[x] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from n/a to n/a
333-90031
Commission file number
Northstar Electronics, Inc.
Exact name of small business issuer as specified in its charter
Delaware
State or other jurisdiction of organization
#33-0803434
IRS Employee Identification No.
Suite # 1455 - 409 Granville Street,
Vancouver, British Columbia,
Canada V6C 1T2
Address of principal executive offices
(604) 685-0364
Issuer's telephone number
Not Applicable
Former name, former address and former fiscal year, if changed since last
report
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes [] No []
Not Applicable
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NORTHSTAR ELECTRONICS, INC.
Consolidated Financial Statements
Six Months Ended June 30, 2002
U.S. Dollars
Unaudited
Prepared by management
Consolidated Balance Sheets at June 30, 2002 and at December 31, 2001
Consolidated Statements of Operations for the Three and Six Month Periods Ended
June 30, 2002
Consolidated Statements of Changes in Stockholders' Equity for the Six Months
Ended June 30, 2002
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002
Notes to Consolidated Financial Statements
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 8K
SIGNATURES.
NORTHSTAR ELECTRONICS, INC.
Consolidated Balance Sheets
Unaudited
U.S. Dollars
June 30 December 31
ASSETS 2002 2001
Current
Cash $31,824 $ 39,699
Receivables 55,211 139,453
Inventory and work in progress 184,858 107,257
Prepaid expenses 10,837 5,398
Total Current Assets 282,730 291,807
Property and Equipment 90,245 91,903
Total Assets $372,975 $383,710
LIABILITIES
Current
Accounts payable and accrued liabilities $270,117 $325,075
Loans payable - 6,778
Current portion of long term debt 215,000 211,208
Total Current Liabilities 485,117 543,061
Long Term Debt 440,442 428,808
Due to Cabot Management Limited 59,211 56,249
Due to Director 26,093 24,401
Total Liabilities 1,010,863 1,052,519
STOCKHOLDERS' EQUITY
Common Stock
Authorized
100,000,000 shares of common stock with a par
value of $0.0001 each
20,000,000 shares of preferred stock with a par
value of $0.0001 each
Issued and outstanding
10,108,102 shares of common stock 1,010 794
(7,942,009 December 31, 2001)
Additional Paid in Capital 1,583,819 1,146,447
Other Comprehensive Income 16,618 37,308
Deficit (2,239,335) (1,853,358)
Total Stockholders' Equity (Deficit) (637,888) (668,809)
Total Liabilities and Stockholders' Equity $372,975 $383,710
NORTHSTAR ELECTRONICS, INC.
Consolidated Statements of Operations
Three Months and Six Months Ended June 30
Unaudited
U.S. Dollars
Three Months Six Months
2002 2001 2002 2001
Sales $167,526 $201,933 $364,778 $554,969
Cost of goods sold 97,352 44,951 298,140 130,054
Gross margin 70,174 156,982 156,638 424,915
Other income (6,062) 13,113 98 14,715
64,112 170,095 156,736 439,630
Expenses
Salaries 126,868 131,264 220,025 236,522
Consulting 25,920 0 54,523 0
Professional fees (6,533) 36,590 13,286 87,876
Value of Director's
uncompensated services 0 14,450 0 37,700
Advertising and marketing 21,535 10,729 35,548 28,955
Rent 20,154 16,759 40,123 34,311
Research and development 35,035 39,940 63,700 55,547
Investor relations 19,651 0 33,367 0
Office and administration 11,705 15,057 21,749 26,501
Travel and business development 2,593 15,681 11,943 24,672
Interest on debt 10,302 9,208 19,872 16,275
Telephone and utilities 7,198 5,738 14,253 10,386
Amortization 921 1,363 2,761 2,959
Proposal development costs 8 0 7,020 0
Repairs and maintenance (267) 0 3,765 0
Transfer agent fees 508 0 778 0
Total expenses 275,598 314,314 542,713 561,704
Net income (loss) for period $(181,876) $(144,219) $(385,977) $(122,074)
Net income (loss) per share $(0.02) $(0.02) $(0.04) $(0.02)
Weighted average number of shares
Outstanding 9,513,987 7,681,737 8,841,912 7,704,807
NORTHSTAR ELECTRONICS, INC.
Consolidated Statement of Changes in Stockholders' Equity
Six Months Ended June 30, 2002
Unaudited
U.S. Dollars
Other
Additional Compre- Accumu- Total
Paid in hensive lated Stockholder
Shares Amount Capital Income Deficit Equity
(Deficit)
Balance
December 31,
2001 7,942,009 $794 $1,146,447 $37,308 $(1,853,358) $(668,809)
Net loss
for
six months - - - - (385,977) (385,977)
Other
comprehensive
credits (debits) - - - (20,690) - (20,690)
Issuance of
common stock
for cash 1,889,950 189 585,978 - - 586,167
Share issuance
Cost - - (212,910) - - (212,910)
Exercise of
stock option 78,123 7 - - - 7
Issuance of
common stock
for services 198,020 20 64,304 - - 64,324
---------------------------------------------------------------------------
Balance
June 30,
2002 10,108,102 $1,010 $1,583,819 $16,618 $(2,239,335) $(637,888)
---------------------------------------------------------------------------
NORTHSTAR ELECTRONICS, INC.
