 - 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 of an optionee
that holds 10% or more of the Company stock) from the date of
grant.
As of April 7, 2003, no stock options had been awarded under the
Plan.
F-13
NorStar Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 8 - Consulting agreements:
On April 17, 2000, the Company entered into agreements with three
consultants that expired on April 17, 2001. Under these
agreements, the consultants were, among other things, assisting
the Company in finding businesses located primarily in England,
other European countries and the Northeastern section of the
United States that would advertise in and/or link to the
Company's online community.
As consideration for their services, the three consultants
received options to purchase a total of 1,300,000 shares of the
Company's common stock that were exercisable at $.40 per share at
any time during the terms of the consulting agreements. The
options expired on April 17, 2001. The aggregate fair value of
the options granted to the consultants of $377,000 as of the date
of grant, as determined based on the Black-Scholes option-pricing
model, which was recorded as unearned compensation and amortized
to expense over the period from April 17, 2000 to April 17, 2001,
as required by SFAS 123.
On July 25, 2002, the Company entered into new agreements with
certain of these consultants as well as additional agreements
with other consultants. Under these agreements, the consultants
will be required to, among other 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. The Company recorded the aggregate fair value as
unearned compensation which it is amortizing to expense over the
period from July 25, 2002 to July 25, 2003.
Note 9 - Fair value of financial instruments:
The Company's material financial instruments at December 31, 2002
for which disclosure of estimated fair value is required by
certain accounting standards consisted of cash, accounts payable
and notes payable to stockholders. In the opinion of management,
cash and accounts payable were carried at fair values because of
their liquidity and/or short-term maturities. Because of the
relationship of the Company and its stockholders, there is no
practical method that can be used to determine the fair value of
the notes payable to stockholders.
* * *
F-14
Item 8. Changes in and disagreements with accountants on accounting and
financial disclosure
None
Part III
Item 9. Directors and Executive Officers of the Registrant
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE TITLE DIRECTORSHIP FIVE YEARS BUSINESS EXPERIENCE
-------------------- --- -------------------------------- ------------------------------
Harry F. DiFrancesco 76 President Chairman of Bd *In 1965 Mr. DiFrancesco was Chairman, CEO and President of
DiFrancesco Construction Company. From 1970 to 1975,
Mr.DiFrancesco established and operated a shoe manufacturing
company in Brazil. From 1979 to 1988, Mr. DiFrancesco was
Chairman of the Board of International Jewelry Manufacturing
Corp. an importer and wholesaler of diamonds. Mr.DiFrancesco
has more than 40 years of business experience in real estate
development, importing and jewelry manufacturing and sales
Andrew S. Peck 57 V.P. of Finance Dir. & Secretary *Since 1990, Mr. Peck has served as President and Senior
Financial Specialist for Financial Support Services, Inc.
Mr. Peck has more than 20 years of experience in corporate
finance, planning, project analysis and systems development.
7
Jay Sanet 53 CEO & Director *Mr. Sanet has served as a Director since December, 1998.
From 1996 to 1998, Mr. Sanet was a branch manager for First
National Equity Group. In 1995 Mr. Sanet was a branch
manager for Vision Investment Group. From 1994 to 1995 Mr.
Sanet was a registered representative for Myers, Pollack &
Robin. He actively assists the Company in identifying and
exploring merger candidates.
Maynard Neil Aboguv 58 VP of Sales Mgmt Director* *Mr. Aboguv has over 15 years of experience as a sales
representative and manager for various companies
representing several industries.
* Each Director shall hold office until the next annual meeting of
stockholders and until his successor shall have been elected and qualified.
The directors of NorStar hold no other directorship in any other reporting
company. There are no family relationships among the directors, executive
officers or persons nominated or chosen by the Company to become directors
or executive officers.
Item 10. Executive Compensation.
The following table sets forth certain information concerning the annual and
long-term compensation for services as officers to the Company for the fiscal
year ended December 31, 2002.
Fiscal Name of Capacity in Salaries, Fees Deferred Shares of
Year Individual which served & Commissions Bonuses Compensation Common Stock
-------- ------------------ ------------------ -------------- ------- ------------ ------------
2001
Harry DiFrancesco* Pres. & Dir $0.00 1,500,000
Jay Sanet* V.P. & Dir. $0.00 125,000
Andrew S. Peck* Sect, Treas. & Dir $0.00 200,000
Maynard N. Abguv* V.P. & Dir. $0.00 50,000
2002
Harry DiFrancesco* Pres. & Dir $0.00 1,500,000
Jay Sanet* V.P. & Dir. $0.00 125,000
Andrew S. Peck* Sect, Treas. & Dir $0.00 200,000
Maynard N. Abguv* V.P. & Dir. $0.00 50,000
* The Company has paid no compensation to any of its named executive officers
and directors. In lieu of compensation the officers and directors received
shares of NorStar Common Stock.
** The level of compensation for the Company's named executive officers and
directors will be determined following the next shareholders meeting of the
Company.
Item 11. Security Ownership of Certain Beneficial Owners and Management
(b) Security Ownership of Management
8
Title of class Name and address Amount and nature Percentage of class
of beneficial owners of beneficial ownership
-------------- --------------------- ----------------------- -------------------
Common Stock Harry F. DiFrancesco 1,500,000 shares 0.05%
4101 Ravenswood Road, Suite 128
Fort Lauderdale, Fl 33312
---------------------------------------------------------------------------------------------------
Common Stock Andrew Peck 200,000 shares 0.01%
4101 Ravenswood Road, Suite 128
Fort Lauderdale, Fl 33312
---------------------------------------------------------------------------------------------------
Common Stock Jay Sanet 125,000 shares 0.00%
4101 Ravenswood Road, Suite 128
Fort Lauderdale, Fl 33312
---------------------------------------------------------------------------------------------------
Common Stock Maynard Neil Aboguv 50,000 shares 0.00%
4101 Ravenswood Road, Suite 128
Fort Lauderdale, Fl 33312
(c) Change in Control
There are no arrangements, including any pledge by any person of securities of
NorStar or any of its parents, the operation of which may at a subsequent date
result in a change in control of the registrant.
Item 12. Certain Relationships and Related Transactions
None
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The exhibits listed below are incorporated by reference as previously filed
with the Form 10-SB:
Exhibit No. Description
----------- -----------
3.1 Articles of Incorporation as filed with the Utah Secretary of State
3.1(i) By-laws
3.1 (ii) Specimen Stock Certificate
4(a) Certificate of Existence and Good Standing Status
4(b) Certificate to do business as a Foreign Corporation in the State of Florida
Item 14. Control and Procedures
(a) Evaluation of disclosure controls and procedures. We maintain disclosure
controls and procedures designed to provide reasonable assurance that
information required to be disclosed in the reports filed with the SEC is
recorded, processed, summarized and reported within the time periods
specified in the rules of the SEC. Within 90 days prior to the filing of
this Annual Report on form 10-KSB, we carried out an evaluation, under the
supervision and the participation of our management including our Chief
Executive Officer of the design and operation of these disclosure controls
and procedures pursuant to Exchange Act Rule 13a-14. Based upon that
evaluation, our Chief Executive Officer concluded that our disclosure
controls and procedures are effective in alerting them on a timely basis to
material information relating to the Company required to be in our periodic
SEC filings.
(b) Changes in internal controls. There were no significant changes in internal
controls or other factors that could significantly affect our internal
controls subsequesnt to the date of our evaluation.
9
EXHIBIT 99.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATIONS
I, Jay Sanet, certify that:
1. I have reviewed this annual report on Form 10-KSB of Norstar Group,
Inc.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact, or omit to state a material fact
necessary to make the statements made in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report.
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report ("Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal codes which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: April 15, 2003
/s/ Jay Sanet
-----------------------
CEO
10
EXHIBIT 99.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATIONS
I, Andrew S. Peck, certify that:
1. I have reviewed this annual report on Form 10-KSB of Norstar Group,
Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact, or omit to state a material fact
necessary to make the statements made in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report ("Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal codes which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: April 15, 2003
/s/ Andrew S. Peck
----------------------
CFO
11
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NORSTAR GROUP, INC.
