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Registration No. 333-90031
Amendment No.7
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)3679
Delaware 3679 #333-0803434
(State or other Jurisdiction of (Primary Standard (I.R.S. Employer
Incorporation or organization) Industrial Identification
Classification Code) 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 n a
delayed or continuing basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box. / X /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number
of the earlier effective registration statement for the same offering. / /
If this form is a post-effective delaying amendment filed pursuant to
Rule 462, 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. / /
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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 Offering price Maximum Dollar Proposed Amount
of Securities per share Amount of
to be registered to be registration
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/
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Northstar Electronics, Inc.
Mailing Address:
Suite 1455-409 Granville Street
Vancouver, BC
V6C 1T2
(604) 685-0364
As filed with the United States Securities and Exchange Commission on
November 1, 1999
Description of Securities Offered: Up to 800,000 shares of common
stock, par value $0.0001, to be offered by the company at a price of
$1.00US per share; and up to 200,000 shares, of common stock,
par value $0.0001, to be offered by a selling security holder on a
delayed or continuous basis following the effective date of this
prospectus. All costs incurred in the registration of the shares are
being paid by the company.
These securities involve a high degree of risk. See "Risk Factors"
contained in this prospectus, 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
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: June 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
6 Risk Factors
9 Plan of Distribution
10 Dilution
10 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
25 Disclosure of Commission Position on Indemnification
Of Securities Act Liabilities
26 Litigation
28 Financial Statements
74 Part II Information not Required in the Prospectus
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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: June 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.
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Risk Factors
Northstar's business carries substantial risks. Northstar's securities
should be purchased only by those who can afford to lose their entire
investment. You should consider the following risk factors and other
information in this prospectus before investing in our common stock.
Because our operating history is limited and includes financial losses,
our future business may continue to be unprofitable
The auditors for Northstar's operating subsidiary, NTI, have deemed NTI
a going concern. However, we have only a limited operating history
upon which an evaluation of our business and future prospects can be
based. We have never been profitable and future profits may never
occur. This lack of profitability would seriously impede our ability
to continue as an operating company.
Increased expenses could lead to curtailment of operations
We plan to expand operations and to conduct additional research and
development-all of which will increase company expenses. If revenues do
not rise in conjunction with expenses, we may have to curtail
operations or halt operations completely.
Inadequate manufacturing performance could damage our business
Unanticipated technical or quality control problems on the Lockheed
Martin contract could delay payments from Lockheed Martin that could
cause us financial problems and may curtail operations.
Failure to obtain manufacturing components in a timely fashion may
curtail product productions
Our manufacturing operations, both NETMIND and contract, depend on
reliable suppliers who can provide electronic and mechanical parts
promptly. We have limited experience with our suppliers and no
long-term contracts or direct control over these suppliers, which
are independent third parties. In our brief experience with these
suppliers, we have found ourselves waiting for parts. Long
interruptions may curtail production operations.
Any disruption to our computerized inventory ordering system due to
software and hardware failures would delay component ordering and
may curtail production operations.
Failure to attract new personnel or replace leaving personnel may
curtail operations
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Competition for personnel in the high technology industry is strong.
Because we are a relatively new company with a limited operating
history and limited financial resources, we may not be able to retain
key technical, sales and management employees or be able to recruit
qualified electronic engineers, technicians and managers that we may
need in the near future. This could impede our ability to produce
additional products to meet any increased demand that the company might
develop through its marketing efforts and limit our ability to keep up
to date with our research and development efforts.
Our inability to compete with established competitors may limit sales
of the NETMIND product
We may not be able to effectively compete with established competitors,
such as Furuno and Scanmar, and NETMIND sales may not increase very
much, or at all. This could mean that Northstar will never be
profitable.
Other companies may claim that we have infringed their intellectual
property rights
Other companies in the marine electronics industry may claim that we
have infringed on their intellectual property rights. We may not have
the financial resources to adequately defend such claims and NETMIND
operations may be curtailed.
No dividends may be declared on our shares
It is unlikely that we will declare any dividends on our shares during
the next five years, or ever. Consequently, any investment in our
shares should not depend on the declaration of dividends.
Our share value may be lower than the offering price because of
dilution
New investors will suffer an immediate dilution of their investment
based on the book-value of the common shares they purchase. See the
dilution section for a reference table. Furthermore, any new issuance
of common shares may devalue existing shares.
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
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Downturns in the defense industry in the United States and Canada-our
target market- occur from time to time; this in turn could hurt our
potential for future contract manufacturing opportunities.
Current legal claims against Northstar could result in financial
difficulties
We are currently the defendant in a lawsuit commenced by our company's
former master distributor, First Watch Marine, Inc. that company
alleges that we interfered with its ability to sell products and claims
$1.3 million in relief, plus damages. We have filed a counterclaim of
$100,000, which we contend First Watch owes, plus damages. We consider
our case strong, but court proceedings are unpredictable, time-
consuming and costly.
Our dependency on one product could lead to curtailment of Northstar's
business
NETMIND is our only commercial product and the success of Northstar is
highly dependent upon the commercial viability of the NETMIND product
as it compares to other similar products available in the market. To
date, we have not sold NETMIND on a profitable basis. If, for whatever
reason, we are not able to produce, market and sell the NETMIND product
profitably, we may not have the financial resources to maintain the
company's business.
If we do not raise funds in the next six months, we will have
significant delays in the development of new products and may be forced
to substantially curtail operations
We are attempting to raise funds that are necessary for further
development of our business plan. If we are unsuccessful in the next
six months, we will face risks including the following:
We would be forced to curtail our operations and delay development
of new products.
Our business development activities would be curtailed, which would
severely limit our ability to generate revenues to cover current and
future operating expenses.
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.
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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.
The selling security holder may offer the 200,000 shares covered in
this registration statement in the over-the-counter market, on the
Nasdaq National Market, in privately negotiated transactions, or by a
combination of such methods of sale, at market prices prevailing at the
time of sale, at prices related to the prevailing market prices or at
negotiated market prices.
The shares are being sold by the selling security holder and Northstar
has no agreements or understandings with any broker or dealer for the
sale of such shares. The selling security holder may use a broker-
dealer in the sale of his securities and the commission to be paid, if
any, will be determined at that time. Prior to the involvement of any
such broker-dealer, such broker-dealer must seek and obtain clearance
of the compensation arrangements from the National Association of
Securities Dealers, Inc. In such an event, Northstar will file a post-
effective amendment identifying such broker-dealer(s).
Northstar will receive no proceeds from the sale of the shares of the
selling security holder.
The proposed sale of the Northstar shares and the selling security
holder shares will be made as soon as practicable following the
effectiveness of the registration statement.
Sales of the shares offered by the selling security holder, or even the
potential of such sales, may likely have an adverse effect on the
market price of the common stock of Northstar.
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Dilution
The net tangible book value of the company, as of September 30, 1999
was ($380,017) or approximately ($0.05) per share. Giving effect to the
sale by Northstar of shares at the offering price, the pro forma net
tangible book value of Northstar would be approximately $419,983 or
approximately $0.05 per share, which would represent an immediate
increase in net tangible book value of approximately $0.10 per share to
present shareholders and an immediate dilution of approximately $0.95
per share, or approximately 95% to new investors. The dilution factors
are summarized as follows:
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ASSUMING MAXIMUM SHARES SOLD
Offering Price (before deduction of operating expenses) $1.00 per share
Net tangible book value before offering ($0.05) per share
Net tangible book value after offering $0.05 per share
Dilution to new investors $0.95 per share
Dilution as a percentage 95%
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Use of Proceeds
We estimate that Northstar will use the maximum funds of $800,000 as
follows :
Production (Marine Electronics) $150,000
Production (Contract Manufacturing) $200,000
Marketing (Marine Electronics) $100,000
Business Development (Contract Manufacturing) $100,000
Operating Capital $250,000
Total $800,000
Production/Marine Electronics refers to the manufacture of our NETMIND
system. The company plans to increase production from approximately
four systems per month to 8-10 per month, by adding additional
electronic equipment, increasing the size of the plant's electronics
section by about 1500 square feet, and hiring three new full-time
production workers.
Production/Contract Manufacturing refers to our manufacture of other
companies' systems, under contract. The company intends to establish a
separate production operation for this. The space required is about
2,000 square feet to accommodate component inventory, manufacturing,
administration, storage of finished goods and shipping. Equipment will
be purchased for electronic and mechanical assembly and for testing of
both incoming components and finished goods. Northstar plans to hire
up to five new contract employees in 2000/2001.
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Marketing/Marine Electronics refers to the NETMIND marketing.
Northstar intends to increase activities in 2000/2001, primarily in Western
North America, the Gulf of Mexico and the US Eastern Seaboard,
which it's hoped will lead to increased sales. Additionally, Northstar
wants to start marketing in overseas countries such as Australia,
Chile, Thailand, Korea and China. It will exhibit at trade shows,
advertise in trade magazines, find new dealers, and provide guidance
and support to these dealers.
