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Registration No. 333-90031
Amendment No. 9
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 #3333-0803434 3679
- -------- ------------- ----
(State or other (I.R.S. Employer (Primary
Jurisdiction of Identification Number) Standard
Incorporation or Industrial
Organization) Classification
Code)
1455-409 Granville Street
Vancouver, BC
V6G 2J2
Tel: (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 in 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. / /
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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./ /
Calculation of Registration Fee
Title of each
Class of Offering Maximum Dollar Proposed Amount
Securities to be Price Amount to be of Registration
Registered Per Share Registered Fee
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Common Stock $1.00 $800,000 $287
Common Stock(1) $1.00 $200,000 $130
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(1)The registration of 200,000 shares is being done on behalf of a
selling security holder. There is no current market for the shares and
the offering price per share, of $1.00 is an estimate based on the
offering price of the shares to be sold by the company. The figure of
$130 is based on an estimated maximum dollar amount to be registered of
$200,000.
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states
that this registration statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
registration statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a) may determine.
Disclosure Alternative Used: Alternative 1__ Alternative 2 /X/
Northstar Electronics, Inc.
Mailing Address:
Suite 1455-409 Granville Street
Vancouver, BC
V6C 1T2
(604) 685-0364
As filed with the United States Securities and Exchange Commission on
November 1, 1999.
Description of Securities Offered: Up to 800,000 shares of common
stock, par value $0.0001, to be offered by the company at a price of
$1.00US per share; and up to 200,000 shares, of common stock,
par value $0.0001, to be offered by a selling security holder on a
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delayed or continuous basis following the effective date of this
prospectus. All costs incurred in the registration of the shares are
being paid by the company.
These securities involve a high degree of risk. See "Risk Factors"
contained in this prospectus, beginning on page 5.
Neither the Securities and Exchange Commission has approved or
disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
Distribution Spread for Shares offered by the Company
Price to Public Underwriting discount Proceeds to issuer or
and commissions other persons
--------------- --------------- -------------
Per Unit $1.00US $0 $1.00US
Total $800,000 $0 $800,000
Distribution Spread for Shares offered by the Selling Security Holder
Price to Public Underwriting discount Proceeds to issuer or
and commissions other persons
--------------- --------------- -------------
Per Unit Unknown N/A Unknown
Total Unknown N/A Unknown
Approximate date of proposed sale to the public: As soon as practicable
following effectiveness of
the registration statement.
Closing date: September 30, 2000, for the offering by the company, open
for the offering by the selling security holder.
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Table of Contents
3 Prospectus Cover Page
5 Prospectus Summary
5 Risk Factors
8 Plan of Distribution
9 Dilution
9 Use of Proceeds
11 Northstar's Business
16 Management's Discussion and Analysis or Plan of Operations
18 Changes in or Disagreements with Accountants on Accounting and
Financial Disclosure
18 Security Ownership of Management and Certain Security Holders
20 Directors Officers and Significant Employees
23 Remuneration of Directors and Officers
24 Interest of Management and Others in Certain Transactions
27 Litigation
28-51 FINANCIAL STATEMENTS
Part II
51-55 Information Not Required in the Prospectus
56 Signatures
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Prospectus Summary
The Issuer:
Northstar Electronics, Inc., a Delaware corporation. 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: September 30,2000, 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.
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The auditors for Northstar's operating subsidiary, NTI, have deemed NTI
a going concern. However, we have only a limited operating history
upon which an evaluation of our business and future prospects can be
based. We have never been profitable and future profits may never
occur. This lack of profitability would seriously impede our ability
to continue as an operating company.
Increased expenses could lead to curtailment of operations.
We plan to expand operations and to conduct additional research and
development-all of which will increase company expenses. If revenues do
not rise in conjunction with expenses, we may have to curtail
operations or halt operations completely.
Inadequate manufacturing performance could damage our business.
Unanticipated technical or quality control problems on the Lockheed
Martin contract could delay payments from Lockheed Martin that could
cause us financial problems and may curtail operations.
Failure to obtain manufacturing components in a timely fashion may
curtail product productions.
- - Our manufacturing operations, both NETMIND and contract, depend on
reliable suppliers who can provide electronic and mechanical parts
promptly. We have limited experience with our suppliers and no
long-term contracts or direct control over these suppliers, which
are independent third parties. In our brief experience with these
suppliers, we have found ourselves waiting for parts. Long
interruptions may curtail production operations.
- - Any disruption to our computerized inventory ordering system due to
software and hardware failures would delay component ordering and
may curtail production operations.
Failure to attract new personnel or replace leaving personnel may
curtail operations.
Competition for personnel in the high technology industry is strong.
Because we are a relatively new company with a limited operating
history and limited financial resources, we may not be able to retain
key technical, sales and management employees or be able to recruit
qualified electronic engineers, technicians and managers that we may
need in the near future. This could impede our ability to produce
additional products to meet any increased demand that the company might
develop through its marketing efforts and limit our ability to keep up
to date with our research and development efforts.
Our inability to compete with established competitors may limit sales
of the NETMIND product.
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We may not be able to effectively compete with established competitors,
such as Furuno and Scanmar, and NETMIND sales may not increase very
much, or at all. This could mean that Northstar will never be
profitable.
Possible fishing industry fluctuations could hurt NETMIND sales.
Our NETMIND product is reliant on a single industry, fishing, which
fluctuates significantly. The industry's operational fluctuations
result in periods of low sales revenues. If we do not adequately
forecast sales, we may face unforeseen periods of cash shortages.
Possible defense industry downturns could hurt contract manufacturing
Opportunities.
Downturns in the defense industry in the United States and Canada-our
target market- occur from time to time; this in turn could hurt our
potential for future contract manufacturing opportunities.
Current legal claims against Northstar could result in financial
Difficulties.
We are currently the defendant in a lawsuit commenced by our company's
former master distributor, First Watch Marine, Inc. that company
alleges that we interfered with its ability to sell products and claims
$1.3 million in relief, plus damages. We have filed a counterclaim of
$100,000, which we contend First Watch owes, plus damages. We consider
our case strong, but court proceedings are unpredictable, time-
consuming and costly.
Our dependency on one product could lead to curtailment of Northstar's
Business.
NETMIND is our only commercial product and the success of Northstar is
highly dependent upon the commercial viability of the NETMIND product
as it compares to other similar products available in the market. To
date, we have not sold NETMIND on a profitable basis. If, for whatever
reason, we are not able to produce, market and sell the NETMIND product
profitably, we may not have the financial resources to maintain the
company's business.
If we do not raise funds in the next six months, we will have
significant delays in the development of new products and may be forced
to substantially curtail operations
We are attempting to raise funds that are necessary for further
development of our business plan. If we are unsuccessful in the next
six months, we will face risks including the following:
- - We would be forced to curtail our operations and delay development
of new products.
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- - Our business development activities would be curtailed, which would
severely limit our ability to generate revenues to cover current and
future operating expenses.
Resale offering by the selling security holder could adversely impact
Northstar's offering.
Sales of the shares offered by the selling security holder, or even the
potential of such sales, may have an adverse effect on the market price of
the
common stock of Northstar. This could result in our offering being only
partially successful with minimal funds raised.
Receipt of minimal funds from the offering could restrict Northstar's
future business.
If minimal funds are raised from the current offering, we will not
likely be able to carry out the planned growth-oriented activities,
such as increasing NETMIND marketing, NETMIND production capacity, and
contract manufacturing business development. Inability to carry out
these activities would heavily restrict growth for the next two years
or longer and could negatively affect the ability of Northstar to stay
in business.
Plan of Distribution
Principal Underwriters: None
Discounts and Commissions Paid to Dealers: None
Plan of Distribution for Securities Offered through Brokers or Dealers:
None
Securities to be Offered for the Account of Security Holders: 200,000
common shares
Arrangements for Return of Funds to Subscribers: None
Material Delays in the Payment of Proceeds of the Offering: None
We plan to sell Northstar's 800,000 shares in privately negotiated
transactions at the offering price.
