[x] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES AND 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 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 incorporation or 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 Three Months Ended March 31, 2003 U.S. Dollars Unaudited Prepared by management Consolidated Balance Sheets at March 31, 2003 and at December 31, 2002 Consolidated Statements of Operations for the Three Months Ended March 31, 2003 Consolidated Statements of Changes in Stockholders' Equity for the Three Months Ended March 31,2003 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003 Notes to Consolidated Financial Statements NORTHSTAR ELECTRONICS, INC. Consolidated Balance Sheets Unaudited U.S. Dollars March 31 December 31 ASSETS 2003 2002 - autited -------- ----------- Current Cash $495,944 $117,690 Receivables 322,778 345,454 Inventory and work in progress 192,940 147,846 Prepaid expenses 8,336 4,682 -------- ----------- Total Current Assets 1,019,998 615,672 Property and Equipment 129,781 138,071 -------- ----------- Total Assets $1,149,779 $753,743 -------- ----------- LIABILITIES Current Accounts payable and accrued liabilities $253,267 $418,555 Loans payable 50,000 72,863 Current portion of long term debt 64,243 62,079 -------- ----------- Total Current Liabilities 367,510 553,497 Long term debt 611,906 429,309 Due to Cabot Management Limited 72,550 70,105 Due to Director 44,460 140,297 -------- ----------- Total Liabilities 1,096,426 1,193,208 -------- ----------- 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 14,051,942 shares of common stock 1,405 1,191 (11,907,976 December 31, 2002) Additional paid in capital 2,818,515 2,179,624 Other comprehensive income (loss) (5,024) 25,213 Deficit (2,761,543) (2,645,493) -------- ----------- Total Stockholders' Equity (Deficit) 53,353 (439,465) -------- ----------- Total Liabilities and Stockholders' Equity $1,149,779 $753,743 -------- ----------- NORTHSTAR ELECTRONICS, INC. Consolidated Statements of Operations Three Months Ended March 31 Unaudited U.S.Dollars Three Months 2003 2002 ---- ---- Sales $323,118 $197,252 Cost of goods sold 148,913 110,788 -------- -------- Gross margin 174,205 86,464 Recovery of research and development 73,406 - Other income 524 6,160 -------- -------- 248,135 92,624 -------- -------- Expenses Salaries 137,221 114,637 Financial consulting 90,163 93,288 Management services - 28,603 Professional fees 15,307 19,819 Advertising and marketing 22,054 14,013 Rent 24,222 23,759 Investor relations 22,983 13,716 Office 13,965 11,038 Travel and business development 7,159 9,350 Interest on debt 8,351 9,570 Telephone and utilities 10,691 8,400 Proposal development costs - 7,012 Repairs and maintenance 2,975 4,032 Amortization 5,405 1,840 Bank charges and interest 2,654 1,056 Transfer agent 1,035 270 -------- -------- 364,185 360,403 -------- -------- Net (loss) for period $(116,050) $(267,779) -------- -------- Net (loss) per share $(0.01) $(0.03) Weighted average number of shares outstanding 12,622,631 8,267,963 NORTHSTAR ELECTRONICS, INC. Consolidated Statement of Changes in Stockholders' Equity Three Months Ended March 31, 2003 Unaudited U.S. Dollars Addit- Other Total ional Compre- Accumu- Stockholder Paid in hensive lated Equity Shares Amount Capital Income Deficit (Deficit) ------------------------------------------------------------------------------ Balance December 31, 2002 11,907,976 $1,191 $2,179,624 $25,213 $(2,645,493) $(439,465) Net loss for three months - - - - (116,050) (116,050) Other comprehensive income (debits) - - - (30,237) - (30,237) Issuance of common stock for cash 1,935,570 193 827,454 - - 827,647 Issuance of common stock for services 208,396 21 93,553 - - 93,574 Share issue Costs - - (282,116) - - (282,116) ------------------------------------------------------------------------------ Balance March 31, 2003 14,051,942 $1,405 $2,818,515 $(5,024) $(2,761,543) $53,353 ------------------------------------------------------------------------------ NORTHSTAR ELECTRONICS, INC. Consolidated Statement of Cash Flows Three Months Ended March 31, 2003 Unaudited U.S.Dollars March 31 2003 2002 ---- ---- Operating Activities Net income (loss) $(116,050) $(267,779) Adjustments to reconcile net income (loss) to net cash used by operating activities Amortization 5,405 1,840 Issuance of common stock for services 93,574 37,360 Changes in operating assets and liabilities (212,059) (22,022) -------- -------- Net cash (used) provided by operating activities (229,130) (250,601) -------- -------- Investing Activities (Acquisition) disposal of property and equipment 2,885 355 Acquisition of transducer technology - (32,000) -------- -------- Net cash (used) provided by investing activities 2,885 (31,645) -------- -------- Financing Activities Issuance of common shares for cash 545,531 286,111 Increase (repayment) of long term debt 182,597 23,054 Due to Cabot Management Limited 2,445 1,076 Advances from (repayment to) director (95,837) 13,334 -------- -------- Net cash (used) provided by financing activities 634,736 323,575 -------- -------- Effect of foreign exchange on translation (30,237) (11,034) -------- -------- Inflow of cash 378,254 30,295 Cash, beginning of period 117,690 39,699 -------- -------- Cash, end of period $495,944 $69,994 -------- -------- Supplemental information Interest paid $8,351 $9,570 Shares issued for services $93,574 $37,360 Corporate income taxes paid $0 $0 NORTHSTAR ELECTRONICS, INC. Notes to Consolidated Financial Statements Three Months Ended March 31, 2003 Unaudited U.S. Dollars 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 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 as follows: 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. 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. These unaudited consolidated interim 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, 2002 Form 10-KSB. In the opinion of the Company's management, this consolidated interim financial information reflects all adjustments necessary to present fairly the Company's consolidated financial position at March 31, 2003 and the consolidated results of operations and the consolidated cash flows for the three months then ended. At March 31, 2003, 73% of the Company's revenues were generated from one contract, which was substantially complete at March 31, 2003 - the Company is continually marketing its services for follow on contracts. At March 31, 2002, the Company recorded nil revenues from contract work. The results of operations for the three months ended March 31, 2003 are not necessarily indicative of the results to be expected for the entire fiscal year. 2. COMMON STOCK During the three months ended March 31, 2003, the following shares of common stock were issued: For services 208,396 For cash 1,935,570 --------- 2,143,966 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 information for the three month periods ended March 31, 2003 and March 31, 2002 prepared by management and the audited consolidated financial statements for the twelve months ended December 31, 2002 as presented in the 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 in an effort to materially benefit the future business of the Company. The Company's operations were close to break even for the quarter before the expenses incurred for engineering and business development. 