Registration No. 333-90031
Post-Effective Amendment No. 10
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form SB-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
NORTHSTAR ELECTRONICS, INC.
(Name of Small Business Issuer in its Charter)
Delaware #33-0803434 3679
-------- ----------- ----
(State or other Jurisdiction (I.R.S. Employer (Primary Standard
of Incorporation or Identification Number) Industrial
organization) Classification Code)
Suite 1455-409 Granville Street
Vancouver, BC
V6C 1T2
(604) 685-0364
(Address, including zip code and telephone number, including area code and
registrant's principal executive office and principal place of business)
Mr. Jeffrey A. Nichols
388 Market Street, Suite 500
Capital Law Group
San Francisco, CA 94111
(415) 433-1178
(Address, including zip code and telephone number, including area code, of
agent for service)
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this
registration statement
If any of the securities registered on this form are to be offered on a delayed
or continuing basis pursuant to Rule 415 under the Securities Act of 1933,
check the following box. / X /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective delaying amendment filed pursuant to Rule
462[c] under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
Calculation of Registration Fee
Title of each Class of Offering price Maximum Dollar Amount Proposed Amount
Securities to be per share to be Registered of registration
Registered fee
--------------------------------------------------------------------------------
Common Stock $1.00 $800,000 $287
Common Stock(1) $1.00 $200,000 $130
--------------------------------------------------------------------------------
(1)The registration of 200,000 shares is being done on behalf of a selling
security holder. There is no current market for the shares and the offering
price per share, of $1.00 is an estimate based on the offering price of the
shares to be sold by the company. The figure of $130 is based on an estimated
maximum dollar amount to be registered of $200,000.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a)
may determine.
Disclosure Alternative Used: Alternative 1__ Alternative 2 /X/
Northstar Electronics, Inc.
Mailing Address:
Suite 1455-409 Granville Street
Vancouver, BC
V6C 1T2
(604) 685-0364
As filed with the United States Securities and Exchange Commission on November
1, 1999
Description of Securities Offered: Up to 800,000 shares of common stock, par
value $0.0001, to be offered by the company at a price of $1.00US per share and
up to 200,000 shares of common stock, par value $0.0001 to be offered by a
selling security holder on a delayed or continuous basis following the
effective date of this prospectus. All costs incurred in the registration of
the shares are being paid by the company.
These securities involve a high degree of risk. See "Risk Factors" contained
in this prospectus,
Neither the Securities and Exchange Commission has approved or disapproved of
these securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
Distribution Spread for Shares offered by the Company
Price to Public Underwriting discount Proceeds to issuer or
and commissions other persons
Per Unit $1.00US $0 $ 1.00US
Total $800,000 $0 $ $800,000
Distribution Spread of Shares offered by the Selling Security Holder
Price to Public Underwriting discount Proceeds to
and commissions other persons
Per Unit Unknown n/a Unknown
Total Unknown n/a Unknown
Approximate date of proposed sale to the public: As soon as practicable
following effective date of this registration statement.
Closing Date: December 31, 2000 for the offering by the company; open for the
offering by the selling security holder.
Table of Contents
3 Prospectus Cover Page
5 Prospectus Summary
6 Risk Factors
8 Plan of Distribution
8 Dilution
9 Use of Proceeds
10 Northstar's Business
13 Management's Discussion and Analysis or Plan of Operations
14 Changes in or Disagreements with Accountants on Accounting and
Financial Disclosure
15 Security Ownership of Management and Certain Security Holders
17 Directors Officers and Significant Employees
19 Remuneration of Directors and Officers
19 Interest of Management and Others in Certain Transactions
20 Litigation
Financial Statements
22 Part II Information Not Required in the Prospectus
Prospectus Summary
The Issuer:
Northstar Electronics, Inc., a Delaware corporation is the parent of Northstar
Technical Inc. NTI
Subsidiary Business:
NTI is a high technology developer and electronics manufacturer, with corporate
offices in British Columbia, Canada and research and development and production
operations in Newfoundland, Canada.
Securities Offered: Up to 800,000 shares of common stock, par value $0.0001, to
be offered by the Company; and up to 200,000 shares of common stock, par value
$0.0001, to be offered by a selling security holder.
Minimum Number of Securities Offered: There is no minimum
Offering Price: $1.00US per share, for the 800,000 shares offered by the
company; price(s) to be determined by the selling security holder for 200,000
shares offered by him.
Residency Limitation: No limitations
Use of Proceeds: Net proceeds from this offering of up to $800,000 will be used
for:
(a) Marketing and promotion of products
(b) Business development
(c) Production of products
(d) Operating capital
Total common shares issued and outstanding: 7,604,481
Total common shares after sale of offering: 8,404,481
Closing Date: December 31, 2000 for the 800,000 shares offered by the company
and an open closing for 200,000 shares offered by the selling security holder.
Risk Factors
Northstar's business carries substantial risks. Northstar's securities should
be purchased only by those who can afford to lose their entire investment.
You should consider the following risk factors and other information in this
prospectus before investing in our common stock.
Because our operating history is limited and includes financial losses, our
future business may continue to be unprofitable
The auditors for Northstar's operating subsidiary, NTI, have deemed NTI a going
concern. However, we have only a limited operating history upon which an
evaluation of our business and future prospects can be based. We have never
been profitable and future profits may never occur. This lack of profitability
would seriously impede our ability to continue as an operating company.
Increased expenses could lead to curtailment of operations
We plan to expand operations and to conduct additional research and development-
all of which will increase company expenses. If revenues do not rise in
conjunction with expenses, we may have to curtail operations or halt operations
completely.
Inadequate manufacturing performance could damage our business
Unanticipated technical or quality control problems on the Lockheed Martin
contract could delay payments from Lockheed Martin that could cause us
financial problems and may curtail operations.
Failure to obtain manufacturing components in a timely fashion may curtail
product productions
Our manufacturing operations, both NETMIND and contract, depend on reliable
suppliers who can provide electronic and mechanical parts promptly. We have
limited experience with our suppliers and no long-term contracts or direct
control over these suppliers, which are independent third parties. In our
brief experience with these suppliers, we have found ourselves waiting for
parts. Long interruptions may curtail production operations.
Any disruption to our computerized inventory ordering system due to software
and hardware failures would delay component ordering and may curtail production
operations.
Failure to attract new personnel or replace leaving personnel may curtail
operations
Competition for personnel in the high technology industry is strong. Because
we are a relatively new company with a limited operating history and limited
financial resources, we may not be able to retain key technical, sales and
management employees or be able to recruit qualified electronic engineers,
technicians and managers that we may need in the near future. This could impede
our ability to produce additional products to meet any increased demand that
the company might develop through its marketing efforts and limit our ability
to keep up to date with our research and development efforts.
Our inability to compete with established competitors may limit sales of the
NETMIND product
We may not be able to effectively compete with established competitors, such as
Furuno and Scanmar, and NETMIND sales may not increase very much, or at all.
This could mean that Northstar will never be profitable.
Possible fishing industry fluctuations could hurt NETMIND sales
Our NETMIND product is reliant on a single industry, fishing, which fluctuates
significantly. The industry's operational fluctuations result in periods of
low sales revenues. If we do not adequately forecast sales, we may face
unforeseen periods of cash shortages.
Possible defense industry downturns could hurt contract manufacturing
opportunities
Downturns in the defense industry in the United States and Canada-our target
market- occur from time to time; this in turn could hurt our potential for
future contract manufacturing opportunities.
Current legal claims against Northstar could result in financial difficulties
We are currently the defendant in a lawsuit commenced by our company's former
master distributor, First Watch Marine, Inc. that company alleges that we
interfered with its ability to sell products and claims $1.3 million in relief,
plus damages. We have filed a counterclaim of $100,000, which we contend First
Watch owes, plus damages. We consider our case strong, but court proceedings
are unpredictable, time-consuming and costly.
Our dependency on one product could lead to curtailment of Northstar's business
NETMIND is our only commercial product and the success of Northstar is highly
dependent upon the commercial viability of the NETMIND product as it compares
to other similar products available in the market. To date, we have not sold
NETMIND on a profitable basis. If, for whatever reason, we are not able to
produce, market and sell the NETMIND product profitably, we may not have the
financial resources to maintain the company's business.
If we do not raise funds in the next six months, we will have significant
delays in the development of new products and may be forced to substantially
curtail operations
We are attempting to raise funds that are necessary for further development of
our business plan. If we are unsuccessful in the next six months, we will face
risks including the following:
We would be forced to curtail our operations and delay development of new
products.
Our business development activities would be curtailed, which would severely
limit our ability to generate revenues to cover current and future operating
expenses.
Resale offering by the selling security holder could adversely impact
Northstar's offering
Sales of the shares offered by the selling security holder, or even the
potential of such sales, may have an adverse effect on the market price of the
common stock of Northstar. This could result in our offering being only
partially successful with minimal funds raised.
Receipt of minimal funds from the offering could restrict Northstar's future
business
If minimal funds are raised from the current offering, we will not likely be
able to carry out the planned growth-oriented activities, such as increasing
NETMIND marketing, NETMIND production capacity, and contract manufacturing
business development. Inability to carry out these activities would heavily
restrict growth for the next two years or longer and could negatively affect
the ability of Northstar to stay in business.
Plan of Distribution
Principal Underwriters: None
Discounts and Commissions Paid to Dealers: None
Plan of Distribution for Securities Offered through Brokers or Dealers: None
Securities to be Offered for the Account of Security Holders: 200,000 common
shares
Arrangements for Return of Funds to Subscribers: None
Material Delays in the Payment of Proceeds of the Offering: None
We plan to sell Northstar's 800,000 shares in privately negotiated transactions
at the offering price.
Northstar's securities will be sold by Dr.Wilson Russell, President/Principal
Financial Officer, and Mr. Frank Power Vice-President of Northstar. Both Dr.
Russell and Mr. Power as directors of Northstar are associated persons as
defined in Rule 3(a) 4-1and will rely on 3(a) 4-1 subparagraphs (a)(1)-(3) and
(a)(4)(i) of the rule.
The selling security holder may offer the 200,000 shares covered in this
registration statement in the over-the-counter market, in privately negotiated
transactions, or by a combination of such methods of sale, at market prices
prevailing at the time of sale, at prices related to the prevailing market
prices or at negotiated market prices.
The shares are being sold by the selling security holder and Northstar has no
agreements or understandings with any broker or dealer for the sale of such
shares. The selling security holder may use a broker-dealer in the sale of
his securities and the commission to be paid, if any, will be determined at
that time. Prior to the involvement of any such broker-dealer, such broker-
dealer must seek and obtain clearance of the compensation arrangements from
the National Association of Securities Dealers, Inc. In such an event,
Northstar will file a post-effective amendment identifying such broker-
dealer(s).
Northstar will receive no proceeds from the sale of the shares of the selling
security holder.
The proposed sale of the Northstar shares and the selling security holder
shares will be made as soon as practicable following the effectiveness of the
registration statement.
Dilution
The net tangible book value of the company, as of , December 31 1999 was
($562,585) or approximately ($0.07) per share. Giving effect to the sale by
Northstar of shares at the offering price, the pro forma net tangible book
value of Northstar would be approximately $237,415 or approximately $0.03
per share, which would represent an immediate increase in net tangible book
value of approximately $0.10 per share to present shareholders and an
immediate dilution of approximately $0.97 per share, or approximately 97%
to new investors.
-------------------------------------------------------------------------
ASSUMING MAXIMUM SHARES SOLD
Offering Price (before deduction of operating expenses) $1.00 per share
Net tangible book value before offering ($0.07) per share
Net tangible book value after offering $0.03 per share
Dilution to new investors $0.97 per share
Dilution as a percentage 97%
-------------------------------------------------------------------------
Use of Proceeds
We estimate that Northstar will use the maximum funds of $800,000 as follows :
Production (Marine Electronics) $150,000
Production (Contract Manufacturing) $200,000
Marketing (Marine Electronics) $100,000
Business Development (Contract Manufacturing) $100,000
Operating Capital $250,000
-------------------------------------------------------------------------
Total $800,000
Production/Marine Electronics refers to the manufacture of our NETMIND system.
The company plans to increase production from approximately four systems per
month to 8-10 per month, by adding additional electronic equipment, increasing
the size of the plant's electronics section by about 1,500 square feet, and
hiring three new full-time production workers.
Production/Contract Manufacturing refers to our manufacture of other companies'
systems, under contract. The company intends to establish a separate production
operation for this. The space required is about 2,000 square feet to
accommodate component inventory, manufacturing, administration, storage of
finished goods and shipping. Equipment will be purchased for electronic and
mechanical assembly and for testing of both incoming components and finished
goods. Northstar plans to hire up to five new contract employees in 2000/2001.
Marketing/Marine Electronics refers to the NETMIND marketing. Northstar
intends to increase activities in 2000/2001, primarily in Western North
America, the Gulf of Mexico and the US Eastern Seabord, which it's hoped
will lead to increased sales. Additionally, Northstar wants to start
marketing in overseas countries such as Australia, Chile, Thailand, Korea
and China. It will exhibit at trade shows, advertise in trade magazines,
find new dealers, and provide guidance and support to these dealers.
Business Development/Contract Manufacturing refers to the activities designed
to gain new contracts. The main focus in 2000/2001 will be large prime and
defense communications contractors in the United States and Canada. The
company intends to hire two people, each with 15-20 years experience in
these industries, to identify opportunities. They will meet with prime
contractors exhibit at defense and communications trade shows, and prepare
qualifications documents and bids.
Northstar may not be able to raise the full amount of the offering proceeds. If
only 25%, 50%, or 75% were raised, the proceeds would be allocated as follows:
Amount Raised
25% 50% 75%
Production (Marine Electronics) $100,000 $150,000 $150,000
Production (Contract Manufacturing) $ 50,000 $100,000 $200,000
Marketing (Marine Electronics) $ 50,000 $100,000 $100,000
Business Development (Contract Man.) ---------- $ 50,000 $100,000
Operating Capital ---------- ---------- $ 50,000
--------------------------------------------------------------------------------
Total $200,000 $400,000 $550,000
If only minimal proceeds, that is 25% are raised, or less the company will
likely require the additional funds in mid-2000 in order to achieve the
expected growth. Northstar estimates that approximately one year after
successful completion of the offering, that is, in early to mid 2001, it
will likely require additional funds for accelerated growth. We are
exploring ways and means of raising the funds, and as of yet, we have no
plans in place.