Northstar's securities will be sold by Dr.Wilson Russell,
President/Principal Financial Officer, and Mr. Frank Power Vice-
President of Northstar. Both Dr. Russell and Mr. Power, as directors of
Northstar, are associated persons as defined in Rule 3(a) 4-1 and will
rely on 3(a) 4-1 subparagraphs (a)(1)-(3) and (a)(4)(i) of the rule.
The selling security holder may offer the 200,000 shares covered in
this registration statement in the over-the-counter market, in
privately negotiated transactions, or by a combination of such methods
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of sale, at market prices prevailing at the time of sale, at prices
related to the prevailing market prices or at negotiated market prices.
The shares are being sold by the selling security holder and Northstar
has no agreements or understandings with any broker or dealer for the
sale of such shares. The selling security holder may use a broker-
dealer in the sale of his securities and the commission to be paid, if
any, will be determined at that time. Prior to the involvement of any
such broker-dealer, such broker-dealer must seek and obtain clearance
of the compensation arrangements from the National Association of
Securities Dealers, Inc. In such an event, Northstar will file a post-
effective amendment identifying such broker-dealer(s).
Northstar will receive no proceeds from the sale of the shares of the
selling security holder.
The proposed sale of the Northstar shares and the selling security
holder shares will be made as soon as practicable following the
effectiveness of the registration statement.
Dilution
The net tangible book value of the company, as of December 31, 1999, was
($562,585) or approximately ($0.07) per share. Giving effect to the
sale by Northstar of shares at the offering price, the pro forma net
tangible book value of Northstar would be approximately $237,415 or
approximately $0.03 per share, which would represent an immediate
increase in net tangible book value of approximately $0.10 per share to
present shareholders and an immediate dilution of approximately $0.97
per share, or approximately 97% to new investors. 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 ($0.07) per share
Net tangible book value after offering $0.03 per share
Dilution to new investors $0.97 per share
Dilution as a percentage 97%
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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
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Production/Marine Electronics refers to the manufacture of our NETMIND
system. The company plans to increase production from approximately
four systems per month to eight to ten per month, by adding additional
electronic equipment, increasing the size of the plant's electronics
section by about 1,500 square feet, and hiring three new full-time
production workers.
Production/Contract Manufacturing refers to our manufacture of other
companies' systems, under contract. The company intends to establish a
separate production operation for this. The space required is about
2,000 square feet to accommodate component inventory, manufacturing,
administration, storage of finished goods and shipping. Equipment will
be purchased for electronic and mechanical assembly and for testing of
both incoming components and finished goods. Northstar plans to hire
up to five new contract employees in 2000/2001.
Marketing/Marine Electronics refers to the NETMIND marketing.
Northstar intends to increase activities in 2000/2001, primarily in
Western North America, the Gulf of Mexico and the US Eastern 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
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 means of raising the funds, and as of yet, we have
no plans in place.
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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.
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 completed the development and commercialization of the
NETMIND system and established a production operation. The first
product was ready for the market in August 1996. The plant has
manufactured over fifty systems.
NETMIND system customers include the National Oceanics and Atmospheric
Administration NOAA in the United States, the United States Department
of the Interior and Fishery Products International FPI in Canada. Sales
to these organizations,to date, are as follows: NOAA $187,016; US
Department of the Interior $37,257; and FPI $99,539.
In 1995, NTI signed a teaming agreement with Loral Librascope -now
Lockheed Martin of Manassas, Virginia- of Glendale, California pursuant
to which, if Loral were successful in a proposal to the Canadian Navy,
NTI would assemble and test multi-function work stations 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,
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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, suppliers 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.
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
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We have received positive written feedback from some of our customers.
Three of these are shown in Exhibit 99.7. 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, number of employees, research and development spending, and
overall financial condition. We believe that NETMIND has technical
advantages over each. This belief is based on our testing program from
1996-1999 which established our technical specifications and on
information gleaned from Furuno's website, www.furuno.com, and from
Scanmar's website, www.scanmar.com. We have no direct access to any
competitor's test data.
Both the Furuno and Scanmar systems consist of wireless acoustic
sensors used underwater in a similar fashion to the NETMIND system. The
Furuno C-24 system is a net recorder used for mid-water and deep-water
trawlers. The Scanmar net monitoring system operates the same way, that
is, by illustrating how the fishing net is behaving while being towed.
However, unlike these products, NETMIND sensors are fully serviceable.
The electronic circuitry is contained in stainless steel cylinders
within each component and is easily removed for repair by opening the
end cap.
We believe, that NETMIND components have longer battery life: 150-200
hours before recharging compared to approximately 20-150 hours for
Scanmar and 10-15 hours for Furuno. As well, the NETMIND system has
proven to be very effective at distances up to 2000 metres while, we
believe, competitive systems fall short of this feature. This is
because underwater sound waves can be detected at greater distances if
their frequency is low. The telemetry frequency for NETMIND is 28Khz,
compared to 40Khz for Furuno and 40.8-43.4 for Scanmar. We believe the
rugged design of various NETMIND components has surpassed competitors'
designs in that NETMIND's unique components require very little
maintenance.
While NTI is continuing to grow, we believe the company is smaller in
size and resources when compared to its competitors. NTI's staff
numbers fourteen, while we believe Scanmar and Furuno each employ many
times that number. As well, we believe these companies' facilities are
substantially larger than NTI's. We also believe that Scanmar and
Furuno have each achieved worldwide sales of several thousand systems
through well-developed dealer networks. We base these beliefs on the
general reputations of these companies in the marketplace over the past
five years and on verbal discussions our staff has had, from time to
time, with electronics dealers in Canada, the United States, Iceland
and Norway over the past five years.
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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 application is intended to be
submitted in late 2000 or early 2001. The technology is difficult to
replicate because of its sophistication and, regardless of patent
protection, it is expected it would take several years for a new player
to catch up to the present system. Northstar has obtained Canadian
Trademark rights to the name NETMIND registration number TMA515,009 24-
Aug-1999, effective for 15 years from 24-Aug-1999. No other
intellectual property related applications have been filed or prepared.
In the meantime, NTI is developing new innovative NETMIND products
which should help ensure a competitive edge.
Future Opportunities for NTI's technology: NTI's second technology
application will likely be for the multi-billion dollar offshore oil
and gas industry. One potential product is for the remote control of
subsea wellheads 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.
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Historical Financial Information: NTI has spent over $ $1,233,000 to
complete the development and commercialization of the NETMIND system.
NTI has received $311,775 in Scientific Research and Experimental
Development refunds from Revenue Canada.
Funding support from the major shareholder and private investors total
approximately $1,065,000 in the form of share purchases or loans. 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 $2.0 million contract with Lockheed Martin.
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.
Northstar's business activities do not involve the discharge of
materials into the environment. Consequently, we do not intend to
spend money for environmental control facilities.
Employees
As of December 31, 1999, Northstar had fourteen full-time employees and
three part-time engineering consultants. None of Northstar's employees
are represented by a labour union, and Northstar considers its employee
relations to be good. Competition for qualified personnel in
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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 and Analysis or Plan of Operations
Overview of the Business Plan
As described elsewhere in this registration statement, we have
completed the development of our first product. The estimated amount
spent on company-sponsored research and development activities was
$46,430 in fiscal year-end December 31, 1999, $14,192 in fiscal year-end
December 31, 1998, $195,878 in fiscal year-end March 31, 1998, $221,429
in fiscal year-end March 31, 1997 and $440,300 in fiscal year-end March
31, 1996.
Our revenues were $462,659 in fiscal year-end December 31, 1999,
$170,249 in fiscal year-end December 31, 1998, $181,764 in fiscal year-
end March 31, 1998 and $174,200 in fiscal year-end March 31, 1997.
