Edgar Filing: NORSTAR GROUP INC

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
(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, 2000

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)

UTAH 59-1643698
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

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:

TITLE OF EACH CLASS NAME OF EACH EXCHANGE 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 22, 2001, 18,743,825 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 $2,999,012 as of March 22, 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.
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TABLE OF CONTENTS

PART I.................................................................. 2
Item 1. Business.................................................... 2
(b) Business of the Company................................. 2
(i) Membership............................................. 2
(ii) Providers.............................................. 2
(iii) Market Overview....................................... 3
(iv) Summary of Product Research and Development............ 3
Item 2. Properties.................................................. 3
Item 102 (a) 1. Small Business Issuer engaged in significant mining
operations:................................................. 4
Item 3. Legal Proceedings........................................... 5
Item 4. Submission of Matters to a Vote of Security Holders......... 5
PART II................................................................. 6
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 6
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 6
Item 7. Financial Statements........................................ 8
Item 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.................................... 8
PART III................................................................ 9
Item 9. Directors and Executive Officers of the Registrant.......... 9
Item 10. Executive Compensation...................................... 10
Item 11. Security Ownership of Certain Beneficial Owners and
Management.................................................. 10
Item 12. Certain Relationships and Related Transactions.............. 11
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 11
SIGNATURES.............................................................. 12

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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

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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 tooling
for the HMD will be located at Interactive Imaging Systems ("IIS"), the
manufacturer. As a significant portion of this HMD design is based on
proprietary IIS technology, IIS will retain the rights, title and ownership to
this technology. In the event IIS is unable or unwilling to manufacture the HMD,
VeeAreCity will be granted certain rights to have the product manufactured by a
mutually agreed upon third party, at the anticipated volume levels of 100,000
units/year. IIS estimates that it will be able to manufacture the HMD for
VeeAreCity 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 an immaterial amount during the last two fiscal years on
research and development activities.

NorStar employs seven 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.

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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.

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* 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.
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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.

ITEM 3. LEGAL PROCEEDINGS

NorStar was not involved in any legal proceedings as of December 31, 2000.

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, 2000.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S 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
---- ------- -------- -------

1999................. 1st 15/16 1/4
1999................. 2rd 13/16 0.20
1999................. 3rd 13/16 0.20
1999................. 4th 7/16 0.24

YEAR QUARTER HIGH BID LOW BID
---- ------- -------- -------

2000................. 1st 0.77 0.47
2000................. 2nd 0.49 0.26
2000................. 3rd 0.37 0.24
2000................. 4th 0.57 0.13

(b) Holders

As of March 19, 2001, the approximate number of shareholders of record of
NorStar Common Stock is 253. This information was obtained from the Company's
transfer agent.

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 OF FINANCIAL CONDITION AND RESULTS
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 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
Company was unable to develop a profitable operation and became inactive until
April 1992. During the period from April, 1992 through December 31, 2000 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
VeeAreCity and the Burbs. 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. The Company also holds mineral rights
attributable to 17 claims that were acquired for gold mines located in the Gold
Mountain mining district

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of Esmeralda County Nevada. However, management does not expect mining
operations to become one of the Company's core businesses.

RESULTS OF OPERATIONS:

Year ended December 31, 2000 as compared to Year Ended December 31, 1999.

During the year ended December 31, 2000, the Company's operating expenses
decreased by approximately $1,753,000 to approximately $551,000 from
approximately $2,304,000 for the year ended December 31, 1999. The primary cause
of the decrease was non-cash charges resulting from the issuance of shares of
common stock for services. During 1999, the Company issued 6,701,500 shares of
common stock for services having a fair market value of $2,079,225 on the date
of issuance as compared to only 2,050,000 shares of common stock having a fair
value of $264,000 being issued for services in 2000.

On April 17, 2000, the Company entered into agreements with three
consultants that will expire on April 17, 2001. Under these agreements, the
consultants will, among other things, assist the Company in finding businesses
located primarily in England, other European countries and the Northeastern
section of the United States of America that will advertise in and/or link to
the Company's online community. The three consultants received options to
purchase a total of 1,300,000 shares of the Company's common stock that will be
exercisable at $.40 per share at any time during the term of the consulting
agreements as consideration for their services.

The 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.

During 2000, approximately $236,000 of amortization relating to the
unearned compensation was recorded in the Company's operating expenses. The
balance of the operating expenses during 2000 was less than 1999 mainly due to
reduced professional fees which were incurred in the prior year when the Company
prepared, and filed with the Securities and Exchange Commission, its
Registration Statement on Form 10-SB to enable its shares to be traded on the
OTCBB.

