[x] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from 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
befiled 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, 2003
U.S. Dollars
Unaudited
Prepared by management
Consolidated Balance Sheets at June 30, 2003 and at December 31, 2002
Consolidated Statements of Operations for the Three and Six Month
Periods Ended June 30, 2003
Consolidated Statements of Changes in Stockholders' Equity for the Six
Months Ended June 30, 2003
Consolidated Statements of Cash Flows for the Six Months Ended June 30,
2003
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 2003 2002
Current
Cash $350,989 $117,690
Receivables 266,852 345,454
Inventory and work in progress 218,446 147,846
Prepaid expenses 11,232 4,682
Total Current Assets 847,519 615,672
Intangible assets 33,613 33,613
Property and Equipment 108,855 104,458
Total Assets $989,987 $753,743
LIABILITIES
Current
Accounts payable and accrued liabilities $223,124 $418,555
Loans payable - 72,863
Expense recovery recorded in advance 44,014 -
Current portion of long term debt 66,594 62,079
Total Current Liabilities 333,732 553,497
Long Term Debt 545,806 429,309
Due to Cabot Management Limited 81,618 70,105
Due to Director 13,188 140,297
Total Liabilities 974,344 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
14,259,210 shares of common stock 1,426 1,191
(11,907,976 December 31, 2002)
Additional Paid in Capital 2,876,046 2,179,624
Other Comprehensive Income (38,530) 25,213
Deficit (2,823,299) (2,645,493)
Total Stockholders' Equity (Deficit) 15,643 (439,465)
Total Liabilities and Stockholders' Equity $989,987 $753,743
NORTHSTAR ELECTRONICS, INC.
Consolidated Statements of Operations
Three Months and Six Months Ended June 30
Unaudited
U.S. Dollars
Three Months Six Months
2003 2002 2003 2002
Sales $200,183 $189,779 $588,897 $469,020
Discounts 31,518 53,771 97,114 104,242
Sales net of discounts 168,665 167,526 491,783 364,778
Cost of goods sold 19,383 97,352 168,296 298,140
Gross margin 149,282 70,174 323,487 156,638
Recovery of research
and development 251,975 - 325,381 -
Other income 4,127 (6,062) 4,651 98
405,384 64,112 653,519 156,736
Expenses
Salaries 231,099 126,868 368,320 220,025
Financial consulting 12,526 25,920 102,689 54,523
Professional fees 7,784 (6,533) 23,091 13,286
Advertising and marketing 33,369 21,535 55,423 35,548
Rent 25,538 20,154 49,760 40,123
Research and development 45,812 35,035 45,812 63,700
Investor relations 33,253 19,651 56,236 33,367
Office and administration 31,605 11,705 48,224 21,749
Travel and business
development 18,600 2,593 25,759 11,943
Interest on debt 8,355 10,302 16,706 19,872
Telephone and utilities 13,097 7,198 23,788 14,253
Amortization 2,693 921 8,098 2,761
Proposal development costs 2,346 8 2,346 7,020
Repairs and maintenance 290 (267) 3,265 3,765
Transfer agent fees 773 508 1,808 778
Total expenses 467,140 275,598 831,325 542,713
Net income (loss) for period $ (61,756) $(181,876) $(177,806) $(385,977)
Net income (loss) per share $(0.00) $(0.02) $(0.01) $(0.04)
Weighted average number of shares
Outstanding 12,799,104 8,841,912 13,156,432 9,513,987
NORTHSTAR ELECTRONICS, INC.
Consolidated Statement of Changes in Stockholders' Equity
Six Months Ended June 30, 2003
Unaudited
U.S. Dollars
Other
Additional Compre- Accumu- Total
Paid in hensive lated Stockholder
Shares Amount Capital Income Deficit Equity
(Deficit)
Balance
December
31, 2002 11,907,976 $1,191 $2,179,624 $25,213 $(2,645,493) $(439,465)
Net loss
for
six months - - - - (177,806) (177,806)
Other
comprehensive
credits (debits) - - - (63,743) - (63,743)
Issuance of
common stock
for cash 2,097,070 210 886,081 - - 886,291
Share issuance
Cost - - (300,344) - - (300,344)
Issuance of
common stock
for
services 254,164 25 110,685 - - 110,710
------------------------------------------------------------------------
Balance
June 30,
2003 14,259,210 $1,426 $2,876,046 $(38,530) $(2,823,299) $15,643
------------------------------------------------------------------------
NORTHSTAR ELECTRONICS, INC.