Consolidated Statement of Cash Flows
Six Months Ended June 30, 2002
Unaudited
U.S. Dollars
June 30
2002 2001
Operating Activities
Net income (loss) $(385,977) $(122,074)
Adjustments to reconcile net income (loss)
to net cash used by operating activities
Amortization 2,761 2,959
Issuance of common stock for services 64,324 65,831
Uncompensated services 0 37,700
Changes in operating assets and liabilities (56,735) (12,505)
Net cash provided by (used by) operating activities (375,627) (28,089)
Investing Activity
Acquisition of property and equipment (1,103) (14,111)
Financing Activities
Issuance of common stock - net proceeds 373,257 10
Increase (repayment) of long term debt 11,634 17,406
Due to Cabot Management Limited 2,962 (2,420)
Advances from (repayment to) director 1,692 (4,556)
Net cash (used) provided by financing activities 389,545 10,440
Effect of foreign currency translation on cash (20,690) 3,636
Inflow (outflow) of cash (7,875) (68,124)
Cash, beginning of period 39,699 125,602
Cash, end of period $ 31,824 $ 57,478
Supplemental information
Interest paid $19,872 $16,275
Shares issued for services 198,020 201,253
Corporate income taxes paid $0 $0
NORTHSTAR ELECTRONICS, INC.
Notes to Consolidated Financial Statements
Six Months Ended June 30, 2002
Unaudited
U.S. Dollars
1. 1. ORGANIZATION AND BASIS OF PRESENTATION
These financial statements include the accounts of Northstar Electronics,
Inc. ("the Company") and its wholly owned subsidiaries Northstar Technical
Inc. ("NTI") and Northstar Network Ltd. ("NN"). All inter company account
Balances and transactions are eliminated. The Company was incorporated May
11, 1998 in the State of Delaware and had no operations other than
organizational activities prior to the January 1999 merger with NTI
described below. The Company's business activities are conducted principally
in Canada but these financial statements are prepared in accordance with
accounting principles generally accepted in the United States with all
figures translated into United States dollars for reporting purposes.
On January 26, 1999 the Company completed the acquisition of 100% of the
Shares of NTI. The Company, with the former shareholders of NTI receiving
a majority of the total shares then issued and outstanding, effected the
merger through the issuance of 4,901,481 shares of common stock from
treasury. The transaction has been accounted for as a reverse take over
resulting in the consolidated financial statements including the results
of operations of the acquired subsidiary prior to the merger.
These unaudited consolidated financial statements have been prepared by
management in accordance with accounting principles generally accepted in
the United States for interim financial information, are condensed and do
not include all disclosures required for annual financial statements. The
organization and business of the Company, accounting policies followed by
the Company and other information are contained in the notes to the
Company's audited consolidated financial statements filed as part of the
Company's December 31, 2001 Form 10-KSB.
In the opinion of the Company's management, these consolidated financial
statements reflect all adjustments necessary to present fairly the
Company's consolidated financial position at June 30, 2002 and the
consolidated results of operations and the consolidated statement of cash
flows for the six months then ended. The results of operations for the six
months ended June 30, 2002 are not necessarily indicative of the results
to be expected for the entire fiscal year.
2. COMMON STOCK
During the six months ended June 30, 2002, the following shares of common
Stock were issued:
For services 198,020
For cash 1,889,950
Pursuant to options 78,123
----------
2,166,093
----------
The above common shares issued for services received represent fair value
at the market value of those services.
Item 2. Management's Discussion and Analysis or Plan of Operation.
The following discussion should be read in conjunction with the
Accompanying unaudited consolidated financial statements prepared by
management for the six month periods ended June 30, 2002 and June 30,
2001 and the audited consolidated financial statements for the twelve
months ended December 31, 2001 as presented in the Company's Form
10KSB.
Although the Company has experienced a net loss this quarter, it has
expended considerable effort in developing new business in new markets
for NETMIND and for new design and contract manufacturing work.
Funding has been approved for the AQUACOMM sonar technology
development program by the Canadian Government. The AQUACOMM project
funding will be received over a period of three years. The first
progress payment is expected to be received in October, which will
include reimbursement for work done over the past year.