(Registrant) By:
Harry DiFrancesco, President and
Chairman of the Board
Date
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the 15 day of April 2003.
Signature Title
/s/ Harry DiFrancesco
---------------------------------- President and Chairman of the
Harry DiFrancesco Board
/s/ Andrew S. Peck
---------------------------------- Vice President of Finance, Director
Andrew S. Peck and Secretary
/s/ Jay Sanet
----------------------------------
Jay Sanet CEO, Director
/s/ Maynard Neil Aboguv
---------------------------------- Vice President Sales Management,
12
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, 2003
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.)
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 March 31, 2003 there were issued and outstanding 25,793,825 shares of Common
Stock.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
NorStar Group, Inc. and Subsidiaries
Table of Contents
Part I- Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis or Plan of Operation
Item 3. Controls and Procedures
Part II - Other Information
Item 1. Legal proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon 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
Signatures
Certifications
Part I- Financial Information:
Item 1. Financial Statements
Index to Unaudited Condensed Financial Statements
-------------------------------------------------
PAGE
----
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheet at March 31, 2003
(Unaudited) F-2
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2003 and 2002 (Unaudited) F-3
Condensed Statement of Changes in Stockholders' Deficiency
Three Months Ended March 31, 2003 (Unaudited) F-4
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 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
March 31, 2003 (Unaudited)
Assets
Current assets - cash $ 5,489
Equipment, net of accumulated depreciation of $3,845 349
Capitalized web site development costs, at estimated net realizable value -
Mineral rights, at estimated net realizable value -
--------------
Total $ 5,838
==============
Liabilities and Stockholders' Deficiency
Current liabilities:
Noninterest bearing demand notes payable to stockholders $ 237,444
Accounts payable and accrued expenses 49,838
--------------
Total 287,282
--------------
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; 25,793,825 shares issued and outstanding 257,938
Additional paid-in capital 6,273,090
Accumulated deficit (6,779,594)
Unearned compensation (32,878)
--------------
Total stockholders' deficiency (281,444)
--------------
Total $ 5,838
==============
See Notes to Condensed Consolidated Financial Statements.
F-2
NorStar Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2003 and 2002
(Unaudited)
2003 2002
------------- -------------
Revenues $ - $ -
------------- -------------
Operating expenses:
Selling 25,250
General and administrative 8,989 21,240
Research and development 4,000
------------- -------------
Totals 34,239 25,240
------------- -------------
Net loss $(34,239) $(25,240)
============= =============
Basic net loss per common share $( - ) $( - )
============= =============
Basic weighted average common
shares outstanding 25,793,825 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
Three Months Ended March 31, 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 25,250 25,250
Net loss (34,239) (34,239)
---------- -------- ---------- ----------- -------- ---------
Balance, March 31, 2003 25,793,825 $257,938 $6,273,090 $(6,779,594) $(32,878) $(281,444)
========== ======== ========== =========== ======== =========
See Notes to Condensed Consolidated Financial Statements.
F-4
NorStar Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2003 and 2002
(Unaudited)
2003 2002
---------- ----------
Operating activities:
Net loss $(34,239) $(25,240)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization of unearned compensation 25,250
Depreciation 350 350
Changes in operating liabilities - accounts payable
and accrued expenses 4,906 (2,233)
---------- ----------
Net cash used in operating activities (3,733) (27,123)
Financing activities - proceeds from issuance of notes
payable to stockholders 9,000 28,000
---------- ---------
Net increase in cash 5,267 877
Cash, beginning of period 222 2,486
----------- ----------
Cash, end of period $ 5,489 $ 3,363
========= =========
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 March 31, 2003, and the Company's results of
operations and cash flows for the three months ended March 31, 2003
and 2002 and changes in stockholders' deficiency for the three
months ended March 31, 2003. 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 three months ended March 31, 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 $34,000 and $25,000 for
the three months ended March 31, 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 March 31, 2003, the Company had a cash balance
of only $5,000, a working capital deficiency of $282,000 and an
accumulated deficit of $6,780,000. Management believes that the
Company will continue to incur net losses through at least March 31,
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 three
months ended March 31, 2003 and 2002.
Note 3 - Income taxes:
As of March 31, 2003, the Company had net operating loss
carryforwards of approximately $6,780,000 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 $2,712,000 from the utilization
of those net operating loss carryforwards by an equivalent valuation
allowance as of March 31, 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 $14,000 and $10,000 during the three months ended March 31, 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 - 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 13, 2003, no stock options had been awarded under the
Plan.
* * *
F-8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion regarding our 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. We do not have a policy of updating or revising
forward-looking statements and thus it should not be assumed that silence by
management, 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. No events have
occurred during the current period, which in our judgment would impact, either
positively or negatively, our critical accounting policies and estimates that
were detailed in our Annual Report previously filed with The Securities and
Exchange Commission on Form 10-KSB.
RESULTS OF OPERATIONS:
Three months ended March 31, 2003 as compared to the Three months ended March
31, 2002.
The Company did not have any revenues during either period. Management estimates
that the Company will not begin to generate revenues from sales of memberships
to subscribers for the near future.
3
During the three months ended March 31, 2003, our operating expenses increased
by approximately $9,000 to approximately $34,000 from approximately $25,000 for
three months ended March 31, 2002. The primary cause of the increase was
non-cash charges of approximately $25,000 relating to amortization of unearned
compensation which resulted from the issuance of shares of common stock to
consultants relating to the agreements described below.
On July 25, 2002, we entered into various agreements with certain consultants.
Under these agreements, the consultants will be required to, among things,
assist us in finding businesses located primarily in Europe that would advertise
in and/or link to the our online community in addition to performing website
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 is
being amortized to expense over the period from July 25, 2002 to July 25, 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 continued to incur
net losses of approximately $34,000 and $25,000 for the three months ended March
31, 2003 and 2002, respectively, although a substantial portion of the loss in
2003 was attributable to the amortization of non-cash charges for the fair value
of shares and stock options previously issued for services, compensation and
other expenses. As of March 31, 2003, we had a cash balance of only $5,000, a
working capital deficiency of approximately $282,000 and an accumulated deficit
of $6,780,000. We believe that we will continue to incur net losses through at
least March 31, 2004 and that we will need additional equity and/or debt
financing of at least $2,000,000 to enable it to fully develop our web services
as initially planned and sustain our operations until we can achieve
profitability and generate cash flows from our operating activities on a
recurring basis. These matters raise substantial doubt about our ability to
continue as a going concern.
We are 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, we are is also evaluating an alternative where we
would suspend the operations of our Internet technology, at least temporarily,
and look for another company that has had ongoing commercial operations, that
would merge with us and continue its business operation. We 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
4
Internet technology or enter into a merger agreement with an operating company
on acceptable terms. If we are not able to obtain adequate financing, we may
have to curtail or terminate some or all of its operations.
During the three months ended March 31, 2003 and 2002, we financed our
operations from our existing cash reserves and/or the proceeds generated from
the sale of notes to our stockholders of approximately $9,000 and $28,000,
respectively.
We do not believe that our business is subject to seasonal trends or inflation.
On an ongoing basis we will attempt to minimize any effect of inflation on our
operating results by controlling operating costs and whenever possible, seeking
to insure that subscription rates and usage fees reflect increases in costs due
to inflation
Item 3. Control and Procedures
(a) Evaluation of disclosure controls and procedures. We maintain disclosure
controls and procedures designed to provide reasonable assurance that
information required to be disclosed in the reports filed with the SEC is
recorded, processed, summarized and reported within the time periods
specified in the rules of the SEC. Within 90 days prior to the filing of
this Quarterly Report on Form 10-QSB, we carried out an evaluation, under
the supervision and the participation of our management including our Chief
Executive Officer of the design and operation of these disclosure controls
and procedures pursuant to Exchange Act Rule 13a-14. Based upon that
evaluation, our Chief Executive Officer concluded that our disclosure
controls and procedures are effective in alerting them on a timely basis to
material information relating to the Company required to be in our periodic
SEC filings.