Northstar's Business
Northstar's business is currently that of its subsidiary NTI. Northstar was
incorporated on May 11, 1998 as Scientific Technologies, Inc. under the laws of
the state of Delaware. The name of the company was changed to Northstar
Electronics, Inc. in September, 1999.
Corporate Facilities: The company Northstar maintains its principal corporate
offices at #1455-409 Granville Street, Vancouver, British Columbia, Canada V6C
1T2.
NTI Corporate Information: NTI is a corporation incorporated under the laws of
Newfoundland, Canada on July 5, 1989 and extra-provincially registered in
British Columbia on April 1, 1997. The registered and records offices of NTI
are located at 10 Fort William Place, P.O. Box 5939, St. John's, Newfoundland,
A1C 5X4 Telephone:(709) 722-8735, Facsimile: (709) 722-1763). NTI's head
office is located at Suite 1455, 409 Granville Street, Vancouver, British
Columbia, Canada, V6C 1T2 Telephone: (604) 685-0364, Facsimile: (604) 689-8337.
NTI-General Development and History: NTI was founded in 1989 by Dr. Wilson
Russell as a technology development and manufacturing company. It effectively
became an operating company in 1994. NTI acquired the initial technology for
the NETMIND system from the receiver of National Petroleum and Marine
Consultants Limited and Altair Marine Systems Limited for the sum of $1.00.
The companies had spent an aggregate $1,183,000 on the partial development of
the technology.
NTI has since completed the development and commercialization of the NETMIND
system and established a production operation. The first product was ready for
the market in August 1996. The plant has manufactured over fifty systems.
NETMIND system customers include the National Oceanics and Atmospheric
Administration NOAA in the United States, the United States Department of the
Interior and Fishery Products International FPI in Canada. Sales to these
organizations, to date, are as follows: NOAA $187,016; US Department of the
Interior $37,257; and FPI $99,539.
In 1995, NTI signed a teaming agreement with Loral Librascope -now Lockheed
Martin of Manassas, Virginia- of Glendale, California pursuant to which, if
Loral were successful in a proposal to the Canadian Navy, NTI would assemble
and test multi-function work stations and submarine control consoles. In 1997,
Lockheed Martin entered into a contract with NTI pursuant to which NTI assisted
Lockheed Martin with the production of the first prototype console on their
premises. Lockheed-Martin was eventually successful with its proposal to the
Canadian Navy; NTI signed a $2.0 million contract with Lockheed Martin, on
October 19, 1999. The contract calls for NTI to assemble, test and deliver 11
consoles by August 2000. Lockheed Martin will provide NTI the parts list,
suppliers list, testing instructions and assembly instructions. Payment is
subject to inspection for final acceptance by Lock heed Martin.
Background Technology: NTI has developed a communications technology that can
send information from one place in the ocean to another place. Electronic
devices take certain measurements that are then transmitted using underwater
sound waves to a receiving system which processes the data and displays it
on a computer monitor. The technology has many potential uses in a variety of
industries including offshore oil and gas, defense, marine transportation,
oceanography, environmental and fishing. The basic engines are underwater
sensors which take measurements and transmit them the information back to a
receiver on board a ship or oil production platform.
Each sensor is equipped with one or more acoustic transducers, depending on its
function. These transducers are used to send the sound signals. Analog and
digital signal processing and power management functions are performed by the
sensor electronics. The telemetered data are received by a device mounted on
the bottom of the ship for transmission via cable to the deck unit
processor/display, a small cabinet mounted at a convenient location on the
bridge of the ship. The processor portion of the deck unit decodes the signals
and converts them into engineering units for display on a high resolution color
monitor.
The NETMIND System: The first application of NTI's core technology is the
NETMIND system for the world's commercial fishing industry.
The NETMIND Market: NETMIND was introduced to the fishing industry marketplace
in 1996 and approximately 50 sales have been made in North America and Europe.
The targeted customers have been strategic in that they are industry leaders
and government agencies. They include the following:
National Oceanics and Atmospheric Administration (NOAA)
United States Department of the Interior (U.S. Geological Survey)
Department of Fisheries and Oceans, Government of Canada
Fisheries and Marine Institute of Memorial University of Newfoundland &
Labrador, St. John's, Newfoundland, Canada
Fishery Products International, St. John's, Newfoundland, Canada
National Sea Products Ltd., Lunenberg, Nova Scotia, Canada
We have received positive written feedback from some of our customers. Four of
these are shown in Exhibit 3.13. In summary, they say that the NETMIND system
enhances efficiency, reduces gear damage and improves quality.
Competition: The NETMIND system has two main competitors, Furuno in Japan and
Scanmar in Norway, both of which are private companies. Very little
information is available to the public on these companies', for example,
number of employees, research and development spending, and overall financial
condition. We believe that NETMIND has technical advantages over each. This
belief is based on our testing program from 1996-1999 which established our
technical specifications and on information gleaned from Furuno's website,
www.furuno.com, and from Scanmar's website, www.scanmar.com. We have no
direct access to any competitor's test data.
Both the Furuno and Scanmar systems consist of wireless acoustic sensors used
underwater in a similar fashion to the NETMIND system. The Furuno C-24 system
is a net recorder used for mid-water and deep-water trawlers. The Scanmar net
monitoring system operates the same way, that is, by illustrating how the
fishing net is behaving while being towed. However, unlike these products,
NETMIND sensors are fully serviceable. The electronic circuitry is contained in
stainless steel cylinders within each component and is easily removed for
repair by opening the end cap.
We believe, that NETMIND components have longer battery life: 150-200 hours
before recharging compared to approximately 20-150 hours for Scanmar and 10-15
hours for Furuno. As well, the NETMIND system has proven to be very effective
at distances up to 2000 metres while, we believe, competitive systems fall
short of this feature. This is because underwater sound waves can be
detected at greater distances if their frequency is low. The telemetry
frequency for NETMIND is 28Khz, compared to 40Khz for Furuno and 40.8-43.4
for Scanmar. We believe the rugged design of various NETMIND components has
surpassed competitors' designs in that NETMIND's unique components require
very little maintenance.
While NTI is continuing to grow, we believe the company is smaller in size and
resources when compared to its competitors. NTI's staff numbers fourteen, while
we believe Scanmar and Furuno each employ many times that number. As well, we
believe these companies' facilities are substantially larger than NTI's. We
also believe that Scanmar and Furuno have each achieved worldwide sales of
several thousand systems through well developed dealer networks. We base these
beliefs on the general reputations of these companies in the marketplace over
the past five years and on verbal discussions our staff has had, from time to
time, with electronics dealers in Canada, the United States, Iceland and Norway
over the past five years.
Distribution of the NETMIND system: NETMIND is sold directly to customers by
our own sales staff and through marine electronics dealers. There are
currently no exclusive dealer arrangements for particular geographical areas.
We operate on the principle, "Let the best dealer win," and we encourage
dealer competition. We now have dealer representation in Canada, the United
States and Scotland.
We pay commissions to dealers ranging from 20-28%, based on the value of their
sales over a month period. The more they sell, the higher the commission.
We support the sales effort with a product brochure, pamphlets citing customer
testimonials, and attendance at trade shows such as FISH EXPO in Seattle. We
also advertise in trade magazines, notably "The Navigator" in which we
currently have a monthly advertisement and "Fishing News International" where
we placed advertisements in 1997 and 1998.
Technology Protection: Since commercializing NETMIND in 1996, NTI has made many
enhancements to the system. These activities have resulted in an optimum design
for which a patent application is intended to be submitted in late 2000 or
early 2001. The technology is difficult to replicate because of its
sophistication and, regardless of patent protection, it is expected it would
take several years for a new player to catch up to the present system.
Northstar has obtained Canadian Trademark rights to the name NETMIND
registration number TMA515,009 24-Aug-1999, effective for 15 years from
24-Aug-1999. No other intellectual property related applications have been
filed or prepared. In the meantime, NTI is developing new innovative NETMIND
products which should help ensure a competitive edge.
Future Opportunities for NTI's technology: NTI's second technology application
will likely be for the multi-billion dollar offshore oil and gas industry. One
potential product is for the remote control of subsea wellheads that transfer
petroleum from the field back to the offshore production platform. This is
especially important as the industry goes into deeper and deeper water to find
and produce petroleum. NTI envisages further business opportunities are in the
defense, marine transportation, and oceanography. Approximately $400,000 in the
form of research grants and interest free loans through the National Research
Council and the Atlantic Canada Opportunities Agency. The possibilities
include docking systems for large ocean going ships, positioning systems for
oils and gas drilling platforms, acoustic measurements of ocean currents, and
diver to diver communications for the recreational diving industry. NTI
would likely look to alliances with other companies and government agencies
to reduce technological risks and open doors to new markets. At this time,
NTI has not entered into, nor is contemplating any specific strategic
alliances.
Historical Financial Information: NTI has spent over $1,233,000 to complete the
development and commercialization of the NETMIND system. NTI has received
$311,775 in Scientific Research and Experimental Development refunds from
Revenue Canada.
Funding support from the major shareholder and private investors total
approximately $1,065,000 in the form of share purchases or loans.
Projected Revenues: NTI anticipates sales revenues of approximately $2.0
million in the first year following completion of the offering based on the
$2.0 million contract with Lockheed Martin.
Plant Equipment and Operations: The manufacturing plant is located in St.
John's Newfoundland. The plant, is approximately 3,000 square feet in area,
and is comprised of an electronics shop, a mechanical engineering shop, a
molding room, a component inventory area, a finished goods area, research and
development offices and administrative offices. The plant possesses equipment
typical of an electronics manufacturing operation, i.e., oscilloscopes,
soldering stations, computers, flume hood, molding equipment, drill press and
specialty testing and assembly tools. The inventory system is computerized
with a rigorous quality program in place which covers incoming components,
assembly testing and finished goods testing. NTI uses the program TANGO for
its computer aided design (CAD) activities. Lockheed Martin Federal Systems
in Manassas, Virginia has supplied to NTI proprietary hardware and software
for the testing of submarine control consoles. NTI uses outsourcing as much
as possible to keep overhead and staffing levels low. For example, most of
the mechanical assemblies for the NETMIND system are supplied 1by a local
mechanical shop. which The assemblies are then incorporated into the molding
of plastic housings which are produced in-house.
Northstar's business activities do not involve the discharge of materials into
the environment. Consequently, we do not intend to spend money for
environmental control facilities.
Employees
As of December 31, 1999, Northstar had fourteen full-time employees and three
part-time engineering consultants. None of Northstar's employees are
represented by a labor union, and Northstar considers its employee relations
to be good. Competition for qualified personnel in Northstar's industry is
intense, particularly for software development and other technical staff.
Northstar believes that its future success will depend in part on its
continued ability to attract, hire and retain qualified personnel.
Management's Discussion and Analysis or Plan of Operations
Overview of the Business Plan
As described elsewhere in this registration statement we have completed the
development of our first product. The estimated amount spent on company-
sponsored research and development activities was $46,430 in fiscal year-end
December 31, 1999, $14,192 in fiscal year-end December 31, 1998, $195,878
in fiscal year-end March 31, 1998, $221,429 in fiscal year-end March 31, 1997
and $440,300 in fiscal year-end March 31, 1996.
Our revenues were $462,659 in fiscal year-end December 31, 1999, $193,913 in
fiscal year-end December 31, 1998, $181,764 in fiscal year-end and March 31,
1998 and $174,200 in fiscal year-end March 31, 1997.
We plan to devote our efforts in the next twelve months to increasing our sales
network, marketing and promoting our product and maintaining, to the extent our
funds allow, the production of our products to meet anticipated demand.
In contract manufacturing, we have signed the contract with Lockheed Martin.
We plan to complete that contract in the next twelve months. We also plan to
increase our business development activities with the objective to secure new
contracts in the defense industry.
We plan to increase our staff to twelve full-time employees in the next twelve
months with the addition of a project manager, two business development
personnel, and three manufacturing personnel.
The following discussion and analysis should be read in conjunction with
Northstar's financial statements and notes included elsewhere in this
registration statement. The discussion of results does not imply any
conclusion that such results will necessarily continue in the future.
Results of Operations-Twelve Months Ended Dec. 31/99 vs. Twelve Months Ended
Dec. 31/98
NTI's wholesale revenues were $462,659 for the twelve months ending December
31, 1999 vs. $193,913 for the twelve months ending December 31, 1998. The gross
profit for the twelve months ending December 31, 1999 was 55% vs. 48% for the
twelve months ending December 31, 1999. Expenses totaled $646,032 for the
twelve months ended December 31, 1999 vs. $295,595 for the twelve months
ended December 31, 1998. Northstar's assets as of December 31, 1999 totaled
$508,636 and its current liabilities totaled $160,119. Long-term debt of
$501,114 consists of government interest-free loans and a loan of $160,000
payable to Pathfinder Enterprises Inc., a company controlled by a shareholder
of Northstar, with monthly interest payments only to July 2002, secured by a
floating charge debenture. There are shareholder loans of $159,448 with no
fixed terms of repayment. Northstar has an accumulated deficit of $1,572,356
as of December 31, 1999. The amount spent on research and development in the
last two fiscal years was $60,622 . The amount of receivables subsequently
collected in cash, after December 1999, was $31,438.
Our financial statements include the accounts of NTI for all periods and the
accounts of Northstar commencing January, 1999. Northstar had no operations
other than organizational activities prior to the January, 1999 merger.