Business Development/Contract Manufacturing refers to the activities
designed to gain new contracts. The main focus in 2000/2001 will be
large prime and defense communications contractors in the United States
and Canada. The company intends to hire two people, each with 15-20
years experience in these industries, to identify opportunities. They
will meet with prime contractors exhibit at defense and communications
trade shows, and prepare qualifications documents and bids.
Northstar may not be able to raise the full amount of the offering
proceeds. If only 25%, 50%, or 75% were raised, the proceeds would be
allocated as follows:
Amount Raised 25% 50% 75%
-------- -------- --------
Production(Marine Electronics) $100,000 $150,000 $150,000
Production (Contract Manufacturing) $50,000 $100,000 $200,000
Marketing (Marine Electronics) $50,000 $100,000 $100,000
Business Development (Contract Man.) ---- $50,000 $100,000
Operating Capital ---- ---- $50,000
-------- -------- --------
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.
If our efforts to obtain financing are unsuccessful, Northstar's
growth, if any, will likely be funded from operating cash flow.
Northstar's Business
Northstar's business is currently that of its subsidiary NTI.
Northstar was incorporated on May 11, 1998 as Scientific Technologies,
Inc. under the laws of the state of Delaware. The name of the company
was changed to Northstar Electronics, Inc. in September, 1999.
Corporate Facilities: Northstar maintains its principal corporate
offices at #1455-409 Granville Street, Vancouver, British Columbia,
Canada V6C 1T2.
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NTI Corporate Information: NTI is a corporation incorporated under the
laws of Newfoundland, Canada on July 5, 1989 and extra-provincially
registered in British Columbia on April 1, 1997. The registered and
records offices of NTI are located at 10 Fort William Place, P.O. Box
5939, St. John's, Newfoundland, A1C 5X4 Telephone:(709) 722-8735,
Facsimile: (709) 722-1763). NTI's head office is located at Suite 1455,
409 Granville Street, Vancouver, British Columbia, Canada, V6C 1T2
Telephone: (604) 685-0364, Facsimile: (604) 689-8337.
NTI-General Development and History: NTI was founded in 1989 by Dr.
Wilson Russell as a technology development and manufacturing company.
It effectively became an operating company in 1994. NTI acquired the
initial technology for the NETMIND system from the receiver of National
Petroleum and Marine Consultants Limited and Altair Marine Systems
Limited for the sum of $1.00.
The companies had spent an aggregate $1,183,000 on partial development
of the technology.
NTI has since 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,
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
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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
We have received positive written feedback from some of our customers.
Three of these are shown in Exhibit 3.13. In summary, they say that
the NETMIND system enhances efficiency, reduces gear damage and
improves quality.
Competition: The NETMIND system has two main competitors, Furuno in
Japan and Scanmar in Norway, both of which are private companies. Very
little information is available to the public on these companies'
sales, 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
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1996-1999 which established our technical specifications and on
information gleaned from Furuno's website, www.furuno.com, and from
Scanmar's website, www.scanmar.com. We have no direct access to any
competitor's test data.
Both the Furuno and Scanmar systems consist of wireless acoustic
sensors used underwater in a similar fashion to the NETMIND system. The
Furuno C-24 system is a net recorder used for mid-water and deep-water
trawlers. The Scanmar net monitoring system operates the same way, that
is, by illustrating how the fishing net is behaving while being towed.
However, unlike these products, NETMIND sensors are fully serviceable.
The electronic circuitry is contained in stainless steel cylinders
within each component and is easily removed for repair by opening the
end cap.
We believe, that NETMIND components have longer battery life: 150-200
hours before recharging compared to approximately 20-150 hours for
Scanmar and 10-15 hours for Furuno. As well, the NETMIND system has
proven to be very effective at distances up to 2000 metres while, we
believe, competitive systems fall short of this feature. This is
because underwater sound waves can be detected at greater distances if
their frequency is low. The telemetry frequency for NETMIND is 28Khz,
compared to 40Khz for Furuno and 40.8-43.4 for Scanmar. We believe the
rugged design of various NETMIND components has surpassed competitors'
designs in that NETMIND's unique components require very little
maintenance.
While NTI is continuing to grow, we believe the company is smaller in
size and resources when compared to its competitors. NTI's staff
numbers fourteen, while we believe Scanmar and Furuno each employ many
times that number. As well, we believe these companies' facilities are
substantially larger than NTI's. We also believe that Scanmar and
Furuno have each achieved worldwide sales of several thousand systems
through well developed dealer networks. We base these beliefs on the
general reputations of these companies in the marketplace over the past
five years and on verbal discussions our staff has had, from time to
time, with electronics dealers in Canada, the United States, Iceland
and Norway over the past five years.
Distribution of 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.
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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.
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.
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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 November 30, 1999, Northstar had fourteen full-time employees
and three part-time engineering consultants. None of Northstar's
employees are represented by a labour union, and Northstar considers
its employee relations to be good. Competition for qualified personnel
in Northstar's industry is intense, particularly for software
development and other technical staff. Northstar believes its future
success will depend in part on its continued ability to attract, hire
and retain qualified personnel.
Management's Discussion 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
$62,318 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.
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Our revenues were $168,377 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-Nine Months Ended September 30, 1998 and 1999
NTI's wholesale revenues were $154,496 for the nine months ending
September 30, 1998 and $321,013 for the nine months ending September
30, 1999. The gross profit for the nine months ending September 30,
1998 was 35% and 65% for the nine months ending September 30, 1999.
Expenses totaled $264,834 for the nine months ended September 30, 1998
and $396,753 for the nine months ended September 30, 1999. Dividends of
$28,763 were paid on Northstar's preference shares in 1998. These
shares have been fully redeemed or converted to common shares.
Northstar's assets as of September 30, 1999 totaled $401,553 and its
current liabilities totalled $113,810. Long-term debt of $526,061
consists of government interest-free loans and a loan of $160,000
payable to Pathfinder Enterprises Inc., a company controlled by a
shareholder of Northstar, with monthly interest payments only to July
2002, secured by a floating charge debenture. There are shareholder
loans of $141,699 with no fixed terms of repayment. Northstar has an
accumulated deficit of $1,404,286 as of September 30, 1999. The amount
spent on research and development in the last two fiscal years was
$258,196. The amount of receivables subsequently collected in cash,
after September 1999, was $131,573.
Our financial statements include the accounts of NTI for all periods
and the accounts of Northstar commencing January, 1999. Northstar had
no operations other than organizational activities prior to the
January, 1999 merger.
-17-
<PAGE>
Changes in or Disagreements with Accountants on Accounting and
Financial Disclosure
Northstar's board of directors approved a decision in December,
1999, to change accountants. The primary reason was that we require a
firm in close proximity to our corporate offices.
Jones, Jensen and Company, LLC, had carried out the audits prior
to the reverse acquisition, when the company was called Scientific
Technologies, Inc.
Statements prepared by Jones, Jensen and Company contained no
adverse opinion or disclaimer of opinion, nor were they modified as to
uncertainty, audit scope or accounting principles.
There were no disagreements between Northstar's management and
Jones and Jensen on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure. A
letter to that effect from Jones Jensen is shown in the exhibits.
Northstar has engaged a new accounting firm, Smythe Ratcliffe, to
carry out future audits. No consultations have been made, to date,
with this firm.
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.
Number (1) Number (2)
Name and of % of of % of
Address of Shares Shares Shares Shares
Title of Beneficial Before Before After After
Class Owner Offering Offering Offering Offering
- -------- ----------- -------- -------- -------- --------Common
Stock Frank Power 990,000 13.37% 990,000 11.78%
998 Riverside Dr.
Port Coquitlam,B.C.
Canada V3B 7Y4
Common Stock Wilson Russell 964,883 13.03% 964,883 11.48%
4742 Collingwood St.
Vancouver, B.C.
Canada V6S 2B4
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<PAGE>
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%
60 Market Square
P.O Box 364
Belize City
Belize, C.A.
Common Stock Adventure
Capital Inc. 533,633 7.02% 533,633 7.11%
9 Power Place
St. John's NFLD,
Canada
Common Stock Dr.Michel
Ghanadian(4) 400,000 5.26% 200,000(5) 2.38%(5)
CH. Didotai 10
1223 Cologny,
Switzerland
Common Stock Monaco Ventures
Ltd.(3) 1,000,000 13.51% 1,000,000 11.90%
60 Market Square
P.O Box 364
Belize City
Belize, C.A.
Common Stock London Enterprises
Ltd.(3) 700,000 9.45% 700,000 8.33%
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
Directors, Officers and Significant Employees
The following information sets forth the names of the officers and
directors of Northstar, their present positions with Northstar, and
their biographical information. Each director will serve until the next
annual meeting of shareholders, and thereafter if re-elected.
Name of Director Age
- ---------------- ---
Dr. Wilson Russell 54
Mr. Frank Power 56
Mr. Lee Meyer 54
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<PAGE>
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 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.
