10Q-SB/A
[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.
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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)
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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)
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Balance
March 31,
2003 14,051,942 $1,405 $2,818,515 $(5,024) $(2,761,543) $53,353
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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
302 CERTIFICATION
I, Wilson Russell, Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Northstar
Electronics, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual
report;
4. I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a - 14 and 15d - 14)
for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date.
5. I have disclosed, based on my most recent evaluation, to the
registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls.
6. I have indicated in this quarterly report whether there were significant
changes in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: June 9, 2003 /s/Wilson Russell________________
Wilson Russell, Chief Financial Officer and
Director