Revenues increased from $193,313 in fiscal 1998 to $462,659 in fiscal 1999 as a
result of increased sales of our NETMIND system. Gross profit in 1999 was
55.4% compared to 48.2% for 1998 because the manufacturing operations had
improved productivity. Wages were $145,649 in 1999 compared to $33,229 in
1998 due to increased production and sales. The company recorded a bad debt
provision of $90,281 in fiscal 1999 as the result of non-collection of
accounts receivable from a former distributor. Consulting fees of $65,815
were increased in 1999 as pertaining to services contracted for investor
relations, financial advice and engineering design support. The company paid
commissions in fiscal 1999 of $46,300 related to financings obtained.
Professional fees in 1999 increased by $23,398 over 1998 as a result of the
merger and filing the SB-1 with the United States Securities and Exchange
Commission. Contract manufacturing costs decreased from $90,168 for 1999 to
$26,638 for 1999 because in 1998 we had a contract with Lockheed Martin to
provide manufacturing services whereas in 1999 no contract services were
provided.
The company continued to experience negative operating cash flow, ($548,327) in
1999 compared to ($40,371) in 1998, as a result of increases in expenses namely
salaries and wages, bad debts, consulting expenses, commissions, an increase in
inventory and work in progress and reductions in accounts payable, accrued
liabilities and loans payable coupled with a small increase in receivables and
prepaids. The negative operating cash flow was covered by proceeds of a share
issuance and an increase in long-term debt.
In 2000 there should be significant improvement. We currently have about
$2,170,000 worth of firm contracts on our books to be completed in the year
2000: the $2,000,000 contract with Lockheed Martin and the remainder ($170,000)
of the contract with the United States government agency NOAA for our NETMIND
systems. In addition 13 vessels are already outfitted with our NETMIND
shipboard receivers. This means they should purchase the full system this year
which would translate into additional revenues of $260,000, approximately. We
are also conducting new marketing activities in 2000 for the NETMIND system
which we believe will result in more sales.
Changes in or Disagreements with Accountants on Accounting and Financial
Disclosure
Northstar's board of directors approved a decision in December, 1999, to change
accountants. The primary reason was that we require a firm in close proximity
to our corporate offices.
Jones, Jensen and Company, LLC, had carried out the audits prior to the reverse
acquisition, when the company was called Scientific Technologies, Inc.
Statements prepared by Jones, Jensen and Company contained no adverse opinion
or disclaimer of opinion, nor were they modified as to uncertainty, audit
scope or accounting principles.
There were no disagreements between Northstar's management and Jones and Jensen
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure. A letter to that effect from Jones
Jensen is shown in the exhibits.
Northstar has engaged a new accounting firm, Pennell Kerr Forster, an
international association of accounting firms to carry out future audits.
Security Ownership of Management and Certain Security Owners
The following table sets forth, as of September 15, 1999, the beneficial
ownership of Northstar's common stock by each officer and director of Northstar
and by each person known by Northstar to own beneficially more than 5% of
Northstar's the common stock outstanding and by the officers and directors of
Northstaras a group. Except as otherwise indicated, all stocks are owned
directly.
Title of Name and Number Percentage Number Percentage
Class of Address of Shares of Shares of Shares of Shares
Beneficial Before Before After After
Owner Offering Offering(1) Offering Offering(2)
Common Frank Power 990,000 13.37% 990,000 11.78%
Stock 998 Riverside Drive
Port Coquitlam, B.C.
Canada V3B 7Y4
Common Wilson Russell 964,883 13.03% 964,883 11.48%
Stock 4742 Collingwood St.
Vancouver, B.C.
Canada V6S 2B4
Common Lee Meyer 100,000 1.35% 100,000 1.19%
Stock 9629 Alene Drive
Tujunga, CA 91042
Common Ladner 597,900 8.08% 597,900 6.35%
Stock Enterprises Ltd(3)
60 Market Square
P.O Box 364
Belize City
Belize, C.A.
Common Adventure 533,633 7.02% 533,633 7.11%
Stock Capital Inc.
9 Power Place
St. John's NFLD, Canada
Common Dr. Michel 400,000 5.26% 200,000(5) 2.38%(5)
Stock Ghanadian(4)
CH. Didotai 10
1223 Cologny, Switzerland
Common Monaco 1,000,000 13.51% 1,000,000 11.90%
Stock Ventures Ltd. (3)
60 Market Square
P.O Box 364
Belize City
Belize, C.A.
Common London 700,000 9.45% 700,000 8.33%
Stock Enterprises Ltd. (3)
60 Market Square
P.O Box 364
Belize City
Belize, C.A.
Common All officers 2,054,883 27.02% 2,054,883 24.45%
Stock and Directors
as a Group (3 persons)
Number of shares of common stock after the offering: 8,404,481
Percentage of common stock after the offering: 24.45%
(1) Based on 7,604,481 shares of common stock of Northstar issued and
outstanding on November 30, 1999.
(2) Based on 8,404,481 shares, if all shares in the offering are sold.
(2) The beneficial owners of Ladner Enterprises Ltd., Monaco Ventures,
Adventure Capital, Inc., and London Enterprises Ltd, are:
LADNER, Mr. Sean Isles, Leslie Lewis Building, Mount Tout, Grand
Anse, St. George's W.I.
MONACO, Ms. Brenda McKay, Suite 71, Grand Anse, St. George's W.I.
ADVENTURE, Dr. Carl Wesolowski, 9 Power Place, St. John's
Newfoundland, Canada
LONDON, Ms. Michele Grey, 269 Morne Rouge Road, Grand Anse, St.
George's, Grenada, W.I.
(4) Selling security holder for 200,000 shares of common stock.
(5) Assumes all 200,000 shares being offered will be sold. Because the
selling security holder may sell all or some, or none of the shares that
he holds, the actual number of shares that will be held by the selling
security holder upon or prior to termination of this offering may vary.
(6) Compensatory stock options: 40,000 options with a two year term were
granted to an independent management consulting firm, Big 8 Management
Consulting Ltd., during 1999. The exercise prices for these options are
$0.90 per share in the first year and $1.035 per share in the second
year. The first 20,000 options were granted in January,1999 and the
second 20,000 in June, 1999. As of the date of this filing, no options
have been exercised.
The following directors and officers of Northstar have been granted options to
purchase shares of Northstar's stock as follows:
Optionee Position Options Option Price Per Share
-------- -------- ------- ----------------------
Wilson Russell Director 250,000 $0.50
Frank Power Director 100,000 $0.50
(1) Record owners of and beneficial owners of 5% or more of any class of our
securities: See Table Above.
(2) Promoters: None, except for officers and directors
(3) Affiliates: None
(4) Type of securities underlying the options: common shares
(5) Exercised options: None
Directors, Officers and Significant Employees
The following information sets forth the names of the officers and directors
of Northstar, their present positions with Northstar, and their biographical
information. Each director will serve until the next annual meeting of
shareholders, and thereafter if re-elected.
Name of Director Age
---------------- ---
Dr. Wilson Russell 54
Mr. Frank Power 56
Mr. Lee Meyer 54
Name of Officer Officer
--------------- -------
Dr. Wilson Russell, President and Principal Financial Officer
Mr. Frank Power, Vice-President
As a Delaware corporation, the final responsibility for the management of the
affairs of Northstar rests with the board of directors. The board currently
consists of three directors. Those directors are elected at an annual meeting
of the shareholders and serve for an annual term until they resign or are
replaced. Those directors meet or otherwise consult with one another on a
regular basis. To review the affairs of the company and to adopt or confirm
any resolutions which are necessary to grant contractual and other authority
to administrative officers. The directors may, and probably will, designate
an executive committee to which they will grant limited authority to make
certain ministerial decisions on behalf of the board.
The following sets forth information as to the principal occupation and
business experience for at least the past five years of each of those
directors and officers.
Dr. Wilson Russell: Dr. Russell received a Master's Degree in Engineering
and in Physics from Memorial University of Newfoundland and a Doctorate in
Engineering Physics from the University of Aix-Marseille in France. Dr.
Russell's numerous positions include: geophysicist with Pan-American
Petroleum AMOCO in Calgary, Alberta 1968; professor and researcher at
Memorial University 1968 to 1977; Director of Engineering at NORDCO Ltd. 1977
to 1980; and Associate Director of the Newfoundland Petroleum Directorate;
1980 to 1983.
After starting his own consulting and technology development firm in 1983, Dr.
Russell has also managed the preparation of the a development plan for the $6
billion Hibernia development which was for submission to the government for
approval of the project; invented, developed and commercialized the Hydroball
current profiling system, a unique phased array ocean current profiling system
which won the silver medal at the Canada Awards for Business Excellence in
1986; and developed a fiber optic modem for TRW in the United States. Dr.
Russell founded NowTech Instruments Ltd., in partnership with a subsidiary
of Bell Canada and was the first chairman of the board of directors of
Seabright Corporation. Dr. Russell has also acted as a consultant for the
Canadian federal government, the provincial governments of British Columbia
and Newfoundland, the Canadian Consul in Boston, Massachusetts, Mobil Oil,
the Defense Research Establishment Pacific and the French Navy.
Dr. Russell founded NTI in 1989 and serves as both chairman and chief executive
officer. He is has also been as the director and president of Cabot Management
Ltd. since 1989. And, until recently, From 1994-1998, Dr. Russell was a
director at the University of Victoria's Innovation and Development
Corporation. In addition, Dr. Russell has been a director with Cinemage
Systems Corporation since 1998. Currently, as of 1999, he is the president
and principal financial officer of Northstar. Dr. Russell has served as a
director of Northstar since May of 1998.
Mr. Frank Power: Mr. Power, a business management consultant, has managed and
administered several public companies for the last 15 years. Since 1984, Mr.
Power has provided services, including strategic planning, management,
administration, design and construction of major mining projects both
nationally and internationally. He has owned and operated several consulting
companies which have been providing comprehensive services in the industrial
and high-technology fields as well as the mining field. His expertise also
includes re-activating public companies, project acquisitions, public and
private funding, as well as developing and taking private companies public.
He is equally skilled to function in the public markets of both Canada and
the United States.
Mr. Power is president and owner of Pow Con Management since 1981 and Premier
Enterprises Ltd. since 1994. These companies manage, administrate and finance
reporting companies. He served as president and director of several Vancouver
reporting companies and publicly listed companies since from 1986 to present.
Since 1992, Mr. Power has served as President of World Organics Inc., listed on
the Vancouver Stock Exchange. From 1996 to 1997, Mr. Power served as president
and director of Accuimage Diagnostics and he is also the past president of
Security Industries, Inc. These companies are traded on the OTC Bulletin Board.
Mr. Power has served as a director of Northstar since May of 1998.
Mr. Lee Meyer: Mr. Meyer, since completing his Business Administration Degree
from Arizona State University in 1946, has held positions as managing director
of Omni International since 1988; vice-president and director of World
Organics, Inc., a reporting company; Secretary and Treasurer of Tec
Industries Corp., a specialty equipment rental agency from 1980 through 1990;
and owner and president of Stretchcoat from 1973 to 1984, a national
manufacturer and marketer of specialty products. Present positions include
president of WOI since 1991, a producer and marketer of agricultural
amendments; Vice-President and 50% owner of Bio-Organics, Inc., an
international manufacturer and marketer of micro-biological products. Mr.
Meyer has also represented major principals selling products nationally.
Mr. Meyer has served as a director of Northstar since May of 1998.
Name of Significant Employee Age Title
Dr. David Buttle 51 Technical Director
Mr. Brian Gamberg 47 Senior Electronics Engineer
Mr. James Hall 33 Electronics Technologist
Ms. Philomena Kavanaugh 40 Office Manager
Dr. David Buttle: is NTI's Technical Director and one of the world's leaders in
developing and manufacturing ocean instrumentation for the defense industry. In
1977, Dr. Buttle founded Marine Acoustics which designed and manufactured sonar
transducers for OEM use and subsea computers for the control of subsea rock
drills. In 1985, Marine Acoustics was recognized as Marine Acoustics, Ltd.
Marine Acoustics Ltd., produced numerous sonar systems, including exercise mine
acoustic telemetry systems, which are used by the British, United States,
Australian, Belgian, Canadian and Egyptian Navies. Dr. David Buttle supervised
the design of the NETMIND system and advises NTI on production and value
engineering.
Mr. Brian Gamberg: P.Eng., Senior Electronics Engineer, has over 20 years
experience developing marine systems, computer and communications systems
and in project management. He has been involved in the design, development and
implementation of both hardware and software elements of tracking radar
systems, geophysical sounding systems, and distributed computing systems.
Geographical Information systems and embedded instrumentation systems. Mr.
Gamberg is responsible for the development of new NETMIND technologies and any
other underwater communications products.
Mr. James Hall: is an Electronics Technologist and NTI's Production Manager.
Mr. Hall is responsible for all production activities including inventory
control, electronic and mechanical production, testing, quality control and
shipping.
Ms. Philomena Kavanagh: has extensive experience in office management and has
worked for companies such as Coopers Lybrand, A.H. Murray Ltd. and Atlantic
Specialties Ltd. Ms. Kavanagh is responsible for all of NTI's financial and
product shipment administration.
Remuneration of Directors and Officers
The following table sets out certain information as to the company's three
highest paid officers and directors for the period from the commencement of
Northstar's business in February, 1999 to December 31, 1999. No other
compensation was paid to any such officer or director other than the cash
compensation set forth below:
Summary Compensation Table
Name of Individual(s) Capacities in which Aggregate Remuneration
Remuneration was Received
Dr. Wilson Russell Director and President $16,300
Mr. Frank Power Director and Vice-President $14,000
Mr. Lee Meyer Director N/L
Directors and Officers $30,300
of Northstar as a
Group
The compensation paid to the president is believed by Northstar to be below
market rates for the services provided by the directors and officers, having
regard to their experience and qualifications. Northstar Northstar anticipates
compensation being increased to market rates upon Northstar achieving
sufficient revenues and/or financing to pay such increased compensation.
In particular, Northstar believes that the going rate for Dr. Russell, who
is currently full-time with the company, should be in the range of $100,000
per annum. An uncompensated value for services from February 1999, to
September 30, 1999 of $21,200 is included in the financial statements of the
company. For Mr. Power, who spends approximately ten hours per month on
Northstar business, the current rate of $2,000 per month is considered
reasonable.