(b) Changes in internal controls. There were no significant changes in internal
controls or other factors that could significantly affect our internal
controls subsequent to the date of our evaluation.
PART II - OTHER INFORMATION
Item 1. Legal proceedings
None.
Item 2. Changes in Securities
None.
5
Item 3. Default in Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
On May 4, 2003, our Chairman, Harry DiFrancesco, passed away.
Our Board of Directors has appointed Jay Sanet , its Chief Executive Officer, as
its new Chairman.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------- -----------
99.1 Certification of the Chief Executive Officer of
Norstar Group, Inc. Pursuant to 18 U.S.C. Section
1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification of the Chief Financial Officer of
Norstar Group, Inc. Pursuant to 18 U.S.C. Section
1350, As Adopted 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 March 31,
2003
6
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: May 15, 2003
EXHIBIT 99.1
Certification pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section
906 of The Sarbanes-Oxley Act of 2002
Certifications
I, Jay Sanet, Chief Executive Officer for Norstar Group, Inc. certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Norstar Group,
Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact, or omit to state a material fact
necessary to make the statements made in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report ("Evaluation Date");
and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal codes which could adversely affect the registrant's
ability to record, process, summarize and report financial
data and have identified for the registrant's auditors any
material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 15, 2003
/s/ Jay Sanet
-----------------------
Jay Sanet
EXHIBIT 99.2
Certification pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section
906 of The Sarbanes-Oxley Act of 2002
Certifications
I, Andrew S. Peck, Chief Financial Officer for Norstar Group, Inc. certify that:
1. I have reviewed this quarterly report on Form 10QSB of Norstar Group,
Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact, or omit to state a material fact
necessary to make the statements made in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report ("Evaluation Date");
and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal codes which could adversely affect the registrant's
ability to record, process, summarize and report financial
data and have identified for the registrant's auditors any
material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 15, 2003
/s/ Andrew S. Peck
-----------------------
Andrew S. Peck
Exhibit 99.3
Certification pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section
906 of The Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Norstar Group Inc (the "Company") of
Form 10-QSB for the fiscal period ending March 31, 2003 as filed with the
Securities and Exchange Commission on the May 15, 2003 (the "Report"), I, Jay
Sanet, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss
1350, as adopted pursuant to ss 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ Jay Sanet
-----------------------
Jay Sanet
Chief Executive Officer,
Norstar Group, Inc.
May 15, 2003
Exhibit 99.4
Certification pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section
906 of The Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Norstar Group Inc (the "Company") of
Form 10-QSB for the fiscal period ending March 31, 2003 as filed with the
Securities and Exchange Commission on the May 15, 2003 (the "Report"), I, Andrew
S. Peck, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
ss 1350, as adopted pursuant to ss 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ Andrew S. Peck
-----------------------
Andrew S. Peck
Chief Financial Officer,
Norstar Group, Inc.
May 15, 2003
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
----
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
------- -----------
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
EXHIBIT 31
Certification pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section
906 of The Sarbanes-Oxley Act of 2002
Certifications
I, Jay Sanet, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Norstar Group, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact, or omit to state a material fact necessary to
make the statements made in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act rules 13a-15e and 15d-15e) for the
registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under my
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
me by others within those entities, particularly during the period in
which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this quarterly report my conclusions
about the effectiveness of the disclosure controls and procedures as
of the end of the period covered by this report based on such
evaluation; and
c) Disclosed in this report any changes in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors ( or persons performing
the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls over financial reporting.
Date: August 18, 2003
S/Jay Sanet
-----------------------
Jay Sanet
Chief Executive Officer
Chief Financial Officer
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES_OXLEY ACT OF 2002
In connection with the Quarterly Report of Nostar Group inc. (the "Company") on
form 10-QSB for the fiscal period ended June 30, 2003, as filed with the
Securities and Exchange Commission on August 19,2003 (the "Report"), I, Jay
Sanet, Chief Executive Officer and Chief Financial Officer of the Company,
hereby certify pursuant to 18 U. S. C. 1350, as adopted pursuant to 906 of the
Sarbanes-Oxley Act of 2002, that, to my knowledge: (1) the Report fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Act of 1934;
and (2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
August 18, 2003
/s/ Jay Sanet
-----------------------
Chief Executive officer
Chief Financial Officer
APPENDIX C
GAMING & ENTERTAINMENT GROUP, INC.
AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEARS
ENDED DECEMBER 31, 2000, 2001 AND 2002
GET USA, INC.
DECEMBER 31, 2002, 2001, AND 2000
GET USA, INC.
DECEMBER 31, 2002, 2001, and 2000
TABLE OF CONTENTS
Page No.
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Consolidated Balance Sheets 2
Consolidated and Combined Statements of Operations 3
Consolidated and Combined Statements of Stockholders' Equity 4
Consolidated and Combined Statements of Cash Flows 5
Notes to Consolidated and Combined Financial Statements 6-11
SUPPLEMENTAL SCHEDULES
Consolidated and Combined
Schedule of General and Administrative Expenses 12
INDEPENDENT AUDITOR'S REPORT
To the Stockholders of GET USA, Inc.
We have audited the accompanying consolidated balance sheets of GET
USA, Inc. and subsidiaries as of December 31, 2002 and 2001 and the related
consolidated and combined statements of operations, stockholders' equity and
cash flows for the years ended December 31, 2002, 2001, and 2000. These
consolidated and combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated and combined financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated and combined financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated and combined financial statements
referred to above present fairly, in all material respects, the financial
position of GET USA, Inc. and subsidiaries as of December 31, 2002 and 2001 and
the results of their operations and their cash flows for the years ended
December 31, 2002, 2001, and 2000, in conformity with accounting principles
generally accepted in the United States of America.
Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The supplemental schedule on page
12 for the years ended December 31, 2002, 2001, and 2000 is presented for the
purpose of additional analysis and is not a required part of the basic financial
statements. Such information has been subjected to the audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
Reno, Nevada
August 20, 2003
GET USA, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
ASSETS
2002 2001
----------- -----------
CURRENT ASSETS
Cash $ 281,992 $ 2,037
Short term investment -- 1,575,328
Accounts receivable 281,275 --
Note receivable 374,970 158,000
Employee advances -- 9,988
----------- -----------
Total current assets 938,237 1,745,353
PROPERTY PLANT AND EQUIPMENT, NET 90,313 116,940
OTHER ASSETS
Intellectual property 23,585 21,747
----------- -----------
Total assets $ 1,052,135 $ 1,884,040
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 130,268 $ 61,856
Accrued expenses 82,383 135,367
Related party payable -- 689,470
Accrued income taxes 117,698 78,376
Deposit 20,000 --
Short-term loan from stockholders -- 16,523
----------- -----------
Total liabilities 350,349 981,592
----------- -----------
STOCKHOLDERS' EQUITY
Common stock; authorized 50,000,000 shares;
issued and outstanding 2002, 10,827,707 shares;
2001, 9,548,053 shares 10,828 9,578
Preferred stock; authorized 10,000,000 shares;
issued and outstanding 2002, 0 shares;
2001, 130 shares -- 284
Additional paid-in capital 2,061,009 1,668,656
Accumulated other comprehensive income 115,311 39,091
Accumulated deficit (1,485,362) (815,161)
----------- -----------
Total stockholders' equity 701,786 902,448
----------- -----------
Total liabilities and stockholders' equity $ 1,052,135 $ 1,884,040
=========== ===========
See accompanying notes.