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, through its subsidiaries, is a Multiple Applications underwater sonar technology developer, a defense electronics manufacturer and a defense systems integrator. Underwater Sonar Products and Technologies a - 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 has been 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 and 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 three months period. Sales have not expanded in Europe as we had anticipated. However, an upswing in activity over the next six months is expected. b - The AQUACOMM Project The AQUACOMM project involves 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. To date, the Company has received $292,003 from this funding. 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. An example of our modus operandi 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 established companies in their sectors of influence. c - Defense Sonar System During this quarter the Company completed a contract to design and construct prototype sonar hardware for a defense protection system. It is designed for the protection of navy ships, ports and harbors. We expect that Homeland Security and Anti Terrorism will become a major part of our business over the next five years with production of these and other systems. 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. A follow-on contract was received and completed in the fall of 2001. Further console contracts are expected in the future. 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. Systems Integration The Company is developing its 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. The aforementioned defense sonar system is an example of how Systems Integration will work for us. In this project, we had four subcontractors who carried out various tasks, with Northstar bringing all the component parts together for final assembly, testing, quality control and delivery to the customer. Subsequent Events Subsequent to March 31, 2003 the Company issued 87,000 shares of common stock for cash of $36,910. Results of Operations Comparison of the three months ended March 31, 2003 with the three months ended March 31, 2002. Revenue for the three month period ended March 31, 2003 was $323,118 compared to $197,252 of revenue recorded during the same period of the prior year. This comparative increase is the result of the completion of the contract for the intruder detection system in this quarter. Gross profits increased from $86,464 (44%) in the prior period to $174,205 (54%) in the current period. The increase was due to the fact that the costs to produce NETMIND systems have been reduced by increased efficiencies in production. The Company continues to negotiate for subsequent material contracts with Lockheed Martin and others. The net loss for the three month period ended March 31, 2003 was $(116,050) compared to a net loss of $(267,779) for the three months ended March 31, 2002. Over this past quarter, the Company has invested 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 quarter the Company continued to pursue the $2.0 B Maritime Helicopter Project as one of Lockheed Martin Canada's team members. This contract should be awarded in 2004. The Company 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 highly significant event for the Company in this quarter was the completion of the underwater intruder detection system prototypes. The Company now expects to further expand its acoustic capabilities into military and anti terrorist applications as well as the offshore petroleum industry. 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 research and development 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 March 31, 2003 with December 31, 2002 The Company improved its working capital position at March 31, 2003 to $652,488 with current assets of $1,019,998 which are in excess of current liabilities of $367,510. At December 31, 2002 the Company had working capital of $62,175. Liquidity and Capital Resources The Company has decreased its shareholder's deficit as a result of its efforts to increase investor awareness and investment in the Company. During the quarter the Company issued 1,935,570 shares of common stock for cash of $827,647 pursuant to a Regulation S offering. The Company is also offering a private placement unit offering pursuant to Regulations D and S for up to 700,000 units at $0.30 per unit (reduced from $0.35 per unit). Each unit consists of one common share plus two warrants: one A warrant exercisable at $0.35 (reduced from $0.50) to acquire one common share and a B warrant exercisable at $0.50 (reduced from $0.75) to acquire one share. At March 31, 2003 the Company had 541,664 A warrants and 541,664 B warrants outstanding. 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 ------------------- ---- ------------- 291,665 January 15, 2003 $87,500 1,643,905 Jan/Feb/March, 2003 $740,147 8,834 January, 2003 services valued at $3,975 4,991 January, 2003 salary valued at $2,200 5,906 February, 2003 services valued at $5,906 188,665 Jan/Feb/March, 2003 services valued at $84,899 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. No change since previous filing. 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. May 12, 2003 Northstar Electronics, Inc. (Registrant) By: /s/ Wilson Russell Wilson Russell, PhD President and Principal Financial Officer CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 W.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002, the undersigned Chief Executive Officer and chief Financial Officer, or persons fulfilling similar functions, each certify: (i)That the financial information included in this Quarterly Report fairly presents in all material respects the financial condition and results of operations of the Company as of March 31, 2003 and for the periods presented in the report; and (ii)That the Quarterly Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities exchange Act of 1934 By: /s/ Wilson Russell Title: Chief Executive Officer and Chief Financial Officer Date: May 12, 2003