Interest of Management and Others in Certain Transactions
There are no material contracts entered into by Northstar within the two years
preceding the date hereof which are still in effect, except as follows:
Completion of the previous offering: Northstar completed an offering of 363,000
shares on January 26, 1999. The proceeds of the offering were US$363,000.
Acquisition of NTI: Northstar acquired NTI in January 1999, pursuant to an
agreement dated July 31, 1998. Northstar purchased all of the issued and
outstanding shares of NTI in exchange for 4,901,481 shares of its common stock
which were issued from treasury. At the time of the acquisition, NTI had a 10%
loan payable to Pathfinder Enterprises, Inc. in monthly interest payments only
to July 5, 2002 by a floating debenture. The beneficial owner of Pathfinder
Enterprises, Inc. is Dr. Carl Wesolowski who is also the beneficial owner of
Adventure Capital Inc., a 7.02% shareholder of Northstar. This loan is still
in effect.
Except for the acquisition of NTI, Northstar, none of the following persons has
any direct or indirect material interest in any transaction to which Northstar
is a party since the incorporation of Northstar in May, 1998 or in any proposed
transaction to which Northstar is proposed to be a party:
(A) any director or officer of the party
(B) any proposed nominee for election as a director of Northstar
(C) any person who beneficially owns, directly or indirectly, shares carrying
more than 5% of the voting rights attached to Northstar common stock; or
(D) any relative or spouse of any of the foregoing persons, or any relative of
such spouse, who has the same house as such person or who is a director or
officer of any parent or subsidiary of Northstar
Available Information:
The public may read and copy any materials filed with the SEC at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The
public may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC also maintains a website that
contains reports, proxys and other information regarding issuers that file
electronically with the SEC. The address is (http://www.sec.gov).
Disclosure of Commission position on Indemnification of Securities Act
Liabilities
As per risks related to the management structure of Northstar management will
have no liability for any mistake, errors of judgment or for any act of
omission believed to be within the scope of authority conferred by Northstar's
articles unless such acts or omissions were performed or omitted fraudulently
or in bad faith, constituted gross negligence or were a violation of a
director's or officer's fiduciary obligations to Northstar . Northstar has
agreed to indemnify the officers and directors against all loss or damage
even if caused by that officer's or director's fraud, bad faith, gross
negligence or breach of fiduciary obligation.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
small business issuer pursuant to the foregoing provisions, or otherwise, the
small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
Description of Securities
General:
The securities being offered are the shares of Northstar common stock, par
value $0.0001 per share. Under Northstar articles of incorporation, the
total number of shares of all classes of stock that Northstar shall have
authority to issue is 100,000,000 shares of common stock par value $0.0001
per share the "common stock" and 20,000,000 shares of preferred stock, par
value $0.0001 per share, the "preferred stock". As of November 30, 1999, a
total of 7,604,801 shares of common stock are issued and outstanding. All
issued and outstanding shares of the common stock are fully paid and non-
assessable.
Common Stock:
Holders of common stock have the right to cast one vote for each share held of
record on all matters submitted to a vote of holders of common stock, including
the election of directors. Holders of a majority of the voting power of the
capital stock issued and outstanding and entitled to vote, represented in
person or by proxy, are necessary to constitute a quorum at any meeting of
Northstar's stockholders, and the vote by the holders of a majority of such
outstanding shares is required to effect certain fundamental corporate
changes such as liquidation, merger or amendment of Northstar's articles of
incorporation.
Holders of common stock are entitled to receive dividends pro rata based on the
number of shares held, when, as and if declared by the board of directors, from
funds legally available therefore. In the event of the liquidation,
dissolution, or winding up of affairs of Northstar, all assets and funds of
Northstar remaining after the payment of all debts and other liabilities
shall be distributed, pro rata among the holders of the common stock. Holders
of common stock are not entitled to pre-emptive or subscription or conversion
rights, and there are no redemption or sinking fund provisions applicable to
the common stock. All outstanding shares of common stock are fully paid and
non-assessable.
At their discretion, Northstar's directors may issue additional common or
preferred shares, up to a maximum allowed by the articles of incorporation. A
majority of shareholders could also amend the articles to increase the maximum
number of shares. Shares could be issued to raise funds for Northstar's
business activities or to acquire another company or the rights to a
technology. The board could increase the shares in a series, create a new
series or establish preferences and other terms and conditions to a newly
created series.
Transfer Agent:
Signature Stock Transfer of Dallas, Texas is the transfer agent for the Shares.
14675 Midway Road-Suite 1221
Dallas, TX 75244
Tel: (972) 788-4193
Fax: (972) 788-4194
Share Purchase Warrants:
None.
Litigation
Northstar's subsidiary, NTI, is a defendant in a lawsuit commenced by our
former master distributor, First Watch Marine, Inc. First Watch alleges that
Northstar interfered with its ability to sell products. NTI, for its part,
has filed a counterclaim against First Watch for money which it says First
Watch owes it for NETMIND systems delivered to them. Northstar feels that it
has a strong case and that there is no validity to the claims against it.
The case may take up to two years or longer to go to trial.
The details are as follows:
1) Name of the court where proceedings are pending: Supreme Court of
Newfoundland, Canada
2) Date proceeding began: First Watch issued statement of claim against NTI on
July 15, 1999.
(First Watch Marine Inc.-Plaintiff and NTI-Defendant) NTI issued a
statement of claim on August 3, 1999
(NTI-Plaintiff and First Watch Marine Inc.-Defendant)
3) Principal Parties: NTI and First Watch Marine Ltd.
4) Description of facts underlying the proceedings:
First Watch alleges that NTI interfered in its ability to sell NETMIND
systems. NTI alleges that First Watch owes NTI money for delivery of
NETMIND systems by NTI to First Watch.
5) Relief sought:
First Watch-$1.3 million plus damages
NTI-$100,000 plus damages
Northstar Electronics, Inc.
(800,000 shares of Common Stock)
Prospectus
Until December 31, 2000 all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a prospectus.
Part F/S
Financial Information Required in Prospectus
The following financial statements are included herein, as follows:
1. Northstar Electronics, Inc. - Consolidated Financial Statements - Unauditied
Six Months Ended June 30, 2000
NORTHSTAR ELECTRONICS INC.
Consolidated Financial Statements
Six Months Ended June 30, 2000
(Unauditied)
INDEX Page
----- ----
Part I
Financial Information
Item 1 Financial Statements
Consolidated Balance Sheets at June 30, 2000
and December 31, 1999 1
Consolidated Statements of Operations Three Months
and Six Months Ended June 30, 2000 and June 30, 1999 2
Consolidated Statements of Changes in Stockholders' Equity
Six Months Ended June 30, 2000 3
Consolidated Statements of Cash Flows Six Months Ended
June 30, 2000 and June 30, 1999 4
Notes to Consolidated Financial Statements 5
NORTHSTAR ELECTRONICS INC.
Consolidated Balance Sheets
(Unaudited)
(U.S. Dollars)
================================================================================
June 30, December 31,
2000 1999
--------------------------------------------------------------------------------
Assets
Current
Cash $17,030 $39,454
Receivables 656,291 105,609
Inventory and work-in-progress 103,880 79,938
Prepaid expenses 6,137 6,349
--------------------------------------------------------------------------------
Total Current Assets 783,338 231,350
Property and Equipment 32,418 26,746
--------------------------------------------------------------------------------
Total Assets $815,756 $258,096
================================================================================
Liabilities
Current
Accounts payable and accrued liabilities $631,772 $100,547
Loans payable 13,886 15,296
Current portion of long-term debt 43,901 44,276
--------------------------------------------------------------------------------
Total Current Liabilities 689,559 160,119
Long-Term Debt 478,387 501,114
Due to Cabot Management Limited 62,090 74,600
Due to Director 113,532 84,848
--------------------------------------------------------------------------------
Total Liabilities 1,343,568 820,681
--------------------------------------------------------------------------------
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
Common stock 7,618,181 shares 762 760
Additional Paid-In Capital 1,000,969 972,271
Stock Subscriptions 10,000 10,000
Other Comprehensive Income 32,371 13,554
Deficit (1,571,914) (1,559,170)
--------------------------------------------------------------------------------
Total Stockholders' Equity (527,812) (562,585)
--------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $815,756 $258,096
--------------------------------------------------------------------------------
NORTHSTAR ELECTRONICS INC.
Consolidated Statements of Operations
Three Months and Six Months Ended June 30
(Unaudited)
(U.S. Dollars)
================================================================================
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
--------------------------------------------------------------------------------
Revenue $736,264 $117,987 $891,678 $175,180
Costs of goods sold 528,375 54,797 602,184 88,245
--------------------------------------------------------------------------------
Gross Profit 207,889 63,190 289,494 86,935
Other Income 2,263 444 3,276 4,183
--------------------------------------------------------------------------------
210,152 63,634 292,770 91,118
--------------------------------------------------------------------------------
Expenses
Salaries 84,980 47,808 161,183 127,606
Office 20,572 9,775 31,296 23,702
Professional fees 17,930 8,595 40,870 23,744
Rent 14,464 7,469 24,677 14,445
Value of Director's
uncompensated services 7,500 0 15,000 0
Travel 5,137 735 7,162 5,248
Interest 4,119 6,008 12,560 11,934
Telephone 3,935 1,395 6,290 3,745
Management fees 1,103 3,185 4,624 10,057
Amortization 926 1,194 1,852 2,356
--------------------------------------------------------------------------------
160,666 86,164 305,514 222,837
--------------------------------------------------------------------------------
Net Income (Loss) for Period $49,486 $(22,530) $(12,744) $(131,719)
================================================================================
Net Income (Loss) Per Share $ 0.01 $ (0.01) $ (0.02) $ (0.02)
================================================================================
Weighted Average Number of
Common Shares Outstanding 7,608,094 7,406,679 7,606,288 6,651,368
NORTHSTAR ELECTRONICS INC.
Consolidated Statements of Changes in Stockholders' Equity
Six Months Ended June 30, 2000
(U.S. Dollars)
(Unaudited)
================================================================================
Additional Stock Other Accumu- Total
Paid-In Subscr- Comprehensive lated Stockholder
Shares Amount Capital iptions Income Deficit Equity
--------------------------------------------------------------------------------
Balance Dec.
31, 1999 7,604,481 $760 $972,271 $10,000 $13,554 $(1,559,170) $(562,585)
Net loss for
six months 0 0 0 0 0 (12,744) (12,744)
Value of
director's
uncompensated
services 0 0 15,000 0 0 0 15,000
Other
comprehensive
income 0 0 0 0 18,817 0 18,817
Issuance of
Common stock
for cash 13,700 2 13,698 0 0 0 13,700
--------------------------------------------------------------------------------
Balance June
30, 2000 7,618,181 $762 $1,000,969 $10,000 $32,371 $(1,571,914) $(527,812)
================================================================================
NORTHSTAR ELECTRONICS INC.
Consolidated Statement of Cash Flows
Six Months Ended June 30
(Unaudited)
(U.S. Dollars)
--------------------------------------------------------------------------------
2000 1999
================================================================================
Operating Activities
Net loss $(12,744) $(131,719)
Adjustments to reconcile net loss to
net cash used by operating activities
Amortization and depreciation 1,852 2,356
Value of director's uncompensated services 15,000 0
Changes in operating assets and liabilities (47,193) (265,512)
--------------------------------------------------------------------------------
Net Cash Used by Operating Activities (43,085) (394,875)
--------------------------------------------------------------------------------
Investing Activity
Acquisition of property and equipment (6,936) (11,795)
--------------------------------------------------------------------------------
Financing Activities
Issuance of common stock 13,700 563,000
Repayment of long-term debt (9,096) (16,819)
Advances from (repayment to) Cabot Management Limited (3,860) 6,630
Advances from director 8,036 30,500
--------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 8,780 583,311
--------------------------------------------------------------------------------
Effect of Foreign Currency Translation on Cash 18,817 0
--------------------------------------------------------------------------------
Inflow (Outflow) of Cash (22,424) 176,641
Cash, Beginning of Period 39,454 1,238
--------------------------------------------------------------------------------
Cash, End of Period $17,030 $$177,87
================================================================================
NORTHSTAR ELECTRONICS INC.
Notes to Consolidated Financial Statements
Three Months and Six Months Ended June 30, 2000
(U.S. Dollars)
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
These financial statements include the accounts of Northstar Electronics Inc.
("the Company") and its wholly-owned subsidiary Northstar Technical Inc.
("NTI"). All intercompany balances and transactions are eliminated. The
parent 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 described below. The Company's business activities are conducted
principally in Canada and the financial statements are prepared in accordance
with United States generally accepted accounting principles with all figures
translated into United States dollars for reporting purposes.
On January 26, 1999 the Company completed the acquisition of 100% of the shares
of Northstar Technical Inc. NTI has developed a communications technology that
can send information from one place in the ocean to another place. The merger
was effected through the issuance of 4,901,481 shares of treasury stock by the
Company with the former shareholders of the subsidiary receiving a majority of
the total shares then issued and outstanding. The transaction has been
accounted for as a reverse take-over resulting in the consolidated financial
statements including the results of operations of the acquired subsidiary prior
to the merger.
These unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United States
for interim financial information. These financial statements 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, 1999 Form SB-1.
In the opinion of the Company's management, these financial statements reflect
all adjustments necessary to present fairly the Company's consolidated
financial position at June 30, 2000 and December 31, 1999 and the
consolidated results of operations and the consolidated statement of cash
flows for the three months and six months ended June 30, 2000. The results
of operations for the three months and six months ended are not necessarily
indicative of the results to be expected for the entire fiscal year.
2. COMMON STOCK
During the three months ended June 30, 2000, 13,700 common stock was issued for
cash.
--------------------------------------------------------------------------------
NORTHSTAR ELECTRONICS INC.