2
GET USA, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
Consolidated Consolidated Combined
2002 2001 2000
------------ ------------ ------------
REVENUES
Site development and license fees $ 1,820,265 $ 1,474,068 $ 1,288,346
Sales, less returns and allowances -- 71,558 346,300
------------ ------------ ------------
1,820,265 1,545,626 1,634,646
------------ ------------ ------------
COSTS OF SALES
Purchases -- 61,866 285,587
Wages and benefits 982,646 1,043,845 705,345
------------ ------------ ------------
982,646 1,105,711 990,932
------------ ------------ ------------
Gross Profit 837,619 439,915 643,714
------------ ------------ ------------
GENERAL AND ADMINISTRATIVE EXPENSES 1,619,634 1,156,706 976,565
------------ ------------ ------------
Operating (loss) (782,015) (716,791) (332,851)
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Gain (loss) on foreign currency exchange 48,685 (60,316) (408)
Interest income/dividends 35,646 90,119 27,822
Loss on disposal of assets -- (34,164) --
Miscellaneous income (expense) 3,394 (2,060) 44,615
------------ ------------ ------------
Total other income (expense), net 87,725 (6,421) 72,029
------------ ------------ ------------
(LOSS) BEFORE PROVISION FOR INCOME TAXES (694,290) (723,212) (260,822)
PROVISION FOR INCOME TAXES 24,224 79,938 3,836
------------ ------------ ------------
Net (loss) (718,514) (803,150) (264,658)
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustment 77,072 40,049 (21,195)
------------ ------------ ------------
Total comprehensive net (loss) $ (641,442) $ (763,101) $ (285,853)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 9,748,295 56,344 2,345
============ ============ ============
(LOSS) PER SHARE $ (0.07) $ (13.54) $ (121.90)
============ ============ ============
See accompanying notes.
3
GET USA, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
Common Stock Preferred Stock
----------------------- -----------------------
Shares Amount Shares Amount
----------------------- -----------------------
BALANCE AT DECEMBER 31, 1999, COMBINED 1,230 $ 2,983 -- $ --
GET HOLDINGS
Sale/issue of common stock; par value $2.31 1,230 2,838 -- --
Other comprehensive (loss) -- -- -- --
Net income -- -- -- --
GET AU
Sale/issue of common stock; par value $.56 1,000 560 -- --
Contributed assets -- -- -- --
Other comprehensive (loss) -- -- -- --
Net (loss) -- -- -- --
---------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 2000, COMBINED 3,460 6,381 -- --
GET USA
Sale/issue of common stock; par value $.001 9,548,000 9,548 -- --
Other comprehensive income -- -- -- --
Net (loss) -- -- -- --
GET HOLDINGS
Sale/issue of common stock; par value $2.19 288 631 -- --
Sale/issue of preferred stock; par value $2.18 -- -- 130 284
Consolidation to GET USA (2,748) (6,452) -- --
Other comprehensive income -- -- -- --
Net (loss) -- -- -- --
GET AU
Sale/issue of common stock; par value $.56 170 95 -- --
Consolidation to GET USA (1,117) (625) -- --
Other comprehensive income -- -- -- --
Net (loss) -- -- -- --
---------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 2001, CONSOLIDATED 9,548,053 9,578 130 284
GET USA
Sale/issue of common stock; par value $.001 1,279,707 1,280 -- --
Other comprehensive income -- -- -- --
Net (loss) -- -- -- --
GET HOLDINGS
Consolidation to GET USA -- -- (130) (284)
GET AU
Consolidation to GET USA (53) (30) -- --
---------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 2002, CONSOLIDATED 10,827,707 $ 10,828 -- $ --
---------- ----------- ----------- -----------
========== =========== =========== ===========
Other Retained
Additional Comprehensive Earnings
Paid-in Income (Accumulated Total
Capital (Loss) Deficit)
------------ ------------ ------------- -----------
BALANCE AT DECEMBER 31, 1999, COMBINED $ -- $ -- $ (1,065) $ 1,918
GET HOLDINGS
Sale/issue of common stock; par value $2.31 -- -- -- 2,838
Other comprehensive (loss) -- (2,616) -- (2,616)
Net income -- -- 11,749 11,749
GET AU
Sale/issue of common stock; par value $.56 -- -- -- 560
Contributed assets 44,792 -- -- 44,792
Other comprehensive (loss) -- (18,579) -- (18,579)
Net (loss) -- -- (276,407) (276,407)
----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 2000, COMBINED 44,792 (21,195) (265,723) (235,745)
GET USA
Sale/issue of common stock; par value $.001 718,496 -- -- 728,044
Other comprehensive income -- 38,239 -- 38,239
Net (loss) -- -- (766,848) (766,848)
GET HOLDINGS
Sale/issue of common stock; par value $2.19 950,189 -- -- 950,820
Sale/issue of preferred stock; par value $2.18 950,190 -- -- 950,474
Consolidation to GET USA (950,189) 2,498 (10,201) (964,344)
Other comprehensive income -- 431 -- 431
Net (loss) -- -- (4,924) (4,924)
GET AU
Sale/issue of common stock; par value $.56 (95) -- -- --
Consolidation to GET USA (44,727) 17,739 263,913 236,300
Other comprehensive income -- 1,379 -- 1,379
Net (loss) -- -- (31,378) (31,378)
----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 2001, CONSOLIDATED 1,668,656 39,091 (815,161) 902,448
GET USA
Sale/issue of common stock; par value $.001 1,342,513 -- -- 1,343,793
Other comprehensive income -- 77,072 -- 77,072
Net (loss) -- -- (718,514) (718,514)
GET HOLDINGS
Consolidation to GET USA (950,190) (313) 4,441 (946,346)
GET AU
Consolidation to GET USA 30 (539) 43,872 43,333
----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 2002, CONSOLIDATED $ 2,061,009 $ 115,311 $(1,485,362) $ 701,786
=========== =========== =========== ===========
See accompanying notes.
4
GET USA, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
Consolidated Consolidated Combined
2002 2001 2000
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $ (718,514) $ (803,150) $ (264,658)
Adjustments to reconcile net (loss) to cash
provided (used) by operating activities:
Depreciation expense 49,955 34,959 21,710
Expenses paid with issuance of debt 42,375 -- --
Expenses paid with issuance of equity 45,000 -- --
Loss on disposal of assets -- 34,164 --
(Increase) decrease in:
Accounts receivable (281,275) -- --
Note receivable (216,970) (158,000) --
Receivable from related party -- 325 (325)
Employee advances 9,988 (9,988) --
Prepaid assets -- 22,082 (22,082)
Unbilled receivables -- -- 1,307,380
Increase (decrease) in:
Accounts payable 68,412 20,169 38,083
Accrued expenses (52,984) (3,114) 138,481
Related party payable (406,220) 339,532 349,938
Accrued income taxes 39,322 74,526 3,850
Deferred revenue -- -- (1,304,289)
Deposits 20,000 (1,013,675) 1,013,675
------------ ------------ ------------
Net cash provided (used) by operating activities (1,400,911) (1,462,170) 1,281,763
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment (22,611) (79,730) (83,494)
Payments for intellectual property -- (20,156) (1,591)
------------ ------------ ------------
Net cash used for investing activities (22,611) (99,886) (85,085)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from stockholder -- -- 16,766
Repayment of advances from stockholder -- -- (606)
Proceeds from issuance of common stock 37,500 950,820 3,398
Proceeds from issuance of preferred stock -- 950,474 --
------------ ------------ ------------
Net cash provided by financing activities 37,500 1,901,294 19,558
------------ ------------ ------------
Effect of exchange rate changes on cash 90,649 40,049 (21,195)
------------ ------------ ------------
Net increase (decrease) in cash (1,295,373) 379,287 1,195,041
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,577,365 1,198,078 3,037
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 281,992 $ 1,577,365 $ 1,198,078
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Noncash investing and financing activities:
Conversion of shareholder debt to equity $ 358,280
============
Contributed assets disposed $ 41,120
============
Contributed assets received $ 44,792
============
See accompanying notes.
5
GET USA, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
NOTE 1 - Summary of Significant Accounting Policies:
COMPANY ACTIVITIES:
GET USA Inc. ("GET USA") was incorporated in the State of Nevada
on December 5, 2000. GET USA, through its wholly-owned and consolidated
subsidiaries Gaming and Entertainment Technology Pty Ltd ("GET AU"), an
Australian corporation, and GET Holdings, Ltd., a Malta corporation
("GET Holdings"), develop state-of-the-art Internet gaming systems for
utilization in regulated jurisdictions around the world. GET USA and
its subsidiaries have developed comprehensive networked entertainment
in the Internet and land-based gaming environment.