We plan to devote our efforts in the next twelve months to increasing
our sales network, marketing and promoting our product and maintaining,
to the extent our funds allow, the production of our products to meet
anticipated demand.
In contract manufacturing, we have signed the contract with Lockheed
Martin. We plan to complete that contract in the next twelve months.
We also plan to increase our business development activities with the
objective to secure new contracts in the defense industry.
We plan to increase our staff to twenty full-time employees in the
next twelve months with the addition of a project manager, two business
development personnel, and three manufacturing personnel.
The following discussion and analysis should be read in conjunction
with Northstar's financial statements and notes included elsewhere in
this registration statement. The discussion of results, do not imply
any conclusion that such results will necessarily continue in the
future.
Results of Operations-Twelve Months Ended Dec. 31/99 vs. Twelve Months
Ended Dec. 31/98
NTI's wholesale revenues were $462,659 for the twelve months ending
December 31, 1999 vs. $193,913 for the twelve months ending December
31, 1998. The gross profit for the twelve months ending December 31,
1999 was 55% vs. 48% for the twelve months ending December 31, 1998.
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<PAGE>
Expenses totaled $646,032 for the twelve months ended December 31,
1999 vs. $295,595 for the twelve months ended December 31, 1998.
Northstar's assets as of December 31, 1999 totaled $508,636 and its
current liabilities totaled $160,119. Long-term debt of $501,114 consists
of government interest-free loans and a loan of $160,000 payable to
Pathfinder Enterprises Inc., a company controlled by a shareholder of
Northstar, with monthly interest payments only to July 2002, secured by
a floating charge debenture. There are shareholder loans of $159,448 with
no fixed terms of repayment. Northstar has an accumulated deficit of
$1,572,356 as of December 31, 1999. The amount spent on research and
development in the last two fiscal years was $160,622. The amount of
receivables subsequently collected in cash, after December 1999, was
$31,438.
Our financial statements include the accounts of NTI for all periods
and the accounts of Northstar commencing January, 1999. Northstar had
no operations other than organizational activities prior to the
January, 1999 merger.
Revenues increased from $193,313 in fiscal 1998 to $462,659 in fiscal
1999 as a result of increased sales of our NETMIND system. Gross profit
in 1999 was 55.4% compared to 48.2% for 1998 because the manufacturing
operations had improved productivity. Wages were $145,649 in 1999 compared
to $33,229 in 1998 due to increased production and sales. The company
recorded a bad debt provision of $90,281 in fiscal 1999 as the result of
non-collection of accounts receivable from a former distributor. Consulting
fees of $65,815 were increased in 1999 as pertaining to services contracted
for investor relations, financial advice and engineering design support.
The company paid commissions in fiscal 1999 of $46,200 related to financings
obtained. Professional fees in 1999 increased by $23,398 over 1998 as a
result of the merger and filing the SB-1 with the United States Securities
and Exchange Commission. Contract manufacturing costs decreased from $90,168
for fiscal 1998 to $26,638 for 1999 because in 1998 we had a contract with
Lockheed Martin to provide manufacturing services whereas, in 1999, no
Contract services were provided.
The company continued to experience negative operating cash flow, ($548,327)
in 1999 compared to ($40,371) in 1998, as a result of increases in expenses,
namely salaries and wages, bad debts, consulting expenses, commissions, an
increase in inventory and work in process and reductions in accounts payable,
accrued liabilities and loans payable with a small increase in receivables
and prepaids. The negative operating cash flow was covered by proceeds of a
share issuance and an increase in long-term debts.
In 2000 there should be significant improvement. We currently have about
$2,170,000 worth of firm contracts on our books to be completed in the year
2000; the $2,000,000 contract with Lockheed Martin and the remainder
($170,000) of the contract with the United States government agency NOAA for
our NETMIND systems. In addition, 13 vessels are already outfitted with our
NETMIND shipboard receivers. This means they should purchase the full system
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<PAGE>
This year which would translate into additional revenues of $260,000,
Approximately. We are also conducting new marketing activities in 2000 for
NETMIND system which we believe will result in increased sales.
Changes in or Disagreements with Accountants on Accounting and
Financial Disclosure
Northstar's board of directors approved a decision in December,
1999, to change accountants. The primary reason was that we require a
firm in close proximity to our corporate offices.
Jones, Jensen and Company, LLC, had carried out the audits prior
to the reverse acquisition, when the company was called Scientific
Technologies, Inc.
Statements prepared by Jones, Jensen and Company contained no
adverse opinion or disclaimer of opinion, nor were they modified as to
uncertainty, audit scope or accounting principles.
There were no disagreements between Northstar's management and
Jones and Jensen on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure. A
letter to that effect from Jones Jensen is shown in the exhibits.
Northstar has engaged a new accounting firm, Pennell Kerr
Forster, an international association of accounting firms, to carry out
future audits
Security Ownership of Management and Certain Security Owners
The following table sets forth, as of September 15, 1999, the
beneficial ownership of Northstar's common stock by each officer and
director of Northstar and by each person known by Northstar to own
beneficially more than 5% of Northstar's 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 Drive
Port Coquitlam, B.C.
Canada V3B 7Y4
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<PAGE>
Common Stock Wilson Russell 964,883 13.03% 964,883 11.48%
4742 Collingwood St.
Vancouver, B.C.
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 Ghanadian 400,000 5.26% 200,000 2.38%
(4) (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.
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.
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<PAGE>
(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:
Optionee Position Options Option Price Per Share
- -------- -------- ------- ----------------------
Wilson Russell Director 250,000 $0.50
Frank Power Director 100,000 $0.50
(1) Record owners of and beneficial owners of 5% or more of any class
of our securities: See Table Above
(2) Promoters: None, except for officers and directors
(3) Affiliates: None
(4) Type of securities underlying the options: common shares
(5) Exercised options: None
(6) Compensatory stock options: 40,000 options with a two-year term
were granted to an independent management consulting firm, Big 8
Management Ltd. during 1999. The exercise prices for these options are
$0.90 per share in the first year and $1.035 per share in the second
year. The first 20,000 options were granted in January, 1999 and the
second 20,000 in June, 1999. As of the date of this filing, no options
have been exercised.
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
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<PAGE>
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; 1980 to 1983.
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
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<PAGE>
Columbia and Newfoundland, the Canadian Consul in Boston,
Massachusetts, Mobil Oil, the Defense Research Establishment Pacific
and the French Navy.
Dr. Russell founded NTI in 1989 and serves as both chairman and chief
executive officer. He 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.
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<PAGE>
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
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 Directors and Officers
The following table sets out certain information as to the company's
three highest paid officers and directors for the period from the
commencement of Northstar's business in February, 1999 to December 31,
1999. No other compensation was paid to any such officer or director
other than the cash compensation set forth below:
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<PAGE>
Summary Compensation Table
Name of Individual(s) Capacities in which Aggregate
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 $30,300
of Northstar as a
Group
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, should be
in the range of $100,000 per annum. An uncompensated value for
services from February, 1999 to September 30, 1999 of $21,200 is
included in the financial statements of the company. For Mr. Power,
who spends approximately ten hours per month on Northstar business, the
current rate of $2,000 per month is considered reasonable.
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, except as follows:
Completion of the previous offering: Northstar completed an offering of
363,000 shares on January 26, 1999. The proceeds of the offering were
US$363,000.
Acquisition of NTI: Northstar acquired NTI in January 1999, pursuant to
an agreement dated July 31, 1998. Northstar purchased all of the issued
and outstanding shares of NTI in exchange for 4,901,481 shares of its
common stock which were issued from treasury. At the time of
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.
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<PAGE>
Except for the acquisition of NTI, 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 .