Consolidated Financial Statements
December 31, 1999
(U.S. Dollars)
INDEX Page
----- ----
Report of Independent Chartered Accountants 1
Consolidated Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Changes in Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-11
REPORT OF INDEPENDENT
CHARTERED ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
NORTHSTAR ELECTRONICS INC.
We have audited the consolidated balance sheet of Northstar Electronics Inc. as
at December 31, 1999 and the consolidated statements of operations,
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of Northstar Electronics Inc. as at
December 31, 1999 and the results of its operations and cash flows for the year
then ended in accordance with generally accepted accounting principles in the
United States.
"Pannell Kerr Forster"
Chartered Accountants
Vancouver, Canada
March 13, 2000
NORTHSTAR ELECTRONICS INC.
Consolidated Balance Sheets
December 31
(U.S. Dollars)
-----------------------------------------------------------------------------
1999 1998
-----------------------------------------------------------------------------
(note 3)
Assets
Current
Cash $ 39,454 $ 807
Receivables (note 4) 105,609 96,904
Inventory and work-in-progress 79,938 37,937
Prepaid expenses 6,349 1,529
-------------------------------------------------------------------------------
231,350 137,177
Property and Equipment (note 5) 26,746 17,205
Goodwill (note 6) 250,540 0
-------------------------------------------------------------------------------
Total Assets $508,636 $154,382
-------------------------------------------------------------------------------
Liabilities
Current
Accounts payable and accrued liabilities $100,547 $138,289
Loans payable (note 7) 15,296 103,577
Current portion of long-term debt (note 8) 44,276 6,989
------------------------------------------------------------------------------
160,119 248,855
Long-Term Debt (note 8) 501,114 459,551
Due to Cabot Management Limited (note 9) 74,600 90,223
Due to Director (note 9) 84,848 78,504
------------------------------------------------------------------------------
Total Liabilities 820,681 877,133
------------------------------------------------------------------------------
Contingency (note 10)
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
Common stock 7,604,481 shares (1998 - 2,140,000 shares) 760 214
Additional Paid-In Capital 1,235,997 414,755
Stock Subscriptions 10,000 0
Other Comprehensive Income 13,554 53,929
Deficit (1,572,356) (1,191,649)
------------------------------------------------------------------------------
Total Stockholders' Equity (312,045) (722,751)
------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $508,636 $154,382
NORTHSTAR ELECTRONICS INC.
Consolidated Statements of Operations
Years and Period Ended December 31
(U.S. Dollars)
--------------------------------------------------------------------------------
Nine (Unaudited)
Year Ended Months Ended Year Ended
December 31, December 31, December 31,
1999 1998 1998
--------------------------------------------------------------------------------
(note 3)
Sales $ 462,659 $ 170,249 $ 193,913
Cost of Goods Sold 206,354 99,194 100,276
--------------------------------------------------------------------------------
Gross Profit 256,305 71,055 93,637
--------------------------------------------------------------------------------
Expenses
Salaries, wages and employee benefits 145,649 33,797 33,229
Bad debts 90,281 0 0
Consulting 65,815 0 0
Research and development cost 46,430 10,644 14,192
Commissions 46,300 0 0
Professional fees 36,372 11,552 12,974
Interest on long-term debt 30,194 29,600 47,567
Value of director's uncompensated
Services 30,000 0 0
Rent 26,804 21,864 22,043
Office expenses 23,740 6,904 13,388
Contract manufacturing cost 23,638 67,626 90,168
Management and marketing 14,941 3,365 4,998
Travel 12,705 2,520 2,281
Telephone 8,394 6,464 5,356
Interest and bank charges 6,526 10,521 9,882
Market research 4,279 2,431 6,292
Dues and Licenses 5,291 0 0
Repairs and maintenance 3,234 1,633 2,515
Miscellaneous 3,202 3,501 2,404
Insurance 2,002 1,239 1,265
Advertising 817 0 0
Municipal taxes 551 842 1,323
Write-off of inventory 0 0 9,696
Heat and light 0 1,284 4,889
Depreciation and amortization 18,867 4,713 11,133
--------------------------------------------------------------------------------
646,032 220,500 295,595
--------------------------------------------------------------------------------
Loss Before Other Income (389,727) (149,445) (201,958)
Other Income 9,020 5,548 14,919
--------------------------------------------------------------------------------
Net Loss $(380,707) $(143,897) $(187,039)
--------------------------------------------------------------------------------
Net Loss Per Share $ (0.05) $ (0.03) $ (0.04)
--------------------------------------------------------------------------------
Weighted Average Number of Common
Shares Outstanding 7,146,813 4,901,481 4,901,481
NORTHSTAR ELECTRONICS INC.
Consolidated Statements of Changes in Stockholders' Equity
Year Ended December 31, 1999 and Period Ended December 31, 1998
(U.S. Dollars)
-----------------------------------------------------------------------------
Other Total
Additional Compre Accum Stock
Paid-In Stock hensive ulated holder
Shares Amt Capital Subscr Income Deficit Equity
Iption (Loss)
-----------------------------------------------------------------------------
Inception, May 11, 1998
Issuance of
common Stock
for cash 2,040,000 204 $4,896 $0 $0 $0 $5,100
Issuance of
common Stock
for cash 100,000 10 24,990 0 0 0 25,000
Share issue
Costs 0 0 (5,000) 0 0 0 (5,000)
Other comprehensive
income 0 0 0 0 53,929 0 53,929
Net loss for
period ended
December 31, 1998 0 0 0 0 0 (143,897) (143,897)
Additional paid-in
capital and deficit
from accounting
parent 0 0 389,869 0 0 (1,047,752) (657,883)
--------------------------------------------------------------------------------
Balance December 31,
1998 2,140,000 214 414,755 0 53,929 (1,191,649) (722,751)
Shares issued in January
1999 on acquisition of
subsidiary
(note 1) 4,901,481 490 228,298 0 0 0 228,788
Issuance of
common stock
for cash 563,000 56 562,944 0 0 0 563,000
Stock subscriptions
Received 0 0 0 10,000 0 0 10,000
Value of director's
uncompensated
services 0 0 30,000 0 0 0 30,000
Other comprehensive
loss 0 0 0 0 (40,375) 0 (40,375)
Net loss for the year 0 0 0 0 0 (380,707) (380,707)
--------------------------------------------------------------------------------
Balance
December 31,
1999 7,604,481 $760 $1,235,997 $10,000 $13,554 $(1,572,356) $(312,045)
--------------------------------------------------------------------------------
NORTHSTAR ELECTRONICS INC.
Consolidated Statements of Cash Flows
Year Ended December 31, 1999 and Period Ended December 31, 1998
(U.S. Dollars)
-------------------------------------------------------------------------------
Nine
Year Ended months Ended
December 31, December 31,
1999 1998
-------------------------------------------------------------------------------
(note 3)
Operating Activities
Net loss $(380,707) $(143,897)
Adjustments to reconcile net loss to net
cash used by operating activities
Amortization and depreciation 18,867 4,713
Value of director's uncompensated services 30,000 0
Changes in operating assets and liabilities
Accounts receivable (8,705) 63,719
Prepaid expenses (4,820) 1,413
Inventory and work-in-progress (42,001) 30,120
Accounts payable and accrued liabilities (72,680) (2,263)
Loans payable (88,281) 5,824
-------------------------------------------------------------------------------
Net Cash Used By Operating Activates (548,327) (40,371)
-------------------------------------------------------------------------------
Investing Activities
Acquisition of property and equipment (15,222) (3,223)
-------------------------------------------------------------------------------
Financing Activities
Issuance of common stock 563,000 11,388
Proceeds from (repayment of) long-term debt 78,850 (37,296)
Advances from (repayment to) Cabot
Management Limited (15,623) (5,938)
Advances from director 6,344 19,621
Stock subscriptions received 10,000 0
-------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 642,571 (12,225)
-------------------------------------------------------------------------------
Effect of Foreign Currency Translation on Cash (40,375) 53,929
-------------------------------------------------------------------------------
Inflow (Outflow) of Cash 38,647 (1,890)
Cash, Beginning of Period 807 2,697
-------------------------------------------------------------------------------
Cash, End of Period $39,454 $807
-------------------------------------------------------------------------------
Supplemental Information
Interest paid $36,720 $40,121
Income taxes paid 0 0
Non-cash investing and financing activities
Goodwill from acquisition 263,726 0
Shares issued for subsidiary acquisition 228,788 0
-------------------------------------------------------------------------------
NORTHSTAR ELECTRONICS INC.
Notes to Consolidated Financial Statements
Year Ended December 31, 1999 and Period Ended December 31, 1998
(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 subsidiary Northstar Technical
Inc. ("NTI"). All intercompany balances and transactions are eliminated.
The parent 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 described below. The Company's business activities
are conducted principally in Canada and the financial statements are
prepared in accordance with United States generally accepted accounting
principles with all figures translated into United States dollars for
reporting purposes.
On January 26, 1999 the Company completed the acquisition of 100% of the
shares of Northstar Technical Inc. NTI has developed a communications
technology that can send information from one place in the ocean to
another place. The merger was effected through the issuance of 4,901,481
shares of treasury stock by the Company with the former shareholders of
the subsidiary receiving a majority of the total shares then issued and
outstanding. 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.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Revenue recognition
The Company recognizes revenue from the sales of the NETMIND system on an
accrual basis based on agreed terms with the customers.
(b) Inventory and work-in-progress
The Company's inventory and work-in-progress are valued at the lower of
cost and net realizable value.
(c) Property and equipment
Property and equipment are recorded at cost less any government assistance and
are being amortized over their estimated useful lives using the rates and
methods set out below:
Computer equipment - 20% Declining balance
Computer software - 30% Declining balance
Office furniture and equipment - 20% Declining balance
Leasehold improvements - 20% Declining balance
(d) Research and development
Research and development expenditures are charged to operations as incurred.
(e) Investment tax credits
Investment tax credit refunds arising form the occurrence of qualifying
research and development expenditures have been recorded in these financial
statements as a reduction of the applicable research and development costs.
NORTHSTAR ELECTRONICS INC.
Notes to Consolidated Financial Statements
Year Ended December 31, 1999 and Period Ended December 31, 1998
(U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(f) Government assistance
The Company has been awarded assistance under government programs. Amounts
received or receivable under these programs are recorded as a reduction in the
cost of property and equipment or as a reduction of the applicable research and
development costs.
(g) Foreign currency translation
The Company's operations and activities are conducted principally in Canada,
hence the Canadian dollar is the functional currency which is translated into
U.S. dollars for reporting purposes as follows:
(i) Monetary assets and liabilities at the rate of exchange in effect as at
the balance sheet date;
(ii) Non-monetary assets and liabilities at the exchange rates prevailing at
the time of the acquisition of the assets or assumptions of the liabilities;
and,
(iii) Revenues and expenditures at the average rate of exchange for the year.
Gains and losses arising from this translation of foreign currency are
accounted for as other comprehensive income (loss).
(h) Other comprehensive income (loss)
The Company has other comprehensive income (loss) arising from foreign currency
translation. Accordingly, other comprehensive income (loss) is shown as a
separate component of stockholders' equity.
(i) Net loss per share
Net loss per share calculations are based on the weighted average number of
common shares outstanding during the period.
(j) Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates and would impact future
results of operations and cash flows.
(k) Financial instruments
The Company's financial instruments consist of cash, receivables, accounts
payable and accrued liabilities, loans payable, long-term debt, due to Cabot
Management Limited and due to director. It is management's opinion that the
Company is not exposed to significant interest, currency or credit risks
arising from these financial instruments. The fair value of these financial
instruments approximates their carrying value.
NORTHSTAR ELECTRONICS INC.
Notes to Consolidated Financial Statements
Year Ended December 31, 1999 and Period Ended December 31, 1998
(U.S. Dollars)
3. COMPARATIVE FIGURES
The comparative figures for 1998 included in these consolidated financial
statements represent those of the legal subsidiary NTI and have been reported
on by other independent auditors who expressed an unqualified opinion in their
report thereon dated July 14, 1999. Certain of these figures have been
reclassified to conform with the current year's presentation and generally
accepted accounting principles in the United States.
4. RECEIVABLES
-------------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------------------
Trade, net of allowance for doubtful accounts $52,265 $13,174
Due from director 37,182 0
Government assistance 577 0
Investment tax credits 15,585 83,730
-------------------------------------------------------------------------------
$105,609 $96,904
-------------------------------------------------------------------------------
5. PROPERTY AND EQUIPMENT
-------------------------------------------------------------------------------
1999 1998
Accumulated
Cost Depreciation Net Net
-------------------------------------------------------------------------------
Computer equipment $7,660 $2,848 $4,812 $2,348
Computer software 6,720 4,541 2,179 2,165
Furniture and equipment 33,991 15,346 18,645 11,759
Leasehold improvements 11,174 10,064 1,110 933
-------------------------------------------------------------------------------
$59,545 $32,799 $26,746 $17,205
-------------------------------------------------------------------------------
6. GOODWILL
As a result of the merger described in note 1, goodwill on acquisition is as
follows:
-------------------------------------------------------------------------------
Purchase price $228,788
Net liabilities 34,938
-------------------------------------------------------------------------------
Goodwill 263,726
Amortization (13,186)
-------------------------------------------------------------------------------
$250,540
-------------------------------------------------------------------------------
NORTHSTAR ELECTRONICS INC.