Special Note Regarding Forward Looking Statements
Certain statements in this report and elsewhere (such as in other
filings by the company with the Securities and Exchange Commission
("SEC"), press releases, presentations by the company of its management
and oral statements) may constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995.
Words such as "expects," "anticipates," "intends," "plans," "believes,"
"seeks," "estimates," and "should," and variations of these words and
similar expressions, are intended to identify these forward-looking
statements. Actual results may materially differ from any
forward-looking statements. Factors that might cause or contribute to
such differences include, among others, competitive pressures and
constantly changing technology and market acceptance of the company's
products and services. The company undertakes no obligation to
publicly release the result of any revisions to these forward-looking
statements, which may be made to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.
The Company's Services
The Company is a Multiple Applications underwater sonar technology
developer, A defense electronics manufacturer and a defense systems
integrator.
The Company's operations currently are those of its wholly owned
subsidiaries Northstar Technical Inc. (NTI) and Northstar Network Ltd.
(NN) and it is in this context that the company's services are
described.
We have three main activities: underwater wireless communications,
electronic contract manufacturing and system integration.
Underwater Wireless Communications
The NETMIND System
The Company's first underwater sonar product based on our core
technology was the NETMIND system. NETMIND's market is the world's
commercial fishing industry and government oceanic research agencies.
One of our largest customers is the United States National Oceanic
and Atmospheric Administration (NOAA).
NETMIND is both a conservation tool as well as an efficiency tool.
Electronic sensors attached to a fishing trawl measure the height and
width of the net opening, the water temperature, the depth of the net,
the amount of fish caught plus other parameters. The sensor
information is transmitted via a wireless communications link back to
the ship.
NETMIND helps prevent over fishing and allows fishermen to catch fewer
fish and still make profits. This gives regulators flexibility in
reducing quotas when attempting to conserve limited fish stocks.
Sales for NETMIND have been somewhat slower than expected during
this six months period. However, with expanding sales in Europe, we
anticipate an upswing in activity in the second half of the fiscal
year.
The AQUACOMM Project
The AQUACOMM project is the development of new, leading edge multiple
application sonar technologies and products for a variety of industries.
These include defense, offshore oil and gas, commercial fishing,
oceanography, marine environment and marine transportation. The company's
funding for AQUACOMM totaling US$2,394,000 includes $2,040,000 from the
Canadian federal government comprising $1,420,000 from the Atlantic
Innovation Fund (announced July 9, 2002), $230,000 from the National
Research Council (announced August 14, 2002) and $390,000 from Scientific
Research tax credits (cash refunds made after each fiscal year end based
on eligible research and development expenses). The balance is being funded
through equity financing. The AQUACOMM development is scheduled to last
three years.
The Company intends to use its Venture Technology Business Model to
maximize the success of the new AQUACOMM technologies. In this model,
our core technology is invested in partnerships with established companies
in the different industry sectors.
One example of our modus operandi would be the co-development of a
military underwater communications system. We would develop the 'wet'
end and a large defense contractor would develop the 'dry' end. The
defense contractor, being well established in the field, would be
responsible for product introduction, marketing and sales. Another
example is the development of a mooring line monitoring system for
the offshore oil and gas industry. We expect to have such a system
ready for commercial sale by the second quarter of 2003 and we intend
to market it through a strategic alliance with an international oil
field company.
Should our Venture Technology Business Model prove to be
successful, we intend to provide up to ten new products arising from the
AQUACOMM project to be sold by these well established companies in their
sectors of influence.
Electronic Contract Manufacturing
In the fall of 1999 we signed a contract with Lockheed Martin, Manassas,
Virginia to fabricate and test control consoles for Navy submarines. This
contract was successfully completed in early 2001 and a follow-on contract
was received from Lockheed Martin which was completed in the fall of 2001.
Further console contracts are expected in the future from Lockheed Martin.
We are attempting to expand our electronic contract manufacturing
business with our current customers, as well as with customers in
the offshore oil and gas, transportation and communication industries.
System Integration
The Company has created a novel approach to securing and executing large
defense contracts by bringing together affiliate companies. The overall
capability, which is substantial, is presented to the prime contractors.
To date, a memorandum of understanding has been signed with Lockheed
Martin Canada to jointly pursue the $2.0 billion Maritime Helicopter
Project.
Subsequent Events
Subsequent to June 30, 2002 the Company issued 406,688 shares of common
stock for cash of $150,000.
Results of Operations
Comparison of the three and six months ended June 30, 2002 with the three
and six months ended June 30, 2001:
Revenue for the three month period ended June 30, 2002 was $167,526
compared to $201,933 of revenue recorded during the same period of the
prior year. This comparative decrease is the result of a slow down in
the fishing industry world wide, which impacted on the sales of the
NETMIND systems. Revenue for the six month period ended June 30, 2002 was
$364,778, down from $554,969 in the prior period for the same reason.