PRINCIPLES OF CONSOLIDATION:
On December 28, 2001, GET USA acquired 95% of the outstanding
shares of GET AU and GET Holdings. On January 11, 2002 GET USA acquired
the remaining 5% of the outstanding shares of GET AU and GET Holdings.
The consolidated and combined financial statements include the accounts
of GET USA and its wholly-owned subsidiaries, GET AU and GET Holdings
hereinafter referred to as ("the Companies"). All significant
intercompany accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS:
The Companies consider all financial instruments that are highly
liquid and have original maturities of three months or less to be cash
equivalents and for purposes of cash flow presentation this includes
short-term investments.
ACCOUNTS RECEIVABLE:
The Companies extend credit to customers in the normal course of
business and perform ongoing credit evaluations of customers,
maintaining allowances for potential credit losses which, when realized,
have been within management's expectations.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost, net of accumulated
depreciation. Depreciation is computed using the straight-line method
over the estimated useful lives of the asset, which vary from 3 to 5
years. Costs of major improvements are capitalized; costs of normal
repairs and maintenance are charged to expense as incurred.
REVENUE RECOGNITION:
Revenue is recorded on the accrual basis at the time when the
Companies have the contractual right to bill.
6
GET USA, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
ADVERTISING COSTS:
The Companies policies are to expense advertising costs as
incurred. No future benefit costs have been capitalized. Advertising
costs were $35,609, $178,139 and $169,615 for the years ended December
31, 2002, 2001, and 2000, respectively.
PROVISION FOR INCOME TAXES:
The Companies have produced no operating income in the United
States of America. To date, the primary activities of the Companies
relate to foreign operations. All related tax liabilities have been
included in the consolidated and combined financial statements. Based on
the overall consolidated and combined operations, no significant book to
tax differences were noted that might result in any material deferred
tax calculation. As such, no provision for deferred taxes have been
included in the financial statements for any year presented.
CONCENTRATION OF RISK:
Financial instruments that potentially subject the Companies to
significant concentrations of credit risk consist principally of cash
and cash equivalents. The Companies deposit cash in two financial
institutions. At times, such amounts may be in excess of insurance
coverage.
Sales to one of the Companies largest customers were
approximately 31% of revenues in 2002. Accounts receivable for that
customer at December 31, 2002 were $280,000.
FOREIGN CURRENCY TRANSACTIONS:
The functional currencies of the foreign subsidiaries are their
respective local currencies. Accordingly, gains and losses from the
translation of the financial statements of the foreign subsidiaries are
reported as a separate component of accumulated other comprehensive
income. Foreign currency transaction gains and losses are included in
operations.
ESTIMATES:
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires the use of estimates based on management's knowledge and
experience. Due to their prospective nature, actual results could differ
from those estimates.
SOFTWARE DEVELOPMENT COSTS:
In accordance with Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed," initial costs are charged to operations
7
GET USA, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
as research prior to the development of a detailed program design or a
working model. Costs incurred subsequent to the product release and
research development performed under contract are charged to operations.
ISSUANCE OF STOCK:
Stock of the Companies is deemed to be issued once value is
received for the stock; the stock subscription agreement has been signed
by the purchaser and signed as accepted by the Companies. Any value
received prior to the acceptance of the agreement is considered a
liability of the Companies.
NOTE 2 - Note Receivable:
On December 18, 2001, GET USA entered into a Bridge Loan
Agreement with Innovative Gaming Corporation of America, a Nevada
corporation ("IGCA"). This loan agreement is for six months at an annual
rate of 10%. GET USA has the irrevocable right to convert all or any
portion of the principal balance into shares of common stock. As of
December 31, 2001, GET USA had advanced $158,000 against this loan
agreement. In 2002, an additional $216,970 was loaned as part of this
agreement. At December 31, 2002 the outstanding receivable is $374,970.
As described in Note 7 a settlement agreement was signed by both
parties.
NOTE 3 - Related Party Transactions:
The subsidiary, GET AU received assets totaling $44,792 in 2000
at the start up of operations from a company commonly owned who
dissolved at the start up of GET AU.
In August 2000, Entertainment Media Ventures, LLC, a California
limited liability company ("EMV"), purchased a 5% equity interest in GET
AU and GET Holdings for $1,000,000. The equity securities were not
issued until 2001. As such, the proceeds received were reported at
December 31, 2000 as a deposit. As detailed in Note 6, EMV transferred
its equity ownership in GET AU and GET Holdings for shares of common
stock in GET USA Inc.
Related party payables of $689,470 as of December 31, 2001, have
been accrued for consulting services provided by a stockholder to the
Companies. Related party payables in the amount of $339,000 were
converted into equity at December 31, 2002 as described in Note 6.
Short-term loans outstanding from certain stockholders were
$16,523 as of December 31, 2001. The loans were converted to equity at
December 31, 2002 as described in Note 6.
8
GET USA, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
NOTE 4 - Foreign Translation Adjustment:
As discussed in Note 1, the two subsidiaries have previously
and/or currently conduct business in foreign countries. GET AU currently
undertakes all research and development for GET USA in Sydney,
Australia, while GET Holdings is scheduled to be legally dissolved in
2003 and currently has no business operations. Both companies use their
local currency as their functional currency. Assets and liabilities
denominated in foreign currencies are translated using the exchange rate
on the balance sheet date. Revenues and expenses are translated using
average exchange rates prevailing during the year. The translation
adjustment resulting from this process is reflected in the balance sheet
as a direct increase to stockholders' equity entitled "accumulated other
comprehensive income." For the years ended December 31, 2002, and 2001,
the foreign currency translation gain amounted to $77,072 and $40,049,
respectively.
NOTE 5 - Property, Plant and Equipment:
Property at December 31, 2002 and 2001 consisted of the
following:
2002 2001
--------- ---------
Building improvements $ 1,796 $ 1,626
Equipment 165,183 144,202
Furniture and fixtures 23,003 20,826
--------- ---------
189,982 166,654
Less: Accumulated depreciation (99,669) (49,714)
--------- ---------
Property, plant and equipment, net $ 90,313 $ 116,940
========= =========
Depreciation of property, plant and equipment was $49,955,
$34,959 and $21,710 in 2002, 2001 and 2000, respectively.
NOTE 6 - Stockholders' Equity:
On December 28, 2001, GET USA entered into share transfer
agreements with the shareholders of GET AU and GET Holdings whereby GET
USA issued 9,548,000 fully paid, duly authorized and non-assessable
shares of common stock to the shareholders in exchange for 95% or 1,117
fully paid, duly authorized and non-assessable ordinary shares of GET AU
and 2,748 fully paid, duly authorized and non-assessable ordinary shares
of GET Holdings.
On January 11, 2002, GET USA entered into share transfer
agreements with the minority shareholder of GET AU and GET Holdings
whereby GET USA issued 452,000 fully paid, duly authorized and
non-assessable shares of common stock to the minority shareholder in
9
GET USA, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
exchange for all 53 fully paid, duly authorized and non-assessable
ordinary shares of GET AU and all 130 fully paid, duly authorized and
non-assessable A Preference shares of GET Holdings.
On September 6, 2002, GET USA entered into a consulting
agreement for merchant banking services. The agreement provides that
500,000 shares of common stock of GET USA will be issued to the
consultant in consideration for the services provided. The share price
on that date was valued at $0.15 per share. On September 6, 2002,
100,000 shares of common stock were issued in accordance with the terms
of the consulting agreement; another 200,000 shares were issued on
December 6, 2002 and another 200,000 shares were issued on March 6,
2003.