Notes to Consolidated Financial Statements
Year Ended December 31, 1999 and Period Ended December 31, 1998
(U.S. Dollars)
-------------------------------------------------------------------------
7. LOANS PAYABLE
-------------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------------
10% loan payable to Enterprise Newfoundland
and Labrador in monthly interest payments,
due on demand $12,393 $13,352
Loan payable to Barbara Yaffe, secured by
personal guarantee of a director 2,903 0
12% loan payable to Eastern Meridian Mining
Corporation was repaid during 1999 0 54,155
Loan payable to Dr. Carl Wesolowski 0 36,070
--------------------------------------------------------------------------
$15,296 $103,577
--------------------------------------------------------------------------
8. LONG-TERM DEBT
--------------------------------------------------------------------------
1999 1998
--------------------------------------------------------------------------
10% loan payable to Pathfinder Enterprises Inc.
in monthly interest payments only, due July 5,
2002, secured by a floating debenture charge
($240,000 CDN.) $166,285 $156,525
ACOA 8.93% loan with monthly principal repayments
of $2,256 each commencing June 1, 2000
($195,331 CDN.) 135,336 127,393
ACOA 12% loan with monthly principal repayments
of $1,237 each ($139,284 CDN.) 96,504 97,828
ACOA 6.25% loan repayable in 72 monthly consecutive
instalments commencing July 1, 2000, if full loan
draw down is received, secured by postponements on
Cabot Management Limited's loans and shareholders'
loans ($212,547 CDN.) 147,265 84,794
--------------------------------------------------------------------------
545,390 466,540
Current portion 44,276 6,989
--------------------------------------------------------------------------
$501,114 $459,551
--------------------------------------------------------------------------
NORTHSTAR ELECTRONICS INC.
Notes to Consolidated Financial Statements
Year Ended December 31, 1999 and Period Ended December 31, 1998
(U.S. Dollars)
-------------------------------------------------------------------------------
9. RELATED PARTY TRANSACTIONS
(i) Cabot Management Limited ("Cabot") an associated company, related by a
common shareholder and director, bears no interest and is convertible into
common stock of the Company at the option of Cabot.
(ii) Due to director bears no interest and has no set terms of repayment.
(iii) Compensation paid to directors and officers amounted to $30,300 in 1999.
10. CONTINGENT LIABILITY
The Company is a defendant in a lawsuit commenced against them by their former
master distributor. The former distributor has alleged that the Company has
interfered with the ability of the former distributor to sell products. The
Company has filed a counter claim for monies owing by the former distributor to
the Company. An adverse outcome to the lawsuit could have an adverse material
impact upon the Company and the range of possible loss could be from $0 to
$1,300,000.
11. COMMITMENT
The Company is committed to minimum rental payments of $13,500 per year for the
next three years for office space.
12. STOCK OPTION PLANS
(i) During the year ended December 31, 1999, the Company approved the
allocation of 815,000 stock options to directors, officers and employees of
the Company exercisable at $0.50 per share up to five years from the date of
agreement.
(ii) The Company has agreed to grant to an independent management consulting
firm up to 10% of the number of shares placed with private investors of
financing up to $500,000. The exercise prices for these options are $0.90 per
share in the first year and $1.035 per share in the second year.
13. INCOME TAX LOSSES
The Company has operating losses which may be carried forward to apply against
future years' taxable income. The tax effect has not been recorded in these
consolidated financial statements. These losses expire as follows:
-------------------------------------------------------------------------
Available to Amount
-------------------------------------------------------------------------
2001 $ 26,000
2002 65,000
2003 355,000
2004 255,000
2005 357,000
-------------------------------------------------------------------------
$1,058,000
-------------------------------------------------------------------------
14. SUBSEQUENT EVENT
The Company is in the process of filing a registration statement with the
Securities and Exchange Commission to register 800,000 common shares to be
offered to the public for net proceeds of $800,000.
See notes to consolidated financial statements.
See notes to consolidated financial statements.
See notes to consolidated financial statements.
--------------------------------------------------------------------------------
NORTHSTAR TECHNICAL INC.
St. John's, Newfoundland
FINANCIAL STATEMENTS
December 31, 1998
C O N T E N T S
Page
----
Auditors' Report 1
Balance Sheet 2
Statement of Loss and Deficit 3
Statement of Changes in Cash Resources 4
Notes to Financial Statements 5
1.
AUDITORS' REPORT
----------------
To the Shareholders of
Northstar Technical Inc.
We have audited the balance sheet of Northstar Technical Inc. as at December
31, 1998 and the statements of loss and deficit and changes in cash resources
for the nine months then ended. These financial statements are the
responsibility of the company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at December 31, 1998 and the
results of its operations and the changes in its cash resources for the nine
months then ended in accordance with accounting principles generally accepted
in Canada consistently applied. Accounting principles generally accepted in
Canada differ in certain significant respects from accounting principles
generally accepted in the United States and are discussed in Note 14 to the
financial statements.
The accompanying financial statements have been prepared assuming the company
will continue as a going concern. To date the company's operations are mainly
in the development stages and has not established revenues sufficient to cover
its operating costs. It is management's opinion that the company's main net
mind division and the new contract manufacturing division will generate future
revenues sufficient to cover all costs and result in annual net incomes. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
St. John's, Newfoundland (signed ) Sullivan, Lewis and White
July 14, 1999 Chartered Accountants
NORTHSTAR TECHNICAL INC. 2.
------------------------
BALANCE SHEET
-------------
(Canadian Dollars)
DECEMBER 31, 1998
-----------------
December 31, March 31,
ASSETS 1998 1998
--------------------------------- ----------- ---------
Current
Bank $1,238 $3,829
Receivables (Note 2) 148,583 228,052
Work in progress 3,688 7,101
Inventory 52,591 88,356
Prepaid expenses 2,269 4,127
----------- ---------
208,369 331,465
Capital assets (Note 3) 25,523 27,733
Deferred development costs (Note 4) 768,311 824,744
Deferred charges (Note 5) 110,287 82,305
----------- ---------
$1,112,490 $1,266,247
=========== =========
LIABILITIES
-----------
Current
Payables and accruals $212,038 $199,556
Loans payable (Note 6) 158,815 138,790
Long term debt payable
within one year (Note 7) 10,716 127,340
----------- ---------
381,569 465,686
Long term debt (Note 7) 704,630 588,006
Loans payable to Cabot Management
Limited, no set terms of repayment (Note 8) 138,339 136,530
Loans payable to shareholder,
no set terms of repayment 120,370 83,602
----------- ---------
1,344,908 1,273,824
Contingent liability (Note 9)
SHAREHOLDERS' DEFICIENCY
------------------------
Share capital (Note 10) 622,453 605,372
Deficit (854,871) (612,949)
----------- ---------
(232,418) (7,577)
----------- ---------
$1,112,490 $1,266,247
ON BEHALF OF THE BOARD:
Director
Director
The accompanying notes are an integral part of these financial statements.
NORTHSTAR TECHNICAL INC. 3.
------------------------
STATEMENT OF LOSS AND DEFICIT
-----------------------------
(Canadian Dollars)
NINE MONTHS ENDED DECEMBER 31, 1998
-----------------------------------
Nine Months Year
Ended Ended
December 31, March 31,
1998 1998
------------ ----------
Revenue $252,565 $272,631
Direct costs 147,155 140,891
------------ ----------
Gross profit 105,410 131,740
Other income 8,231 13,934
------------ ----------
113,641 145,674
------------ ----------
Expenses
Amortization of capital assets 6,992 15,917
Amortization of deferred development costs 72,224 87,621
Bank charges and interest 15,608 16,196
Contract manufacturing division (Note 11) 72,341 126,008
Heat and light 1,905 10,343
Insurance 1,838 2,027
Interest on loans 43,911 55,963
Management and marketing fees 4,992 16,235
Marketing/Market Research costs 3,606 5,742
Municipal taxes 1,249 2,960
Miscellaneous 5,194 3,855
Office operating 10,240 18,859
Professional fees 17,138 35,296
Rent 32,435 37,685
Repairs and maintenance 2,423 4,693
Telephone 9,590 11,184
Travel 3,739 6,865
Wages and benefits 50,138 66,992
Write off obsolete inventory stock - 14,405
Less: Allocation to deferred development costs - (149,808)
------------ ----------
355,563 389,038
------------ ----------
Net loss (Note 12) (241,922) (243,364)
Deficit, beginning of period 612,949) (351,303)
------------ ----------
(854,871) (594,667)
Dividends paid on preference shares - (42,282)
Discount earned on redemption of Class A preference
Shares - 24,000
------------ ----------
Deficit, end of period $(854,871) $(612,949)
============ ==========
The accompanying notes are an integral part of these financial statements.
NORTHSTAR TECHNICAL INC. 4.
------------------------
STATEMENT OF CHANGES IN CASH RESOURCES
--------------------------------------
(Canadian Dollars)
NINE MONTHS ENDED DECEMBER 31, 1998
-----------------------------------
Nine Months Year
Ended Ended
December 31, March 31,
1998 1998
------------ ----------
Cash provided by (used in)
Operations
Net loss $(241,922) $(243,364)
Amortization 104,667 124,114
Net change in non-cash working capital items 153,012 10,434
------------ ----------
15,757 (108,816)
Financing
Proceeds from long term debt - 130,015
Proceeds from issuance of common shares 17,081 595,287
Advances from Cabot Management Limited 1,809 5,694
Advances from shareholder 36,768 70,043
Repayment of long term debt - (30,000)
Discount on redemption of preference shares - 24,000
Redemption of preference shares - (84,000)
Payment of dividends on preference shares - (42,282)
Conversion of Class C preference shares - (287,333)
------------ ----------
55,658 381,424
------------ ----------
Investments
Increase in deferred charges - net (53,433) (102,881)
Increase in deferred development cost - net (15,791) (152,496)
Purchase of capital assets, net of investment
tax credits (4,782) (11,304)
------------ ----------
(74,006) (266,681)
------------ ----------
Net change in bank position (2,591) 5,927
Bank position, beginning of period 3,829 (2,098)
------------ ----------
Bank position, end of period $1,238 $3,829
============ ==========
The accompanying notes are an integral part of these financial statements.
NORTHSTAR TECHNICAL INC. 5.
------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998
-----------------
1. Significant accounting policies
a. Capital assets
Capital assets are recorded at cost less any government assistance and are
being amortizated over their estimated useful lives using the rates and methods
set out below:
Computer equipment 20% on a declining balance basis
Computer software 30% on a declining balance basis
Office furniture and 20% on a declining balance basis
Equipment
Leasehold improvements 20% on a straight line basis
b. Deferred development costs
All costs, including share of overhead costs, associated with the development
of the NET MIND System have been capitalized in these financial statements as
deferred development costs. These costs are being amortized against income on
a straight line basis over a period of ten years. If it becomes evident in a
given year that the sales market for this technology declines , then the
remaining costs will be amortized over a shorter period.
The company acquired the initial technology for the NET MIND System from the
receiver of National Petroleum and Marine Consultants Limited and Altair Marine
Systems Limited for the sum of $ 1. Prior to going into receivership, these
two companies had spent approximately $ 1,740,408 on the development of this
technology. To date Northstar Technical Inc. has spent $ 1,847,795 on this
technology, including overhead costs of $ 621,430, which has been reduced by
various assistance and tax credits totalling $ 879,546 as referred to in Note 4.
c. Deferred charges
Deferred charges consist of initial planning, startup and overhead costs
related to contract manufacturing in association with Lockheed Martin -
Federal Systems Inc. These costs amounted to $ 156,314 at December 31,
1998, as referred to in Note 5, and are being amortized on a straight line
basis over a five year term.
d. Inventory
The company's inventory is valued at the lower of cost and net realizable value.
e. Investment tax credits
Investment tax credit refunds arising from the incurrence of qualifying
research and development expenditures have been recorded in these financial
statements as a reduction of the applicable deferred development costs.
f. Government assistance
The company has been awarded assistance under government programs. Amounts
received or receivable under these programs are recorded as a reduction in the
cost of capital assets or as a reduction of the applicable deferred development
costs.
NORTHSTAR TECHNICAL INC. 5a.
------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998
-----------------
4. Receivables December 31, March 31,
1998 1998
------------ ----------
Trade $20,200 $137,701
Government assistance - 22,486
Investment tax credit refunds 128,383 67,865
------------ ----------
$148,583 $228,052
============ ==========
4. Capital assets December 31, March 31,
1998 1998
----------------------------- -----------
Cost Accumulated Net Book Net Book
Amortization Value Value
----------------------------- -----------
Computer equipment $6,654 $3,170 $3,484 $4,099
Computer software 8,892 5,681 3,211 3,945
Furniture and equipment 34,350 16,906 17,444 17,286
Leasehold improvements 15,872 14,488 1,384 2,403
----------------------------- -----------
$65,768 $40,245 $25,523 $27,733
============================= ===========
4. Deferred development costs
December 31, March 31,
1998 1998
------------ ----------
Wages and benefits $693,362 $608,461
Materials and other costs 173,736 165,160
Subcontractors 359,267 359,267
Overhead 621,430 621,430
------------ ----------
1,847,795 1,754,318
Less: Government assistance 380,133 362,965
Other assistance 61,685 61,685
Investment tax credits 437,728 377,210
------------ ----------
968,249 952,458
Less: Amortization 199,938 127,714
------------ ----------
$768,311 $824,744
============ ==========
NORTHSTAR TECHNICAL INC. 5b.
------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998
-----------------
5. Deferred charges - Contract Manufacturing Division
December 31, March 31,
1998 1998
------------ ----------
Planning and start up costs $28,951 $28,951
Overhead costs (Note 10) 127,363 73,930
------------ ----------
156,314 102,881
Less: Amortization of deferred charges 46,027 20,576
------------ ----------
$110,287 $82,305
============ ==========
5. Loans payable December 31, March 31,
1998 1998
------------ ---------
10% loan payable to Enterprise Newfoundland $20,473 $22,451
and Labrador in monthly interest payments
plus principal amount payable on demand
12% loan payable to Eastern Meridian Mining 83,036 75,939
Corporation including accrued interest, to be
repaid in full by March 1, 1999, secured by the
personal guarantee of Wilson Russell
Loan payable to Toronto-Dominion bank, - 20,000
secured by the personal guarantee of
Wilson Russell. This loan was repaid
in full on September 24, 1998
Loan payable to Brian Gamberg repaid in full - 20,400
on April 15, 1998
Loan payable to Dr. Carl Wesolowski 55,306 -
------------ ----------
$158,815 $138,790
============ ==========
5. Long term debt December 31, March 31,
1998 1998
------------ ----------
ACOA 7.5% loan with monthly principal repayments
of $ 3,256 commencing June 1, 2000 $195,331 $195,331
ACOA 10.9 % loan with monthly principal repayments
of $ 1,786 beginning July 1, 1999 150,000 150,000
10% loan payable to Pathfinder Enterprises Inc. in
monthly interest payments only to July 5, 2002,
secured by a floating charge debenture 240,000 240,000
NORTHSTAR TECHNICAL INC. 5c.