Available Information:
The public may read and copy any materials filed with the SEC at the
SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
also maintains a website that contains reports, proxys and other
information regarding issuers that file electronically with the SEC.
The address is (http://www.sec.gov).
Disclosure of Commission Position on Indemnification of Securities Act
Liabilities
As per risks related to the management structure of Northstar
management will have no liability for any mistake, errors of judgment
or for any act of omission believed to be within the scope of authority
conferred by Northstar's articles unless such acts or omissions were
performed or omitted fraudulently or in bad faith, constituted gross
negligence or were a violation of a director's or officer's fiduciary
obligations to Northstar. Northstar has agreed to indemnify the
officers and directors against all loss or damage even if caused by
that officer's or director's fraud, bad faith, gross negligence or
breach of fiduciary obligation.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable.
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<PAGE>
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.
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.
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.
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<PAGE>
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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<PAGE>
Northstar Electronics,Inc.
(800,000 shares of Common Stock)
Prospectus
Until September 30, 2000, all dealers effecting transactions in the
registered securities, whether or not participating in this
distribution, may be required to deliver a prospectus.
Part F/S
Financial Information Required in Prospectus
The following financial statements are included herein, as follows:
1) Northstar Electronics, Inc. - Consolidated Financial Statements - Audited,
December 31, 1999, U.S. Dollars
2) Northstar Technical, Inc. - Financial Statements - Audited, December 31,
1998, Canadian Dollars
NORTHSTAR ELECTRONICS INC.
Consolidated Financial Statements
December 31, 1999
(U.S. Dollars)
INDEX Page
- ----- ----
Report of Independent Chartered Accountants 1
Consolidated Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Changes in Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-11
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<PAGE>
REPORT OF INDEPENDENT
CHARTERED ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
NORTHSTAR ELECTRONICS INC.
We have audited the consolidated balance sheet of Northstar Electronics Inc.
as at December 31, 1999 and the consolidated statements of operations,
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of Northstar Electronics Inc.
as at December 31, 1999 and the results of its operations and cash flows for
the year then ended in accordance with generally accepted accounting
principles in the United States.
/s/ Pannell Kerr Forster
- ------------------------
Chartered Accountants
Vancouver, Canada
March 13, 2000
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<PAGE>
NORTHSTAR ELECTRONICS INC.
Consolidated Balance Sheets
December 31
(U.S. Dollars) (unaudited)
- --------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------
(note 3)
Assets
Current
Cash $ 39,454 $ 807
Receivables (note 4) 105,609 96,904
Inventory and work-in-progress 79,938 37,937
Prepaid expenses 6,349 1,529
- --------------------------------------------------------------------------
231,350 137,177
Property and Equipment (note 5) 26,746 17,205
- --------------------------------------------------------------------------
Total Assets $258,096 $154,382
- --------------------------------------------------------------------------
Liabilities
Current
Accounts payable and accrued liabilities $100,547 $138,289
Loans payable (note 7) 15,296 103,577
Current portion of long-term debt (note 8) 44,276 6,989
- --------------------------------------------------------------------------
160,119 248,855
Long-Term Debt (note 8) 501,114 459,551
Due to Cabot Management Limited (note 9) 74,600 90,223
Due to Director (note 9) 84,848 78,504
- --------------------------------------------------------------------------
Total Liabilities 820,681 877,133
- --------------------------------------------------------------------------
Contingency (note 10)
Stockholders' Equity
Common Stock
Authorized
100,000,000 Shares of common stock with a par value of $0.0001 each
20,000,000 Shares of preferred stock with a par value of $0.0001 each
Issued and outstanding
Common stock 7,604,481 shares
(1998 - 2,140,000 shares) 760 214
Additional Paid-In Capital 972,271 414,755
Stock Subscriptions 10,000 0
Other Comprehensive Income 13,554 53,929
Deficit (1,559,170) (1,191,649)
- ----------------------------------------------------------------------------
Total Stockholders' Equity (562,585) (722,751)
- ----------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $258,096 $154,382
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<PAGE>
NORTHSTAR ELECTRONICS INC.
Consolidated Statements of Operations
Years and Period Ended December 31
(U.S. Dollars)
Nine (Unaudited)
Year Ended Months Ended Year Ended
December 31, December 31, December 31,
1999 1998 1998
- -----------------------------------------------------------------------------
(note 3)
Sales $ 462,659 $ 170,249 $ 193,913
Cost of Goods Sold 206,354 99,194 100,276
Gross Profit 256,305 71,055 93,637
- -----------------------------------------------------------------------------
Expenses
Salaries, wages and employee
Benefits 145,649 33,797 33,229
Bad debts 90,281 0 0
Consulting 65,815 0 0
Research and development cost 46,430 10,644 14,192
Commissions 46,300 0 0
Professional fees 36,372 11,552 12,974
Interest on long-term debt 30,194 29,600 47,567
Value of director's uncompensated
Services 30,000 0 0
Rent 26,804 21,864 22,043
Office expenses 23,740 6,904 13,388
Contract manufacturing cost 23,638 67,626 90,168
Management and marketing 14,941 3,365 4,998
Travel 12,705 2,520 2,281
Telephone 8,394 6,464 5,356
Interest and bank charges 6,526 10,521 9,882
Market research 4,279 2,431 6,292
Dues and Licenses 5,291 0 0
Repairs and maintenance 3,234 1,633 2,515
Miscellaneous 3,202 3,501 2,404
Insurance 2,002 1,239 1,265
Advertising 817 0 0
Municipal taxes 551 842 1,323
Write-off of inventory 0 0 9,696
Heat and light 0 1,284 4,889
Depreciation and amortization 5,681 4,713 11,133
632,846 220,500 295,595
- ----------------------------------------------------------------------------
Loss Before Other Income (376,541) (149,445) (201,958)
Other Income 9,020 5,548 14,919
- ----------------------------------------------------------------------------
Net Loss $(367,521) $(143,897) $(187,039)
- ----------------------------------------------------------------------------
Net Loss Per Share $ (0.05) $ (0.03) $ (0.04)
Weighted Average Number of Common
Shares Outstanding 7,146,813 4,901,481 4,901,481
-31-
<PAGE>
NORTHSTAR ELECTRONICS INC.
Consolidated Statements of Changes in Stockholders' Equity
Year Ended December 31, 1999 and Period Ended December 31, 1998
(U.S. Dollars)
<TABLE>
<CAPTION>
-32-
<PAGE
- -----------------------------------------------------------------------------
- ---
- ------------------------
Additional Other
Total
Paid-In Stock Comprehensive
Accumulated Stockholder
Shares Amount Capital Subscriptions Income (Loss)
Deficit Equity
- -----------------------------------------------------------------------------
- ---
- ------------------------
<S> <C> <C> <C> <C> <C> <C>
<C>
Inception, May 11, 1998
Issuance of common
Stock for cash 2,040,000 204 $4,896 $0 $0
$0 $5,100
Issuance of common
Stock for cash 100,000 10 24,990 0 0
0 25,000
Share issue costs 0 0 (5,000) 0 0
0 (5,000)
Other comprehensive income 0 0 0 0 53,929
0 53,929
Net loss for period ended
December 31, 1998 0 0 0 0 0
(143,897) (143,897)
Additional paid-in capital
and deficit from
accounting parent 0 0 389,869 0 0
(1,047,752) (657,883)
- -----------------------------------------------------------------------------
- ---
- ------------------------
Balance December 31,
1998 2,140,000 214 414,755 0 53,929
(1,191,649) (722,751)
Shares issued in January
1999 on acquisition of
subsidiary (note 1) 4,901,481 490 0 0 0
0 490
Liabilities in excess of
identifiable assets
(Note 6) 0 0 (35,428) 0 0
0 (35,428)
Issuance of common
stock for cash 563,000 56 562,944 0 0
0 563,000
Stock subscriptions
received 0 0 0 10,000 0
0 10,000
Value of director's
uncompensated services 0 0 30,000 0 0
0 30,000
Other comprehensive loss 0 0 0 0 (40,375)
0 (40,375)
Net loss for the year 0 0 0 0 0
(367,521) (367,521)
- -----------------------------------------------------------------------------
- ---
- ------------------------
Balance December 31,
1999 7,604,481 $760 $972,271 $10,000 $13,554
$(1,559,170) $(562,585)
- -----------------------------------------------------------------------------
- ---
- ------------------------
</TABLE>
-33-
<PAGE>
NORTHSTAR ELECTRONICS INC.