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<PAGE>
Mr. Frank Power: Mr. Power, a business management consultant, has
managed and administered several public companies for the last 15
years. Since 1984, Mr. Power has provided services, including strategic
planning, management, administration, design and construction of major
mining projects both nationally and internationally. He has owned and
operated several consulting companies which have been providing
comprehensive services in the industrial and high-technology fields as
well as the mining field. His expertise includes re-activating public
companies, project acquisitions, public and private funding, as well as
developing and taking private companies public. He is equally skilled
to function in the public markets of both Canada and the United States.
Mr. Power is president and owner of Pow Con Management since 1981 and
Premier Enterprises Ltd., since 1994. These companies manage,
administrate and finance reporting companies. He served as president
and director of several Vancouver reporting companies and publicly
listed companies from 1986 to present. Since 1992, Mr. Power has
served as president of World Organics Inc., listed on the Vancouver
Stock Exchange. From 1996 to 1997, Mr. Power served as president and
director of Accuimage Diagnostics and he is also the past president of
Security Industries, Inc. These companies are traded on the OTC
Bulletin Board. Mr. Power has served as a director of Northstar since
May of 1998.
Mr. Lee Meyer: Mr. Meyer, since completing his Business Administration
Degree from Arizona State University in 1946, has held positions as a
managing director of Omni International since 1988; vice-president and
director of World Organics, Inc., a reporting company; Secretary and
Treasurer of Tec Industries Corp., a specialty equipment rental agency
from 1980 through 1990; and owner and president of Stretchcoat from
1973 to 1984, a national manufacturer and marketer of specialty
products. Present positions include president of WOI since 1991, a
producer and marketer of agricultural amendments; Vice-President and
50% owner of Bio-Organics, Inc., an international manufacturer and
marketer of micro-biological products. Mr. Meyer has also represented
major principals selling products nationally.
Mr. Meyer has served as a director of Northstar since May of 1998.
Name of Significant Employee Age Title
- ---------------------------- --- -----
Dr. David Buttle 51 Technical Director
Mr. Brian Gamberg 48 Senior Electronics Engineer
Mr. James Hall 33 Electronics Technologist/
Production Manager
Ms. Philomena Kavanagh 43 Office Manager
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
-22-
<PAGE>
Ltd., produced numerous sonar systems, including exercise mine acoustic
telemetry systems, which are used by the British, United States,
Australian, Belgian, Canadian and Egyptian Navies. Dr. David Buttle
supervised the design of the NETMIND system and advises NTI on
production and value engineering.
Mr. Brian Gamberg, P.Eng: Senior Electronics Engineer, has over 20
years experience developing marine systems, computer and communications
systems and in project management. He has been involved in the design,
development and implementation of both hardware and software elements
of tracking radar systems, geophysical sounding systems, and
distributed computing systems. Geographical Information systems and
embedded instrumentation systems. Mr. Gamberg is responsible for the
development of new NETMIND technologies and any other underwater
communications products.
Mr. James Hall: an Electronics Technologist and NTI's Production
Manager. Mr. Hall is responsible for all production activities
including inventory control, electronic and mechanical production,
testing, quality control and shipping.
Ms. Philomena Kavanagh: Ms. Kavanagh, has extensive experience in
office management and has worked for companies such as Coopers Lybrand,
A.H. Murray Ltd. and Atlantic Specialties Ltd. Ms. Kavanagh is
responsible for NTI's financial and product shipment administration.
Remuneration of Officers and Directors
The following table sets out certain information as to the company's
three highest paid officers and directors for the period from the
commencement of Northstar's business in February, 1999 to September 30,
1999. No other compensation was paid to any such officer or director
other than the cash compensation set forth below:
Summary Compensation Table
Name of Individual(s) Capacities in which Remuneration
Aggregate Remuneration
was Received
- --------------------- ---------------------- ------------
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
-23-
<PAGE>
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.
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.
-24-
<PAGE>
Available Information:
The public may read and copy any materials filed with the SEC at the
SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
also maintains a website that contains reports, proxys and other
information regarding issuers that file electronically with the SEC.
The address is (http://www.sec.gov).
Disclosure of Commission Position on Indemnification of Securities Act
Liabilities
As per risks related to the management structure of Northstar
management will have no liability for any mistake, errors of judgment
or for any act of omission believed to be within the scope of authority
conferred by Northstar's articles unless such acts or omissions were
performed or omitted fraudulently or in bad faith, constituted gross
negligence or were a violation of a director's or officer's fiduciary
obligations to Northstar . Northstar has agreed to indemnify the
officers and directors against all loss or damage even if caused by
that officer's or director's fraud, bad faith, gross negligence or
breach of fiduciary obligation.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable.
Description of Securities
General:
The securities being offered are the shares of Northstar common stock,
par value $0.0001 per share. Under Northstar articles of incorporation,
the total number of shares of all classes of stock that Northstar shall
have authority to issue is 100,000,000 shares of common stock par value
$0.0001 per share 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
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<PAGE>
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.
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
-26-
<PAGE>
money which it says First Watch owes it for NETMIND systems delivered
to them. Northstar feels that it has a strong case and that there is
no validity to the claims against it. The case may take up to two
years or longer to go to trial.
The details are as follows:
1) Name of the court where proceedings are pending: Supreme Court of
Newfoundland, Canada
2) Date proceeding began: First Watch issued statement of claim
against NTI on July 15, 1999.
(First Watch Marine Inc.-Plaintiff and NTI-Defendant) NTI issued a
statement of claim on August 3, 1999 (NTI-Plaintiff and First Watch
Marine Inc.-Defendant)
3) Principal Parties: NTI and First Watch Marine Ltd.
4) Description of facts underlying the proceedings: First Watch
alleges that NTI interfered in its ability to sell NETMIND
systems. NTI alleges that First Watch owes NTI money for delivery of
NETMIND systems by NTI to First Watch.
5) Relief sought: First Watch-$1.3 million plus damages
NTI-$100,000 plus damages
Northstar Electronics, Inc.
(800,000 shares of Common Stock)
Prospectus
Until June 30, 2,000 all dealers effecting transactions in the
registered securities, whether or not participating in this
distribution, may be required to deliver a prospectus.
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<PAGE>
FINANCIAL STATEMENTS
This section should comprise the audited and unaudited financial statements
of Northstar Electronics, inc. and its wholly owned subsidiary Northstar
Technical, Inc.
Index to Financials:
i) Northstar Electronics Inc. Unaudited Consolidated Financial Statements
for the period ended 12/31/97.
ii) Northstar Electronics Inc. Unaudited Consolidated Financial Statements
for the period ended 12/31/98. NEED NOTE ADDED
iii) Northstar Electronics Inc. Unaudited Consolidated Financial Statements
for the period ended 9/30/99. NEED NEW STMTS
iv) Northstar Technical Inc. Audited Financial Statements for the period
ended 3/31/98, along with Auditors' Report.
v) Northstar Technical Inc. Audited Financial Statements for the period
ended 12/31/98, along with Auditors' Report. NEED NEW ONE
vi) Consent of Independent Auditors'
- ---------------------------------------------------------------------------
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<PAGE>
i)
NORTHSTAR ELECTRONICS INC.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(U.S. Dollars)
(Unaudited)
December 31, 1997
CONTENTS Page
Interim Consolidated Income Statement 1
Interim Consolidated Statement of Cash Flows 2
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<PAGE>
NORTHSTAR ELECTRONICS INC.
INTERIM CONSOLIDATED INCOME STATEMENT
(U.S. Dollars)
(Unaudited)
NINE MONTHS ENDED DECEMBER 31, 1997
Sales $158,066
Cost of goods sold 48,723
-------
Gross profit 109,343
Expenses
Business tax 1,496
Depreciation 4,246
Dues, fees and licenses 1,063
Insurance 1,323
Interest and bank charges 32,595
Lab expenses 5,000
Marketing 8,668
Office and miscellaneous 17,130
Professional fees 22,106
Rent 24,914
Salaries/wages/employee benefits 105,804
Travel 27,683
Research and development cost 23,532
Contract manufacturing cost 28,218
-------
303,778
-------
Net loss (194,435)
Deficit, beginning of period (740,781)
-------
(935,216)
Add: Discount earned on redemption of
Class A preference shares 16,000
-------
Deficit, end of period $(919,216)
========
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<PAGE>
NORTHSTAR ELECTRONICS INC.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
(U.S. Dollars)
(Unaudited)
NINE MONTHS ENDED DECEMBER 31, 1997
Cash provided by (used in)
Operations
Net loss $(194,435)
Depreciation 4,246
Net change in non-cash working capital items 82,174
-------
(108,015)
-------
Financing activities
Proceeds from issuance of shares 117,781
Proceeds from long term debt 17,334
Advances to Cabot Management Limited (2,977)
Advances from shareholder 4,967
Discount on redemption of preference shares 16,000
-------
153,105
-------
Investing activities
Purchase of capital assets (8,245)
Net change in cash resources 36,845
Cash, beginning of period (1,399)
-------
Cash, end of period $35,446
=======
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<PAGE>
ii)
NORTHSTAR ELECTRONICS INC.