------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998
-----------------
13. Long term debt (continued)
December 31, March 31,
1998 1998
------------ ----------
ACOA 6.25% loan repayable in 72 monthly consecutive
instalments of $ 3,280 beginning July 1, 2000 if full
loan draw down is received. Secured by postponements
on Cabot Management Limited's loans of $ 130,836 and
shareholders' loan of $ 19,060 130,015 130,015
------------ ----------
715,346 715,346
Less: Long term debt payable within one year 10,716 127,340
------------ ----------
$704,630 $588,006
============ ==========
13. Loans payable - Cabot Management Limited
Cabot Management Limited, an associated company, has the option to convert
their interest free loans, totalling $ 138,339 at December 31, 1998, to
common shares of Scientific Technologies Inc. (See Note 13)
14. Contingent liability
The company is presently involved in a dispute with their distributing agent,
whose contract has now been terminated due to non-payment for Net Mind systems
sold to them. This termination has lead to court action, the outcome of which
is unknown as at the financial statements date.
13. Share capital
December 31, March 31,
1998 1998
------------ ----------
Authorized
An unlimited number of Class A common shares
with no par value
An unlimited number of Class A preference shares
with no par value
An unlimited number of 10% redeemable, retractable,
cumulative, non-voting, participating Class B preference
shares with no par value
An unlimited number of 10% redeemable, retractable,
cumulative, non-voting, participating Class C preference
shares with no par value
Issued and outstanding
14,704,440 Class A common shares $622,453 $605,372
============ ==========
NORTHSTAR TECHNICAL INC. 5d.
------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998
-----------------
13. Contract Manufacturing Division
Nine Months Year
Ended Ended
December 31, March 31,
1998 1998
------------ ---------
Amortization of deferred charges (Note 5) $25,451 $20,576
Contract labor - 25,000
Operating expenses 1,199 63,356
Salaries and benefits 105,667 136,038
Less: Direct costs on contract with Lockheed
Martin - Federal Systems, Inc. - (25,133)
Wage subsidy/NRC funding (6,543) (19,899)
----------- ---------
125,774 199,938
Less: Allocation to deferred charges (Note 5) (53,433) (73,930)
------------ ---------
$72,341 $126,008
============ =========
12. Income taxes
The company has losses carried forward totalling $ 1,531,226 which have not
been recognized in these financial statements. These losses carried forward
can be applied against otherwise taxable income and if unused will expire in
the following years:
December 31, 1999 - $3,811 December 31, 2003 - $512,179
December 31, 2001 - $37,523 December 31, 2004 - $367,846
December 31, 2002 - $94,492 December 31, 2005 - $515,375
========
Also the company's book values of deferred development costs and deferred
charges exceeds their income tax values by $ 878,598 as at December 31, 1998.
The net deferred income taxes debit related to both of these items have not
been reflected in these financial statements.
13. Subsequent event
On January 26, 1999 the merger between Northstar Technical Inc. and Scientific
Technologies Inc. was completed which resulted in Northstar Technical Inc.
becoming a wholly owned subsidiary of Scientific Technologies Inc., a US public
trading company.
On January 15, 1999 and January 26, 1999 the shareholders of Northstar
Technical Inc. exchanged their 14,704,440 common shares for 4,901,480 common
shares in Scientific Technologies Inc. on the basis of three Northstar shares
for every one share of Scientific.
NORTHSTAR TECHNICAL INC. 5e.
------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998
-----------------
14. Differences Between Canadian and United States Generally Accepted
Accounting Principles (AGAAP@)
These financial statements have been prepared in accordance with GAAP in
Canada which differs in some respects from GAAP in the United States. The
material differences between Canadian and United States GAAP, in respect of
these financial statements, are as follows:
Nine Months Year
Ended Ended
December 31, March 31,
1998 1998
------------ ---------
Adjustments to assets, and shareholders' deficiency
ASSETS
Deferred development costs
Canadian GAAP $768,311 $824,744
Research and development expenditures (768,311) (824,744)
------------ ---------
United States GAAP $ - $ -
Deferred charges
Canadian GAAP $110,287 $82,305
Deferred charges expenditures (110,287) (82,305)
------------ ---------
United States GAAP $ - $ -
Deficit
Canadian GAAP $(854,871) $(612,949)
Research and development expenditures (768,311) (824,744)
Deferred charges expenditures (110,287) (82,305)
------------ ---------
United States GAAP $(1,733,469) $(1,519,998)
============ =========
Adjustments to net loss
Expenses
Canadian GAAP $355,563 $389,038
Amortization of deferred development costs (72,224) (87,621)
Amortization of deferred charges (25,451) (20,576)
Deferred development costs 15,791 152,496
Deferred charges 53,433 102,881
------------ ---------
United States GAAP $327,112 $536,218
Net loss for the period
Canadian GAAP $(241,922) $(243,364)
Amortization of deferred development costs 72,224 87,621
Amortization of deferred charges 25,451 20,576
Deferred development costs expenditures (15,791) (152,496)
Deferred charges expenditures (53,433) (102,881)
------------ ----------
United States GAAP $(213,471) $(390,544)
NORTHSTAR TECHNICAL INC. 5f.
-----------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998
-----------------
13. Uncertainty Due To The Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information
using year 2000 dates is processed. In addition, similar problems may arise
in some systems which use certain dates in 1999 to represent something other
than a date. The effects of the Year 2000 Issue may be experienced before,
on or after January 1, 2000, and if not addressed, the impact on operations
and financial reporting may range from minor errors to significant system
failure which could affect an entity's ability to conduct normal business
operations. It is not possible to be certain that all aspects of the Year
2000 Issue affecting the Company, including those related to the efforts of
customers, suppliers or other third parties, will be fully resolved.
--------------------------------------------------------------------------------
Part II
Information not required in the prospectus
Item 1. Indemnification of officers and directors
As per risks related to the management structure of Northstar management will
have no liability for any mistake, errors of judgment or for any act of
omission believed to be within the scope of authority conferred by Northstar's
articles unless such acts or omissions were performed or omitted fraudulently
or in bad faith, constituted gross negligence or were a violation of a
director's or officer's fiduciary obligations to Northstar . Northstar has
agreed to indemnify the officers and directors against all loss or damage
even if caused by that officer's or director's fraud, bad faith, gross
negligence or breach of fiduciary obligation.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
small business issuer pursuant to the foregoing provisions, or otherwise, the
small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
.Item 2. Other expenses of issuance and distribution
SEC Filing Fee $ 287
Accounting fees 12,000
Legal fees 25,000
Other professional fees 10,500
Blue Sky fees and expenses 2,500
Transfer agent's fees 1,900
Printing, including registration 1,500
statement and prospectus
Miscellaneous costs and expenses 2,000
-----------------------------------------
55,687
Item 3. Undertakings
Post-Effective Amendments {Regulation S-B, Item 512-(a)}
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-
effective amendment to this Registration Statement:
(a) To include any prospectus required by Section 10 (a) (3) of the Securities
Act;
(b) To reflect in the prospectus any fact or events arising after the effective
date of the Registration Statement (or most of the recent post-effective
amendment thereof) which, individually, or in the aggregate, represent a
fundamental change in the information set forth in the registration
Statement; and
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement,
including (but not limited to) addition or deletion of a managing
underwriter.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
Item. 4 Unregistered securities issued or sold within one year
The date, title and amount of unregistered securities sold by Northstar
formerly Scientific Technologies, Inc. are as follows:
See Exhibits
(1) Date: January, 1999
Number of shares: 363,000
Total offering price: $1.00 per share
Total proceeds: $363,000
Principal underwriter: Rogers & Partners Securities Inc.
Commissions paid: $26,300
Commissions paid to: Rogers and Partners Securities Inc. and to an
unrelated party Big 8 Management
Net Proceeds: $ 336,700
Names of Purchasers: M. Ghanadian, CT Securities, J. Hiebert
Exemption from registration: The statutory exemption which Northstar
relied on is Regulation D, Rule 504 of the United States Securities Act
of 1933, as amended.
(2) Date: January 26, 1999
Number of shares:4,901,801
Total offering price: N/A. Northstar acquired all of the common shares of
NTI on the basis of 3 shares of NTI for 1 share of Northstar.
Exemption from registration: The stautory exemption which Northstar relied
on is Regulation S of the United States Securities Act of 1933, as
amended. All persons were defined as non-US persons. The offering of
shares was limited solely to the shareholders of NTI as a reverse
acquisition in which the NTI business effectively became Northstar's
business. The transaction agreements are shown in Exhibits.
3) Date: June 25, 1999
Number of shares: 200,000
Total offering price: $1.00
Total proceeds: $200,000
Principal Underwriter: none
Total commissions: $20,000
Commissions paid to: unrelated party; Big 8 Management Ltd. as an
introduction fee
Net proceeds: $180,000
Name of Purchasers: See Exhibits
Exemption from registration: The exemption that Northstar relied on was
Regulation S of the United States Securities Act of 1933.
Item 5.
Index to Exhibits
Copies of the following documents are included as exhibits to this Registration
Statement pursuant to Item Part III of Form 1-A and Item 6 of Part II.
Exhibit No. Title of Document
3.10 Northstar Electronics, Inc. Certificate of Incorporation
3.11 Northstar Electronics, Inc. Bylaws
3.12 Northstar Electronics, Inc. Amendments to Articles of
Incorporation (company name change)
3.13 Letters of Consent (3 items)
3.2 Opinion Regarding Legality of Shares
10.2 Sales Contracts
04/06/95 ACOA Project 600-403-1828-1 Contribution Agreement
05/18/95 NRC Letter of Agreement #03978E
10/23/95 NRC Contribution Agreement #04132E
11/15/95 Teaming Agreement with LORAL Librascope
02/09/96 ACOA Project 600-4024021-1 Contribution Agreement
12/19/96 NRC Contribution Agreement #04702E
04/10/97 ACOA Business Development Program Contribution
Agreement
11/28/97 NRC Contribution Agreement #05100E
10/28 /97 Sales Agreement with Lockheed-Martin
05/18/98 STI-Private Placement Memorandum (with attachments)
06/03/98 STI-Private Placement Offering Memorandum (with
attachments)
10/30/98 STI-Private Placement Offering Memorandum (with
attachments)
09/24/99 Sales Agreement with NOAA
10/18/99 Sales Agreement with Lockheed-Martin
10/01/99 Lease Agreement Northstar Electronics, Inc. and
Morguard
10.31 Lease Agreements
05/28/99 Lease Agreement NTI and Par Holdings, Ltd.
10/01/99 Lease Agreement Northstar Electronics, Inc. and Morguard
23.1 Sullivan, Lewis and White- Auditor's Consent Letter
Jones Jensen Auditor's Consent Letter
99.1 Disclosure Statement
99.2 Subscription Agreement
99.3 Y2K Issues
99.4 10QSB Filed August 2, 2000
Item 6.
Description of Exhibits
3.10 Northstar Electronics, Inc. Certificate of Incorporation
3.11 Northstar Electronics, Inc. Bylaws
Northstar Electronics, Inc. Amendments to Articles of
Incorporation (company name change.)
3.13 Letters of Consent (3 items)
3.2 Opinion Regarding Legality of Shares
10.2 Sales Contracts
04/06/95 ACOA Project 600-403-1828-1 Contribution Agreement
05/18/95 NRC Letter of Agreement #03978E
10/23/95 NRC Contribution Agreement #04132E
11/15/95 Teaming Agreement with LORAL Librascope
02/09/96 ACOA Project 600-4024021-1 Contribution Agreement
12/19/96 NRC Contribution Agreement #04702E
04/10/97 ACOA Business Development Program Contribution Agreement
11/28/97 NRC Contribution Agreement #05100E
10/28/97 Sales Agreement with Lockheed-Martin
05/18/98 STI-Private Placement Memorandum (with attachments)
06/03/98 STI-Private Placement Offering Memorandum (with
attachments)
10/30/98 STI-Private Placement Offering Memorandum (with
attachments)
09/24/99 Sales Agreement with NOAA
10/18/99 Sales Agreement with Lockheed-Martin
10.31 Lease Agreements
05/28/99 Lease Agreement NTI and Par Holdings, Ltd.
10/01/99 Lease Agreement Northstar Electronics, Inc.and Morguard
23.2 Pannell Kerr Forster - Auditor's Consent Letter
23.3 Jones Jensen Auditor's Consent Letter
99.1 Disclosure Statement
99.2 Subscription Agreement
99.3 Y2K Compliant Statement for Northstar Electronics, Inc.
99.4 10QSB Filed August 2, 2000
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-1 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Vancouver, British Columbia, Canada, on September 19, 2000.
By: /s/ Dr.
Wilson Russell
/s/ Wilson Russell, PhD
-----------------------------------
Dr. Wilson Russell,
President,
Principal Financial Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
and on the dates stated.
By: /s/ Dr.
Wilson Russell
/s/Wilson Russell, PhD
-----------------------------------
Dr. Wilson Russell,
President,
Principal Financial Officer
Date: 19/09/00
/s/ Frank Power
-------------------------------
Frank Power, Director
Date filed: September 19, 2000
SEC File No. 333-90031
Exhibit 23.2
------------
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
Board of Directors
Northstar Electronics Inc.
1455-409 Granville Street
Vancouver, B.C. V6G 2J2
We hereby consent to the use of our report dated March 13, 2000, for the year
ended December 31, 1999 included in the form SB-1 in accordance with Section 12
of the Securities Exchange Act of 1934.
