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Registration No. 333-90031
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 ID Number) Industrial
organization) Classification Code)
Suite 1455-409 Granville Street
Vancouver, B.C.
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
462c 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. / /
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CALCULATION OF REGISTRATION FEE
Title of each Class Offering Maximum Dollar Proposed Amount
of Securities to be Price per Amount to be of Registration
registered share Registered Fee
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Common Stock $1.00 $800,000 $287
Common Stock* $1.00(1)(2) $200,000 $130
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(1)* The registration of 200,000 shares is being done on behalf of a selling
security holder who may sell his shares on a delayed or continuous basis
following the effective date of this registration statement at a price to
be determined between the selling shareholder and any purchaser(s) of the
selling shareholder's shares. 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,
listed under proposed amount of registration fee, is based on an estimated
maximum dollar amount to be registered of $200,000.
(2) Estimated solely for the purpose of calculating the registration fee.
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.
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The shares of the selling shareholder will become tradable on the effective
date of this prospectus. The selling security holder will receive the
proceeds from the sale of his shares and the company will not receive any of
the proceeds from such sales. The selling security holder, directly, or
through agents, dealers or representatives as may be designated from time to
time, may sell his shares on terms to be determined at the time of sale. The
selling security holder reserves the sole right to accept or reject, in any
part, any proposed purchase of the shares being offered for sale by the
selling security holder.
There has been no sustained market for the company's common stock and there
is no assurance that a public market will develop, or that, if any such
market does develop, it will be sustained. Sales of the shares being offered
by the selling security holder, or even the potential of such sales, may
likely have an adverse effect on the market price of the common stock of the
company.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" CONTAINED
IN THIS PROSPECTUS, BEGINNING ON PAGE 5.
THE SECURITIES AND EXCHANGE COMMISSION HAS NEITHER 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
Underwriting Proceeds to
Price to Discount and Issuer or Other
Public Commissions Persons
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Per Unit $1.00US $0 $1.00US
Total $800,000 $0 $800,000
Distribution Spread for Shares offered by the Selling Security Holder
Underwriting Proceeds to
Price to Discount and Issuer or Other
Public(1) Commissions(2) Persons(3)
-------- ----------- ---------
Per Unit Unknown n/a Unknown
Total Unknown n/a Unknown
(1) The 200,000 shares are being sold by the selling security holder and no
offering price to the public has been determined. The selling security
holder may sell his shares in separate transactions at prices to be
negotiated at the time of sale.
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(2) The shares are being sold by the selling security holder and the company
has no agreements or understandings with any broker or dealer for the sale of
such shares. The selling security holder may determine to 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, the company will file a post-effective
amendment identifying such broker-dealer(s).
(3) Proceeds will go to the selling security holder. The company will
receive no proceeds from the sale of the shares.
Approximate date of proposed sale to the public: As soon as practicable
following effectiveness of
the Registration Statement.
Closing date: May 31, 2000, for the offering by the company; open for the
offering by the selling security holder.
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TABLE OF CONTENTS
PROSPECTUS COVER PAGE 2
PROSPECTUS SUMMARY 6
RISK FACTORS 6
PLAN OF DISTRIBUTION 11
DILUTION 11
USE OF PROCEEDS 12
NORTHSTAR'S BUSINESS 13
MANAGEMENT'S DISCUSSION PLAN OF OPERATIONS 18
CHANGES IN OR DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 18
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN
SECURITY OWNERS 19
DIRECTOR'S OFFICERS AND SIGNIFICANT EMPLOYEES 21
REMUNERATION OF DIRECTORS AND OFFICERS 23
INTEREST OF MANAGEMENT AND OTHERS IN
CERTAIN TRANSACTIONS 24
INDEMNIFICATION OF OFFICERS AND DIRECTORS 25
DESCRIPTION OF SECURITIES 25
LITIGATION 26
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PROSPECTUS SUMMARY
THE ISSUER: Northstar Electronics, Inc., a Delaware corporation("Northstar").
Northstar 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 the
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: May 31, 2000, for the 800,000 shares offered by the company and
an open closing for the 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.
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WE FACE MANY RISKS, INCLUDING THE FOLLOWING:
- - Prior to 1996, we were strictly a research and development operation with
no revenue. We began manufacturing and selling the NETMIND system in late
1996 but 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.
- - We plan to expand our sales, manufacturing, marketing operations and
business development efforts 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.
- - We are unable to precisely forecast our revenues because we have neither a
developed distribution chain nor an established customer base. As a
result, we may experience difficulties paying for parts and fulfilling
orders if we have smaller than expected revenues. Difficulties matching
revenues and expenses could result in poor relationships with our
suppliers and our customers and thereby impedes our ability to grow the
company into a profitable enterprise.
- - We have limited experience with sales of our products and misjudgments
regarding pricing, service or marketing due to such inexperience could be
damaging to the ability of the company to stay in business.
INADEQUATE MANUFACTURING PERFORMANCE COULD DAMAGE OUR BUSINESS.
Manufacturing is an essential part of our operations and carries many risks,
including the following:
- - Monthly sales volumes have been inconsistent and we have little experience
in regularly producing a large number of NETMIND systems. A large number
of orders over a short period of time could result in production delays
and possible loss of business because of resulting delays in delivery. On
the other hand, hiring more employees to fulfill an increase in orders, if
such an increase were to occur, could leave the company with additional
costs if the increase in orders proved temporary.
- - Our contract manufacturing operations are inexperienced and have no proven
track-record of delivering completed products meeting quality control
standards. Staff underwent training by Lockheed Martin in assembly and
testing submarine control consoles but they have not yet built any
themselves. Our staff will have to test, assemble and deliver 11 consoles
by August, 2000. Unanticipated technical or quality control problems
could delay payments from Lockheed Martin that could cause us financial
problems.
- - 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 could adversely
effect the company's operations.
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LOSS OF KEY PERSONNEL COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS.
Because we are a relatively new company with a limited operating history and
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. Examples of
problems this could cause are as follows:
- - Loss of Wilson Russell, our company president, could slow down new
business development and impede the company's ability to raise the money
it requires;
- - Loss of James Hall, our production manager, could slow NETMIND system
production for the time it would take to fill that post.
- - Loss of Brian Gamberg, our senior engineer, could impede the development
of new products.
- - Inability to hire new or additional electronic engineers, technicians and
management could impede our ability to produce additional products to meet
any increased demand that the company might develop through its marketing
efforts or limit our ability to keep up to date with our research and
development efforts.
WE COULD FACE POSSIBLE DEFAMATION CLAIMS RELATED TO OPERATING A COMMERCIAL
INTERNET SITE.
We operate a company web-site on which we put advertising literature without
specific review by an in-house lawyer. We could be subject to claims for
defamation, negligence, copyright, or trademark infringement among other
claims related to the content we publish.
COMPUTER VIRUS COULD CAUSE LOST REVENUES.
Computer operations at our manufacturing plant are vulnerable to viruses,
break-ins or other interference. This could result in extra costs and lead
to disruptions to our computerized inventory ordering system, which would
delay manufacturing and lead to possible delays or losses in revenue.
COMPETITION COULD LIMIT POTENTIAL FOR GROWTH OF SALES OF THE NETMIND PRODUCT.
Our NETMIND system is sold into a highly competitive marketplace. Some of the
risks we face include the following:
- - Existing strong competitors, such as Furuno and Scanmar, already are
operating in the same market, have long operating histories and large
customer bases. Their greater financial and marketing resources would
enable them to respond more quickly to changes in customer preferences than
Northstar. These companies also would be able to mount vigorous marketing
campaigns or adopt aggressive pricing policies.
- - New competitors could emerge in our field and rapidly acquire market share.
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NORTHSTAR'S LACK OF INTERNATIONAL MARKETING EXPERIENCE COULD LIMIT GROWTH OF
POTENTIAL NETMIND SALES.
The NETMIND system will be marketed globally. We will therefore need to
adapt our operations to a variety of market locations, yet we have little
experience in this area. Failure to properly tailor business practices to
diverse cultures could result in weak sales outside North America and weaken
the company's bottom line.