CONSOLIDATED FINANCIAL STATEMENTS
(U.S. Dollars)
(Unaudited)
December 31, 1998
CONTENTS Page
Consolidated Balance Sheet 1
Consolidated Income Statement 2
Consolidated Statement of Shareholders Equity 3
Consolidated Statement of Cash Flows 4
Notes to Consolidated Financial Statements 5
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<PAGE>
NORTHSTAR ELECTRONICS INC.
CONSOLIDATED BALANCE SHEET
(U.S. Dollars)
(Unaudited)
December 31, 1998
December 31, March 31,
1998 1998
ASSETS ------- -------
Current
Cash $2,231 $2,553
Receivables 99,055 152,035
Inventory and work in progress 37,519 63,638
Prepaid expenses 1,513 2,751
------- -------
140,318 220,977
Capital assets 17,016 18,489
------- -------
$157,334 $239,466
======= =======
LIABILITIES
Current
Payables and accruals $167,541 $133,037
Loans payable 116,039 92,527
------- -------
283,580 225,564
Long term debt (Note 2) 476,897 476,897
Loans payable to Cabot Management Limited 92,226 91,020
Loans payable to shareholder 80,246 55,735
------- -------
932,949 849,216
Contingent liability (Note 4)
SHAREHOLDERS' EQUITY
Share capital (Note 3) 440,069 403,582
Deficit (1,215,684) (1,013,332)
------- -------
(775,615 (609,750)
------- -------
$157,334 $239,466
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
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<PAGE>
NORTHSTAR ELECTRONICS INC.
CONSOLIDATED INCOME STATEMENT
(U.S. Dollars)
(Unaudited)
NINE MONTHS ENDED DECEMBER 31, 1998
Nine Months Year
Ended Ended
December 31, March 31,
1998 1998
----------- -------
Sales $168,377 $181,754
Cost of goods sold 98,103 93,927
------- -------
Gross profit 70,274 87,827
Expenses
Business tax 833 1,973
Depreciation 4,662 10,611
Insurance 1,226 1,351
Interest and bank charges 39,287 48,106
Lab expenses 2,482 3,000
Marketing 5,061 14,651
Miscellaneous - 2,570
Office expenses 27,573 2,362
Professional fees 11,425 23,531
Rent 10,898 25,123
Salaries/wages/employee benefits 75,030 44,661
Organizational cost 38,000 -
Commitment fees 10,000 -
Research and development cost 10,527 101,664
Contract manufacturing cost 35,622 68,587
------- -------
272,626 348,190
Net loss (202,352) (260,363)
Deficit, beginning of period (1,013,332) (740,781)
------- -------
(1,215,684) (1,001,144)
Less: Dividends paid, net of discount
earned, on preference shares - (12,188)
------- -------
Deficit, end of period $(1,215,684) $(1,013,332)
Net loss per share $(0.09) $ -
Weighted average number of common
shares outstanding 2,140,000 -
The accompanying notes are an integral part of these consolidated
financial statements.
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<PAGE>
NORTHSTAR ELECTRONICS INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
(U.S. Dollars)
(Unaudited)
NINE MONTHS ENDED DECEMBER 31, 1998
Additional Total
Common Shares Paid-In Shareholders
Number Amount Capital Deficit Equity
------ ------ ------- ------- ------
Balance,
March 31, 1998 - $ - $403,582 $(1,013,332) $(609,750)
Common shares issued
for cash at $0.0025
per share 2,040,000 204 4,896
Common shares issued
for cash at $0.25
per share 100,000 10 24,990
Stock offering costs - - (5,000)
Additional paid up
capital received in
wholly owned
subsidiary - - 11,387
Net loss -
December 31, 1998 - - - (202,352)
------ ------ ------- ------- ------
Balance,
December 31, 1998 2,140,000 $214 $439,855 $(1,215,684) $(775,615)
The accompanying notes are an integral parts of these consolidated
financial statements.
-35-
<PAGE>
NORTHSTAR ELECTRONICS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(U.S. Dollars)
(Unaudited)
NINE MONTHS ENDED DECEMBER 31, 1998
Nine Months Year
Ended Ended
December 31, March 31,
1998 1998
Cash Provided by (used in) ---------- --------
Operations
Net loss $(202,352) $(260,363)
Depreciation 4,662 10,611
Net change in non-cash
working capital items 138,352 6,957
---------- --------
(59,338) (242,795)
---------- --------
Financing activities
Proceeds from issuance
of common shares 36,487 396,858
Proceeds from long term debt - 86,677
Advances from Cabot Management
Limited 1,206 3,796
Advances from shareholder 24,512 46,695
Repayment of long term debt - (20,000)
Discount on redemption of
preference shares - 16,000
Redemption of preference shares - (56,000)
Payment of dividends on preference
shares - (28,188)
Conversion of Class C preference
shares - (191,555)
---------- --------
62,205 254,283
Investing Activities ---------- --------
Purchase of capital assets (3,189) (7,536)
---------- --------
Increase in cash (322) 3,952
Cash, beginning of period 2,553 (1,399)
---------- --------
Cash, end of period $2,231 $2,553
========== ========
The accompanying notes are an integral part of these consolidated
financial statements.
-36-
<PAGE>
NORTHSTAR ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. Dollars)
(Unaudited)
December 31, 1998
1. Basis of presentation
These unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United
States. These financial statements are condensed and do not include all
disclosures required for annual financial statements. The organization
and business of the Company, accounting policies followed by the Company
and other information are contained in the notes to the Company's audited
financial statements, Northstar Electronics Inc. and the subsidiary
Northstar Technical Inc., filed as part of the Company's Registration
Statement Form SB-1.
In the opinion of the Company's management, these financial statements
reflect all adjustments necessary to present fairly the Company's
consolidated financial position at December 31, 1998 and the consolidated
results of operations and the consolidated statement of cash flows for the
nine months ended December 31, 1998.
2. Long term debt
December March
31, 31,
1998 1998
-------- --------
10% loan payable to Pathfinder Enterprises
Inc. in monthly interest payments only
to July 5, 2002 $160,000 $160,000
ACOA (Federal Government Agency) interest
free loan repayable in sixty monthly and
consecutive instalments of $2,170 130,221 130,221
ACOA (Federal Government Agency) interest
free loan repayable in twenty-four monthly
and consecutive instalments of $4,167 100,000 100,000
ACOA (Federal Government Agency) interest
free loan payable in 36 monthly and
consecutive instalments of $4,373 beginning
when full loan draw down is received.
Secured by postponements on Cabot Management
Limited's loan of $87,224 and a shareholder's
loan of $ 12,707. 86,676 86,676
-------- --------
$476,897 $476,897
-37-
<PAGE>
3. Capital stock
December March
31, 31,
1998 1998
-------- --------
Authorized
20,000,000 preferred shares at $0.0001 par value
100,000,000 common shares at $0.0001 par value
Issued and outstanding
2,140,000 common shares $214 $ -
Additional paid in capital 439,855 403,582
-------- --------
$440,069 $403,582
On May 11, 1998 the company issued 40,000 common shares to an officer of the
company at $0.0025 per share. Proceeds were $100.
The company completed a 504 offering of 2,000,000 shares of its common stock
at $ 0.0025 per share. Proceeds from this offering were $5,000.
Also the company completed a subsequent 504 offering for 100,000 shares of
its common stock at $0.25 per share. Proceeds from this offering were $25,000.
The company has not issued any additional shares since the above 504 offerings
which were completed in July, 1998.
4. Contingent liability
The company is a defendant in a lawsuit commenced against them by their former
master distributor. The former distributor has alleged that the company has
interfered with the ability of the former distributor to sell products. The
company has filed a counterclaim for monies owing by the former distributor
to the company. An adverse outcome to the lawsuit could have an adverse
material impact upon the company and the range of possible loss could be
from $0 to $1,300,000.
5. Subsequent event
On January 26, 1999 the reverse acquisition merger between Northstar
Electronics Inc. and Northstar Technical Inc. was completed which resulted in
Northstar Technical Inc. becoming a wholly owned subsidiary of Northstar
Electronics Inc.
Northstar Electronics Inc. was incorporated on May 11, 1998 and had no
operations other than organizational activities prior to the January 26, 1999
merger.
-38-
<PAGE>
6. 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:
a) Monetary assets and liabilities at the rate of exchange in effect as at the
balance sheet date;
b) Non-monetary assets and liabilities at the exchange rates prevailing at the
time of the acquisition of the assets or assumption of the liabilities; and
c) Revenues and expenditures at the average rate of exchange for the year.
Gains and losses arising from this translation of foreign currency are not
significant and are included in the determination of net loss.