Consolidated Statement of Cash Flows
Six Months Ended June 30, 2003
Unaudited
U.S. Dollars
June 30
2003 2002
Operating Activities
Net income (loss) $(177,806) $(385,977)
Adjustments to reconcile net income (loss)
to net cash used by operating activities
Amortization 8,098 2,761
Issuance of common stock for services 110,710 64,324
Changes in operating assets and liabilities (222,828) (56,735)
Net cash provided by (used by)
operating activities (281,826) (375,627)
Investing Activity
Acquisition of property and equipment (12,495) (1,103)
Financing Activities
Issuance of common stock - net proceeds 585,947 373,257
Increase (repayment) of long term debt 121,012 11,634
Due to Cabot Management Limited 11,513 2,962
Advances from (repayment to) director (127,109) 1,692
Net cash (used) provided by financing activities 591,363 389,545
Effect of foreign currency translation (63,743) (20,690)
Inflow (outflow) of cash 233,299 (7,875)
Cash, beginning of period 117,690 39,699
Cash, end of period $ 350,989 $ 31,824
Supplemental information
Interest paid $16,706 $19,872
Shares issued for services 254,164 198,020
Corporate income taxes paid $0 $0
NORTHSTAR ELECTRONICS, INC.
Notes to Consolidated Financial Statements
Six Months Ended June 30, 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 June 30, 2003
and the consolidated results of operations and the consolidated cash flows
for the six months then ended. At June 30, 2003, 52% 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 June 30, 2002 the Company recorded
nil revenues from contract work. The results of operations for the six
months ended June 30, 2003 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, 2003, the following shares of common
stock were issued:
For services 254,164
For cash 2,097,070
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 six
month periods ended June 30, 2003 and June 30, 2002 prepared by management
and the audited consolidated financial statements for the twelve months
ended December 31, 2002 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 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
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 primarily a conservation 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 six
months period. However, with expanding sales in North America and Europe,
we anticipate an upswing in activity in the second half of the fiscal year.
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 another two years. To date, the Company has recovered $325,381 in
expenses 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.
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 would be the
development of a sonar communication system, obstacle avoidance sonar, and
long lasting battery technology for an Autonomous Underwater Vehicle (AUV)
manufacturer. Northstar intends to become an Original Equipment
Manufacturer (OEM) for the AUV 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.
Homeland Security
Northstar has successfully developed the sonar hardware and mechanical
housing for a large defense contractor's anti-terrorism system. The system
is designed to protect naval ships, ports and harbors.
Electronic Contract Manufacturing
In the fall of 1999 we signed a contract with Lockheed Martin, Manassas,
Virginia to fabricate and test command and control consoles for Navy
submarines. This contract was successfully completed in early 2001 and a
follow-on contract was received and completed in the fall of 2001.
Lockheed Martin recently applied for and received U.S. State Department
approval for a Manufacturing License Agreement (MLA) that will permit
Northstar to manufacture command and control consoles for Lockheed
Martin's foreign customers and to offer Lockheed Martin's console
technology directly to the Canadian Department of National Defense.
Systems 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.
Results of Operations
Comparison of the three and six months ended June 30, 2003 with the
three and six months ended June 30, 2002:
Revenue for the three month period ended June 30, 2003 was $200,183
compared to $189,779 of revenue recorded during the same period of the
prior year. This modest comparative increase 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, 2003 was $588,897, up
from $469,020 in the prior period due to the contract work completed in
the first quarter of this year. Gross profits increased from $156,638
(33%) in the prior period to $323,487 (55%) in the current period. The
increase is due to increased efficiency in the manufacture of the NETMIND
systems and to a higher gross profit earned in the contract sale. The
comparative prior period does not include any revenues from contract sales.
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, 2003 was $(61,756)
compared to a net loss of $(181,876) for the three months ended June 30,
2002. 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 past two quarters the Company has continued 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. 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. The Company
continues to pursue contracts in the anti-terrorism field, specifically
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 has shortened the time it takes to develop enhancements
to Company products or new sensors and has positively affected the
Company's 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
anticipate positive results in future quarters.
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. During this quarter the Company recovered $251,975 in
expenses pursuant to its AQUACOMM project, for a total recovery over the
past six months to June 30, 2003 of $325,381.
Comparison of Financial Position at June 30, 2003 with June 30, 2002
The Company improved its working capital at June 30, 2003 to $513,787
with current assets of $847,519 in excess of current liabilities of
$333,732. At December 31, 2002 the Company had working capital of
$62,175.
Liquidity and Capital Resources
The Company has increased its Stockholders' Equity as a result of its
efforts pursuant to a Regulation S offering whereby 2,097,070 shares of
common stock have been issued during the past six months for gross
proceeds of $886,081.
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 June 30, 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
14,900 April/May/June 2003 services valued at $6,856
30,868 May, 2003 services valued at $12,848
161,500 April, 2003 $58,837
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.
August 5, 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 June 30, 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: August 5, 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 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 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
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: August 5, 2003 /s/ Wilson Russell
Wilson Russell, Chief Financial Officer
and Director