Consolidated Statements of Cash Flows
Year Ended December 31, 1999 and Period Ended December 31, 1998
(U.S. Dollars) (unaudited)
- -----------------------------------------------------------------------------
Nine
Year Ended Months Ended
December 31, December 31,
1999 1998
- -----------------------------------------------------------------------------
(note 3)
Operating Activities
Net loss $(367,521) $(143,897)
Adjustments to reconcile net loss to net
cash used by operating activities
Amortization and depreciation 5,681 4,713
Value of director's uncompensated services 30,000 0
Changes in operating assets and liabilities
Accounts receivable (8,705) 63,719
Prepaid expenses (4,820) 1,413
Inventory and work-in-progress (42,001) 30,120
Accounts payable and accrued liabilities (72,680) (2,263)
Loans payable (88,281) 5,824
- ----------------------------------------------------------------------------
Net Cash Used By Operating Activates (548,327) (40,371)
- ----------------------------------------------------------------------------
Investing Activities
Acquisition of property and equipment (15,222) (3,223)
- ----------------------------------------------------------------------------
Financing Activities
Issuance of common stock 563,000 11,388
Proceeds from (repayment of) long-term debt 78,850 (37,296)
Advances from (repayment to) Cabot
Management Limited (15,623) (5,938)
Advances from director 6,344 19,621
Stock subscriptions received 10,000 0
- ----------------------------------------------------------------------------
Net Cash Provided by Financing Activities 642,571 (12,225)
- ----------------------------------------------------------------------------
Effect of Foreign Currency Translation on Cash (40,375) 53,929
- ----------------------------------------------------------------------------
Inflow (Outflow) of Cash 38,647 (1,890)
Cash, Beginning of Period 807 2,697
- ----------------------------------------------------------------------------
Cash, End of Period $39,454 $807
- ----------------------------------------------------------------------------
Supplemental Information
Interest paid $36,720 $40,121
Income taxes paid 0 0
Non-cash investing and financing activities
Shares issued for subsidiary acquisition 490 0
- ---------------------------------------------------------------------------
-34-
<PAGE>
NORTHSTAR ELECTRONICS INC.
Notes to Consolidated Financial Statements
Year Ended December 31, 1999 and Period Ended December 31, 1998
(U.S. Dollars)
1. ORGANIZATION AND BASIS OF PRESENTATION
These financial statements include the accounts of Northstar Electronics
Inc. ("the Company") and its wholly-owned subsidiary Northstar Technical
Inc. ("NTI"). All intercompany balances and transactions are eliminated.
The parent company was incorporated May 11, 1998 in the State of Delaware
and had no operations other than organizational activities prior to the
January 1999 merger described below. The Company's business activities
are conducted principally in Canada and the financial statements are
prepared in accordance with United States generally accepted accounting
principles with all figures translated into United States dollars for
reporting purposes.
On January 26, 1999 the Company completed the acquisition of 100% of the
shares of Northstar Technical Inc. NTI has developed a communications
technology that can send information from one place in the ocean to
another place. The merger was effected through the issuance of 4,901,481
shares of treasury stock by the Company with the former shareholders of
the subsidiary receiving a majority of the total shares then issued and
outstanding. The transaction has been accounted for as a reverse take-
over resulting in the consolidated financial statements including the
results of operations of the acquired subsidiary prior to the merger.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Revenue recognition
The Company recognizes revenue from the sales of the NETMIND system on an
accrual basis based on agreed terms with the customers.
(b) Inventory and work-in-progress
The Company's inventory and work-in-progress are valued at the lower of
cost and net realizable value.
(c) Property and equipment
Property and equipment are recorded at cost less any government assistance
and are being amortized over their estimated useful lives using the rates
and methods set out below:
Computer equipment - 20% Declining balance
Computer software - 30% Declining balance
Office furniture and equipment - 20% Declining balance
Leasehold improvements - 20% Declining balance
-35-
<PAGE>
(d) Research and development
Research and development expenditures are charged to operations as
incurred.
(e) Investment tax credits
Investment tax credit refunds arising form the occurrence of qualifying
research and development expenditures have been recorded in these
financial statements as a reduction of the applicable research and
development costs.
(f) Government assistance
The Company has been awarded assistance under government programs.
Amounts received or receivable under these programs are recorded as a
reduction in the cost of property and equipment or as a reduction of the
applicable research and development costs.
(g) Foreign currency translation
The Company's operations and activities are conducted principally in
Canada, hence the Canadian dollar is the functional currency which is
translated into U.S. dollars for reporting purposes as follows:
(i) Monetary assets and liabilities at the rate of exchange in effect as at
the balance sheet date;
(ii) Non-monetary assets and liabilities at the exchange rates prevailing at
the time of the acquisition of the assets or assumptions of the
liabilities; and,
(iii) Revenues and expenditures at the average rate of exchange for the year.
Gains and losses arising from this translation of foreign currency are
accounted for as other comprehensive income (loss).
(h) Other comprehensive income (loss)
The Company has other comprehensive income (loss) arising from foreign
currency translation. Accordingly, other comprehensive income (loss) is
shown as a separate component of stockholders' equity.
(i) Net loss per share
Net loss per share calculations are based on the weighted average number
of common shares outstanding during the period.
(j) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
-36-
<PAGE>
assumptions that affect the reported amount of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates and would impact future results of operations and cash flows.
(k) Financial instruments
The Company's financial instruments consist of cash, receivables,
accounts payable and accrued liabilities, loans payable, long-term debt,
due to Cabot Management Limited and due to director. It is management's
opinion that the Company is not exposed to significant interest, currency
or credit risks arising from these financial instruments. The fair value
of these financial instruments approximates their carrying value.
3. COMPARATIVE FIGURES
The comparative figures for 1998 included in these consolidated financial
statements represent those of the legal subsidiary NTI and have been
reported on by other independent auditors who expressed an unqualified
opinion in their report thereon dated July 14, 1999. Certain of these
figures have been reclassified to conform with the current year's
presentation and generally accepted accounting principles in the United
States.
4. RECEIVABLES
- ----------------------------------------------------------------------------
1999 1998
- ----------------------------------------------------------------------------
Trade, net of allowance for doubtful accounts $52,265 $13,174
Due from director 37,182 0
Government assistance 577 0
Investment tax credits 15,585 83,730
- ----------------------------------------------------------------------------
$105,609 $96,904
- ----------------------------------------------------------------------------
5. PROPERTY AND EQUIPMENT
- ----------------------------------------------------------------------------
1999 1998
Accumulated
Cost Depreciation Net Net
- ----------------------------------------------------------------------------
Computer equipment $7,660 $2,848 $4,812 $2,348
Computer software 6,720 4,541 2,179 2,165
Furniture and equipment 33,991 15,346 18,645 11,759
Leasehold improvements 11,174 10,064 1,110 933
- ----------------------------------------------------------------------------
$59,545 $32,799 $26,746 $17,205
- ----------------------------------------------------------------------------
-37-
<PAGE>
6. REVERSE TAKE-OVER
As a result of the reverse take-over described in note 1 the liabilities
of the accounting acquiree in excess of its identifiable assets has been
treated as a recapitalization and charged to additional paid-in capital.