OTHER COMPANIES MAY CLAIM THAT WE HAVE INFRINGED THEIR INTELLECTUAL PROPERTY
RIGHTS.
Challenges by competitors or other parties to the scope and validity of our
intellectual property rights to the NETMIND system may be damaging to the
company. We cannot predict the outcome of such possible challenges before
the relevant administrative bodies or courts. However, any challenges would
result in extra costs and would be time-consuming. They could cause delays
in NETMIND production. We might also have to enter in to royalty or
licensing agreements so we could continue to produce NETMIND systems.
YEAR 2000 RISKS.
Date sensitive software could misinterpret the year 2000 as 1900. We have
gotten confirmation from our key third-party vendors that they are Y2K ready
and we have completed a Y2K compliance program. Still, it is possible that
computer problems could occur in our manufacturing plant causing delays and
delivery problems with our products. See Exhibit 99.3 for our Y2K Compliance
Statement Contingency Plan and Disaster Recovery Plan.
NEGLIGENCE OF OUR DIRECTORS AND OFFICERS COULD CAUSE DAMAGE TO NORTHSTAR'S
REPUTATION OR CAUSE FINANCIAL LOSSES.
Our directors and officers do not have liability to the company for mistakes,
errors of judgment or acts of omission unless they are committed fraudulently
or in bad faith, or constituted a violation of a director or officer's
fiduciary duty or constituted gross negligence. Any negligence on the part
of our directors and officers could harm Northstar's reputation or result in
financial losses.
NO DIVIDENDS MAY BE DECLARED AND NORTHSTAR'S SHARE VALUE MAY BE LOWER THAN
THE OFFERING PRICE.
Risks related to the declaration of dividends and the value of our shares
include the following:
- - Northstar may not become profitable for five years or more, if ever. In
that event, or in the event of low profitability, we would not pay
dividends on common shares and the value of the stock may suffer.
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- - We may also choose to use any profit to fund business activities such as
debt payment, capital improvements, creation of a cash reserve, employee
compensation, new product development, NETMIND marketing activities or
contract manufacturing business development, rather than declare a
dividend to the shareholders.
- - We arbitrarily set the offering price at $1 per common share - a value not
based on any specific recognized criteria or value. This figure could be
shown in time to be unrealistically high.
- - Any new issuance of common shares would devalue existing shares. 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. All these activities may have the
effect of diluting the value of shares purchased under this offering.
- - New investors will suffer an immediate dilution of their investment based
on the book-value of the common shares they purchase. See the dilution
section for a reference table.
POSSIBLE FISHING AND DEFENSE INDUSTRY DOWNTURNS COULD HURT NETMIND SALES AND
CONTRACT MANUFACTURING OPPORTUNITIES.
Northstar is currently reliant on two industries, fishing and defense. We
face considerable risks because of the ups and downs of these particular
industries.
- - We currently produce a single product, NETMIND, which is reliant on a
single industry, fishing. The industry has operational fluctuations and
results in vulnerability to the company's operations.
- - While the product is designed to be a conservation tool, in some parts of
the world, catch quotas are so small, fishermen would not find the
conservation aspect of NETMIND helpful.
- - Price fluctuations for individual species of fish can result in low
fishing revenue, making it impossible for fishermen to afford a NETMIND
purchase. Fishing moratoriums occasionally imposed by governments also
would obviously adversely affect NETMIND sales.
- - We could be undertaking business development activities, we may not
ultimately be able to capitalize on. Downturns in the defense industry
occur from time to time; this in turn could hurt our contract
manufacturing operations. In fact, since the end of the Cold War, most
NATO countries - our target market - have cut their defense budgets.
Defense contractors are diversifying into civilian markets, producing for
example, oil and gas technology. In the U.S. and Canada, defense
production prospects still look good but future business opportunities may
not materialize for Northstar.
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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 THE NETMIND
BUSINESS.
NETMIND is our only commercial product and the success of the company 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.
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 effect the ability of the company 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.
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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.
DILUTION
The net tangible book value of the company, as of September 30, 1999 was
($380,017) or approximately ($0.05) 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 $419,983 or approximately $0.05
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 $0.95 per share, or approximately 95% to
new investors. The dilution factors are summarized as follows:
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ASSUMING MAXIMUM SHARES SOLD
Offering Price (before deduction of operating expenses): $1.00 per share
Net tangible book value before offering: ($0.05) per share
Net tangible book value after offering: $0.05 per share
Dilution to new investors: $0.95 per share
Dilution as a percentage: 95%
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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
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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.
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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 Seaboard, 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
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Total $200,000 $400,000 $550,000
If only minimal proceeds, that is 25% are raised, or less we 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
mean of raising the funds, and as of yet, we have no plans in place.
If our efforts to obtain financing are unsuccessful, Northstar's growth, if
any, will likely be funded from operating cash flow.
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: Northstar maintains its principal corporate offices at
#1455-409 Granville Street, Vancouver, British Columbia, Canada V6C 1T2.
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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 partial
development of the technology.
NTI has since spent over $1,850,000 to complete the development and
commercialize of the NETMIND system and establish 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 (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 to Lockheed Martin by August 2000.
Lockheed Martin will provide to NTI the parts list, supplier list, testing
instructions and assembly instructions. Payment is subject to inspection for
final acceptance by Lockheed 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 back to a receiver on board
a ship or oil production platform.
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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. Three
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' sales, for
example, number of employees, research and development spending, and overall
financial condition. It is believed 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.
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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 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 six-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 may be submitted. 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). 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.
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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
which 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, oceanographic, and
environmental industries. The possibilities include docking systems for large
ocean going ships, positioning systems for oil and gas drilling platforms,
acoustic measurements of ocean currents, and diver to diver communications
for the recreational diving industry. NTI would likely look to strategic
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 $1,850,000 to complete
the development and commercialization of the NETMIND system. NPMC Ltd., has
also spent over $1,740,000 on system development. 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. The federal
Government of Canada has provided support totaling approximately $400,000 in
the form of research grants and interest free loans through the National
Research Council and the Atlantic Canada Opportunities Agency.
PROJECTED REVENUES: NTI anticipates revenues of approximately $2.0 million in
the first year following completion of the offering based on the existing
work mentioned earlier.
PLANT EQUIPMENT AND OPERATIONS: The manufacturing plant is located in St.
John's, Newfoundland. The plant, approximately 3,000 square feet in area, 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 by a local
mechanical shop. The assemblies are then incorporated into the molding of
plastic housings produced in-house.
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EMPLOYEES: As of November 30, 1999, Northstar had fourteen full-time
employees and three part-time engineering consultants. None of Northstar's
employees are represented by a labour 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 its future success will depend in
part on its continued ability to attract, hire and retain qualified
personnel.
MANAGEMENT'S DISCUSSION PLAN OF OPERATIONS
NTI's wholesale revenues were $154,496 for the nine months ending September
30, 1998 and $321,013 for the nine months ending September 30, 1999. The
gross profit for the nine months ending September 30, 1998 was 35% and 65%
for the nine months ending September 30, 1999. Expenses totaled $264,834 for
the nine months ended September 30, 1998 and $396,753 for the nine months
ended September 30, 1999. Dividends of $28,763 were paid on Northstar's
preference shares in 1998. These shares have been fully redeemed or converted
to common shares. Northstar's assets as of September 30, 1999 totaled
$401,553 and its current liabilities totaled $113,810. Long-term debt of
$526,061 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 $141,699 with no
fixed terms of repayment. Northstar has an accumulated deficit of $1,404,286
as of September 30, 1999. The amount spent on research and development in
the last two fiscal years was $258,196. The amount of receivables
subsequently collected in cash, after September 1999, was $131,573.
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.
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, Smythe Ratcliffe, to carry out
future audits. No consultations have been made, to date, with this firm.
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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 common stock outstanding, by the selling security holder
and by the officers and directors of the company as a group. Except as
otherwise indicated, all stocks are owned directly.