As a result of the above, the Company incurred a loss of approximately
$551,000 for 2000 as compared to approximately $2,304,000 for 1999, a decrease
of $1,753,000.

(a) 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. As shown in the consolidated financial statements, the Company
incurred net losses of approximately $551,000 and $2,304,000 in 2000 and 1999,
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, 2000, the Company
had a cash balance of only $17,000, a working capital deficiency of
approximately $48,000 and an accumulated deficit of $6,015,000. Management
believes that the Company will continue to incur net losses through at least
December 31, 2001 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.

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During the years ended December 31, 2000 and 1999, the Company sold
1,200,000 and 4,427,500 shares of common stock and received net proceeds of
approximately $144,000 and $552,500 respectively. During the years ended
December 31, 2000 and 1999, the Company was able to satisfy certain obligations
to professionals, consultants and employees by the issuance of shares of common
stock for services performed. The Company issued 2,050,000 and 6,701,500 shares
of common stock for such services having a fair value of approximately $264,000
and $2,079,225 respectively, for the years ended December 31, 2000 and 1999.

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.

ITEM 7. FINANCIAL STATEMENTS

Our Consolidated Balance Sheet as of December 31, 2000 and our Consolidated
Statements of Operations, Stockholders' Equity and Cash Flows for each of the
years ended December 31, 2000 and 1999, together with the reports of J.H. COHN
LLP, Independent Public Accountants, begin on page F-1 of this Annual Report on
Form 10-KSB.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not Applicable

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PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

NAME AGE TITLE DIRECTORSHIP FIVE YEARS BUSINESS EXPERIENCE
---- --- ---------------- ------------------ -----------------------------------------

Harry F. 74 President Chairman of Bd* In 1965 Mr. DiFrancesco was Chairman, CEO
DiFrancesco 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 55 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 56 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 50 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.

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* 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 2001 Annual Meeting of Stockholders pursuant to Regulation 14A
not later than 120 days after December 31, 2000 or a later date to be determined
by the Board of Directors of the Company.

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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, 2000.

FISCAL NAME OF CAPACITY IN SALARIES, FEES DEFERRED SHARES OF
YEAR INDIVIDUAL WHICH SERVED & COMMISSIONS BONUSES COMPENSATION COMMON STOCK
------ ----------------- -------------------- -------------- -------- ------------ ------------

1999 Harry Pres. & Dir $0.00 1,000,000
DiFrancesco*
Jay Sanet* V.P. & Dir $0.00 100,000
Andrew S. Peck* Sect, Treas. & Dir $0.00 100,000
Jerry R. Saver* V.P. Asst Sect & Dir $0.00 25,000
Maynard N. Abguv* V.P. & Dir $0.00 50,000

2000 Harry Pres. & Dir $0.00 1,000,000
DiFrancesco*
Jay Sanet* V.P. & Dir $0.00 100,000
Andrew S. Peck* Sect, Treas. & Dir $0.00 100,000
Maynard N. Abguv* V.P. & Dir $0.00 50,000

2001 Harry Pres. & Dir $0.00 **
DiFrancesco*
Jay Sanet* V.P. & Dir $0.00 **
Andrew S. Peck* Sect, Treas. & Dir $0.00 **
Maynard N. Abguv* V.P. & Dir $0.00 **

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* 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

NAME AND ADDRESS AMOUNT AND NATURE PERCENTAGE OF
TITLE 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 125,000 .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

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.

10
12

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

11
13

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 March 28, 2001

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 28th day of March 2001.

SIGNATURE TITLE
--------- -----

/s/ HARRY DIFRANCESCO President and Chairman of the Board
-----------------------------------------------------
Harry DiFrancesco

/s/ ANDREW S. PECK Vice President of Finance, Director and
----------------------------------------------------- Secretary
Andrew S. Peck

/s/ JAY SANET Vice President Corporate Development, Director
-----------------------------------------------------
Jay Sanet

/s/ MAYNARD NEIL ABOGUV Vice President Sales Management, Director
-----------------------------------------------------
Maynard Neil Aboguv

12
14

NORSTAR GROUP, INC. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

PAGE
------

Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheet December 31, 2000................ F-3
Consolidated Statements of Operations Years Ended December F-4
31, 2000 and 1999.........................................
Consolidated Statements of Stockholders' Equity Years Ended F-5
December 2000 and 1999....................................
Consolidated Statements of Cash Flows Years Ended December F-6
31, 2000 and 1999.........................................
Notes to Consolidated Financial Statements.................. F-7/12