GET USA issued a private placement memorandum (the "Memorandum")
in October 2002. The Memorandum relates to the offer (the "Offering") by
GET USA of up to 200 units ("Units") in an amount not to exceed
$1,500,000, exclusive of GET USA's ten percent (10%) over-allotment
("the Over-Allotment"). Each unit is priced at $7,500 and consists of
10,000 shares of common stock, par value $.001 per share and a warrant
to purchase 10,000 shares of common stock exercisable at $1.50 per share
for a period of two years from the date of issuance, or the termination
date of the Offering. GET USA has sole discretion to exercise the
Over-Allotment of up to 20 units, or $150,000. The Offering will
terminate on the earlier of the sale of all units offered or September
1, 2003, subject to GET USA's right to extend the Offering. A total of
115 units have been issued subsequent to December 31, 2002, totaling
$860,000.
On December 1, 2002, GET USA entered into a consulting agreement
for strategic gaming advice, terminating on December 31, 2003. The terms
of the agreement state that GET USA shall issue to the consultant an
option to purchase 50,000 shares of common stock, at an exercise price
of $0.75 per share. In addition, in consideration for certain matters of
the agreement being met, the consultant shall be entitled to receive an
option to purchase 25 shares of common stock for each gaming machine
placed in service as a result of introductions made by the consultant.
The options are to be issued the last day of each fiscal quarter in
which gaming machine placements are made, at an exercise price equal to
120% of the average closing bid price for each trading day of such
fiscal quarter. All options are exercisable for a period of three years
from the date of issuance.
At December 31, 2002 all related party debt with a stockholder,
was converted to shares of common stock and warrants. Short-term loans
from stockholders and related party payables in the amount of $19,281
and $339,000, respectively, were converted to equity under the same
terms as the private placement memorandum dated October 2002. As a
result of the conversion, 477,707 shares of common stock were issued to
a related party. In addition, GET USA issued a warrant, to purchase
477,707 shares of common stock exercisable at $1.50 per share for a
period of two years from the date of issuance, or the termination date
of the Offering.
10
GET USA, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
NOTE 7 - Subsequent Events:
On February 15, 2002, the Companies entered into an Agreement
and Plan of Merger (the "GET Merger Agreement") with IGCA. In August
2002, the GET Merger Agreement was unilaterally terminated by IGCA. A
settlement agreement with an effective date of February 25, 2003 was
signed by both parties. The agreement provides consideration to the
Companies for the outstanding bridge loan in the original principal
amount of $374,970, and effectively ends the outstanding litigation in
Clark County, Nevada, commenced by the Companies against IGCA. In
addition, a license agreement has been entered into between IGCA and GET
USA in full consideration for the outstanding development work and
out-of-pocket expenses incurred by the Companies during the period prior
to the termination of the merger. Specifically, the Companies received a
non-exclusive, worldwide, perpetual, irrevocable license to IGCA's
software, hardware, hardware tools, mathematics and pay tables relating
to three titles and a multiplayer poker game.
On February 24, 2003, a member of management assigned a
promissory note, previously issued to him by IGCA in conjunction with a
loan in the original principal amount of $125,000, to the Companies in
the amount of $133,657 in consideration for the issuance by the
Companies of a non-interest bearing promissory note to the member of
management in a like amount, maturing on April 24, 2003.
In June 2003, GET USA changed its name to Gaming and
Entertainment Group, Inc.
11
SUPPLEMENTAL SCHEDULE
GET USA, INC.
CONSOLIDATED AND COMBINED
SCHEDULE OF GENERAL AND ADMINISTRATIVE EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
Consolidated Consolidated Combined
2002 2001 2000
------------ ------------ ------------
Bad Debt expense $ 390,364 $ -- $ --
Contract work 215,853 249,072 410,175
Overseas traveling expenses 197,158 136,153 38,612
Legal costs 164,155 104,657 36,950
Consulting fees 135,237 46,758 48,813
Superannuation contributions 95,796 77,848 50,111
Payroll taxes 59,791 -- --
Fees and permits 52,913 74,012 1,444
Depreciation expense 49,955 34,959 21,710
Rent 45,920 38,915 38,531
Audit fees 35,612 23,421 22,259
Advertising 35,609 178,139 169,615
Miscellaneous expenses 26,233 24,234 26,802
Trade Show and expo expenses 21,959 56,779 6,760
Computer expenses 17,741 29,370 23,325
Printing and stationery 14,891 3,660 8,592
Bookkeeping 13,837 -- --
Traveling expenses 10,757 31,887 51,765
Telephone 8,705 7,761 9,123
Vehicle expense 7,927 -- --
Insurance 7,862 7,899 8,010
General expenses 5,879 -- 322
Recruitment expenses 5,480 31,182 3,646
TOTAL GENERAL AND ADMINISTRATIVE $ 1,619,634 $ 1,156,706 $ 976,565
============ ============ ============
12
APPENDIX D
NORSTAR GROUP, INC.
PRO FORMA CONDENSED COMBINED
SELECTED FINANCIAL DATA FOR THE
SIX MONTHS ENDED JUNE 30, 2003 AND THE
FISCAL YEARS ENDED DECEMBER 31, 2001 AND 2002
NORSTAR GROUP, INC.
PRO FORMA CONDENSED COMBINED
SELECTED FINANCIAL DATA FOR THE
SIX MONTHS ENDED JUNE 30, 2003 AND THE FISCAL YEARS ENDED
DECEMBER 31, 2001 AND 2002
The following pro forma selected financial data, insofar as it relates
to the six months ended June 30, 2003, has been derived from the reviewed
financial statements of NorStar and the unaudited financial statements of G&EG.
With respect to the fiscal years ended December 31, 2002 and 2001, the pro forma
selected financial data has been derived from the audited financial statements
of NorStar and G&EG. The pro forma selected financial does not purport to
represent what the combined companies financial position or results of
operations would actually have been had the proposed reverse split and share
exchange occurred on such date or as of the beginning of the period indicated,
or to project the combined companies financial position or results of operation
for any future period.