Title of
Class Name and % of Number of Shares
% of Shares Address of Number Shares
After Beneficial of Before Before After
Offering(2) Owner Shares Offering Offering Offering
- ----------- ------------ ------- -------- -------- --------
Common Stock Frank Power 990,000 13.37% 990,000 11.78%
998 Riverside Dr.
Port Coquitlam, BC
Canada V3B 7Y4
Common Stock Wilson Russell 964,983 13.03% 964,883 11.48%
4742 Collingwood St.
Vancouver, BC
Canada V6S 2B4
Common Stock Lee Meyer 100,000 1.35% 100,000 1.19%
9629 Alene Drive
Tujunga, CA 91042
Common Stock Ladner Enterprises 597,900 8.08% 597,900 6.35%
Ltd. (3)
60 Market Square
P.O Box 364
Belize City
Belize, C.A.
Common Stock Adventure Capital 533,633 7.02% 533,633 7.11%
Inc.
9 Power Place
St. John's NFLD,
Canada
Common Stock Dr. Michel 400,000 5.26% 200,000 2.38%
Ghanadian (5) (5)
CH. Didotai 10
1223 Cologny,
Switzerland
Common Stock Monaco Ventures 1,000,000 13.51% 1,000,000 11.90%
Ltd. (3)
60 Market Square
P.O Box 364
Belize City
Belize, C.A.
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Common Stock London Enterprises 700,000 9.45% 700,000 8.33%
Ltd. (3)
60 Market Square
P.O Box 364
Belize City
Belize, C.A.
Common Stock All officers and 2,054,883 27.02% 2,054,883 24.45%
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.
(3) The beneficial owners of Ladner Enterprises Ltd., Monaco Ventures,
Adventure Capital, Inc., and London Enterprises Ltd., are:
LADNER, Mr. Sean Iles, Leslie Lewis Building, Mount Tout, Grand
Anse, St. George's W.I.
ADVENTURE, Dr. Carl Wesolowski, 9 Power Place, St. John's
Newfoundland, Canada
MONACO, Ms. Brenda McKay, Suite 71, Grand Anse, St. George's W.I.
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.
The following directors and officers of Northstar have been granted options
to purchase shares of Northstar's stock as follows:
Option Price
Optionee Position Options 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
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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 Office
--------------- ------
Dr. Wilson Russell President and Principal Financial Officer
Mr. Frank Power Vice-President
As a Delaware corporation, the final responsibility for management of the
affairs of the Company Northstar rests with the board of directors. The board
currently consists of three directors. Those directors are elected at an
annual meeting of 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 adopt or confirm
any resolutions 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. After starting his own consulting and technology development
firm in 1983, Dr. Russell has also managed preparation of a development plan
for the $6 billion Hibernia development which 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 fibre 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
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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 has also been the director and
president of Cabot Management Ltd. since 1989. 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 June 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
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 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 a 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 48 Senior Electronics Engineer
Mr. James Hall 33 Electronics Technologist/
Production Manager
Ms. Philomena Kavanagh 43 Office Manager
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Dr. David Buttle: 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: 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: Ms. 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 NTI's
financial and product shipment administration.
REMUNERATION OF OFFICERS AND DIRECTORS
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 September 30, 1999. No other
compensation was paid to any such officer or director other than the cash
compensation set forth below:
Summary Compensation Table
Capacities in which Aggregate
Name of Individual(s) Remuneration was Received Remuneration
- -------------------- ------------------------- ------------
Dr. Wilson Russell Director, President and $16,300
Principal Financial Officer
Mr. Frank Power Director and Vice-President $14,000
Mr. Lee Meyer Director N/L
Directors and Officers
of Northstar as a Group $30,300
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The compensation paid to the President is believed by Northstar to be below
market rates for services provided by the directors and officers, having
regard to their experience and qualifications. 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, shouldd 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.
INTERESTS 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 "SEE EXHIBIT 10.2": Northstar completed
an offering of 363,000 shares on January 26, 1999. The proceeds of the
offering were US$363,000.
ACQUISITION OF NTI "SEE EXHIBIT 10.2": 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
acquisition, NTI had a 10% loan payable to Pathfinder Enterprises, Inc. in
monthly interest payments only to July 5, 2002 secured by a floating charge
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, "See Exhibit 10.2", 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:
(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 .
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<PAGE>
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 web-site
that contains reports, proxies 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 ("the Act") 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 and 20,000,000 shares of preferred stock, par
value $0.0001 per share. 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 the Company
Northstar's articles of incorporation.
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<PAGE>
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 the Company 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 tot he common stock. All outstanding shares of
common stock are fully paid and non-assessable.
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.
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NORTHSTAR ELECTRONICS, INC.
(800,000 SHARES OF COMMON STOCK)
PROSPECTUS
Until May 31, 2000 (90 days after the date of this prospectus) all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a prospectus.
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 ("the Act") 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
statement and prospectus 1,500
Miscellaneous costs and expenses 2,000
------
Total $55,687
ITEM 3: UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (`the Act') 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.
-27-
<PAGE>
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 ONEYEAR
The date, title and amount of unregistered securities sold by Northstar,
formerly Scientific Technologies, Inc., are as follows:
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.
Total commissions: $30,700
Net Proceeds: $332,300
Commissions paid to: Rogers and Partners Securities Inc. and to an
unrelated party, Big 8 Management Ltd., as an introduction fee.
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.
-28-
<PAGE>
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. The
statutory exemption that Northstar relied on is Section 4(2) of the
United States Securities Act of 1933, as amended. 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 the 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
Commission paid to: unrelated party, Big 8 Management Ltd. as an
introduction fee.
Net proceeds: $180,000
Name of Purchaser: See Exhibits
Exemption from registration: The exemption that Northstar relied on was
Regulation S of the United States Securities Act of 1933. All persons
were defined as non-US persons.
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 (4 items)
3.2 ** Opinion Regarding Legality of Shares
10.10 * Business and Financials
10.11 * i) 03/31/97 Unaudited Consolidated NEI
10.12 * ii) 12/31/98 Unaudited Consolidated NEI
10.13 * iii) 09/30/99 Unaudited Consolidated NEI
10.14 * iv) 03/31/98 Audited Financial Statements NTI
10.15 * v) 12/31/98 Audited Financial Statements NTI
10.16 * vi) Consent of Independent Auditors
-29-
<PAGE>
10.20 ** Sales Contracts
10.21 ** 04/06/95 ACOA Project 600-403-1828-1 Contribution Agreement
10.22 ** 05/18/95 NRC Letter of Agreement #03978E
10.23 ** 10/23/95 NRC Contribution Agreement #04132E
10.24 ** 11/15/95 Teaming Agreement with LORAL Librascope
10.25 ** 02/09/96 ACOA Project 600-4024021-1 Contribution Agreement
10.26 ** 12/19/96 NRC Contribution Agreement #04702E
10.27 ** 04/10/97 ACOA Business Development Program Contribution
Agreement
10.28 ** 11/28/97 NRC Contribution Agreement #05100E
10.29 ** 10/28/97 Sales Agreement with Lockheed-Martin
10.30 ** 09/24/99 Sales Agreement with NOAA
10.31 ** 10/18/99 Sales Agreement with Lockheed-Martin
10.40 ** 05/18/98 STI-Private Placement Memorandum (with attachments)
10.41 ** 06/03/98 STI-Private Placement Offering Memorandum (with
attachments)
10.42 ** 10/30/98 STI-Private Placement Offering Memorandum (with
attachments)
23.1 ** Lease Agreements
23.11 ** 05/28/99 Lease Agreement NTI and Par Holdings, Ltd.