7. LOANS PAYABLE
1999 1998
10% loan payable to Enterprise Newfoundland ---- ----
and Labrador in monthly interest payments,
due on demand $12,393 $13,352
Loan payable to Barbara Yaffe, secured by
personal guarantee of a director 2,903 0
12% loan payable to Eastern Meridian Mining
Corporation was repaid during 1999 0 54,155
Loan payable to Dr. Carl Wesolowski 0 36,070
- ----------------------------------------------------------------------------
$15,296 $103,577
8. LONG-TERM DEBT
1999 1998
10% loan payable to Pathfinder Enterprises Inc. ---- ----
in monthly interest payments only, due July 5,
2002, secured by a floating debenture charge
($240,000 CDN.) $166,285 $156,525
ACOA 8.93% loan with monthly principal repayments
of $2,256 each commencing June 1, 2000
($195,331 CDN.) 135,336 127,393
ACOA 12% loan with monthly principal repayments
of $1,237 each ($139,284 CDN.) 96,504 97,828
ACOA 6.25% loan repayable in 72 monthly consecutive
instalments commencing July 1, 2000, if full loan
draw down is received, secured by postponements on
Cabot Management Limited's loans and shareholders'
loans ($212,547 CDN.) 147,265 84,794
- ----------------------------------------------------------------------------
545,390 466,540
Current portion 44,276 6,989
- ----------------------------------------------------------------------------
$501,114 $459,551
-38-
<PAGE>
9. RELATED PARTY TRANSACTIONS
(i) Cabot Management Limited ("Cabot") an associated company, related by a
common shareholder and director, bears no interest and is convertible
into common stock of the Company at the option of Cabot.
(ii) Due to director bears no interest and has no set terms of repayment.
(iii) Compensation paid to directors and officers amounted to $30,300 in
1999.
10. CONTINGENT LIABILITY
The Company is a defendant in a lawsuit commenced against them by their
former master distributor. The former distributor has alleged that the
Company has interfered with the ability of the former distributor to sell
products. The Company has filed a counter claim for monies owing by the
former distributor to the Company. An adverse outcome to the lawsuit
could have an adverse material impact upon the Company and the range of
possible loss could be from $0 to $1,300,000.
11. COMMITMENT
The Company is committed to minimum rental payments of $13,500 per year
for the next three years for office space.
12. STOCK OPTION PLANS
(i) During the year ended December 31, 1999, the Company approved the
allocation of 815,000 stock options to directors, officers and employees
of the Company exercisable at $0.50 per share up to five years from the
date of agreement.
(ii) The Company has agreed to grant to an independent management consulting
firm up to 10% of the number of shares placed with private investors of
financing up to $500,000. The exercise prices for these options are
$0.90 per share in the first year and $1.035 per share in the second
year.
13. INCOME TAX LOSSES
The Company has operating losses which may be carried forward to apply
against future years' taxable income. The tax effect has not been
recorded in these consolidated financial statements. These losses expire
as follows:
Available to Amount
- -----------------------------------------------------------------------------
2001 $ 26,000
2002 65,000
2003 355,000
2004 255,000
2005 357,000
- -----------------------------------------------------------------------------
$1,058,000
- -----------------------------------------------------------------------------
-39-
<PAGE>
14. SUBSEQUENT EVENT
The Company is in the process of filing a registration statement with the
Securities and Exchange Commission to register 800,000 common shares to
be offered to the public for net proceeds of $800,000.
NORTHSTAR TECHNICAL INC.
------------------------
St. John's, Newfoundland
------------------------
FINANCIAL STATEMENTS
December 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
-40-
<PAGE>
AUDITORS' REPORT 1.
----------------
To the Shareholders of
Northstar Technical Inc.
We have audited the balance sheet of Northstar Technical Inc. as at December
31, 1998 and the statements of loss and deficit and changes in cash resources
for the nine months then ended. These financial statements are the
responsibility of the company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in Canada. Those standards require that we plan and perform an
audit to obtain reasonable assurance whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at December 31, 1998 and
the results of its operations and the changes in its cash resources for the
nine months then ended in accordance with accounting principles generally
accepted in Canada consistently applied. Accounting principles generally
accepted in Canada differ in certain significant respects from accounting
principles generally accepted in the United States and are discussed in Note
14 to the financial statements.
The accompanying financial statements have been prepared assuming the company
will continue as a going concern. To date the company's operations are
mainly in the development stages and has not established revenues sufficient
to cover its operating costs. It is management's opinion that the company's
main net mind division and the new contract manufacturing division will
generate future revenues sufficient to cover all costs and result in annual
net incomes. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
St. John's, Newfoundland /s/ Sullivan, Lewis and White
July 14, 1999 Chartered Accountants
-41-
<PAGE>
NORTHSTAR TECHNICAL INC. 2.
------------------------
BALANCE SHEET
(Canadian Dollars)
DECEMBER 31, 1998
December 31, March 31,
ASSETS 1998 1998
------ ----------- ---------
Current
Bank $1,238 $3,829
Receivables (Note 2) 148,583 228,052
Work in progress 3,688 7,101
Inventory 52,591 88,356
Prepaid expenses 2,269 4,127
----------- ---------
208,369 331,465
Capital assets (Note 3) 25,523 27,733
Deferred development costs (Note 4) 768,311 824,744
Deferred charges (Note 5) 110,287 82,305
----------- ---------
$1,112,490 $1,266,247
=========== =========
LIABILITIES
-----------
Current
Payables and accruals $212,038 $199,556
Loans payable (Note 6) 158,815 138,790
Long term debt payable
within one year (Note 7) 10,716 127,340
----------- ---------
381,569 465,686
Long term debt (Note 7) 704,630 588,006
Loans payable to Cabot Management
Limited, no set terms of repayment (Note 8) 138,339 136,530
Loans payable to shareholder,
no set terms of repayment 120,370 83,602
----------- ---------
1,344,908 1,273,824
Contingent liability (Note 9)
SHAREHOLDERS' DEFICIENCY
------------------------
Share capital (Note 10) 622,453 605,372
Deficit (854,871) (612,949)
----------- ---------
(232,418) (7,577)
----------- ---------
$1,112,490 $1,266,247
ON BEHALF OF THE BOARD:
Director
-42- Director
<PAGE>
NORTHSTAR TECHNICAL INC. 3.
------------------------
STATEMENT OF LOSS AND DEFICIT
(Canadian Dollars)
NINE MONTHS ENDED DECEMBER 31, 1998
Nine Months Year
Ended Ended
December 31, March 31,
1998 1998
------------ ---------
Revenue $252,565 $272,631
Direct costs 147,155 140,891
------------ ---------
Gross profit 105,410 131,740
Other income 8,231 13,934
------------ ---------
113,641 145,674
------------ ---------
Expenses
Amortization of capital assets 6,992 15,917
Amortization of deferred development costs 72,224 87,621
Bank charges and interest 15,608 16,196
Contract manufacturing division (Note 11) 72,341 126,008
Heat and light 1,905 10,343
Insurance 1,838 2,027
Interest on loans 43,911 55,963
Management and marketing fees 4,992 16,235
Marketing/Market Research costs 3,606 5,742
Municipal taxes 1,249 2,960
Miscellaneous 5,194 3,855
Office operating 10,240 18,859
Professional fees 17,138 35,296
Rent 32,435 37,685
Repairs and maintenance 2,423 4,693
Telephone 9,590 11,184
Travel 3,739 6,865
Wages and benefits 50,138 66,992
Write off obsolete inventory stock - 14,405
Less: Allocation to deferred development costs - (149,808)
------------ ---------
355,563 389,038
------------ ---------
Net loss (Note 12) (241,922) (243,364)
Deficit, beginning of period (612,949) (351,303)
------------ ---------
(854,871) (594,667)
Dividends paid on preference shares - (42,282)
Discount earned on redemption of Class A preference
Shares - 24,000
------------ ---------
Deficit, end of period $(854,871) $(612,949)
============ =========
The accompanying notes are an integral part of these financial statements.