6 Months Ended
June 30, 2003 FY2002 FY2001
(UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- -----------
Statement of Operations Data:
Revenue:
Sales $ 1,110,996 $ 1,820,265 $ 1,545,626
Cost of sales 684,554 982,646 1,105,711
Selling general and administrative 913,886 1,674,511 1,432,526
Research and development -- 4,641 71,799
Write-off of capitalized web site development -- 238,391 --
Depreciation -- 49,955 34,959
----------- ----------- -----------
Loss from operations (487,444) (1,129,879) (1,099,369)
----------- ----------- -----------
Other income (expense):
Gain (loss) on foreign currency exchange -- 48,685 (60,316)
Interest income/dividends 4,018 35,646 90,119
Loss on disposal of assets -- -- (34,164)
Miscellaneous income (expense) -- 3,394 (2,060)
----------- ----------- -----------
Total other income (expense), net 4,018 87,725 (6,421)
----------- ----------- -----------
Income (loss) before provisions (benefit)
for income taxes (483,426) (1,042,154) (1,105,790)
Provision (benefit) for income taxes -- 24,224 79,938
----------- ----------- -----------
Net loss $ (483,426) $(1,066,378) $(1,185,728)
Other comprehensive income (loss)
Foreign currency translation adjustment -- 77,072 40,049
----------- ----------- -----------
Total comprehensive net income (loss) $ (483,426) $ (989,306) $(1,145,679)
Balance Sheet Data:
Cash (including equivalents) and
short-term investments $ 169,176 $ 282,214 $ 1,579,851
Total assets 1,059,396 1,053,056 2,127,014
Total liabilities 454,267 623,725 1,192,029
Total stockholders equity $ 605,129 $ 429,331 $ 934,985
=========== =========== ===========
APPENDIX E
PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS FOR THE
SIX MONTHS ENDED JUNE 30, 2003 AND THE
FISCAL YEARS ENDED DECEMBER 31, 2001 AND 2002
NorStar Group, Inc.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
YEAR ENDED DECEMBER 31, 2001
(UNAUDITED)
ASSETS
HISTORICAL
-----------------------------
GAMING &
NORSTAR ENTERTAINMENT PRO FORMA PRO FORMA
GROUP, INC. GROUP, INC. COMBINED ADJUSTMENTS COMBINED
----------- ----------- ----------- --------- -----------
Cash $ 2,486 $ 2,037 $ 4,523 $ -- $ 4,523
Short term investment -- 1,575,328 1,575,328 -- 1,575,328
Accounts receivable -- -- -- -- --
Note receivable -- 158,000 158,000 -- 158,000
Capitalized web site development 238,391 -- 238,391 238,391
Employee advances -- 9,988 9,988 -- 9,988
----------- ----------- ----------- ----------- -----------
Total Current Assets 240,877 1,745,353 1,986,230 -- 1,986,230
----------- ----------- ----------- ----------- -----------
PROPERTY & EQUIPMENT
NET 2,097 116,940 119,037 -- 119,037
----------- ----------- ----------- ----------- -----------
OTHER ASSETS
Intellectual property -- 21,747 21,747 -- 21,747
----------- ----------- ----------- ----------- -----------
TOTAL ASSETS 242,974 1,884,040 2,127,014 -- 2,127,014
----------- ----------- ----------- ----------- -----------
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 46,493 61,856 108,349 -- 108,349
Accrued expenses -- 135,367 135,367 -- 135,367
Related party payable -- 689,470 689,470 -- 689,470
Accrued income taxes -- 78,376 78,376 -- 78,376
Deposit -- -- -- -- --
Short-term loan from shareholders- 16,523 16,523 -- 16,523
Non interest bearing demand notes -- -- -- --
payable to stockholders 163,944 -- 163,944 -- 163,944
----------- ----------- ----------- ----------- -----------
Total Current Liabilities 210,437 981,592 1,192,029 -- 1,192,029
----------- ----------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock -- 284 284 -- 284
Common stock 207,438 9,578 217,016 -- 217,016
Additional paid-in capital 6,222,590 1,668,656 7,891,246 -- 7,891,246
Accumulated other comprehensive
income -- 39,091 39,091 -- 39,091
Retained earnings (6,397,491) (815,161) (7,212,652) -- (7,212,652)
----------- ----------- ----------- ----------- -----------
Total Stockholders' Equity 32,537 902,448 934,985 -- 934,985
----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES &
STOCKHOLDERS EQUITY 242,974 1,884,040 2,127,014 -- 2,127,014
----------- ----------- ----------- ----------- -----------
NorStar Group, Inc.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001
(UNAUDITED)
HISTORICAL
-------------------------------
GAMING &
NORSTAR ENTERTAINMENT PRO FORMA PRO FORMA
GROUP, INC. GROUP, INC. COMBINED ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------ ------------
Sales $ -- $ 1,545,626 $ 1,545,626 $ -- $ 1,545,626
Cost of Sales -- 1,105,711 1,105,711 -- 1,105,711
-- 439,915 439,915 -- 439,915
Gross profit
COSTS AND EXPENSES
Selling, general &
administrative 310,779 1,121,747 1,432,526 -- 1,432,526
Depreciation & Amortization -- 34,959 34,959 -- 34,959
Research and development 71,799 -- 71,799 -- 71,799
Write-off of capitalized web
site development costs -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Total Costs and Expenses 382,578 1,156,706 1,539,284 -- 1,539,284
------------ ------------ ------------ ------------ ------------
INCOME (LOSS) FROM
OPERATION (382,578) (716,791) (1,099,369) -- (1,099,369)
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES)
Gain (loss) on foreign currency
exchange -- (60,316) (60,316) -- (60,316)
Interest income/dividends -- 90,119 90,119 -- 90,119
Loss on disposal of assets -- (34,164) (34,164) -- (34,164)
Miscellaneous income (expense) -- (2,060) (2,060) -- (2,060)
------------ ------------ ------------ ------------ ------------
Total Other (Expense) -- (6,421) (6,421) -- (6,421)
------------ ------------ ------------ ------------ ------------
(Loss) before provision for
income taxes (382,578) (723,212) (1,105,790) -- (1,105,790)
Provision for Income taxes -- 79,938 79,938 -- 79,938
------------ ------------ ------------ ------------ ------------
NET (LOSS) (382,578) (803,150) (1,185,728) -- (1,185,728)
Other comprehensive income (loss)
Foreign currency translation
adjustment -- 40,049 40,049 -- 40,049
------------ ------------ ------------ ------------ ------------
TOTAL COMPREHENSIVE NET (LOSS) (382,578) (763,101) (1,145,679) -- (1,145,679)
LOSS PER SHARE (0.02) (0.07)
------------ ------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 16,000,000
------------
NorStar Group, Inc.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
YEAR ENDED DECEMBER 31, 2002
(UNAUDITED)
ASSETS
HISTORICAL
-----------------------------
GAMING &
NORSTAR ENTERTAINMENT PRO FORMA PRO FORMA
GROUP, INC. GROUP, INC. COMBINED ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------- -----------
Cash $ 222 $ 281,992 $ 282,214 $ -- $ 282,214
Short term investment -- -- -- -- --
Accounts receivable -- 281,275 281,275 -- 281,275
Note receivable -- 374,970 374,970 -- 374,970
Employee advances -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total Current Assets 222 938,237 938,459 -- 938,459
PROPERTY & EQUIPMENT
NET 699 90,313 91,012 -- 91,012
----------- ----------- ----------- ----------- -----------
OTHER ASSETS
Intellectual property -- 23,585 23,585 -- 23,585
----------- ----------- ----------- ----------- -----------
TOTAL ASSETS 921 1,052,135 1,053,056 -- 1,053,056
----------- ----------- ----------- ----------- -----------
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 44,932 130,268 175,200 -- 175,200
Accrued expenses -- 82,383 82,383 -- 82,383
Related party payable -- -- -- -- --
Accrued income taxes -- 117,698 117,698 -- 117,698
Deposit -- 20,000 20,000 -- 20,000
Short-term loan from shareholders -- -- -- -- --
Non interest bearing demand notes -- -- --
payable to stockholders 228,444 -- 228,444 -- 228,444
----------- ----------- ----------- ----------- -----------
Total Current Liabilities 273,376 350,349 623,725 -- 623,725
----------- ----------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock -- -- -- -- --
Common stock 257,938 10,828 268,766 -- 268,766
Additional paid-in capital 6,273,090 2,061,009 8,334,099 -- 8,334,099
Accumulated other comprehensive
income -- 115,311 115,311 -- 115,311
Retained earnings (6,745,355) (1,485,362) (8,230,717) -- (8,230,717)
Unearned compensation (58,128) -- (58,128) -- (58,128)
----------- ----------- ----------- ----------- -----------
Total Stockholders' Equity (272,455) 701,786 429,331 -- 429,331
----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES &
STOCKHOLDERS EQUITY 921 1,052,135 1,053,056 -- 1,053,056
----------- ----------- ----------- ----------- -----------
NorStar Group, Inc.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2002
(UNAUDITED)
HISTORICAL
-------------------------------
GAMING &
NORSTAR ENTERTAINMENT PRO FORMA PRO FORMA
GROUP, INC. GROUP, INC. COMBINED ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------ ------------