-39-
<PAGE>
iii)
NORTHSTAR ELECTRONICS INC.
--------------------------
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------
(U.S. Dollars)
(Unaudited)
September 30, 1999
------------------
CONTENTS Page
-------- ----
Interim Consolidated Balance Sheet 1
Interim Consolidated Income Statement 2
Interim Consolidated Statement of Shareholders' Equity 3
Interim Consolidated Statement of Cash Flows 4
Notes to Interim Consolidated Financial Statements 5
-40-
<PAGE>
NORTHSTAR ELECTRONICS INC. 1.
INTERIM CONSOLIDATED BALANCE SHEET
(U.S. Dollars)
(Unaudited)
SEPTEMBER 30, 1999
ASSETS September 30, September 30,
------ 1999 1998
Current ------------- -------------
Cash $13,471 $19,982
Receivables 275,229 68,948
Inventory 83,029 65,549
Prepaid expenses 4,393 2,254
-------------- --------------
376,122 156,733
Capital assets 25,431 19,540
-------------- --------------
$401,553 $176,273
============== ==============
LIABILITIES
Current
Payables and actuals $86,784 $205,778
Loans payable 27,026 64,575
-------------- --------------
113,810 270,353
Long term debt (Note 2) 526,061 476,897
Loans payable to Cabot Management Limited 77,959 93,090
Loans payable to shareholder 63,740 65,716
-------------- --------------
781,570 906,056
-------------- --------------
Contingent liability (Note 4)
SHAREHOLDERS' EQUITY
--------------------
Share capital (Note 3) 1,024,269 428,682
Deficit (1,404,286) (1,158,465)
-------------- --------------
(380,017) (729,783)
-------------- --------------
$401,553 $176,273
The accompanying notes are an integral part of these consolidated
financial statements.
-41-
<PAGE>
NORTHSTAR ELECTRONICS INC. 2.
INTERIM CONSOLIDATED INCOME STATEMENT
(U.S. Dollars)
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 1999
Nine Months Nine Months
Ended Ended
September 30, September 30,
1999 1998
-------------- --------------
Sales $321,013 $154,496
Cost of goods sold 112,862 100,723
-------------- --------------
Gross profit 208,151 53,773
-------------- --------------
Expenses
Business 271 477
Commissions 46,300 -
Depreciation 3,517 8,667
Insurance 1,410 845
Interest and bank charges 23,081 26,254
Lab expenses 15,958 5,000
Marketing 4,592 10,592
Office and miscellaneous 79,722 9,528
Professional fees 62,119 15,917
Rent 21,015 14,994
Salaries/wages/employee benefits 117,568 54,059
Research and development cost - 78,132
Contract manufacturing cost - 40,369
Value of director's uncompensated
services 21,200 -
-------------- -------------
396,753 264,834
-------------- -------------
Net loss (188,602) (211,061)
Deficit, beginning of period (1,215,684) (919,216)
-------------- -------------
(1,404,286) (1,130,277)
Less: Dividends paid on preference
shares - (28,188)
-------------- -------------
Deficit, end of period $ (1,404,286) $ (1,158,465)
============== =============
Net loss per share $ (0.03) $ (0.10)
============== =============
Weighted average number of common
shares outstanding 6,971,244 2,140,000
The accompanying notes are an integral part of these consolidated
financial statements.
-42-
<PAGE>
NORTHSTAR ELECTRONICS INC. 3.
INTERIM CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(U.S. Dollars)
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 1999
Common Shares Additional Deficit Total
Number Amount Paid-In Shareholders'
Capital Equity
-------- ------ ---------- -------- -------------
Balance, September
30, 1998 2,140,000 $214 $428,468 $(1,158,465) $(729,783)
Common shares issued for
cash for $ 1.00 per share
January 25, 1999 100,000 10 99,990
January 29, 1999 200,000 20 199,980
January 29, 1999 63,000 6 62,994
June 29, 1999 200,000 20 199,980
Additional
paid-in capital - - 11,387
received in wholly
owned subsidiary
Common shares on
Exchange 4,901,493 490 (490)
Note 3a)
Value of director's
uncompensated - - 21,200
services (Note 3d)
Net loss
- -October 1, 1998- (57,219)
December 31, 1998
- - September 30, 1999 - - - (188,602)
-------- ------ ---------- -------- -------------
Balance,
September 7,604,493 $760 $1,023,509 $(1,404,286) $(380,017)
30, 1999
The accompanying notes are an integral part of these consolidated
financial statements.
-43-
<PAGE>
NORTHSTAR ELECTRONICS INC. 4.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
(U.S. Dollars)
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 1999
Nine Months Nine Months
Ended Ended
September 30, September 30,
1999 1998
-------------- -------------
Cash provided by (used in)
Operations
Net loss $(188,602) $(211,061)
Value of director's
uncompensated services 21,200 -
Depreciation 3,517 8,667
Net change in non-cash
working capital items (394,333) 51,245
------------- --------------
(558,218) (151,149)
------------- --------------
Financing activities
Proceeds from issuance of
shares and paid-in capital 563,000 304,177
Proceeds from long term debt 50,355 69,343
Advances (to) from Cabot
Management Limited (14,267) 8,843
Advances (to) from shareholder (16,506) 51,709
Repayment of long term debt (1,191) (20,000)
Redemption of preference shares - (56,000)
Payment of dividends on preference share - (28,188)
Conversion of Class C preference shares - (191,555)
----------- --------------
581,391 138,329
----------- --------------
Investing activities
Purchase of capital assets (11,933) (2,644)
----------- --------------
Net change in cash resources 11,240 (15,464)
Cash, beginning of period 2,231 35,446
----------- --------------
Cash, end of period $13,471 $19,982
=========== ==============
The accompanying notes are an integral part of these consolidated
financials statements.
-44-
<PAGE>
NORTHSTAR ELECTRONICS INC. 5.
NOTES TO INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
SEPTEMBER 30, 1999
1. Basis of presentation
These unaudited interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles in
the United States for interim financial information. These financial
statements are condensed and do not include all disclosures required
for annual financial statements. The organization and business of the
Company, accounting policies followed by the Company and other
information are contained in the notes to the Company's audited
financial statements filed as part of the Company's Registration
Statement Form SB-1.
In the opinion of the Company's management, these financial statements
reflect all adjustments necessary to present fairly the Company's
consolidated financial position at September 30, 1999 and the
consolidated results of operations and the consolidated statement of
cash flows for the nine months ended September 30, 1999. The results
of operations for the nine months ended September 30, 1999 are not
necessarily indicative of the results to be expected for the entire
fiscal year.
2. Long term debt September 30, September 30,
1999 1998
10% loan payable to Pathfinder ------------- --------------
Enterprises Inc. in monthly interest
payments only to July 5, 2002 $160,000 $160,000
ACOA (Federal Government Agency)
interest free loan repayable in sixty
monthly and consecutive installments of
$ 2,170 130,221 130,221
ACOA (Federal Government Agency)
interest free loan repayable in
twenty-four monthly and consecutive
installments of $ 4,167 98,809 100,000
ACOA (Federal Government Agency) interest
Free loan payable in 36 monthly and
Consecutive installments of $ 4,373
beginning when full loan draw down is
received. Secured by postponements on Cabot
Management Limited's loan of $87,224 and
a shareholders' loan of $12,707. 137,031 86,676
------------- -------------
$526,061 $476,897
-45-
<PAGE>
3. Capital stock
September 30, September 30,
1999 1998
------------ ------------
Authorized
20,000,000 preferred shares at $ 0.0001 par value
100,000,000 common shares at $ 0.0001 par value
Issued and outstanding
7,604,493 common shares (1998 - 2,140,000) $760 $214
Additional paid in capital 1,023,509 428,468
------------ -------------
$1,024,269 $428,682
a. On January 15, 1999 and January 26, 1999 the shareholders of
Northstar Technical Inc. exchanged their 14,704,479 common shares for
4,901,493 common shares of Northstar Electronics Inc. on the basis of
three Northstar Technical shares for every one share of Northstar
Electronics Inc. The value of these shares were $ 414,969.
b. Also during January, 1999 the company completed offerings for
363,000 shares of its common stock at $ 1.00 per share. Proceeds from
these offerings were $ 363,000.
c. On June 29, 1999 the company completed an offering for 200,000
shares of its common stock at $ 1.00 per share. Proceeds from this
offering was $ 200,000.
d. On September 30, 1999 the company received additional paid-in
capital of $ 21,200 from Wilson Russell in exchange for value of
uncompensated services.
4. Contingent liability
The company is a defendant in a lawsuit commenced against them by their
former master distributor. The former distributor has alleged that the
company has interfered with the ability of the former distributor to
sell products. The company has filed a counterclaim for monies owing
by the former distributor to the company. An adverse outcome to the
lawsuit could have an adverse material impact upon the company and the
range of possible loss could be from $ 0 to $ 1,300,000.