23.12 ** 10/01/99 Lease Agreement Northstar Electronics, Inc. and
Morguard
99.1 ** Disclosure Statement
99.2 ** Subscription Agreement
99.21 ** Agreement for Sale of Shares
99.3 ** Y2K Issues
- --------------------
* Filed Herewith
** Previously Filed with Submission
-30-
<PAGE>
ITEM 6. DESCRIPTION OF EXHIBITS
Exhibit No. Title of Document
3.10 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 (4 items)
3.2 Opinion Regarding Legality of Shares
10.1 Business and Financials
10.11 i) 03/31/97 Unaudited Consolidated NEI
10.12 ii) 12/31/98 Unaudited Consolidated NEI
10.13 iii) 09/30/99 Unaudited Consolidated NEI
10.14 iv) 03/31/98 Audited Financial Statements NTI
10.15 v) 12/31/98 Audited Financial Statements NTI
10.16 vi) Consent of Independent Auditor
10.2 Sales Contracts
10.21 04/06/95 ACOA Project 600-403-1828-1 Contribution Agreement
10.22 05/18/95 NRC Letter of Agreement #03978E
10.23 10/23/95 NRC Contribution Agreement #04132E
10.24 11/15/95 Teaming Agreement with LORAL Librascope
10.25 02/09/96 ACOA Project 600-4024021-1 Contribution Agreement
10.26 12/19/96 NRC Contribution Agreement #04702E
10.27 04/10/97 ACOA Business Development Program Contribution
Agreement
10.28 11/28/97 NRC Contribution Agreement #05100E
10.29 10/28/97 Sales Agreement with Lockheed-Martin
10.30 09/24/99 Sales Agreement with NOAA
10.31 10/18/99 Sales Agreement with Lockheed-Martin
10.40 05/18/98 STI-Private Placement Memorandum (with
attachments)
10.41 06/03/98 STI-Private Placement Offering Memorandum (with
attachments)
10.42 10/30/98 STI-Private Placement Offering Memorandum (with
attachments)
-31-
<PAGE>
23.1 Lease Agreements
23.11 05/28/99 Lease Agreement NTI and Par Holdings, Ltd.
23.12 10/01/99 Lease Agreement Northstar Electronics, Inc. and
Morguard
99.1 Disclosure Statement
99.2 Subscription Agreement
99.21 Agreement for Sale of Shares
99.3 Y2K Issues
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 January 24, 2000.
By: /s/ Dr. Wilson Russell
/s/ Wilson Russell, Phd
- -----------------------------------
Dr. Wilson Russell, President
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
Date: 01/24/00
/s/ Frank Power
-------------------------------
Frank Power, Director
Date filed: January 24, 2000
SEC File No. __________
-32-
(Northstar Technical Inc. Letterhead)
MEMO
TO: Mark Small
FROM: Don Vokey
DATE: January 12, 2000
RE: Comments for Inclusion in Registration Statemet Form SB-1
Dear Mark - We have filed with the U.S. Securities and Exchange Commission
to have our company become a fully reporting company. We would like to use
your quote as testimonial to the success we have experienced. Would you
please indicate your willingness to do this by signing on the line below
and faxing it back to us at 709-738-6443. Thanks for your generosity and
if you have any questions please call me at our toll free number 877-738-
6440.
"NETMIND is an invaluable piece of equipment on my boat. An average trip
without NETMIND onboard would take 20 tows. With NETMIND, an average trip
takes 14 tows OR LESS. The results are faster trips, fresher shrimp, and a
substantial savings on fuel."
- Mark Small, Owner, Patricia S -
I agree with the above statement and hereby give my permission for Northstar
Electronics, Inc. to use it in their Registration Statement Form SB-1 to the
U.S. Securities and Exchange Commission.
/s/ Mark Small
---------------------
Mark Small
<PAGE>
(Northstar Technical Inc. Letterhead)
MEMO
TO: Lionel House
FROM: Don Vokey
DATE: January 12, 2000
RE: Comments for Inclusion in Registration Statemet Form SB-1
Dear Lionel - We have filed with the U.S. Securities and Exchange Commission
to have our company become a fully reporting company. We would like to use
your quote as testimonial to the success we have experienced. Would you
please indicate your willingness to do this by signing on the line below
and faxing it back to us at 709-738-6443. Thanks for your generosity and
if you have any questions please call me at our toll free number 877-738-
6440.
"NETMIND is a wonderful system and very easy to use. Since we have had it
on our vessel, the "Cape Fintose", we have improved our catch rate and
significantly reduced trawl damage."
- Lionel House, Owner, Cape Fintose -
I agree with the above statement and hereby give my permission for Northstar
Electronics, Inc. to use it in their Registration Statement Form SB-1 to the
U.S. Securities and Exchange Commission.
/s/ Lionel House
---------------------
Lionel House
<PAGE>
(Northstar Technical Inc. Letterhead)
MEMO
TO: Dennis McCarthy
FROM: Don Vokey
DATE: January 12, 2000
RE: Comments for Inclusion in Registration Statemet Form SB-1
Dear Dennis - We have filed with the U.S. Securities and Exchange Commission
to have our company become a fully reporting company. We would like to use
your quote as testimonial to the success we have experienced. Would you
please indicate your willingness to do this by signing on the line below
and faxing it back to us at 709-738-6443. Thanks for your generosity and
if you have any questions please call me at our toll free number 877-738-
6440.
"The NETMIND Trawl Management System is essential to the succuess of our
modern fishery. Improved quality and the conservation of our fish stocks
are two of the reasons why I purchased NETMIND. The system also enhances
efficiency when towing and reduces gear damage. This results in larger
catches and increased profits."
- Dennis McCarthy, Owner, Bacalieu Challenger II -
I agree with the above statement and hereby give my permission for Northstar
Electronics, Inc. to use it in their Registration Statement Form SB-1 to the
U.S. Securities and Exchange Commission.
/s/ Dennis McCarthy
---------------------
Dennis McCarthy
<PAGE>
(Northstar Technical Inc. Letterhead)
MEMO
TO: Bill Winter
FROM: Don Vokey
DATE: January 12, 2000
RE: Comments for Inclusion in Registration Statemet Form SB-1
Dear Bill - We have filed with the U.S. Securities and Exchange Commission
to have our company become a fully reporting company. We would like to use
your quote as testimonial to the success we have experienced. Would you
please indicate your willingness to do this by signing on the line below
and faxing it back to us at 709-738-6443. Thanks for your generosity and
if you have any questions please call me at our toll free number 877-738-
6440.
"I have nothing but the graetest respect for the staff at Northstar Technical.
The performance of the NETMIND System has proven to be of the highest quality
and I would most definitely recommend it to anyone. Since using NETMIND we
have improved the quality of our product and increased our efficiency
dramatically."
- Bill Winter, Owner, Tri Con Commander -
I agree with the above statement and hereby give my permission for Northstar
Electronics, Inc. to use it in their Registration Statement Form SB-1 to the
U.S. Securities and Exchange Commission.
/s/ William Winter
---------------------
Bill Winter
FINANCIAL STATEMENTS
The following sections comprise the audited and unaudited financial statements
of Northstar Electronics, inc. and its wholly owned subsidiary Northstar
Technical, Inc.
Index to Financials:
EX-10.11 i) Northstar Electronics Inc. Unaudited Consolidated Financial
Statements for the period ended 3/31/97.
EX-10.12 ii) Northstar Electronics Inc. Unaudited Consolidated Financial
Statements for the period ended 12/31/98.
EX-10.13 iii) Northstar Electronics Inc. Unaudited Consolidated Financial
Statements for the period ended 9/30/99.
EX-10.14 iv) Northstar Technical Inc. Audited Financial Statements for the
period ended 3/31/98, along with Auditors' Report.
EX-10.15 v) Northstar Technical Inc. Audited Financial Statements for
the period ended 12/31/98, along with Auditors' Report.
EX-10.16 vi) Consent of Independent Auditors'
- ---------------------------------------------------------------------------
NORTHSTAR ELECTRONICS INC.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(U.S. Dollars)
(Unaudited)
December 31, 1997
CONTENTS Page
Interim Consolidated Income Statement 1
Interim Consolidated Statement of Cash Flows 2
<PAGE>
NORTHSTAR ELECTRONICS INC.
