U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2010
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM N/A to N/A
333-90031
Commission file number
NORTHSTAR ELECTRONICS, INC.
Exact name of small business issuer as specified in its charter
DELAWARE
State or other jurisdiction of organization
#33-0803434
IRS Employee incorporation or Identification No.
SUITE # 410 - 409 GRANVILLE STREET,
VANCOUVER, BRITISH COLUMBIA, CANADA V6C 1T2
Address of principal executive offices
(604) 685-0364
Issuer's telephone number
NOT APPLICABLE Former name, former address and former fiscal year, if changed
since last report.
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES[X] No[ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one): [ ]Large accelerated filer [ ]Accelerated filer [X]NON-ACCELERATED FILER
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). [ ]Yes [X]NO
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years:
Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes[] No[] NOT APPLICABLE
Applicable only to corporate issuers
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. COMMON SHARES AS OF OCTOBER 30, 2010:
35,926,860
Transitional Small Business Disclosure Format (check one): Yes[] NO[X]
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS UNAUDITED - PREPARED BY MANAGEMENT
NORTHSTAR ELECTRONICS, INC. Consolidated Financial Statements Consolidated
Balance Sheets at September 30, 2010 and at December 31, 2009 Consolidated
Statements of Operations for the Three and Nine Months Ended September 30, 2010
and 2009 Consolidated Statements of Changes in Stockholders' Equity for the Nine
Months Ended September 30, 2010 Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2010 and 2009 Notes to Consolidated Financial
Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
ITEM 3. CONTROLS AND PROCEDURES
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS
SIGNATURES
NORTHSTAR ELECTRONICS, INC.
Consolidated Balance Sheets - U.S. Dollars
SEPTEMBER 30 December 31
2010 2009
UNAUDITED audited
ASSETS ----------- ----------
CURRENT
Cash and cash equivalents $ 31,994 $ 108,486
Accounts receivable 86,504 208,973
Inventory 121,358 132,367
Prepaid expenses 133,892 44,156
---------------------------
373,748 493,982
DEFERRED CONTRACT COSTS 62,139 193,464
INTANGIBLE ASSET 12,755 14,333
EQUIPMENT 47,987 57,835
---------------------------
$ 496,629 $ 759,614
==============================
LIABILITIES
CURRENT
Accounts payable and accrued liabilities $ 1,816,850 $ 1,623,875
Loans payable 250,222 193,161
Due to Cabot Management Limited 52,966 52,078
Due to Directors 1,171,194 1,205,743
Deferred revenue 71,213 273,518
Current portion of long-term debt 1,186,290 1,339,568
--------------------------------
4,548,735 4,687,943
LONG-TERM DEBT 627,421 708,490
---------------------------------
5,176,156 5,396,433
================================
STOCKHOLDERS' DEFICIT
Authorized:
100,000,000 Common shares with a par value
of $0.0001 each 20,000,000 Preferred shares
with a par value of $0.0001 each
Issued and outstanding:
35,926,860 Common shares (31,939,070 -
December 31, 2009) 3,592 3,194
488,586 Preferred series A shares
(348,000 - December 31, 2009) 409,299 285,600
ADDITIONAL PAID-IN CAPITAL 5,738,103 5,174,173
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (517,921) (457,939)
ACCUMULATED DEFICIT (10,312,600) (9,641,847)
--------------------------------
(4,679,527) (4,636,819)
--------------------------------
$ 496,629 $ 759,614
=================================
See notes to the consolidated financial statements
NORTHSTAR ELECTRONICS, INC.
Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2010 and 2009
Unaudited
U.S.Dollars
Three Months Nine Months
----------------- -------------------
2010 2009 2010 2009
----------------------------------------------------
Sales $528,520 $875,049 $2,767,591 $2,257,445
Cost of goods sold 384,178 690,449 2,060,260 1,686,193
-----------------------------------------------------
Gross margin 144,342 184,600 707,331 571,252
Recovery of development costs 0 0 0 0
Other income (expense) 0 4,972 0 4,972
-----------------------------------------------------
144,342 189,572 707,331 576,224
-----------------------------------------------------
EXPENSES
Salaries 211,611 189,322 643,797 566,821
Management and administration fees 45,000 58,107 135,000 151,197
Financial consulting 3,000 0 9,000 0
Professional fees 53,414 13,407 64,240 62,479
Rent 30,411 36,338 93,382 99,806
Investor relations 1,238 3,000 24,790 15,500
Office and administration 39,213 21,123 110,070 78,551
Bad debts 0 42,434 0 42,434
Travel and business development 2,897 (10,324) 36,999 4,193
Interest on debt 113,580 117,697 214,572 285,979
Telephone and utilities 7,353 14,770 22,189 31,045
Amortization 3,484 (21,147) 13,079 10,787
Finance fees 0 12,854 10,967 29,284
------------------------------------------------------
Total expenses 511,201 477,581 1,378,085 1,378,076
------------------------------------------------------
Net loss for period $(366,859) $(288,009) $(670,754) $(801,852)
======================================================
Net loss per share $(0.01) $(0.01) $(0.02) $(0.03)
======================================================
Weighted average number of shares
outstanding 35,574,202 30,462,501 34,481,172 30,432,096
=======================================================
See notes to the consolidated financial statements
NORTHSTAR ELECTRONICS, INC.