-46-
<PAGE>
iv)
NORTHSTAR TECHNICAL INC.
St. John's, Newfoundland
FINANCIAL STATEMENTS
March 31, 1998
CONTENTS Page
Auditors' Report 1
Balance Sheet 2
Statement of Loss and Deficit 3
Statement of Changes in Cash Resources 4
Notes to Financial Statements 5
-47-
<PAGE>
AUDITORS' REPORT
To the Shareholders of Northstar Technical Inc.
We have audited the balance sheet of Northstar Technical Inc. as at
March 31, 1998 and the statements of loss and deficit and changes in cash
resources for the year then ended. These financial statements are the
responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in Canada. Those standards require that we plan and perform an
audit to obtain reasonable assurance whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.
In our opinion, these financial statements present fairly, in all
material respects, the financial position of the company as at March 31, l998
and the results of its operations and the changes in its cash resources for
the year then ended in accordance with accounting principles generally
accepted in Canada consistently applied. Accounting principles generally
accepted in Canada differ in certain significant respects from accounting
principles generally accepted in the United States and are discussed in Note
13 to the financial statements.
The accompanying financial statements have been prepared assuming the
company will continue as a going concern. To date the company's operations
are mainly in the development stages and has not established revenues
sufficient to cover its operating costs. It is management's opinion that the
company's main net mind division and the new contract manufacturing division
will generate future revenues sufficient to cover all costs and result in
annual net incomes. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Sullivan, Lewis and White
St. John's, Newfoundland
September 29, 1998 Chartered Accountants
-48-
<PAGE>
NORTHSTAR TECHNICAL INC.
BALANCE SHEET
(Canadian Dollars)
MARCH 31, 1998
ASSETS 1998 1997
Current -------- --------
Bank $ 3,829 $ -
Receivables (Note 2) 228,052 271,852
Work in progress 7,101 2,279
Inventory 88,356 92,327
Prepaid expenses 4,127 5,620
-------- --------
331,465 372,078
Capital assets (Note 3) 27,733 32,347
Deferred development costs (Note 4) 824,744 759,869
Deferred charges (Note 5) 82,305 -
-------- --------
$ 1,266,247 $ 1,164,294
======== ========
LIABILITIES
Current
Bank indebtedness $ - $ 2,098
Payables and accruals 199,556 257,930
Loans payable (Note 6) 138,790 109,425
Deferred revenue - 5,000
Long term debt payable within one year (Note 7) 127,340 19,530
-------- --------
465,686 393,983
Long term debt (Note 7) 588,006 595,801
Loans payable to Cabot Management Limited,
no set terms of repayment (Note 8) 136,530 130,836
Loan payable to shareholder, no set terms
of repayment 83,602 13,559
-------- --------
1,273,824 1,134,179
--------- ---------
SHAREHOLDERS' DEFICIENCY
Share capital (Note 9) 605,372 381,418
Deficit ( 612,949) ( 351,303)
---------- ----------
( 7,577) 30,115
---------- ----------
$ 1,266,247 $ 1,164,294
======== ========
ON BEHALF OF THE BOARD:
/s/Dr. Wilson Russell, Director
/s/Mr. Frank Power, Director
The accompanying notes form an integral part of these financial statements.
-49-
<PAGE>
NORTHSTAR TECHNICAL INC.
STATEMENT OF LOSS AND DEFICIT
(Canadian Dollars)
YEAR ENDED MARCH 31, 1998
1998 1997
-------- --------
Revenue $ 272,631 $ 261,259
Direct costs 140,891 129,680
------- --------
Gross Profit 131,740 131,579
Other income 13,934 3,971
-------- --------
145,674 135,550
Expenses -------- --------
Amortization of capital assets 15,917 9,375
Amortization of deferred development costs 87,621 40,093
Bank charges and interest 16,196 1,724
Contract manufacturing division (Note 10) 126,008 -
Heat and light 10,343 11,233
Insurance 2,027 1,389
Interest on loans 55,963 68,675
Management and marketing fees 16,235 39,687
Marketing/Market Research costs 5,742 39,178
Municipal taxes 2,960 10,021
Miscellaneous 3,855 2,408
Office operating 18,859 10,972
Professional fees 35,296 31,370
Rent 37,685 44,279
Repairs and maintenance 4,693 6,488
Telephone 11,184 21,793
Travel 6,865 19,768
Wages and benefits 66,992 87,681
Write off obsolete inventory stock 14,405 -
Less: Allocation to deferred development
costs (Note 4) (149,808) (162,881)
---------- ----------
389,038 283,253
---------- ----------
Net loss (Note 11) (243,364) (147,703)
Deficit, beginning of year (351,303) (183,100)
---------- ----------
(594,667) (330,803)
Dividends paid on preference shares (Note 9a) (42,282) (20,500)
Discount earned on redemption of Class A
preference shares (Note 9b) 24,000 -
---------- ----------
Deficit, end of year $ (612,949) $ (351,303)
======== ========
The accompanying notes form an integral part of these financial statements.
-50-
<PAGE>
NORTHSTAR TECHNICAL INC.
STATEMENT OF CHANGES IN CASH RESOURCES
(Canadian Dollars)
YEAR ENDED MARCH 31, 1998
1998 1997
-------- --------
Cash provided by (used in)
Operations
Net loss $(243,364) $(147,703)
Amortization 124,114 49,468
Net change in non-cash working capital items 10,434 81,113
-------- --------
(108,816) (17,122)
Financing
Proceeds from long term debt 130,015 30,000
Proceeds from issuance of Class C
preference shares - 120,333
Proceeds from issuance of common shares 595,287 -
Advances from Cabot Management Limited 5,694 89,161
Advances from shareholder 70,043 8,966
Repayment of long term debt (30,000) (2,086)
Discount on redemption of preference shares 24,000 -
Redemption of preference shares (84,000) (16,000)
Payment of dividends on preference shares (42,282) (20,500)
Conversion of Class C preference shares (287,333) -
---------- --------
381,424 209,874
Investments
Increase in deferred charges - net (102,881) -
Increase in deferred development
costs - net (152,496) (192,712)
Purchase of capital assets, net of
investment tax credits (11,304) (6,934)
Proceeds from disposal of capital assets - 2,186
---------- --------
(266,681) (197,460)
Net change in bank position 5,927 (4,708)
Bank position, beginning of year (2,098) 2,610
---------- --------
Bank position, end of year $ 3,829 $ (2,098)
======== ========
The accompanying notes form an integral part of these financial statements.
-51-
<PAGE>
NORTHSTAR TECHNICAL INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
1. Significant accounting policies
a. Capital assets
Capital assets are recorded at cost less any government assistance and
are being 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 $1,754,318 on
this technology, including overhead costs of $621,430, which has been reduced
by various assistance and tax credits totaling $801,860 as referred to
in Note 4.
c. Deferred charges
Deferred charges consist of initial planning, startup and overhead costs
related to contract manufacturing in association with Lockheed Martin - Federal
Systems Inc. These costs amounted to $102,882 at March 31, 1998, as referred
to in Note 5, and are being amortized on a straight line basis over a five
year term.
d. Inventory
The company's inventory is valued at the lower of cost and net
realizable value.
-52-
<PAGE>
e. Investment tax credits
Investment tax credit refunds arising from the incurrence of qualifying
research and development expenditures have been recorded in these financial
statements as a reduction of the applicable deferred development costs.
f. Government assistance
The company has been awarded assistance under government programs.
Amounts received or receivable under these programs are recorded as a
reduction in the cost of capital assets or as a reduction of the applicable
deferred development costs.