INTERIM CONSOLIDATED INCOME STATEMENT
(U.S. Dollars)
(Unaudited)
NINE MONTHS ENDED DECEMBER 31, 1997
Sales $158,066
Cost of goods sold 48,723
-------
Gross profit 109,343
Expenses
Business tax 1,496
Depreciation 4,246
Dues, fees and licenses 1,063
Insurance 1,323
Interest and bank charges 32,595
Lab expenses 5,000
Marketing 8,668
Office and miscellaneous 17,130
Professional fees 22,106
Rent 24,914
Salaries/wages/employee benefits 105,804
Travel 27,683
Research and development cost 23,532
Contract manufacturing cost 28,218
-------
303,778
-------
Net loss (194,435)
Deficit, beginning of period (740,781)
-------
(935,216)
Add: Discount earned on redemption of
Class A preference shares 16,000
-------
Deficit, end of period $(919,216)
========
<PAGE>
NORTHSTAR ELECTRONICS INC.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
(U.S. Dollars)
(Unaudited)
NINE MONTHS ENDED DECEMBER 31, 1997
Cash provided by (used in)
Operations
Net loss $(194,435)
Depreciation 4,246
Net change in non-cash working capital items 82,174
-------
(108,015)
-------
Financing activities
Proceeds from issuance of shares 117,781
Proceeds from long term debt 17,334
Advances to Cabot Management Limited (2,977)
Advances from shareholder 4,967
Discount on redemption of preference shares 16,000
-------
153,105
-------
Investing activities
Purchase of capital assets (8,245)
Net change in cash resources 36,845
Cash, beginning of period (1,399)
-------
Cash, end of period $35,446
=======
NORTHSTAR ELECTRONICS INC.
CONSOLIDATED FINANCIAL STATEMENTS
(U.S. Dollars)
(Unaudited)
December 31, 1998
CONTENTS Page
Consolidated Balance Sheet 1
Consolidated Income Statement 2
Consolidated Statement of Shareholders Equity 3
Consolidated Statement of Cash Flows 4
Notes to Consolidated Financial Statements 5
<PAGE>
NORTHSTAR ELECTRONICS INC.
CONSOLIDATED BALANCE SHEET
(U.S. Dollars)
(Unaudited)
December 31, 1998
December 31, March 31,
1998 1998
------- -------
ASSETS
Current
Cash $2,231 $2,553
Receivables 99,055 152,035
Inventory and work in progress 37,519 63,638
Prepaid expenses 1,513 2,751
------- -------
140,318 220,977
Capital assets 17,016 18,489
------- -------
$157,334 $239,466
======= =======
LIABILITIES
Current
Payables and accruals $167,541 $133,037
Loans payable 116,039 92,527
------- -------
283,580 225,564
Long term debt (Note 2) 476,897 476,897
Loans payable to Cabot Management Limited 92,226 91,020
Loans payable to shareholder 80,246 55,735
------- -------
932,949 849,216
Contingent liability (Note 4)
SHAREHOLDERS' EQUITY
Share capital (Note 3) 440,069 403,582
Deficit (1,215,684) (1,013,332)
------- -------
(775,615 (609,750)
------- -------
$157,334 $239,466
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
NORTHSTAR ELECTRONICS INC.
CONSOLIDATED INCOME STATEMENT
(U.S. Dollars)
(Unaudited)
NINE MONTHS ENDED DECEMBER 31, 1998
Nine Months Year
Ended Ended
December 31, March 31,
1998 1998
----------- -------
Sales $168,377 $181,754
Cost of goods sold 98,103 93,927
------- -------
Gross profit 70,274 87,827
Expenses
Business tax 833 1,973
Depreciation 4,662 10,611
Insurance 1,226 1,351
Interest and bank charges 39,287 48,106
Lab expenses 2,482 3,000
Marketing 5,061 14,651
Miscellaneous - 2,570
Office expenses 27,573 2,362
Professional fees 11,425 23,531
Rent 10,898 25,123
Salaries/wages/employee benefits 75,030 44,661
Organizational cost 38,000 -
Commitment fees 10,000 -
Research and development cost 10,527 101,664
Contract manufacturing cost 35,622 68,587
------- -------
272,626 348,190
Net loss (202,352) (260,363)
Deficit, beginning of period (1,013,332) (740,781)
------- -------
(1,215,684) (1,001,144)
Less: Dividends paid, net of discount
earned, on preference shares - (12,188)
------- -------
Deficit, end of period $(1,215,684) $(1,013,332)
Net loss per share $(0.09) $ -
Weighted average number of common
shares outstanding 2,140,000 -
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
NORTHSTAR ELECTRONICS INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
(U.S. Dollars)
(Unaudited)
NINE MONTHS ENDED DECEMBER 31, 1998
Additional Total
Common Shares Paid-In Shareholders
Number Amount Capital Deficit Equity
------ ------ ------- ------- ------
Balance,
March 31, 1998 - $ - $403,582 $(1,013,332) $(609,750)
Common shares issued
for cash at $0.0025
per share 2,040,000 204 4,896
Common shares issued
for cash at $0.25
per share 100,000 10 24,990
Stock offering costs - - (5,000)
Additional paid up
capital received in
wholly owned
subsidiary - - 11,387
Net loss -
December 31, 1998 - - - (202,352)
------ ------ ------- ------- ------
Balance,
December 31, 1998 2,140,000 $214 $439,855 $(1,215,684) $(775,615)
The accompanying notes are an integral parts of these consolidated
financial statements.
<PAGE>
NORTHSTAR ELECTRONICS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(U.S. Dollars)
(Unaudited)
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 $(202,352) $(260,363)
Depreciation 4,662 10,611
Net change in non-cash
working capital items 138,352 6,957
---------- --------
(59,338) (242,795)
---------- --------
Financing activities
Proceeds from issuance
of common shares 36,487 396,858
Proceeds from long term debt - 86,677
Advances from Cabot Management
Limited 1,206 3,796
Advances from shareholder 24,512 46,695
Repayment of long term debt - (20,000)
Discount on redemption of
preference shares - 16,000
Redemption of preference shares - (56,000)
Payment of dividends on preference
shares - (28,188)
Conversion of Class C preference
shares - (191,555)
---------- --------
62,205 254,283
---------- --------
Investing activities
Purchase of capital assets (3,189) (7,536)
---------- --------
Increase in cash (322) 3,952
Cash, beginning of period 2,553 (1,399)
---------- --------
Cash, end of period $2,231 $2,553
========== ========
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
NORTHSTAR ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. Dollars)
(Unaudited)
December 31, 1998
1. Basis of presentation
These unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United
States. 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
financial statements, Northstar Electronics Inc. and the subsidiary
Northstar Technical Inc., filed as part of the Company's Registration
Statement 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 December 31, 1998 and the consolidated
results of operations and the consolidated statement of cash flows for the
nine months ended December 31, 1998.
2. Long term debt
December March
31, 31,
1998 1998
-------- --------
10% loan payable to Pathfinder Enterprises
Inc. in monthly interest payments only
to July 5, 2002 $160,000 $160,000
ACOA (Federal Government Agency) interest
free loan repayable in sixty monthly and
consecutive instalments of $2,170 130,221 130,221
ACOA (Federal Government Agency) interest
free loan repayable in twenty-four monthly
and consecutive instalments of $4,167 100,000 100,000
ACOA (Federal Government Agency) interest
free loan payable in 36 monthly and
consecutive instalments of $4,373 beginning
when full loan draw down is received.
Secured by postponements on Cabot Management
Limited's loan of $87,224 and a shareholder's
loan of $ 12,707. 86,676 86,676
-------- --------
$476,897 $476,897
3. Capital stock
December March
31, 31,
1998 1998
-------- --------
Authorized
20,000,000 preferred shares at $0.0001 par value
100,000,000 common shares at $0.0001 par value
Issued and outstanding
2,140,000 common shares $214 $ -
Additional paid in capital 439,855 403,582
-------- --------
$440,069 $403,582
On May 11, 1998 the company issued 40,000 common shares to an officer of the
company at $0.0025 per share. Proceeds were $100.
The company completed a 504 offering of 2,000,000 shares of its common stock
at $ 0.0025 per share. Proceeds from this offering were $5,000.
Also the company completed a subsequent 504 offering for 100,000 shares of
its common stock at $0.25 per share. Proceeds from this offering were $25,000.
The company has not issued any additional shares since the above 504 offerings
which were completed in July, 1998.
4. 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 counterclaim 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.
5. Subsequent event
On January 26, 1999 the reverse acquisition merger between Northstar
Electronics Inc. and Northstar Technical Inc. was completed which resulted
in Northstar Technical Inc. becoming a wholly owned subsidiary of Northstar
Electronics Inc.