"Pannell Kerr Forster"
CHARTERED ACCOUNTANTS
Vancouver, Canada
September 19, 2000
ASH/dm
Exhibit 23.3
Letterhead of Jones Jensen & Company, LLC
March 7, 2000
Securities & Exchange Commission
450 Fifty Street, N.W.
Washington, D.C. 20549
Gentlemen:
We have read the section entitled "Changes in or Disagreements with
Accountants on Accounting and Financial Disclosure" of the Form SB-1 of
Northstar Electronics, Inc. (formerly Scientific Technologies, Inc.), and are
in agreement with the statements contained therein in so far as they relate
to our firm. We have no basis to agree or disagree with other statements of
the registrant contained therein.
Very truly yours,
/s/ Jones, Jensen & Company
- ---------------------------
Jones, Jensen & Company
Exhibit 99.4 - 10QSB - Filed August 2, 2000
-------------------------------------------
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES ACT
OF 1934
For the quarterly period ended June 30, 2000
[] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF
THE EXCHANGE ACT
For the transition period from ___________ to ____________
Commission file number: 333-90031
Northstar Electronics,Inc.
(Exact name of small business issuer as specified in
its charter)
Delaware #333-0803434
(State or other jurisdiction of incorporation or (IRS Employer
organization) 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)
N/A
(Former name, former address and former fiscal year, if
changed since last report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PROCEEDING 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[ ]
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
--------------------
NORTHSTAR ELECTRONICS INC.
Consolidated Financial Statements
Six Months Ended June 30, 2000
(Unauditied)
INDEX Page
----- ----
Part I
Financial Information
Item 1 Financial Statements
Consolidated Balance Sheets at June 30, 2000
and December 31, 1999 1
Consolidated Statements of Operations Three Months
and Six Months Ended June 30, 2000 and June 30, 1999 2
Consolidated Statements of Changes in Stockholders' Equity
Six Months Ended June 30, 2000 3
Consolidated Statements of Cash Flows Six Months Ended
June 30, 2000 and June 30, 1999 4
Notes to Consolidated Financial Statements 5
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
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 8-K
NORTHSTAR ELECTRONICS INC.
Consolidated Balance Sheets
(Unaudited)
(U.S. Dollars)
================================================================================
June 30, December 31,
2000 1999
--------------------------------------------------------------------------------
Assets
Current
Cash $17,030 $39,454
Receivables 656,291 105,609
Inventory and work-in-progress 103,880 79,938
Prepaid expenses 6,137 6,349
--------------------------------------------------------------------------------
Total Current Assets 783,338 231,350
Property and Equipment 32,418 26,746
--------------------------------------------------------------------------------
Total Assets $815,756 $258,096
================================================================================
Liabilities
Current
Accounts payable and accrued liabilities $631,772 $100,547
Loans payable 13,886 15,296
Current portion of long-term debt 43,901 44,276
--------------------------------------------------------------------------------
Total Current Liabilities 689,559 160,119
Long-Term Debt 478,387 501,114
Due to Cabot Management Limited 62,090 74,600
Due to Director 113,532 84,848
--------------------------------------------------------------------------------
Total Liabilities 1,343,568 820,681
--------------------------------------------------------------------------------
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
Common stock 7,618,181 shares 762 760
Additional Paid-In Capital 1,000,969 972,271
Stock Subscriptions 10,000 10,000
Other Comprehensive Income 32,371 13,554
Deficit (1,571,914) (1,559,170)
--------------------------------------------------------------------------------
Total Stockholders' Equity (527,812) (562,585)
--------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $815,756 $258,096
--------------------------------------------------------------------------------
NORTHSTAR ELECTRONICS INC.
Consolidated Statements of Operations
Three Months and Six Months Ended June 30
(Unaudited)
(U.S. Dollars)
================================================================================
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
--------------------------------------------------------------------------------
Revenue $736,264 $117,987 $891,678 $175,180
Costs of goods sold 528,375 54,797 602,184 88,245
--------------------------------------------------------------------------------
Gross Profit 207,889 63,190 289,494 86,935
Other Income 2,263 444 3,276 4,183
--------------------------------------------------------------------------------
210,152 63,634 292,770 91,118
--------------------------------------------------------------------------------
Expenses
Salaries 84,980 47,808 161,183 127,606
Office 20,572 9,775 31,296 23,702
Professional fees 17,930 8,595 40,870 23,744
Rent 14,464 7,469 24,677 14,445
Value of Director's
uncompensated services 7,500 0 15,000 0
Travel 5,137 735 7,162 5,248
Interest 4,119 6,008 12,560 11,934
Telephone 3,935 1,395 6,290 3,745
Management fees 1,103 3,185 4,624 10,057
Amortization 926 1,194 1,852 2,356
--------------------------------------------------------------------------------
160,666 86,164 305,514 222,837
--------------------------------------------------------------------------------
Net Income (Loss) for Period $49,486 $(22,530) $(12,744) $(131,719)
================================================================================
Net Income (Loss) Per Share $ 0.01 $ (0.01) $ (0.02) $ (0.02)
================================================================================
Weighted Average Number of
Common Shares Outstanding 7,608,094 7,406,679 7,606,288 6,651,368
NORTHSTAR ELECTRONICS INC.
Consolidated Statements of Changes in Stockholders' Equity
Six Months Ended June 30, 2000
(U.S. Dollars)
(Unaudited)
================================================================================
Additional Stock Other Accumu- Total
Paid-In Subscr- Comprehensive lated Stockholder
Shares Amount Capital iptions Income Deficit Equity
--------------------------------------------------------------------------------
Balance Dec.
31, 1999 7,604,481 $760 $972,271 $10,000 $13,554 $(1,559,170) $(562,585)
Net loss for
six months 0 0 0 0 0 (12,744) (12,744)
Value of
director's
uncompensated
services 0 0 15,000 0 0 0 15,000
Other
comprehensive
income 0 0 0 0 18,817 0 18,817
Issuance of
Common stock
for cash 13,700 2 13,698 0 0 0 13,700
--------------------------------------------------------------------------------
Balance June
30, 2000 7,618,181 $762 $1,000,969 $10,000 $32,371 $(1,571,914) $(527,812)
================================================================================
NORTHSTAR ELECTRONICS INC.
Consolidated Statement of Cash Flows
Six Months Ended June 30
(Unaudited)
(U.S. Dollars)
--------------------------------------------------------------------------------
2000 1999
================================================================================
Operating Activities
Net loss $(12,744) $(131,719)
Adjustments to reconcile net loss to
net cash used by operating activities
Amortization and depreciation 1,852 2,356
Value of director's uncompensated services 15,000 0
Changes in operating assets and liabilities (47,193) (265,512)
--------------------------------------------------------------------------------
Net Cash Used by Operating Activities (43,085) (394,875)
--------------------------------------------------------------------------------
Investing Activity
Acquisition of property and equipment (6,936) (11,795)
--------------------------------------------------------------------------------
Financing Activities
Issuance of common stock 13,700 563,000
Repayment of long-term debt (9,096) (16,819)
Advances from (repayment to) Cabot Management Limited (3,860) 6,630
Advances from director 8,036 30,500
--------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 8,780 583,311
--------------------------------------------------------------------------------
Effect of Foreign Currency Translation on Cash 18,817 0
--------------------------------------------------------------------------------
Inflow (Outflow) of Cash (22,424) 176,641
Cash, Beginning of Period 39,454 1,238
--------------------------------------------------------------------------------
Cash, End of Period $17,030 $$177,87
================================================================================
NORTHSTAR ELECTRONICS INC.
Notes to Consolidated Financial Statements
Three Months and Six Months Ended June 30, 2000
(U.S. Dollars)
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
These financial statements include the accounts of Northstar Electronics Inc.
("the Company") and its wholly-owned subsidiary Northstar Technical Inc.
("NTI"). All intercompany balances and transactions are eliminated. The
parent 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 described below. The Company's business activities are conducted
principally in Canada and the financial statements are prepared in accordance
with United States generally accepted accounting principles with all figures
translated into United States dollars for reporting purposes.
On January 26, 1999 the Company completed the acquisition of 100% of the shares
of Northstar Technical Inc. NTI has developed a communications technology that
can send information from one place in the ocean to another place. The merger
was effected through the issuance of 4,901,481 shares of treasury stock by the
Company with the former shareholders of the subsidiary receiving a majority of
the total shares then issued and outstanding. The transaction has been
accounted for as a reverse take-over resulting in the consolidated financial
statements including the results of operations of the acquired subsidiary prior
to the merger.
These unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United States
for interim financial information. These financial statements 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, 1999 Form SB-1.
In the opinion of the Company's management, these financial statements reflect
all adjustments necessary to present fairly the Company's consolidated
financial position at June 30, 2000 and December 31, 1999 and the
consolidated results of operations and the consolidated statement of cash
flows for the three months and six months ended June 30, 2000. The results
of operations for the three months and six months ended are not necessarily
indicative of the results to be expected for the entire fiscal year.
2. COMMON STOCK
During the three months ended June 30, 2000, 13,700 common stock was issued for
cash.
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 for the three month and six month
periods ended June 30, 2000 and June 30, 1999 and the audited consolidated
financial statements for the twelve months ended December 31, 1999 as presented
in the Form SB-1 ,effective date April 20, 2000.
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. 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.
Northstar Services
------------------
Northstar's operations currently are those of its wholly owned subsidiary
Northstar Technical Inc. (NTI) and it is in this context the company's services
are described.
We have two main activities: underwater wireless communications and electronic
contract manufacturing.
Underwater Wireless Communications
In the communications area, our first product is the NETMIND system for the
commercial fishing industry. We won a competitive bid in the fall of 1999 with
the United States Government Agency NOAA (National Oceanic and Atmospheric
Administration) to supply them with a number of NETMIND systems. This was an
important event, as we believe the contract award put our product and the
technology behind it at the forefront of the industry. NOAA recently specified
the NETMIND system in its Statement of Requirements for a new research vessel
to be constructed.
We intend to build on the success of the NETMIND system by initiating our
Venture Technology Business Model. In this model, we intend to invest our core
technology in partnerships with established companies in a wide variety of
industry sectors. We intend to develop the products and the recognized company
partners would carry out the product introduction, marketing and sales.
We intend to fully implement Northstar's dynamic business model. Using the
Internet, we intend to seek partners in offshore oil and gas, the environmental
sector, oceanography, marine transportation, recreational diving, and defense.
We intend to promote our technology on our website with potential applications
in the above mentioned industry sectors. We also intend to promote the
technology partnerships in trade magazine advertisements, at trade shows and
through our worldwide network of business contacts.
We intend the partnerships to be 50/50 joint ventures. The industry sector
partners would pay 50% of the development costs of the products and 100% of the
marketing costs. We expect to use this template to create up to 12 new
products over the next three years, provided we are successful in generating
sufficient joint ventures.
Electronic Contract Manufacturing
In the fall of 1999 we signed a contract with Lockheed Martin in the United
States to fabricate and test fire control consoles for the Canadian "Victoria
Class" submarine retrofit program. Prefabrication was carried out in this
quarter with first console delivery expected in the third quarter. The contract
is expected to be completed in the fall of 2000.
We expect to expand our electronic contract manufacturing business with
important customers like Lockheed Martin, as well as those in the offshore oil
and gas, transportation and communication industries.
Subsequent Event
----------------
There was no reportable subsequent event.
Results of Operations
---------------------
Comparison of the three months ended June 30, 2000 with the three months ended
June 30, 1999.
Revenue for the three month period ended June 30, 2000 was $736,264 compared to
$117,987 of revenue recorded during the same period of the prior year. This
increase was created by an increase in NETMIND system sales and the activities
of the Lockheed Martin contract. Gross profits increased from $63,190 (53.6%)
in the prior period to $207,889(28.2%)in the current period. The percentage
decrease was created by high component costs associated with the Lockheed
Martin contract.
Net income for the three month period ended June 30, 2000 was $49,486 compared
to ($22,530) in the three months ended June 30, 1999. This marks the first
quarter in the company's history that a profit has been
realized.
Comparison of the six months ended June 30, 2000 with the six months ended June
30, 1999
--------------------------------------------------------------------
Revenue for the six month period ended June 30, 2000 was $891,678 compared to
$175,180 of revenue recorded during the same period of the prior year. This
increase was created by an increase in NETMIND system sales and the activities
of the Lockheed Martin contract. Gross profits increased from $86,935 (49.6%)
in the prior period to $289,494 (32.5%) in the current period. The percentage
decrease was created by high component costs associated with the Lockheed
Martin contract.
Net income (loss) for the six month period ended June 30, 2000 was ($12,744)
compared to ($131,719) in the six months ended June 30, 1999.
Cash used in operations was ($43,085) in the six month period ended June 30,
2000 compared to ($394,875) in the six month period ended June 30, 1999. This
decrease was due to net loss reduction of $52,940 coupled with a decrease in
cash applied to non-working capital items.
Comparison of Financial Position at June 30, 2000 with December 31, 1999
-------------------------------------------------------------------------
Financing activities resulted in a net infusion of $8,780 cash in the six month
period ended June 30, 2000 compared to a net infusion of $583,311 cash in the
six month period ended December 31, 1999. As well, cash at June 30, 2000 was
$17,030 compared with $39,454 at December 31, 1999. This was because there were
no private placements in the current period whereas there were private
placements in the prior period.
Liquidity and Capital Resources
-------------------------------
At June 30, 2000 current assets totaled $783,338 compared to $231,350 at
December 31, 1999. A decrease in cash of $22,424 was offset by an increase of
$23,942 in inventories. Current liabilities grew from $160,119 in the prior
period to $689,559 in the current period. This growth primarily resulted from
high costs associated with the Lockheed Martin contract.
The company expects to complete a private placement of $800,000 before
September 30, 2000. These funds would be used for marketing and promotion of
products, business development, production of products and operating capital.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
No change since previous filing.
Item 2. Changes in Securities.
Issued 13,700 shares of common stock for cash $13,700.
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.
Northstar Electronics, Inc.
(Registrant)
August 02, 2000
By: /s/ Wilson Russell
Dr. Wilson Russell, PhD
President
Principal Financial Officer