2. Receivables
1998 1997
-------- --------
Trade $ 137,701 $ 115,685
Government assistance 22,486 35,650
Investment tax credit refunds 67,865 114,337
Goods and service tax - 4,975
Provincial sales tax - 105
Other - 1,100
-------- --------
$ 228,052 $ 271,852
======== ========
3. Capital assets
1998 l997
------------------------------ ---------
Accumulated Net Book Net Book
Cost Amortization Value Value
-------- ------------- -------- --------
Computer equipment $ 6,654 $ 2,555 $ 4,099 $ 4,450
Computer software 8,705 4,760 3,945 4,365
Furniture and
equipment 31,293 14,007 17,286 17,710
Leasehold improvements 4,335 11,932 2,403 5,822
------- ------ ------- -------
$ 60,987 $ 33,254 $27,733 $ 32,347
-53-
<PAGE>
4. Deferred development costs
1998 1997
-------- --------
Wages and benefits $ 608,461 $ 484,720
Materials and other costs 165,160 148,980
Subcontractors 359,267 355,179
Overhead 621,430 471,622
-------- --------
1,754,318 1,460,501
Less: Government assistance 362,965 289,509
Other assistance 61,685 61,685
Investment tax credits 377,210 309,345
-------- --------
952,458 799,962
Less: Amortization 127,714 40,093
-------- --------
$ 824,744 $ 759,869
======== ========
5. Deferred charges - Contract Manufacturing Division
1998 1997
-------- --------
Planning and start up costs $ 28,951 $ -
Overhead costs (Note 10) 73,930 -
-------- --------
102,881 -
Less: Amortization of deferred charges 20,576 -
-------- --------
$ 82,305 $ -
======== ========
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<PAGE>
6. Loans payable
1998 1997
-------- --------
10% loan payable to Enterprise Newfoundland
and Labrador in monthly interest payments
plus principal amount payable on demand $ 22,451 $ 24,657
12% loan payable to Eastern Meridian Mining
Corporation including accrued interest, to
be repaid in full by November 30, 1998,
secured by the personal guarantee of Wilson
Russell 75,939 68,500
Loan payable to Toronto-Dominion bank,
secured by the personal guarantee of
Wilson Russell. This loan was repaid
in full on September 24, 1998 20,000 -
Loan payable to Brian Gamberg repaid in
full on April 15, 1998 20,400 -
10% loan payable to Dr. Carl Wesolowski - 16,268
-------- --------
$ 138,790 $ 109,425
======== ========
7. Long term debt
1998 1997
-------- --------
ACOA interest-free loan repayable in sixty
monthly and consecutive installments of
$ 3,255 beginning October 1, l997 $ 195,331 $ 195,331
ACOA interest-free loan to April, l997 with
monthly principal repayments of $ 6,250
beginning May 1, l998 150,000 150,000
10% loan payable to Pathfinder Enterprises
Inc. in monthly interest payments only to
July 5, 2002, secured by a floating charge
debenture. 240,000 240,000
6% loan payable to Tim Tiessen - 15,000
6% loan payable to Frank Hawkins - 15,000
-55-
<PAGE>
ACOA interest free loan repayable in 36 monthly
consecutive installments of $ 6,560 beginning
July 1, 1998 if full loan draw down is received.
Secured by postponements on Cabot Management
Limited's loans of $ 130,836 and shareholders'
loan of $ 19,060 130,015 -
-------- --------
715,346 615,331
Less: Long term debt payable within one year 127,340 19,530
-------- --------
$ 588,006 $ 595,801
======== ========
8. Loans payable - Cabot Management Limited
Cabot Management Limited, an associated company, has the option to convert
their interest free loans, totaling $136,530 at March 31, 1998, to common
shares of Scientific Technologies Inc., if the company merges with Scientific
Technologies Inc., as referred to in Note 12.
9. Share capital
1998 1997
-------- --------
Authorized
An unlimited number of Class A common shares
with no par value.
An unlimited number of Class A preference
shares with no par value.
An unlimited number of 10% redeemable,
retractable, cumulative, non-voting,
participating Class B preference shares
with no par value.
An unlimited number of 10% redeemable,
retractable, cumulative, non-voting,
participating Class C preference shares
with no par value.
Issued and outstanding
14,609,195 Class A common shares $ 605,372 $ 10,085
84 Class A preference shares - 84,000
287,333 Class C preference shares - 287,333
-------- --------
$ 605,372 $ 381,418
======== ========
-56-
<PAGE>
a. On October 3, 1997 the common shares were amended to be designated
Class "A" common shares and the outstanding 95 Class "A" common shares were
subdivided on the basis of that each Class "A" common share became 126,316
Class "A" common shares resulting in a total issued Class "A" common shares
of 12,000,000. This stock split was done as the company intends to go public
as referred to in Note 12. Also during October and November 1997 an
additional 2,609,195 Class "A" common shares were issued for $595,287.
This included conversion of preference C shares and accumulated dividend
arrears of $42,282.
b. The 84 Class A preference shares previously issued to Southside
Community Development Fund Corporation were redeemed in August, 1997 for
$60,000 which resulted in a discount earned on redemption of $24,000.
10. Contract Manufacturing Division
1998 1997
-------- --------
Amortization of deferred charges (Note 5) $ 20,576 $ -
Contract labor 25,000 -
Operating expenses 63,356 -
Salaries and benefits 136,038 -
Less: Direct costs on contract with
Lockheed Martin - Federal Systems,
Inc. (25,133) -
Wage subsidy (19,899) -
-------- --------
199,938 -
Less: Allocation to deferred charges (Note 5) (73,930) -
-------- --------
$ 126,008 $ -
======== ========
11. Income taxes
The company has losses carried forward totaling $ 1,015,851 which have
not been recognized in these financial statements. These losses carried
forward can be applied against otherwise taxable income and if unused
will expire in the following years:
March 31, 2000 $ 3,811 March 31, 2004 $ 512,179
========== ==========
March 31, 2002 $ 37,523 March 31, 2005 $ 367,846
========== ==========
March 31, 2003 $ 94,492
==========
Also the company's book values of deferred development costs and
deferred charges exceeds their income tax values by $ 620,153 as at
March 31, 1998.
The net deferred income taxes debit related to both of these items
have not been reflected in these financial statements.
-58-
<PAGE>
12. Subsequent event
On July 31, 1998 the company entered into an agreement for a merger with
Scientific Technologies Inc. provided:
a. Northstar Technical Inc. would receive from Scientific Technologies
Inc. a sum of not less than US $ 500,000 and no greater than US $ 970,000.
b. Scientific Technologies Inc. would purchase not less than 75% of the
issued and outstanding capital stock of Northstar Technical Inc. in exchange
for issuance of common shares in their capital stock.
c. The transfer of funds from Scientific Technologies Inc. and the merger
would be carried out at the time Scientific Technologies Inc. becomes a public
listed company on the National Association of Investment Dealers OTC Bulletin
Board.
The time of closing is set for the earliest convenient date mutually
agreeable to both parties, or October 31, 1998.
13. Differences between Canadian and United States Generally Accepted
Accounting Principles ("GAAP")
These financial statements have been prepared in accordance with GAAP
in Canada which differs in some respects from GAAP in the United States.
The material differences between Canadian and United States GAAP, in respect
of these financial statements, are as follows:
1998 1997
-------- --------
Adjustments to assets, and shareholders'
deficiency
ASSETS
Deferred development costs
Canadian GAAP $ 824,744 $ 759,869
Research and development expenditures (824,744) (759,869)
-------- --------
United States GAAP $ - $ -
======== ========
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<PAGE>
13. Differences Between Canadian and United States Generally Accepted
Accounting Principles ("GAAP") (Continued)
1998 1997
-------- --------
Deferred charges
Canadian GAAP $ 82,305 $ -
Deferred charges expenditures (82,305) -
-------- --------
United States GAAP $ - $ -
======== ========
Deficit
Canadian GAAP $ (612,949) $ (351,303)
Research and development expenditures (824,744) (759,869)
Deferred charges expenditures (82,305) -
United States GAAP $(1,519,998) $(1,111,172)
======== ========
Adjustments to net loss
Expenses
Canadian GAAP $ 389,038 $ 283,253
Amortization of deferred development costs (87,621) (40,093)
Amortization of deferred charges (20,576) -
Deferred development costs 152,496 192,712
Deferred charges 102,881 -
-------- --------
United States GAAP $ 536,218 $ 435,872
======== ========
Net loss for the period
Canadian GAAP $ (243,364) $ (147,703)
Amortization of deferred development costs 87,621 40,093
Amortization of deferred charges 20,576 -
Deferred development costs expenditures (152,496) (192,712)
Deferred charges expenditures (102,881) -
-------- --------
United States GAAP $ (390,544) $ (300,322)
======== ========
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<PAGE>
14. Uncertainty Due To The Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on or after January 1, 2000, and if not addressed,
the impact on operations and financial reporting may range from minor errors
to significant system failure which could affect an entity's ability to
conduct normal business operations. It is not possible to be certain that
all aspects of the Year 2000 Issue affecting the Company, including those
related to the efforts of customers, suppliers or other third parties,
will be fully resolved.
-61-
<PAGE>
v)
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
-62-
<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
-63-
<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
Director
The accompanying notes are an integral part of these financial statements.
-64-
<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.
-65-
<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.
-66-
<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.
-67-
<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
============ ==========
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<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
============ ==========
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<PAGE>
7. Long term debt December 31, March 31,
1998 1998
------------ ----------
ACOA 7.5% loan with monthly principal repayments
of $ 3,256 commencing June 1, 2000 $195,331 $195,331
ACOA 10.9 % loan with monthly principal repayments
of $ 1,786 beginning July 1, 1999 150,000 150,000
10% loan payable to Pathfinder Enterprises Inc. in
monthly interest payments only to July 5, 2002,
secured by a floating charge debenture 240,000 240,000
ACOA 6.25% loan repayable in 72 monthly consecutive
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.
-70-
<PAGE>
10. Share capital
December 31, March 31,
1998 1998
------------ ----------
Authorized
An unlimited number of Class A common shares
with no par value.
An unlimited number of Class A preference shares
with no par value.
An unlimited number of 10% redeemable, retractable,
cumulative, non-voting, participating Class B preference
shares with no par value.