Northstar Electronics Inc. was incorporated on May 11, 1998 and had no
operations other than organizational activities prior to the January 26, 1999
merger.
NORTHSTAR ELECTRONICS INC
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(U.S. Dollars)
(Unaudited)
September 30, 1999
CONTENTS
Page
Interim Consolidated Balance Sheet 1
Interim Consolidated Income Statement 2
Interim Consolidated Statement of Shareholders Equity 3
Interim Consolidated Statement of Changes in Cash Resources 4
Notes to Interim Consolidated Financial Statements 5
<PAGE>
NORTHSTAR ELECTRONICS, INC.
INTERIM CONSOLIDATED BALANCE SHEET
(U.S. Dollars)
(Unaudited)
September 30, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS (Note 4)
September 30, December 31,
1999 1998
Current
Cash $13,471 $2,231
Receivables 275,229 99,055
Inventory 83,029 37,519
Prepaid expenses 4,393 1,513
------- -------
376,122 140,319
Capital Assets 25,431 17,016
------- -------
$401,553 $157,335
LIABILITIES
Current
Payables and accruals $86,784 $167,541
Loans payable 27,026 116,039
113,810 283,580
Long term debt (Note 2) 526,061 476,897
Loans payable to Cabot Management Limited 77,959 92,226
Loans payable to shareholder 63,740 80,246
Contigent liabilites (Note 5) -0- -0-
------- -------
Total Liabilites 781,570 932,949
SHAREHOLDERS' EQUITY
Share Capital (Note 3) 1,003,069 440,069
Deficit (1,383,086) (1,215,684)
(380,017) (775,615)
$401,553 $157,334
</TABLE>
<PAGE>
NORTHSTAR ELECTRONICS, INC.
INTERIM CONSOLIDATED INCOME STATEMENT
(U.S. Dollars)
(Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
(Note 4)
Nine Months Nine Months
Ended Ended
September 30, 1999 December 31, 1998
Sales $321,013 $168,377
Cost of goods sold 112,862 98,103
------- -------
Gross profit 208,151 70,274
Expenses
Business Development 1,430 -
Business Tax 271 833
Commissions 46,300 -
Depreciation 3,517 4,662
Dues and fees 5,010 -
Exchange 2,400 -
Insurance 1,410 1,226
Interest and bank charges 23,081 39,287
Lab Expenses 15,958 2,482
Marketing 4,592 5,061
Misc. 1,392 -
Office Expenses 69,490 27,573
Professional Fees 62,119 11,425
Rent 21,015 10,898
Salaries/Wages/employee benefits 117,568 75,030
Organizational cost - 38,000
Commitment fees - 10,000
Research and development cost - 10,527
Contract manufacturing cost - 35,622
------- -------
375,553 272,626
Net loss (167,402) (202,352)
------- -------
Deficit, beginning of period (1,215,684) (1,013,332)
Deficit, end of period $(1,383,086) $(1,215,684)
------- -------
Net loss per share $(0.02) $(0.09)
Weighted average number of
common shares outstanding 6,971,244 2,140,000
</TABLE>
<PAGE>
NORTHSTAR ELECTRONICS INC.
INTERIM CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
(U.S. Dollars)
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Additional
Common Shares Paid-In Total
Number Amount Capital Deficit Shareholders
Balance, Equity
December 31, 1998 2,140,000 $214 $439,855 $(1,215,684) $(775,615)
Common shares
issued for
cash for
$1.00 per share
January 25, 1999 100,000 10 99,990
January 29, 1999 200,000 20 199,980
January 29, 1999 63,000 6 62,994
June 29, 1999 200,000 20 199,980
Common shares
on exchange 4,901,493 490 (490)
(Note 3a)
Balance,
September 30, 1999 7,604,493 $760 $1,002,309 $(1,383,086) $(380,017)
</TABLE>
<PAGE>
NORTHSTAR ELECTRONICS INC.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
(U.S. Dollars)
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
(Note 4)
Nine Months Ended Nine Months Ended
September 30, 1999 December 31, 1998
Cash provided by (used in)
Operations
Net loss $(167,402) $(202,352)
Depreciation 3,517 4,662
Net change in non-cash
working capital items (394,333) 138,352
------- -------
(558,218) (59,338)
Financing activities
Proceeds from issuance of
common shares 563,000 36,487
Proceeds from long term debt 50,355 -
Advances (to) from Cabot
Management Limited (14,267) 1,206
Advances (to) from shareholder (16,506) 24,512
Repayment of long term debt (1,191) -
------- -------
581,391 62,205
Investing activities
Purchase of capital assets (11,933) (3,189)
------- -------
Increase in cash 11,240 (322)
Cash, beginning of period 2,231 2,553
Cash, end of period $13,471 $2,231
</TABLE>
<PAGE>
NORTHSTAR ELECTRONICS INC.
NOTES TO INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
September 30, 1999
1. Basis of presentation
These unaudited interim 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 Registration Statement 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 September 30, 1999 and the
consolidated results of operations and the consolidated statement
of cash flows for the nine months ended September 30, 1999. The
results of operations for the nine months ended September 30, 1999
are not necessarily indicative of the results to be expected for the
entire fiscal year.
2. Long term debt
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, December 31,
1999 1998
10% loan payable to Pathfinder
Enterprises Inc. in monthly
interest payments only to July 5,
2002 $160,000 $160,000
ACOA (Federal Government Agency)
interest free loan repayable in
sixty monthly and consecutive
installments of $ 2,170 130,221 130,221
ACOA (Federal Government Agency)
interest free loan repayable in
twenty-four monthly and consecutive
installments of $ 4,167 98,809 100,000
ACOA (Federal Government Agency)
interest free loan payable in 36
monthly and consecutive installments
of $ 4,373 beginning when full loan
draw down is received. Secured by
postponements on Cabot Management
Limited's loan of $87,224
and a shareholders' loan of $12,707. 137,031 86,676
------- -------
$526,061 $476,897
</TABLE>
3. Capital stock
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, December 31,
1999 1998
Authorized
20,000,000 preferred shares at $0.0001 par value
100,000,000 common shares at $0.0001 par value
Issued and outstanding
7,604,493 common shares
(1998 - 2,140,000) $760 $214
Additional paid in capital 1,002,309 439,855
--------- -------
$1,003,069 $440,069
</TABLE>
a) On January 15, 1999 and January 26, 1999 the shareholders of
Northstar Technical Inc. exchanged their 14,704,479 common shares
for 4,901,493 common shares of Northstar Electronics Inc. on the
basis of three Northstar Technical shares for every one share of
Northstar Electronics Inc. The value of these shares were $414,969.
b) Also during January, 1999 the company completed offerings for
363,000 shares of its common stock at $1.00 per share. Proceeds
from these offerings were $363,000.
c) On June 29, 1999 the company completed an offering for 200,000
shares of its common stock at $1.00 per share. Proceeds from this
offering was $200,000.
4. Comparative figures
The comparative figures were for the nine months ended December 31,
1998 as the nine months ended September 30, 1998 were not readily
available and there would be no material differences in these comparatives.
5. 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 selll products. The company has
filed a counterclaim 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.
NORTHSTAR TECHNICAL INC.
St. John's, Newfoundland
FINANCIAL STATEMENTS
March 31, 1998
CONTENTS 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
<PAGE>
AUDITORS' REPORT
To the Shareholders of Northstar Technical Inc.
We have audited the balance sheet of Northstar Technical Inc. as at
March 31, 1998 and the statements of loss and deficit and changes in cash
resources 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 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 March 31, l998
and the results of its operations and the changes in its cash resources for
the year 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
13 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.
/s/ Sullivan, Lewis and White
St. John's, Newfoundland
September 29, 1998 Chartered Accountants
<PAGE>
NORTHSTAR TECHNICAL INC.