Sales $ -- $ 1,820,265 $ 1,820,265 $ -- $ 1,820,265
Cost of Sales -- 982,646 982,646 -- 982,646
-- 837,619 837,619 -- 837,619
Gross profit
COSTS AND EXPENSES
Selling, general &
administrative 104,832 1,569,679 1,674,511 -- 1,674,511
Depreciation & Amortization -- 49,955 49,955 -- 49,955
Research and development 4,641 -- 4,641 -- 4,641
Write-off of capitalized web
site development costs 238,391 -- 238,391 -- 238,391
------------ ------------ ------------ ------------ ------------
Total Costs and Expenses 347,864 1,619,634 1,967,498 -- 1,967,498
------------ ------------ ------------ ------------ ------------
INCOME (LOSS) FROM
OPERATION (347,864) (782,015) (1,129,879) -- (1,129,879)
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES)
Gain (loss) on foreign currency
exchange -- 48,685 48,685 -- 48,685
Interest income/dividends -- 35,646 35,646 -- 35,646
Loss on disposal of assets -- -- -- -- --
Miscellaneous income (expense) -- 3,394 3,394 -- 3,394
------------ ------------ ------------ ------------ ------------
Total Other (Expense) -- 87,725 87,725 -- 87,725
------------ ------------ ------------ ------------ ------------
(Loss) before provision for
income taxes (347,864) (694,290) (1,042,154) -- (1,042,154)
Provision for Income taxes -- 24,224 24,224 -- 24,224
------------ ------------ ------------ ------------ ------------
NET (LOSS) (347,864) (718,514) (1,066,378) -- (1,066,378)
Other comprehensive income (loss)
Foreign currency translation -- 77,072 77,072 -- 77,072
adjustment
------------ ------------ ------------ ------------ ------------
TOTAL COMPREHENSIVE NET (LOSS) (347,864) (641,442) (989,306) -- (989,306)
LOSS PER SHARE (0.02) (0.06)
------------ ------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 16,000,000
------------
NorStar Group, Inc.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
SIX MONTHS ENDED JUNE 30, 2003
(UNAUDITED)
ASSETS
HISTORICAL
-----------------------------
GAMING &
NORSTAR ENTERTAINMENT PRO FORMA PRO FORMA
GROUP, INC. GROUP, INC. COMBINED ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------- -----------
Cash $ -- $ 169,177 $ 169,177 $ -- $ 169,177
Short term investment -- -- -- -- --
Accounts receivable -- 261,693 261,693 -- 261,693
Note receivable -- 498,627 498,627 -- 498,627
Capitalized web site -- -- -- --
development
Employee advances -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total Current Assets -- 929,497 929,497 -- 929,497
----------- ----------- ----------- ----------- -----------
PROPERTY & EQUIPMENT
NET -- 129,243 129,243 -- 129,243
----------- ----------- ----------- ----------- -----------
OTHER ASSETS
Intellectual property -- 657 657 -- 657
----------- ----------- ----------- ----------- -----------
TOTAL ASSETS -- 1,059,397 1,059,397 -- 1,059,397
----------- ----------- ----------- ----------- -----------
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 28,938 48,669 77,607 -- 77,607
Accrued expenses -- 125,305 125,305 -- 125,305
Related party note payable -- 133,657 133,657 -- 133,657
Accrued income taxes -- 117,698 117,698 -- 117,698
Deposit -- -- -- -- --
Short-term loan from -- -- -- -- --
shareholders
Non interest bearing demand -- -- -- --
notes
payable to stockholders -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total Current Liabilities 28,938 425,329 454,267 -- 454,267
----------- ----------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock -- -- -- -- --
Common stock 347,938 11,140 359,078 -- 359,078
Additional paid-in capital 6,510,534 2,418,519 8,929,053 -- 8,929,053
Accumulated other comprehensive
income -- 88,802 88,802 -- 88,802
Retained earnings (6,887,410) (1,884,394) (8,771,804) -- (8,771,804)
----------- ----------- ----------- ----------- -----------
Total Stockholders' Equity (28,938) 634,067 605,129 -- 605,129
----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES &
STOCKHOLDERS EQUITY -- 1,059,397 1,059,397 -- 1,059,397
----------- ----------- ----------- ----------- -----------
NorStar Group, Inc.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2003
(UNAUDITED)
HISTORICAL
-------------------------------
GAMING &
NORSTAR ENTERTAINMENT PRO FORMA PRO FORMA
GROUP, INC. GROUP, INC. COMBINED ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------ ------------
Sales $ -- $ 1,110,996 $ 1,110,996 $ -- $ 1,110,996
Cost of Sales -- 684,554 684,554 -- 684,554
-- 426,442 426,442 -- 426,442
Gross profit
COSTS AND EXPENSES
Selling, general &
administrative 162,796 771,831 934,627 -- 934,627
Depreciation & Amortization -- -- -- -- --
Research and development -- -- -- -- --
site development costs -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Total Costs and Expenses 162,796 771,831 934,627 -- 934,627
------------ ------------ ------------ ------------ ------------
Gain on settlement of accounts 20,741 -- 20,741 -- 20,741
payable
INCOME (LOSS) FROM
OPERATION (142,055) (345,389) (487,444) -- (487,444)
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES)
Gain (loss) on foreign currency --
exchange -- -- -- -- --
Interest income/dividends -- 4,018 4,018 -- 4,018
Loss on disposal of assets -- -- -- -- --
Miscellaneous income (expense) -- -- -- -- --
Total Other (Expense) -- 4,018 4,018 -- 4,018
------------ ------------ ------------ ------------ ------------
(Loss) before provision for
income taxes (142,055) (341,371) (483,426) -- (483,426)
Provision for Income taxes -- -- -- -- --
------------ ------------ ------------ ------------ ------------
NET (LOSS) (142,055) (341,371) (483,426) -- (483,426)
Other comprehensive income (loss)
Foreign currency translation -- -- -- -- --
adjustment
------------ ------------ ------------ ------------ ------------
TOTAL COMPREHENSIVE NET (LOSS) (142,055) (341,371) (483,426) -- (483,426)
------------ ------------ ------------ ------------ ------------
LOSS PER SHARE (0.01) (0.03)
------------ ------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 16,000,000
------------
APPENDIX F
GAMING & ENTERTAINMENT GROUP, INC.
UNAUDITED FINANCIAL STATEMENTS FOR
THE SIX MONTHS ENDED JUNE 30, 2003
GAMING AND ENTERTAINMENT GROUP, INC.
CONSOLIDATED BALANCE SHEET
FOR THE 6 MONTHS ENDED JUNE 30 2003
ASSETS
2003
-----------
CURRENT ASSETS
Cash $ 169,177
Short term investment
Accounts receivable 261,693
Note receivable 498,627
Total current assets 929,497
-----------
PROPERTY PLANT AND EQUIPMENT, NET 129,243
OTHER ASSETS
Intellectual property 657
-----------
Total assets $ 1,059,397
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 48,669
Accrued expenses 125,305
Related party note payable 133,657
Accrued income taxes 117,698
Deposit
Short-term loan from stockholders
-----------
Total liabilities 425,329
-----------
STOCKHOLDERS' EQUITY
Common stock; authorized 50,000,000 11,140
Additional paid in capital 2,418,519
Accumulated other comprehensive income 88,802
Retained deficit (1,884,394)
-----------
-----------
Total stockholders' equity 634,067
-----------
Total liabilities and stockholders' equity $ 1,059,397
===========
GAMING AND ENTERTAINMENT GROUP, INC.
FORECAST CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE 6 MONTHS ENDED JUNE 30, 2003
Consolidated
2003
------------
REVENUES
$
Worldwide internet gaming development and license fees 444,268
Other fees 351,693
Interest 4,018
Hardware 315,035
------------
1,115,014
------------
COSTS OF SALES
Hardware expense 255,879
------------
255,879
------------
Gross Profit 859,136
------------
GENERAL AND ADMINISTRATIVE EXPENSES 1,258,167
------------
OPERATING PROFIT (341,371)
------------
GAMING & ENTERTAINMENT GROUP INC.
STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED 30 JUNE 2003
Consolidated
2003
------------
CASH FLOWS FROM OPERATING ACTIVITIES $
Cash received from customers
Online fees 201,637
Other fees 230,768
Research & development tax concession 182,738
Payments to suppliers and employees
Staff expenses (645,409)
Marketing expenses (181,744)
General Office expenses (76,768)
Professional Services (171,707)
Interest received 4,005
------------
Net cash (used) in operating activities (456,481)
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for investments --
Payments for plant & equipment --
Proceeds on disposal of plant & equipment --
------------
Net cash generated by/(used) in investing activities 0
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 424,647
------------
Net cash generated by financing activities 424,647
------------
Net increase/(decrease) in cash held (31,834)
Add cash at the beginning of the financial year 181,157
Exchange rate adjustments 19,853
------------
Cash at the end of the financial year 169,177
============