F-1
15

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, 2000, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended December 31, 2000 and 1999. 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, 2000, and their results of
operations and cash flows for the years ended December 31, 2000 and 1999, 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, 2000. 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 8, 2001

F-2
16

NORSTAR GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2000

ASSETS

Current assets -- cash...................................... $ 17,483
Equipment, net of accumulated depreciation of $699.......... 3,495
Capitalized web site development costs...................... 238,391
Mineral rights, at estimated net realizable value........... --
-----------
Total............................................. $ 259,369
===========
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities -- accounts payable and accrued
expenses.................................................. $ 65,629
-----------
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; 18,743,825 shares issued and outstanding... 187,438
Additional paid-in capital................................ 6,162,590
Accumulated deficit....................................... (6,014,913)
Unearned compensation..................................... (141,375)
-----------
Total stockholders' equity........................ 193,740
-----------
Total............................................. $ 259,369
===========

See Notes to Consolidated Financial Statements.
F-3
17

NORSTAR GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000 AND 1999

2000 1999
----------- -----------

Revenues.................................................... $ -- $ --
----------- -----------
Operating expenses:
Selling................................................... 289,995 23,014
General and administrative................................ 260,693 2,281,034
----------- -----------
Totals............................................ 550,688 2,304,048
----------- -----------
Net loss.................................................... $ (550,688) $(2,304,048)
=========== ===========
Basic net loss per common share............................. $ (.03) $ (.21)
=========== ===========
Basic weighted average common shares outstanding............ 15,777,295 11,129,941
=========== ===========

See Notes to Consolidated Financial Statements.

F-4
18

NORSTAR GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000 AND 1999

COMMON STOCK
--------------------- ADDITIONAL
NUMBER OF PAID-IN ACCUMULATED UNEARNED
SHARES AMOUNT CAPITAL DEFICIT COMPENSATION TOTAL
---------- -------- ---------- ----------- ------------ -----------

Balance, January 1, 1999...... 4,164,825 $ 41,648 $2,751,655 $(3,160,177) $ (366,874)
Issuance of shares for payment
of:
Consulting fees payable..... 200,000 2,000 138,000 140,000
Professional and other
services and employee
compensation............. 6,701,500 67,015 2,012,210 2,079,225
Proceeds from sale of
shares...................... 4,427,500 44,275 508,225 552,500
Net loss...................... (2,304,048) (2,304,048)
---------- -------- ---------- ----------- -----------
Balance, December 31, 1999.... 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
compensation................ 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
========== ======== ========== =========== ========= ===========

See Notes to Consolidated Financial Statements.

F-5
19

NORSTAR GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000 AND 1999

2000 1999
--------- -----------

Operating activities:
Net loss.................................................. $(550,688) $(2,304,048)
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.......................... 264,000 2,079,225
Amortization of unearned compensation.................. 235,625
Depreciation........................................... 699
Changes in operating assets and liabilities -accounts
payable and accrued expenses.......................... 65,629 (959)
--------- -----------
Net cash provided by (used in) operating
activities...................................... 15,265 (225,782)
--------- -----------
Investing activities:
Web site development costs capitalized.................... (193,455) (44,936)
Purchases of equipment.................................... (4,194)
--------- -----------
Net cash used in operating activities............. (197,649) (44,936)
--------- -----------
Financing activities:
Repayments of notes payable to stockholders............... (123,309) (102,606)
Net proceeds from sale of common stock.................... 144,000 552,500
--------- -----------
Net cash provided by financing activities......... 20,691 449,894
--------- -----------
Net increase (decrease) in cash............................. (161,693) 179,176
Cash, beginning of year..................................... 179,176 --
--------- -----------
Cash, end of year........................................... $ 17,483 $ 179,176
========= ===========
Supplemental disclosure of cash flow information:
Income taxes paid......................................... $ -- $ --
========= ===========
Interest paid............................................. $ -- $ --
========= ===========

See Notes to Consolidated Financial Statements.

F-6
20

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, 1999, 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, 1999.

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, 1999, the Company, was attempting to develop an Internet business
through VeeAreCity and The Burbs and was holding an investment in mineral
rights, as further described below.

In 1998, the Company began the development of its Internet business which
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, 2000, 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.