BALANCE SHEET
(Canadian Dollars)
MARCH 31, 1998
ASSETS 1998 1997
Current -------- --------
Bank $ 3,829 $ -
Receivables (Note 2) 228,052 271,852
Work in progress 7,101 2,279
Inventory 88,356 92,327
Prepaid expenses 4,127 5,620
-------- --------
331,465 372,078
Capital assets (Note 3) 27,733 32,347
Deferred development costs (Note 4) 824,744 759,869
Deferred charges (Note 5) 82,305 -
-------- --------
$ 1,266,247 $ 1,164,294
======== ========
LIABILITIES
Current
Bank indebtedness $ - $ 2,098
Payables and accruals 199,556 257,930
Loans payable (Note 6) 138,790 109,425
Deferred revenue - 5,000
Long term debt payable within one year (Note 7) 127,340 19,530
-------- --------
465,686 393,983
Long term debt (Note 7) 588,006 595,801
Loans payable to Cabot Management Limited,
no set terms of repayment (Note 8) 136,530 130,836
Loan payable to shareholder, no set terms
of repayment 83,602 13,559
-------- --------
1,273,824 1,134,179
--------- ---------
SHAREHOLDERS' DEFICIENCY
Share capital (Note 9) 605,372 381,418
Deficit ( 612,949) ( 351,303)
---------- ----------
( 7,577) 30,115
---------- ----------
$ 1,266,247 $ 1,164,294
======== ========
ON BEHALF OF THE BOARD:
/s/Dr. Wilson Russell, Director
/s/Mr. Frank Power, Director
The accompanying notes form an integral part of these financial statements.
<PAGE>
NORTHSTAR TECHNICAL INC.
STATEMENT OF LOSS AND DEFICIT
(Canadian Dollars)
YEAR ENDED MARCH 31, 1998
1998 1997
-------- --------
Revenue $ 272,631 $ 261,259
Direct costs 140,891 129,680
------- --------
Gross Profit 131,740 131,579
Other income 13,934 3,971
-------- --------
145,674 135,550
-------- --------
Expenses
Amortization of capital assets 15,917 9,375
Amortization of deferred development costs 87,621 40,093
Bank charges and interest 16,196 1,724
Contract manufacturing division (Note 10) 126,008 -
Heat and light 10,343 11,233
Insurance 2,027 1,389
Interest on loans 55,963 68,675
Management and marketing fees 16,235 39,687
Marketing/Market Research costs 5,742 39,178
Municipal taxes 2,960 10,021
Miscellaneous 3,855 2,408
Office operating 18,859 10,972
Professional fees 35,296 31,370
Rent 37,685 44,279
Repairs and maintenance 4,693 6,488
Telephone 11,184 21,793
Travel 6,865 19,768
Wages and benefits 66,992 87,681
Write off obsolete inventory stock 14,405 -
Less: Allocation to deferred development
costs (Note 4) (149,808) (162,881)
---------- ----------
389,038 283,253
---------- ----------
Net loss (Note 11) (243,364) (147,703)
Deficit, beginning of year (351,303) (183,100)
---------- ----------
(594,667) (330,803)
Dividends paid on preference shares (Note 9a) (42,282) (20,500)
Discount earned on redemption of Class A
preference shares (Note 9b) 24,000 -
---------- ----------
Deficit, end of year $ (612,949) $ (351,303)
======== ========
The accompanying notes form an integral part of these financial statements.
<PAGE>
NORTHSTAR TECHNICAL INC.
STATEMENT OF CHANGES IN CASH RESOURCES
(Canadian Dollars)
YEAR ENDED MARCH 31, 1998
1998 1997
-------- --------
Cash provided by (used in)
Operations
Net loss $(243,364) $(147,703)
Amortization 124,114 49,468
Net change in non-cash working capital items 10,434 81,113
-------- --------
(108,816) (17,122)
---------- ---------
Financing
Proceeds from long term debt 130,015 30,000
Proceeds from issuance of Class C
preference shares - 120,333
Proceeds from issuance of common shares 595,287 -
Advances from Cabot Management Limited 5,694 89,161
Advances from shareholder 70,043 8,966
Repayment of long term debt (30,000) (2,086)
Discount on redemption of preference shares 24,000 -
Redemption of preference shares (84,000) (16,000)
Payment of dividends on preference shares (42,282) (20,500)
Conversion of Class C preference shares (287,333) -
---------- --------
381,424 209,874
Investments
Increase in deferred charges - net (102,881) -
Increase in deferred development
costs - net (152,496) (192,712)
Purchase of capital assets, net of
investment tax credits (11,304) (6,934)
Proceeds from disposal of capital assets - 2,186
---------- --------
(266,681) (197,460)
Net change in bank position 5,927 (4,708)
Bank position, beginning of year (2,098) 2,610
---------- --------
Bank position, end of year $ 3,829 $ (2,098)
======== ========
The accompanying notes form an integral part of these financial statements.
<PAGE>
NORTHSTAR TECHNICAL INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 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 equipment 20% on a declining balance basis
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 $1,754,318 on
this technology, including overhead costs of $621,430, which has been reduced
by various assistance and tax credits totalling $801,860 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 $102,882 at March 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.
2. Receivables
1998 1997
-------- --------
Trade $ 137,701 $ 115,685
Government assistance 22,486 35,650
Investment tax credit refunds 67,865 114,337
Goods and service tax - 4,975
Provincial sales tax - 105
Other - 1,100
-------- --------
$ 228,052 $ 271,852
======== ========
3. Capital assets
1998 l997
------------------------------ ---------
Accumulated Net Book Net Book
Cost Amortization Value Value
-------- ------------- -------- --------
Computer equipment $ 6,654 $ 2,555 $ 4,099 $ 4,450
Computer software 8,705 4,760 3,945 4,365
Furniture and
equipment 31,293 14,007 17,286 17,710
Leasehold improvements 4,335 11,932 2,403 5,822
------- ------ ------- -------
$ 60,987 $ 33,254 $27,733 $ 32,347
4. Deferred development costs
1998 1997
-------- --------
Wages and benefits $ 608,461 $ 484,720
Materials and other costs 165,160 148,980
Subcontractors 359,267 355,179
Overhead 621,430 471,622
-------- --------
1,754,318 1,460,501
Less: Government assistance 362,965 289,509
Other assistance 61,685 61,685
Investment tax credits 377,210 309,345
-------- --------
952,458 799,962
Less: Amortization 127,714 40,093
-------- --------
$ 824,744 $ 759,869
======== ========
5. Deferred charges - Contract Manufacturing Division
1998 1997
-------- --------
Planning and start up costs $ 28,951 $ -
Overhead costs (Note 10) 73,930 -
-------- --------
102,881 -
Less: Amortization of deferred charges 20,576 -
-------- --------
$ 82,305 $ -
======== ========
6. Loans payable
1998 1997
-------- --------
10% loan payable to Enterprise Newfoundland
and Labrador in monthly interest payments
plus principal amount payable on demand $ 22,451 $ 24,657
12% loan payable to Eastern Meridian Mining
Corporation including accrued interest, to
be repaid in full by November 30, 1998,
secured by the personal guarantee of Wilson
Russell 75,939 68,500
Loan payable to Toronto-Dominion bank,
secured by the personal guarantee of
Wilson Russell. This loan was repaid
in full on September 24, 1998 20,000 -
Loan payable to Brian Gamberg repaid in
full on April 15, 1998 20,400 -
10% loan payable to Dr. Carl Wesolowski - 16,268
-------- --------
$ 138,790 $ 109,425
======== ========
7. Long term debt
1998 1997
-------- --------
ACOA interest-free loan repayable in sixty
monthly and consecutive instalments of
$ 3,255 beginning October 1, l997 $ 195,331 $ 195,331
ACOA interest-free loan to April, l997 with
monthly principal repayments of $ 6,250
beginning May 1, l998 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
6% loan payable to Tim Tiessen - 15,000
6% loan payable to Frank Hawkins - 15,000
ACOA interest free loan repayable in 36 monthly
consecutive instalments of $ 6,560 beginning
July 1, 1998 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 -
-------- --------
715,346 615,331
Less: Long term debt payable within one year 127,340 19,530
-------- --------
$ 588,006 $ 595,801
======== ========
8. Loans payable - Cabot Management Limited
Cabot Management Limited, an associated company, has the option to convert
their interest free loans, totalling $136,530 at March 31, 1998, to common
shares of Scientific Technologies Inc., if the company merges with Scientific
Technologies Inc., as referred to in Note 12.