-43-
<PAGE>
NORTHSTAR TECHNICAL INC. 4.
------------------------
STATEMENT OF CHANGES IN CASH RESOURCES
(Canadian Dollars)
NINE MONTHS ENDED DECEMBER 31, 1998
-----------------------------------
Nine Months Year
Ended Ended
December 31, March 31,
1998 1998
------------ ----------
Cash provided by (used in)
Operations
Net loss $(241,922) $(243,364)
Amortization 104,667 124,114
Net change in non-cash working capital items 153,012 10,434
------------ ----------
15,757 (108,816)
Financing
Proceeds from long term debt - 130,015
Proceeds from issuance of common shares 17,081 595,287
Advances from Cabot Management Limited 1,809 5,694
Advances from shareholder 36,768 70,043
Repayment of long term debt - (30,000)
Discount on redemption of preference shares - 24,000
Redemption of preference shares - (84,000)
Payment of dividends on preference shares - (42,282)
Conversion of Class C preference shares - (287,333)
------------ ----------
55,658 381,424
------------ ----------
Investments
Increase in deferred charges - net (53,433) (102,881)
Increase in deferred development cost - net (15,791) (152,496)
Purchase of capital assets, net of investment
tax credits (4,782) (11,304)
------------ ----------
(74,006) (266,681)
------------ ----------
Net change in bank position (2,591) 5,927
Bank position, beginning of period 3,829 (2,098)
------------ ----------
Bank position, end of period $1,238 $3,829
============ ==========
The accompanying notes are an integral part of these financial statements.
-44-
<PAGE>
NORTHSTAR TECHNICAL INC. 5.
------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998
-----------------
1. Significant accounting policies
a. Capital assets
Capital assets are recorded at cost less any government assistance and are
being amortized 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 $ 1,847,795 on
this technology, including overhead costs of $ 621,430, which has been
reduced by various assistance and tax credits totaling $ 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.
-45-
<PAGE>
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 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
============ ==========
3. Capital assets December 31, March 31,
1998 1998
----------------------------- ----------
Cost Accumulated Net Book Net Book
Amortization Value Value
----------------------------- ----------
Computer equipment $6,654 $3,170 $3,484 $4,099
Computer software 8,892 5,681 3,211 3,945
Furniture and equipment 34,350 16,906 17,444 17,286
Leasehold improvements 15,872 14,488 1,384 2,403
----------------------------- ----------
$65,768 $40,245 $25,523 $27,733
============================= ==========
4. Deferred development costs
December 31, March 31,
1998 1998
------------ ----------
Wages and benefits $693,362 $608,461
Materials and other costs 173,736 165,160
Subcontractors 359,267
359,267
Overhead 621,430 621,430
------------ ----------
1,847,795 1,754,318
Less: Government assistance 380,133 362,965
Other assistance 61,685 61,685
Investment tax credits 437,728 377,210
------------ ----------
968,249 952,458
Less: Amortization 199,938 127,714
------------ ----------
$768,311 $824,744
============ ==========
-46-
<PAGE>
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 $20,473 $22,451
and Labrador in monthly interest payments
plus principal amount payable on demand
12% loan payable to Eastern Meridian Mining 83,036 75,939
Corporation including accrued interest, to be
repaid in full by March 1, 1999, secured by the
personal guarantee of Wilson Russell
Loan payable to Toronto-Dominion bank, - 20,000
secured by the personal guarantee of
Wilson Russell. This loan was repaid
in full on September 24, 1998
Loan payable to Brian Gamberg repaid in full - 20,400
on April 15, 1998
Loan payable to Dr. Carl Wesolowski 55,306 -
------------ ----------
$158,815 $138,790
============ ==========
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
-47-
<PAGE>
ACOA 6.25% loan repayable in 72 monthly consecutive
installments 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, totaling $ 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 Net Mind
systems sold to them. This termination has lead to court action, the outcome
of which is unknown as at the financial statements date.
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
============ ==========
-48-
<PAGE>
11. Contract Manufacturing Division
Nine Months Year
Ended Ended
December 31, March 31,
1998 1998
------------ ---------
Amortization of deferred charges (Note 5) $25,451 $20,576
Contract labor - 25,000
Operating expenses 1,199 63,356
Salaries and benefits 105,667 136,038
Less: Direct costs on contract with Lockheed
Martin - Federal Systems, Inc. - (25,133)
Wage subsidy/NRC funding (6,543) (19,899)
----------- ---------
125,774 199,938
Less: Allocation to deferred charges (Note 5) (53,433) (73,930)
----------- ---------
$72,341 $126,008
=========== =========
12. Income taxes
The company has losses carried forward totaling $ 1,531,226 which have not
been recognized in these financial statements. These losses carried forward
can be applied against otherwise taxable income and if unused will expire in
the following years:
December 31, 1999 - $3,811 December 31, 2003 - $512,179
December 31, 2001 - $37,523 December 31, 2004 - $367,846
December 31, 2002 - $94,492 December 31, 2005 - $515,375
========
Also the company's book values of deferred development costs and deferred
charges exceeds their income tax values by $ 878,598 as at December 31, 1998.
The net deferred income taxes debit related to both of these items have not
been reflected in these financial statements.
<PAGE>
13. Subsequent event
On January 26, 1999 the merger between Northstar Technical Inc. and
Scientific Technologies Inc. was completed which resulted in Northstar
Technical Inc. becoming a wholly owned subsidiary of Scientific Technologies
Inc., a US public trading company.
On January 15, 1999 and January 26, 1999 the shareholders of Northstar
Technical Inc. exchanged their 14,704,440 common shares for 4,901,480 common
shares in Scientific Technologies Inc. on the basis of three Northstar shares
for every one share of Scientific.
-49-
<PAGE>
14. Differences Between Canadian and United States Generally Accepted
Accounting Principles (AGAAP@)
These financial statements have been prepared in accordance with GAAP in
Canada which differs in some respects from GAAP in the United States. The
material differences between Canadian and United States GAAP, in respect of
these financial statements, are as follows:
Nine Months Year
Ended Ended
December 31, March 31,
1998 1998
------------ ---------
Adjustments to assets, and shareholders' deficiency
ASSETS
Deferred development costs
Canadian GAAP $768,311 $824,744
Research and development expenditures (768,311) (824,744)
------------ ---------
United States GAAP $ - $ -
Deferred charges
Canadian GAAP $110,287 $82,305
Deferred charges expenditures (110,287) (82,305)
------------ ---------
United States GAAP $ - $ -
Deficit
Canadian GAAP $ (854,871)$(612,949)
Research and development expenditures (768,311) (824,744)
Deferred charges expenditures (110,287) (82,305)
------------ ---------
United States GAAP $(1,733,469(1,519,998)
============ =========
Adjustments to net loss
Expenses
Canadian GAAP $355,563 $389,038
Amortization of deferred development costs (72,224) (87,621)
Amortization of deferred charges (25,451) (20,576)
Deferred development costs 15,791 152,496
Deferred charges 53,433 102,881
------------ ---------
United States GAAP $327,112 $536,218
Net loss for the period Canadian GAAP $(241,922)$(243,364)
Amortization of deferred development costs 72,224 87,621
Amortization of deferred charges 25,451 20,576
Deferred development costs expenditures (15,791) (152,496)
Deferred charges expenditures (53,433) (102,881)
------------ ----------
United States GAAP $(213,471)$(390,544)
-50-
<PAGE>
15. Uncertainty Due To The Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on or after January 1, 2000, and if not addressed,
the impact on operations and financial reporting may range from minor errors
to significant system failure which could affect an entity's ability to
conduct normal business operations. It is not possible to be certain that
all aspects of the Year 2000 Issue affecting the Company, including those
related to the efforts of customers, suppliers or other third parties, will
be fully resolved.
