[x] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended September 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 Employer 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
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Northstar Electronics, Inc.
Consolidated Interim Financial Information, Unaudited
Nine Months Ended September 30, 2003, U.S. Dollars
Prepared by management
Consolidated Balance Sheets at September 30, 2003 and at December
31, 2002
Consolidated Statements of Operations for the Three and Nine Month
Periods Ended September 30, 2003
Consolidated Statement of Changes in Stockholders' Equity for the
Nine Months Ended September 30, 2003
Consolidated Statement of Cash Flows for the Nine Months Ended
September 30,2003
Notes to Consolidated Financial Information
Item 2. Management's Discussion and Analysis or Plan of Operation
Item 3. Controls and Procedures
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.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NORTHSTAR ELECTRONICS, INC.
Consolidated Balance Sheets
Unaudited
U.S. Dollars
September 30 December 31
ASSETS 2003 2002
Current
Cash $744,613 $117,690
Receivables 167,492 345,454
Inventory and work in progress 175,002 147,846
Prepaid expenses 9,658 4,682
Total Current Assets 1,096,765 615,672
Property and Equipment, net 148,350 138,071
Total Assets $1,245,115 $753,743
LIABILITIES
Current
Accounts payable and
accrued liabilities $227,507 $418,555
Loans payable - 72,863
Current portion of long term debt 66,594 62,079
Total Current Liabilities 294,101 553,497
Long Term Debt 527,742 429,309
Due to Cabot Management Limited 81,618 70,105
Due to Director - 140,297
Total Liabilities 903,461 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
15,691,199 shares of common stock 1,570 1,191
(11,907,976 December 2002)
Additional Paid in Capital 3,398,402 2,179,624
Other Comprehensive Income (25,887) 25,213
Deficit (3,032,431) (2,645,493)
Total Stockholders' Equity (Deficit) 341,654 (439,465)
Total Liabilities and Stockholders' Equity $1,245,115 $753,743
NORTHSTAR ELECTRONICS, INC.
Consolidated Statements of Operations
Three Months and Nine Months Ended September 30
Unaudited
U.S. Dollars
Three Months Nine Months
2003 2002 2003 2002
Sales $267,858 $332,433 $856,755 $774,444
Discounts 64,099 58,086 161,213 135,319
Sales net of discounts 203,759 274,347 695,542 639,125
Cost of goods sold 125,849 63,551 294,145 271,691
Gross margin 77,910 210,796 401,397 367,434
Other income 4,545 (53) 9,196 45
Recovery of research
and development 135,267 158,200 460,648 158,200
217,722 368,943 871,241 525,679
Operating Expenses
Salaries 216,059 (14,765) 584,379 205,260
Consulting 13,753 43,761 116,442 98,284
Professional fees 3,026 48,252 26,117 61,538
Investor relations 37,935 14,518 94,171 47,885
Advertising and marketing 10,545 (750) 65,968 34,798
Rent 26,584 19,086 76,344 59,209
Research and development 31,127 140,157 76,939 203,857
Office 33,584 23,996 81,808 45,745
Travel and business
development 31,565 34,638 57,324 46,581
Interest on debt 4,904 8,215 21,610 28,087
Heat, light and telephone 10,585 7,237 34,373 21,490
Amortization 4,314 2,493 12,412 5,254
Repairs and maintenance 2,655 1,215 5,920 4,980
Transfer agent 218 1,301 2,026 2,079
Proposal costs - 151 2,346 7,171
Total operating
expenses 426,854 329,505 1,258,179 872,218
Net income (loss) for
the period $(209,132) $39,438 $(386,938)$(346,539)
Net income (loss) per share $(0.016) $0.004 $(0.029) $(0.035)
Weighted average number of shares
outstanding 12,981,996 10,222,397 13,339,324 9,886,360
NORTHSTAR ELECTRONICS, INC.
Consolidated Statement of Changes in Stockholders' Equity
Nine Months Ended September 30, 2003
Unaudited
U.S. Dollars
Total
Other Stock
Additional Compre- Accumu- holder
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
nine months - - - - (386,938) (386,938)
Fair value of
options granted - - - - - -
Other
comprehensive
credits (debits) - - - (51,100) - (51,100)
Issuance of
common stock
for
services 305,480 31 133,179 - - 133,210
Issuance of
common stock
for cash 3,477,743 348 1,385,943 - - 1,386,291
Share issuance
cost - - (300,344) - - (300,344)
-----------------------------------------------------------------------------
Balance
September 30,
2003 15,691,199 $1,570 $3,398,402 $(25,887) $(3,032,431) $ 341,654
-----------------------------------------------------------------------------
NORTHSTAR ELECTRONICS, INC.
Consolidated Statement of Cash Flows
Nine Months Ended September 30, 2003
Unaudited
U.S. Dollars
September 30
2003 2002
Operating Activities
Net income (loss) $(386,938) $(346,539)
Adjustments to reconcile net income (loss)
to net cash used by operating activities
Amortization 12,412 5,254
Issuance of common stock for services 133,210 213,500
Value of options granted 0 10,186
Changes in operating assets and liabilities (167,981) (368,579)
Net cash provided by (used by) operating activities (409,297) (486,178)
Investing Activity
Acquisition of property and equipment (22,691) (3,220)
Financing Activities
Issuance of common stock for cash - net 1,085,947 467,556
Increase (repayment) of long term debt 102,948 116,087
Due to Cabot Management Limited 11,513 1,351
Advances from (repayment to) director (140,297) (25,911)
Net cash (used by) provided by financing activities 1,060,111 559,083
Effect of foreign currency translation on cash (1,200) (21,816)
Inflow (outflow) of cash 626,923 47,869
Cash, beginning of period 117,690 39,699
Cash, end of period $744,613 $87,568
Supplemental information
Interest paid $21,610 $28,087
Shares issued for services 305,480 580,272
Corporate income taxes paid $0 $0
NORTHSTAR ELECTRONICS, INC.