9. Share capital
1998 1997
-------- --------
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
14,609,195 Class A common shares $ 605,372 $ 10,085
84 Class A preference shares - 84,000
287,333 Class C preference shares - 287,333
-------- --------
$ 605,372 $ 381,418
======== ========
a. On October 3, 1997 the common shares were amended to be designated
Class "A" common shares and the outstanding 95 Class "A" common shares were
subdivided on the basis of that each Class "A" common share became 126,316
Class "A" common shares resulting in a total issued Class "A" common shares
of 12,000,000. This stock split was done as the company intends to go public
as referred to in Note 12. Also during October and November 1997 an
additional 2,609,195 Class "A" common shares were issued for $595,287.
This included conversion of preference C shares and accumulated dividend
arrears of $42,282.
b. The 84 Class A preference shares previously issued to Southside
Community Development Fund Corporation were redeemed in August, 1997 for
$60,000 which resulted in a discount earned on redemption of $24,000.
10. Contract Manufacturing Division
1998 1997
-------- --------
Amortization of deferred charges (Note 5) $ 20,576 $ -
Contract labor 25,000 -
Operating expenses 63,356 -
Salaries and benefits 136,038 -
Less: Direct costs on contract with
Lockheed Martin - Federal Systems,
Inc. (25,133) -
Wage subsidy (19,899) -
-------- --------
199,938 -
Less: Allocation to deferred charges (Note 5) (73,930) -
-------- --------
$ 126,008 $ -
======== ========
11. Income taxes
The company has losses carried forward totalling $ 1,015,851 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:
March 31, 2000 $ 3,811 March 31, 2004 $ 512,179
========== ==========
March 31, 2002 $ 37,523 March 31, 2005 $ 367,846
========== ==========
March 31, 2003 $ 94,492
==========
Also the company's book values of deferred development costs and
deferred charges exceeds their income tax values by $ 620,153 as at
March 31, 1998.
The net deferred income taxes debit related to both of these items
have not been reflected in these financial statements.
12. Subsequent event
On July 31, 1998 the company entered into an agreement for a merger with
Scientific Technologies Inc. provided:
a. Northstar Technical Inc. would receive from Scientific Technologies
Inc. a sum of not less than US $ 500,000 and no greater than US $ 970,000.
b. Scientific Technologies Inc. would purchase not less than 75% of the
issued and outstanding capital stock of Northstar Technical Inc. in exchange
for issuance of common shares in their capital stock.
c. The transfer of funds from Scientific Technologies Inc. and the merger
would be carried out at the time Scientific Technologies Inc. becomes a public
listed company on the National Association of Investment Dealers OTC Bulletin
Board.
The time of closing is set for the earliest convenient date mutually
agreeable to both parties, or October 31, 1998.
13. Differences between Canadian and United States Generally Accepted
Accounting Principles ("GAAP")
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:
1998 1997
-------- --------
Adjustments to assets, and shareholders'
deficiency
ASSETS
Deferred development costs
Canadian GAAP $ 824,744 $ 759,869
Research and development expenditures (824,744) (759,869)
-------- --------
United States GAAP $ - $ -
======== ========
13. Differences Between Canadian and United States Generally Accepted
Accounting Principles ("GAAP") (Continued)
1998 1997
-------- --------
Deferred charges
Canadian GAAP $ 82,305 $ -
Deferred charges expenditures (82,305) -
-------- --------
United States GAAP $ - $ -
======== ========
Deficit
Canadian GAAP $ (612,949) $ (351,303)
Research and development expenditures (824,744) (759,869)
Deferred charges expenditures (82,305) -
United States GAAP $(1,519,998) $(1,111,172)
======== ========
Adjustments to net loss
Expenses
Canadian GAAP $ 389,038 $ 283,253
Amortization of deferred development costs (87,621) (40,093)
Amortization of deferred charges (20,576) -
Deferred development costs 152,496 192,712
Deferred charges 102,881 -
-------- --------
United States GAAP $ 536,218 $ 435,872
======== ========
Net loss for the period
Canadian GAAP $ (243,364) $ (147,703)
Amortization of deferred development costs 87,621 40,093
Amortization of deferred charges 20,576 -
Deferred development costs expenditures (152,496) (192,712)
Deferred charges expenditures (102,881) -
-------- --------
United States GAAP $ (390,544) $ (300,322)
======== ========
14. 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.
NORTHSTAR TECHNICAL INC. St. John's, Newfoundland
FINANCIAL STATEMENTS
Audited
December 31, 1998
SULLIVAN, LEWIS AND WHITE-Charter Accountants
AUDITORS' REPORT - To the Shareholders of NTI
We have audited the balance sheet of NTI as of 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. 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 generally
accepted accounting principles.
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 NETMIND 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 /s/ Sullivan, Lewis and White
July 14, 1999 Chartered Accountants
<PAGE>
NORTHSTAR TECHNICAL INC.
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
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
------- -------
Total Assets $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
------- -------
Total Liabilities $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)
------- -------
Shareholders' Deficiency (232,418) (7,577)
------- -------
$1,112,490 $1,266,247
------- -------
</TABLE>
ON BEHALF OF THE BOARD:
___/s/Dr. Wilson Russell Director
__/s/Mr. Frank Power Director
The accompanying notes are an integral part of these financial statements.
<PAGE>
NORTHSTAR TECHNICAL INC.
STATEMENT OF LOSS AND DEFICIT
NINE MONTHS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
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)
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NORTHSTAR TECHNICAL INC.
STATEMENT OF CHANGES IN CASH RESOURCES
NINE MONTHS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
Nine Months Year
Ended Ended
December 31, December 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
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NORTHSTAR TECHNICAL INC.
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 equipment 20% on a declining balance basis
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 NETMIND 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 NETMIND 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 NTI 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.
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2. 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
======== ========
</TABLE>
3. Capital assets
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
===========================================================================
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
======= ======= ======= =======
</TABLE>
4. Deferred development costs
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<CAPTION>
<S> <C> <C>
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
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
======== ========
6. Loans payable
==========================================================================
December 31, March 31,
1998 1998
10% loan payable to Enterprise Newfoundland
and Labrador in monthly interest payments
plus principal amount payable on demand $20,473 $22,451
12% loan payable to Eastern Meridian Mining
Corporation including accrued interest, to be
repaid in full by March 1, 1999, secured by the
personal guarantee of Wilson Russell 83,036 75,939
Loan payable to Toronto-Dominion bank,
secured by the personal guarantee of
Wilson Russell. This loan was repaid
in full on September 24, 1998 0 20,000
Loan payable to Brian Gamberg repaid in full
on April 15, 1998 0 20,400
Loan payable to Dr. Carl Wesolowski 55,306 0
------- -------
$158,815 $138,790
======== ========
7.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
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
======== ========
8. 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)
9. 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
NETMIND systems sold to them. This termination has lead to court action,
the outcome of which is unknown as at the financial statements date.
10. 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
11. Contract Manufacturing Division
Nine Months Year
Ended Ended
December 31, December 31,
1998 1998
Amortization of deferred charges (Note 5) $25,451 $20,576
Contract labor 0 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. 0 (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
======== ========
</TABLE>
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, 2001 - $37,523
December 31, 2002 - $94,492
December 31, 2003 - $512,179
December 31, 2004 - $367,846
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 NTI 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.
SULLIVAN, LEWIS AND WHITE
- -------------------------------------------------------------------------
CONSENT OF INDEPENDENT AUDITORS'
(Letterhead of Jones, Jensen & Company, LLC)
CONSENT OF INDEPENDENT AUDITORS'
Board of Directors
Northstar Electronics, Inc.
(Formerly Scientific Technologies, Inc.)
Vancouver, B.C. Canada
We hereby consent to the useof in this Form SB-1 of Northstar Electronics,
Inc. (formerly Scientific Technologies, Inc.) of our report dated September
11, 1998 of Northstar Electronics, Inc. (formerly Scientific Technologies,
Inc.) for the period ended July 31, 1998, which is part of this Form SB-1,
and to all referenced to our firm included in this Form SB-1.
/s/ Jones, Jensen & Company
Jones, Jensen & Company
Salt Lake City, Utah
January 20, 2000