Part II
Information Not Required in the Prospectus
Item. 1 Indemnification of Officers and Directors
As per risks related to the management structure of Northstar
management will have no liability for any mistake, errors of judgment
or for any act of omission believed to be within the scope of authority
conferred by Northstar's articles unless such acts or omissions were
performed or omitted fraudulently or in bad faith, constituted gross
negligence or were a violation of a director's or officer's fiduciary
obligations to Northstar. Northstar has agreed to indemnify the
officers and directors against all loss or damage even if caused by
that officer's or director's fraud, bad faith, gross negligence or
breach of fiduciary obligation
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable.
-51-
<PAGE>
Item 2. Other Expenses of Issuance and Distribution
SEC Filing Fee $ 287
Accounting fees 12,000
Legal fees 25,000
Other professional fees 10,500
Blue Sky fees and expenses 2,500
Transfer agent's fees 1,900
Printing,including registration 1,500
statement and prospectus
Miscellaneous costs and expenses 2,000
------
Total $55,687
Item 3: Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable.
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.
-52-
<PAGE>
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Item 4. Unregistered Securities Issued or Sold Within One Year
The date, title and amount of unregistered securities sold by Northstar
formerly Scientific Technologies, Inc. are as follows:
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: $26,300
Net Proceeds: $336,600
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.
2) Date: January 26, 1999
Number of shares: 4,901,801
Total offering price: N/A. Northstar acquired all of the common
shares of NTI on the basis of 3 shares of NTI for 1 share of
Northstar. Exemption from registration: The statutory exemption that
Northstar relied on is Regulation S of the United States Securities
Act of 1933, as amended. All persons were defined as non-US
persons. The offering of shares was limited solely to the
shareholders of NTI as a reverse acquisition in which the NTI
business effectively became Northstar's business. The transaction
agreements are shown in 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.
-53-
<PAGE>
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(i) ** Certificate of Incorporation and Amendment thereto
(company name change)
3(ii) ** Northstar Electronics, Inc. Bylaws
5 ** Opinion Regarding Legality of Shares
10.01 ** 04/06/95 ACOA Project 600-403-1828-1 Contribution
Agreement
10.02 ** 05/18/95 NRC Letter of Agreement #03978E 10.03 **
10/23/95 NRC Contribution Agreement #04132E
10.04 ** 11/15/95 Teaming Agreement with LORAL Librascope
10.05 ** 02/09/96 ACOA Project 600-4024021-1 Contribution Agreement
10.06 ** 12/19/96 NRC Contribution Agreement #04702E
10.07 ** 04/10/97 ACOA Business Development Program Contribution
Agreement
10.08 ** 11/28/97 NRC Contribution Agreement #05100E
10.09 ** 10/28/97 Sales Agreement with Lockheed-Martin
10.10 ** 09/24/99 Sales Agreement with NOAA
10.11 ** 10/18/99 Sales Agreement with Lockheed-Martin
10.12 ** 05/28/99 Lease Agreement NTI and Par Holdings, Ltd.
10.13 ** 10/01/99 Lease Agreement Northstar Electronics, Inc. and
Morguard
23.1 ** Sullivan Lewis and White - Auditor's Consent Letter
23.2 ** Jones Jensen - Auditor's Consent Letter
23.3 * Jones Jensen - Letter from Jones Jensen re: agreement with
statement made on Changes in Accountants
23.4 * Pannell Kerr Forster - Auditors' Consent Letter
99.1 ** Disclosure Statement
99.2 ** Subscription Agreement
99.3 ** Y2K Issues
99.4 ** 05/18/98 STI-Private Placement Memorandum (with
attachments)
99.5 ** 06/03/98 STI-Private Placement Offering Memorandum (with
attachments)
99.6 ** 10/30/98 STI-Private Placement Offering Memorandum (with
attachments)
99.7 ** Letters of Consent (3 items)
* See copy attached to this filing.
** Submitted in previous filings.
-54-
<PAGE>
Item 6. Description of Exhibits
Exhibit No. Title of Document
- ---------- -----------------
3(i) ** Certificate of Incorporation and Amendment thereto
(company name change)
3(ii) ** Northstar Electronics, Inc. Bylaws
5 ** Opinion Regarding Legality of Shares
10 Material Contracts
10.01 ** 04/06/95 ACOA Project 600-403-1828-1 Contribution
Agreement
10.02 ** 05/18/95 NRC Letter of Agreement #03978E
10.03 ** 10/23/95 NRC Contribution Agreement #04132E
10.04 ** 11/15/95 Teaming Agreement with LORAL Librascope
10.05 ** 02/09/96 ACOA Project 600-4024021-1 Contribution Agreement
10.06 ** 12/19/96 NRC Contribution Agreement #04702E
10.07 ** 04/10/97 ACOA Business Development Program Contribution
Agreement
10.08 ** 11/28/97 NRC Contribution Agreement #05100E
10.09 ** 10/28/97 Sales Agreement with Lockheed-Martin
10.10 ** 09/24/99 Sales Agreement with NOAA
10.11 ** 10/18/99 Sales Agreement with Lockheed-Martin
10.12 ** 05/28/99 Lease Agreement NTI and Par Holdings, Ltd.
10.13 ** 10/01/99 Lease Agreement Northstar Electronics, Inc. and
Morguard
23.1 ** Sullivan Lewis and White - Auditor's Consent Letter
23.2 ** Jones Jensen - Auditor's Consent Letter
23.3 * Jones Jensen - Letter from Jones Jensen re: agreement with
statement made on Changes in Accountants
99.1 ** Disclosure Statement
99.2 ** Subscription Agreement
99.3 ** Y2K Issues
99.4 ** 05/18/98 STI-Private Placement Memorandum (with
attachments)
99.5 ** 06/03/98 STI-Private Placement Offering Memorandum (with
attachments)
99.6 ** 10/30/98 STI-Private Placement Offering Memorandum (with
attachments)
99.7 ** Letters of Consent (3 items)
-55-
<PAGE>
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
April 7, 2000.
By: /s/ Dr. Wilson Russell
/s/ Wilson Russell, PhD
- -----------------------------------
Dr. Wilson Russell,
President,
Principal Financial Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the
capacities and on the dates stated.
By: /s/ Dr. Wilson Russell
/s/Wilson Russell, PhD
- -----------------------------------
Dr. Wilson Russell,
President,
Principal Financial Officer
Date: 04/07/00
/s/ Frank Power
- -------------------------------
Frank Power, Director
Date filed: April 7, 2000
SEC File No. 333-90031
-57-
<PAGE>
Exhibit 23.3
Letterhead of Jones Jensen & Company, LLC
March 7, 2000
Securities & Exchange Commission
450 Fifty Street, N.W.
Washington, D.C. 20549
Gentlemen:
We have read the section entitled "Changes in or Disagreements with
Accountants on Accounting and Financial Disclosure" of the Form SB-1 of
Northstar Electronics, Inc. (formerly Scientific Technologies, Inc.), and are
in agreement with the statements contained therein in so far as they relate
to our firm. We have no basis to agree or disagree with other statements of
the registrant contained therein.
Very truly yours,
/s/ Jones, Jensen & Company
- ---------------------------
Jones, Jensen & Company
<PAGE>
Exhibit 23.4
Letterhead of Pannell Kerr Forster
Board of Directors
Northstar Electronics Inc.
1455 - 409 Granville Street
Vancouver, B.C. V6G 2J2
We hereby consent to the use of our report dated March 13, 2000, for the year
ended December 31, 1999 included in the form SB-1 in accordance with Section
12 of the Securities and Exchange Act of 1934.
/s/ Pannell Kerr Forster
- ---------------------------
Chartered Accountants
Vancouver, Canada
April 4, 2000