Gross profits decreased from $424,915 (76%) in the prior period to
$156,638 (57%) in the current period. The decrease in dollars was due
to the fact that the current period does not include any revenues from
contract sales. Therefore, in the absence of a console contract during
the first two quarters of 2002, the gross margin is lower than the prior
year's comparative quarters. The Company continues to negotiate for
subsequent material contracts with Lockheed Martin and others.
The net loss for the three month period ended June 30, 2002 was $(181,876)
compared to a net loss of $(144,219) for the three months ended June 30,
2001. Over this past quarter, the Company continued to invest considerable
resources in seeking out additional and future contract manufacturing
opportunities and is confident that the efforts will return positive
results to the Company over the ensuing months and years.
During the two quarters the Company expended $136,000 on the development
of its Network business concept. To date, Network has generated no revenues.
Network continues to pursue the $2.0B Maritime Helicopter Project as one of
Lockheed Martin Canada's partners. This contract is now expected to be
awarded in 2004. Network is also actively attempting to secure a first
contract on the Joint Strike Fighter program in the United States, having
already signed Memoranda of Interest with Lockheed Martin and four of its
partner companies. A large thrust of Network recently has been in the anti-
terrorism field. Specifically, Network is working towards projects that
utilize its sonar and marine engineering expertise.
A highly significant event for the Company was the acquisition of specialized
sonar and transducer technology used in the NETMIND system. Northstar is now
producing its own sonar transducers at a lower cost to the Company than when
they were purchased outside of the Company. This new capability shortens the
time it takes to develop enhancements to Company products or new sensors and
will positively affect future gross margins. This new technology will also
allow the Company to expand its acoustic capabilities into military and anti
terrorist applications. We are actively pursuing contracts in these areas and
we expect to see results later this year.
During the quarter the Company increased expenditures on the marketing and
advertising of its NETMIND system and expanded awareness of the NETMIND
system through trade shows and a growing distribution network including
Ireland and the Scandinavian countries. The new Bottom Contact Sensor was
Well received by our fishing industry customers and by government
researchers. The Company continued on its program towards extending its
underwater wireless communication technology into additional applications
and expended further effort in developing proposals for financing of a major
product development program.
Comparison of Financial Position at June 30, 2002 with June 30, 2001
The Company reduced its working capital deficit at June 30, 2002 to $(202,387)
with current liabilities of $485,117 in excess of current assets of $282,730.
At December 31, 2001 the Company had a working capital deficit of $251,254.
Included in current liabilities is the repayment in full of a $160,000
debenture due July 3, 2002. This debenture was refinanced. The Company intends
to finance its working capital shortfall by the issuance of shares of its
common stock, increased revenues and the recovery of certain expenses under
the AQUACOMM project.
Liquidity and Capital Resources
The Company has increased its Shareholder's Deficit as a result of its
efforts to expand its current markets and to secure future contract work.
During the two quarters the Company issued 1,889,950 shares of common stock
for gross proceeds of $585,978 pursuant to a Regulation S offering.
Subsequent to June 30, 2002 the Company received $150,000 for a total of
$735,978 pursuant to that same offering.
The Company has outstanding a private placement unit offering pursuant to
Regulations D and S for the issuance of up to 700,000 units at $0.35 per
unit. Each unit consists of one common share plus two warrants: one A warrant
exercisable at $0.50 to acquire one common share and one B warrant
exercisable at $0.75 to acquire one common share.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
No change since previous filing.
Item 2. Changes in Securities.
Options Granted Date Exercise Price Expiry Date
None - - -
Common Stock Issued Date Consideration
21,759 January, 2002 $ 7,949
186,704 February, 2002 $ 56,012
769,400 March, 2002 $259,510
383,514 April, 2002 $131,385
308,278 May, 2002 $ 88,408
496,438 June, 2002 $102,331
Item 3. Defaults Upon Senior Securities.
No change since previous filing.
Item 4. Submission of Matters to a Vote of Security Holders.
No change since previous filing.
Item 5. Other Information.
No change since previous filing.
Item 6. Exhibits and Reports on form 8-K.
EXHIBIT 99.01
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Wilson Russel, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the
Quarterly Report of Northstar Electronics, Inc. on Form 10-QSB for the
quarterly period ended June 30, 2002, fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that
information contained in such Quarterly Report fairly presents in all
material respects the financial condition and results of operations of
Northstar Electronics, Inc.
Date: August 15, 2002 By: /s/ Wilson Russell
-------------------
Name: Wilson Russell
Title: Chief Executive Officer and
Chief Financial Officer
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.
August 07, 2002 Northstar Electronics, Inc.
(Registrant)
By: /s/ Wilson Russell
Dr. Wilson Russell, PhD
President and Principal Financial Officer