An unlimited number of 10% redeemable, retractable,
cumulative, non-voting, participating Class C preference
shares with no par value.
Issued and outstanding
14,704,440 Class A common shares $622,453 $605,372
============ ==========
11. Contract Manufacturing Division
Nine Months Year
Ended Ended
December 31, 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
========
-71-
<PAGE>
Also the company's book values of deferred development costs and deferred
charges exceeds their income tax values by $ 878,598 as at December 31, 1998.
The net deferred income taxes debit related to both of these items have not
been reflected in these financial statements.
13. Subsequent event
On January 26, 1999 the merger between Northstar Technical Inc. and
Scientific Technologies Inc. was completed which resulted in Northstar
Technical Inc. becoming a wholly owned subsidiary of Scientific Technologies
Inc., a US public trading company.
On January 15, 1999 and January 26, 1999 the shareholders of Northstar
Technical Inc. exchanged their 14,704,440 common shares for 4,901,480 common
shares in Scientific Technologies Inc. on the basis of three Northstar shares
for every one share of Scientific.
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)
============ =========
-72-
<PAGE>
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)
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.
-73-
<PAGE>
Part II
Information Not Required in the Prospectus
Item 1. Indemnification of Offices and Directors
As per risks related to the management structure of Northstar
management will have no liability for any mistake, errors of judgment
or for any act of omission believed to be within the scope of authority
conferred by Northstar's articles unless such acts or omissions were
performed or omitted fraudulently or in bad faith, constituted gross
negligence or were a violation of a director's or officer's fiduciary
obligations to Northstar. Northstar has agreed to indemnify the
officers and directors against all loss or damage even if caused by
that officer's or director's fraud, bad faith, gross negligence or
breach of fiduciary obligation
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable.
Item 2. Other Expenses of Issuance and Distribution
SEC Filing Fee $ 287
Accounting fees 12,000
Legal fees 25,000
Other professional fees 10,500
Blue Sky fees and expenses 2,500
Transfer agent's fees 1,900
Printing, including registration
statement and prospectus 1,500
Miscellaneous costs and expenses 2,000
Total $ 55,687
Item 3: Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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.
-74-
<PAGE>
Post-Effective Amendments {Regulation S-B, Item 512-(a)}
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(a) To include any prospectus required by Section 10 (a) (3) of the
Securities Act;
(b) To reflect in the prospectus any fact or events arising after the
effective date of the Registration Statement (or most of the recent
post-effective amendment thereof) which, individually, or in the
aggregate, represent a fundamental change in the information set forth
in the registration Statement; and
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement,
including (but not limited to) addition or deletion of a managing
underwriter.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Item 4. Unregistered Securities Issued or Sold Within 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: $30,700
Net Proceeds: $332,300
Commissions paid to: Rogers and Partners Securities Inc. and to an
unrelated party, Big 8 Management Ltd., as an introduction fee.
Names of Purchasers: M. Ghanadian, CT Securities, J. Hiebert
Exemption from registration: The statutory exemption which Northstar
relied on is Regulation D, Rule 504 of the United States Securities
Act of 1933, as amended.
-75-
<PAGE>
2) Date: January 26, 1999
Number of shares: 4,901,801
Total offering price: N/A. Northstar acquired all of the common
shares of NTI on the basis of 3 shares of NTI for 1 share of
Northstar.
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.
Item 5. Index To Exhibits
Copies of the following documents are included as exhibits to this
Registration Statement pursuant to Item Part III of Form 1-A and Item 6
of Part II.
Exhibit No. Title of Document
3.10 ** Northstar Electronics, Inc. Certificate of Incorporation
3.11 ** Northstar Electronics, Inc. Bylaws
3.12 ** Northstar Electronics, Inc. Amendments to Articles of
Incorporation (company name change)
3.13 ** Letters of Consent (4 items)
3.2 ** Opinion Regarding Legality of Shares
10.2 Sales Contracts
** 04/06/95 ACOA Project 600-403-1828-1 Contribution Agreement
** 05/18/95 NRC Letter of Agreement #03978E
** 10/23/95 NRC Contribution Agreement #04132E
** 11/15/95 Teaming Agreement with LORAL Librascope
** 02/09/96 ACOA Project 600-4024021-1 Contribution Agreement
-76-
<PAGE>
** 12/19/96 NRC Contribution Agreement #04702E
** 04/10/97 ACOA Business Development Program Contribution
Agreement
** 11/28/97 NRC Contribution Agreement #05100E
** 10/28 /97 Sales Agreement with Lockheed-Martin
** 05/18/98 STI-Private Placement Memorandum (with
attachments)
** 06/03/98 STI-Private Placement Offering Memorandum (with
attachments)
** 10/30/98 STI-Private Placement Offering Memorandum (with
attachments)
** 09/24/99 Sales Agreement with NOAA
** 10/18/99 Sales Agreement with Lockheed-Martin
10.31 Lease Agreements
** 05/28/99 Lease Agreement NTI and Par Holdings, Ltd.
** 10/01/99 Lease Agreement Northstar Electronics, Inc. and
Morguard
23.1 Auditors' Consent Letters
* Sullivan Lewis and White
* Jones Jensen
99.1 ** Disclosure Statement
99.2 ** Subscription Agreement99.3 ** Y2K Issues
- --------------------------------
* Submitted Herewith.
** Previously Submitted.
- --------------------------------
Item 6. Description of Exhibits
Exhibit No. Title of Document
3.10 Certificate of Incorporation
3.11 Northstar Electronics, Inc. Bylaws
3.12 Northstar Electronics, Inc. Amendments to
Articles of Incorporation (company name change)
3.13 Letters of Consent (4 items)
3.2 Opinion Regarding Legality of Shares
-77-
<PAGE>
10.2 Sales Contracts
04/06/95 ACOA Project 600-403-1828-1 Contribution Agreement
05/18/95 NRC Letter of Agreement #03978E
10/23/95 NRC Contribution Agreement #04132E
11/15/95 Teaming Agreement with LORAL Librascope
02/09/96 ACOA Project 600-4024021-1 Contribution Agreement
12/19/96 NRC Contribution Agreement #04702E
04/10/97 ACOA Business Development Program Contribution
Agreement
11/28/97 NRC Contribution Agreement #05100E
10/28/97 Sales Agreement with Lockheed-Martin
05/18/98 STI-Private Placement Memorandum (with
attachments)
06/03/98 STI-Private Placement Offering Memorandum (with
attachments)
10/30/98 STI-Private Placement Offering Memorandum (with
attachments)
09/24/99 Sales Agreement with NOAA
10/18/99 Sales Agreement with Lockheed-Martin
10.31 Lease Agreements
05/28/99 Lease Agreement NTI and Par Holdings, Ltd.
10/01/99 Lease Agreement Northstar Electronics, Inc. and
Morguard
23.1 Auditors' Consent Letters
Sullivan Lewis and White
Jones Jensen
99.1 Disclosure Statement
99.2 Subscription Agreement
99.3 Y2K Issues
-78-
<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 February 9, 2000.
/s/ Wilson Russell, Phd
----------------------
Dr. Wilson Russell, President
In accordance with the requirements of the Securities Act of 1933,
this registration statement was signed by the following persons in
the capacities and on the dates stated.
/s/Wilson Russell, Phd
-----------------------
Dr. Wilson Russell, President
Date: 02/09/00
/s/ Frank Power
-------------------------
Frank Power, Director
Date: 02/09/00
Date filed: February 10, 2000
SEC File No. __________
-79-
January 17, 2000
United States Securities and Exchange Commission
Washington, D.C.
20549
Attention: Richard K. Wulff, Chief
Office of Small Business
Dear Sir.
This letter represents our consent for Northstar Electronics Inc. to use the
Following auditors' reports prepared by us for Northstar Technical Inc., and
Their wholly owned subsidiary, in their SB-1 filing presentation to you.
1) Nine months ended December 31, 1998 dated July 14, 1999
2) Year ended March 31, 1998 dated September 29, 1998.
If you have any questions or require additional information please contact us.
Yours very truly,
SULLIVAN, LEWIS AND WHITE
/s/ Jerry D. White
Jerry D. White, C.A.
Partner
c.c. Wilson Russell
<PAGE>
(Letterhead of Jones, Jensen & Company, LLC)
CONSENT OF INDEPENDENT AUDITORS'
Board of Directors
Northstar Electronics, Inc.
(Formerly Scientific Technologies, Inc.)
Vancouver, B.C. Canada
We hereby consent to the use in this Form SB-1 of Northstar Electronics, Inc.
(formerly Scientific Technologies, Inc.) of our report dated September 11, 1998
of Northstar Electronics, Inc. (formerly Scientific Technologies, Inc.) for the
period ended July 31, 1998, which is part of this Form SB-1, and to all
referenced to our firm included in this Form SB-1.
/s/ Jones, Jensen & Company
Jones, Jensen & Company
Salt Lake City, Utah
January 20, 2000