Notes to Consolidated Financial Information
Nine Months Ended September 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 otherthan 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 of
America 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 of America 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 September 30,
2003 and the consolidated results of operations and the consolidated
cash flows for the nine months then ended. At September 30, 2003, 30%
of the Company's revenues were generated from one contract, which was
completed June, 2003 (At September 30, 2002 the Company recorded nil
revenues from contract work) - the Company is continually marketing
its services for follow on contracts. The results of operations for
the nine months ended September 30, 2003 are not necessarily indicative
of the results to be expected for the entire fiscal year.
2. COMMON STOCK
During the nine months ended September 30, 2003, the following shares of
common stock were issued:
For services 305,480 shares valued at $133,210
For cash 3,477,743 shares for $1,386,291 before share
issuance costs of $300,344
Total 3,783,223
The above common shares issued for services received represent value
to the Company 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 nine month periods ended September 30, 2003 and
September 30, 2002 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
continues to expend 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.
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,
press releases, presentations of the company by 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 "will", "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,
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
anticipated 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 increases efficiency and promotes conservation in the fishing
industry. 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 sonar communications link back
to the ship.
NETMIND helps prevent over fishing and allows fishermen to operate
profitably at lower yields. This could give regulators flexibility in
reducing quotas when attempting to conserve limited fish stocks.
Sales for NETMIND were slower than expected during the first half of
the fiscal year. However, with expanding sales in North America and
Europe, we are experiencing an upswing in activity and expect an
improvement in the fourth quarter 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 $679,245 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 received United States Department of State
approval for a Manufacturing License Agreement (MLA) with Northstar 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 of the affiliated companies, 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 $3.0 billion Maritime Helicopter Project.
Results of Operations
Comparison of the three and nine months ended September 30, 2003 with
the three and nine months ended September 30, 2002:
Revenue for the three month period ended September 30, 2003 was $267,858
compared to $332,433 of revenue recorded during the same period of the
prior year. This decrease is the result of a slow down in the fishing
industry world wide, which impacted on the sales of the NETMIND systems.
Gross revenue for the nine month period ended September 30, 2003 was
$856,755, up from $774,444 in the prior period due to the contract work
completed in the second quarter of this year. Gross margins increased
from $367,434 (57%) in the prior period to $401,397 (58%) 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 September 30, 2003 was
$(209,132) compared to a net loss of $(118,762) for the three months
ended September 30, 2002. Over this past quarter, the Company continued
to invest considerable resources in seeking out new contract
manufacturing opportunities and is confident that the efforts will
return positive results to the Company over the ensuing months and years.
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
to supply fiber optic assemblies. The Company continues to pursue
contracts in the anti-terrorism field, specifically working towards
Homeland security and defense 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.
During the quarter the Company continued 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, Spain and the Scandinavian countries. The Company
continued on its program towards extending its underwater wireless
communication technology into additional applications. During this quarter
the Company recovered $91,253 in expenses pursuant to its AQUACOMM project
, for a total recovery over the past nine months to September 30, 2003 of
$460,648.
Comparison of Financial Position at September 30, 2003 with December 31,
2002
The Company's working capital position increased from December 31, 2002.
At September 30, 2003 net working capital was $869,258 compared with net
working capital of $62,175 at December 31, 2002. This improvement is
reflected in cash reserves of $744,613.
Liquidity and Capital Resources
During the quarter the Company issued 1,428,570 shares of common stock
for proceeds of $500,000.00 to the Company. Each share has a share
purchase warrant attached for the purchase of one additional share of
the Company at $0.50 each, exercisable at any time and expiring August
21, 2010.
During the period 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 nine
months for gross proceeds of $886,081.
In a prior quarter the Company issued 541,664 A warrants exercisable at
$0.35 to acquire one common share and issued 541,664 B warrants
exercisable at $0.50 to acquire one common share. The A warrants expired
June 30, 2003 and the B warrants will expire December 31, 2003
Item 3. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Based on the
evaluation of the Company's disclosure controls and procedures (as
defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange
Act of 1934) as of a date within 90 days of the filing date of this
Quarterly Report on Form 10-QSB, our chief executive officer and chief
financial officer have concluded that our disclosure controls and
procedures are designed to ensure that the information we are required
to disclose in the reports we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms and are operating in an effective
manner.
(b) Changes in internal controls. There were no significant changes in our
internal controls or in other factors that could significantly affect
these controls subsequent to the date of their most recent evaluation.
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
25,000 July 10, 2003 services valued at $7,500
1,428,570 August 28, 2003 $500,000
26,316 September 2, 2003 services valued at $15,000
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.
November 4, 2003 Northstar Electronics, Inc.
(Registrant)
By: /s/ Wilson Russell
Wilson Russell, PhD
President and Chief
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 September 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: November 4, 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: November 4, 2003 /s/ Wilson Russell
Wilson Russell, Chief Financial Officer
and Director