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 second quarter of
the year ending December 31, 2001. As shown in the accompanying consolidated
financial statements, the Company incurred net losses of approximately $551,000
and $2,304,000 in 2000 and 1999, 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, 2000, the Company had a cash balance of only $17,000, a working
capital deficiency of approximately $48,000 and an accumulated deficit of
$6,015,000. Management believes that the Company will continue to incur net
losses through at least December 31, 2001 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

F-7
21
NORSTAR GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

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.

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 $699 in 2000.

WEB SITE 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 development costs are
amortized on a straight-line basis over their estimated useful life.

The Company capitalized costs of approximately $193,000 and $45,000 in 2000
and 1999, respectively, 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 costs when it begins to generate revenues from sales of
memberships to subscribers which management estimates will be in the second
quarter of the year ending December 31, 2001.

F-8
22
NORSTAR GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 goodwill and capitalized software 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 2000 and 1999.

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 (i)
the Company had a net loss for the year ended December 31, 2000 and,
accordingly, the assumed effects of the exercise of options granted to
consultants in April 2000 (see Note 8) would have been anti-dilutive and (ii)
the Company did not have any potentially dilutive common shares outstanding
during the year ended December 31, 1999.

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-9
23
NORSTAR GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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:

The Financial Accounting Standards Board and the Accounting Standards
Executive Committee of the American Institute of Certified Public Accountants
had issued certain accounting pronouncements as of December 31, 2000 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 2000 and 1999 or that they will have a significant affect 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. The Company also entered into an agreement whereby it became
obligated to pay total fees of $200,000 to the former owner for consulting
services that were to be provided over the five year period subsequent to the
acquisition. As explained in Note 1, management has been attempting to find a
joint venture partner to assist the Company in developing these claims.

Although management is still attempting to find a joint venture partner, it
determined that the investment in the mineral rights had been impaired based on
the inability to find a joint venture partner and the uncertainties related to
the Company's ability to generate profitable mining operations and, as a result,
the Company wrote off the carrying value of the investment and the unamortized
cost attributable to the consulting fees in 1996.

During 1999, the Company paid the remaining carrying value of its
obligation under the consulting agreement of $140,000 by issuing 200,000 shares
of common stock to the former owner of the mineral rights with an approximate
fair value of $140,000. The issuance of the shares was a noncash transaction
that is not reflected in the accompanying consolidated statement of cash flows
for 1999.

NOTE 4 -- INCOME TAXES:

As of December 31, 2000, the Company had net operating loss carryforwards
of approximately $6,015,000 available to reduce future Federal taxable income
which will expire at various dates through 2020. The Company had no other
material temporary differences as of that date. Due to the uncertainties related
to, among other things, the changes in the ownership of the Company, which could
subject those loss carryforwards to substantial annual limitations, and the
extent and timing of its future taxable income, the Company offset the deferred
tax assets attributable to the potential benefits of approximately $2,406,000
from the utilization of those net operating loss carryforwards by an equivalent
valuation allowance as of December 31, 2000.

The Company had also offset the potential benefits of approximately
$2,186,000 and $1,264,000 from net operating loss carryforwards by equivalent
valuation allowances as of December 31, 1999 and 1998, respectively.
Accordingly, although the Company had pre-tax losses in 2000 and 1999, it did
not recognize a

F-10
24
NORSTAR GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

credit for Federal income taxes in either period as a result of the increases in
the valuation allowance of $220,000 and $922,000 in 2000 and 1999, respectively.

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, 2000, 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,
2000. 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 March 8, 2001, 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 will expire on April 17, 2001. Under these agreements, the
consultants will, among other things, assist the Company in finding businesses
located primarily in England, other European countries and the Northeastern
section of the United States that will advertise in and/or link to the Company's
online community. The three consultants received options to purchase a total of
1,300,000 shares of the Company's common stock that will be exercisable at $.40
per share at any time during the term of the consulting agreements as
consideration for their services.

The 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 SFAS 123. The unamortized balance of unearned
compensation of $141,375 is reflected as a reduction of stockholders' equity in
the accompanying consolidated balance sheet as of December 31, 2000.

F-11
25
NORSTAR GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 9 -- FAIR VALUE OF FINANCIAL STATEMENTS:

The Company's material financial instruments at December 31, 2000 for which
disclosure of estimated fair value is required by certain accounting standards
consisted of cash and accounts payable. In the opinion of management, cash and
accounts payable were carried at fair values because of their liquidity and/or
short-term maturities.

F-12