Consolidated Statement of Changes in Stockholders' Equity
Nine Months Ended September 30, 2010
Unaudited
U.S. Dollars
Other
Additional Compre- Accumu- Total
Paid in hensive lated Stockholder
Shares Amount Capital Income Deficit Equity (Deficit)
----------------------------------------------------------------------------------------------
Balance
December 31,
2009 31,939,070 $3,194 $5,174,173 $(457,939) $(9,641,846) $(4,922,418)
Net loss for
nine months - - - - (670,754) (670,754)
Currency
translation
adjustment - - - (59,982) - (59,982)
Issuance of
common stock:
- for conversion 160,000 16 32,812 - - 32,828
- for loan payable 30,000 3 6,597 - - 6,600
- for prepaid
expense 508,844 51 96,949 - - 97,000
- for cash 2,941,172 294 366,765 - - 367,059
- for services 347,774 34 60,807 - - 60,841
---------------------------------------------------------------------------------------------
Balance
September 30,
2010 35,926,860 $3,592 $5,738,103 $(517,921) $(10,312,600) $(5,088,826)
---------------------------------------------------------------------------------------------
Series A shares of preferred stock -balance December 31, 2009 285,600
Series A shares of preferred stock - converted (32,828)
Series A shares of preferred stock - issued during the period 156,527
---------------------------------------------------------------------------------------------
Total stockholders' equity (deficit) September 30, 2010 $(4,679,527)
=============================================================================================
See notes to the consolidated financial statements
NORTHSTAR ELECTRONICS, INC.
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2010 and 2009
Unaudited
U.S.Dollars
2010 2009
Operating Activities
Net income (loss) $(670,754) $(801,852)
Adjustments to reconcile net income (loss) to net
cash used by operating activities:
Amortization 13,079 10,787
Write down of deferred start up costs 133,683 0
Issuance of common stock for services 60,841 14,432
Changes in operating assets and liabilities 186,462 158,335
----------------------------
Net cash (used) provided by operating activities (276,689) (618,298)
----------------------------
Investing Activities
Property and equipment disposal (purchase) (510) (9,828)
----------------------------
Net cash (used) provided by investing activities (510) (9,828)
----------------------------
Financing Activities
Issuance of common shares for cash
(net of costs) 523,586 228,806
Increase (repayment) of long term debt (267,400) 90,409
Advances from (repayment to) directors (50,534) 130,235
----------------------------
Net cash (used) provided by financing activities 205,652 449,450
----------------------------
Effect of foreign exchange on translation (4,945) 17,471
----------------------------
Inflow (outflow) of cash (76,492) (161,205)
Cash, beginning of period 108,486 210,348
----------------------------
Cash, end of period $ 31,994 $ 49,143
------------------------------
Supplemental information
Interest paid $214,572 $285,979
Shares issued for prepaid expense $97,000 $0
Shares issued for loan repayment $6,600 $0
Shares issued for services $60,841 $14,432
Corporate income taxes paid $0 $0
See notes to the consolidated financial statements
NORTHSTAR ELECTRONICS, INC.
Notes to Consolidated Financial Statements
Nine Months Ended September 30, 2010
Unaudited
U.S. Dollars
1. NATURE OF OPERATIONS AND ABILITY TO CONTINUE AS A GOING CONCERN
These consolidated financial statements include the accounts of Northstar
Electronics, Inc. ("the Company") and its wholly owned subsidiaries Northstar
Technical Inc. ("NTI") and Northstar Network Ltd. ("NNL"). The Company was
incorporated May 11, 1998 in the State of Delaware and had no operations other
than organizational activities prior to the January 2000 merger with NTI described
as follows: On January 26, 2000 the Company completed the acquisition of 100% of
the shares of NTI. The Company, with the former shareholders of NTI receiving a
majority of the total shares then issued and outstanding, effected the merger
through the issuance of 4,901,481 shares of common stock from treasury. The
transaction has been accounted for as a reverse takeover resulting in the
consolidated financial statements including the results of operations of the
acquired subsidiary prior to the merger. All intercompany balances and
transactions are eliminated.
The Company's business activities are conducted principally in Canada but these
financial statements are prepared in accordance with accounting principles
generally accepted in the United States with all figures translated into United
States dollars for reporting purposes.
These unaudited consolidated interim financial statements have been prepared by
management in accordance with accounting principles generally accepted in the
United States for interim financial information, are condensed and do not include
all disclosures required for annual financial statements. The organization and
business of the Company, accounting policies followed by the Company and other
information are contained in the notes to the Company's audited consolidated
financial statements filed as part of the Company's December 31, 2009 Form 10-K
and amendments.
In the opinion of the Company's management, this consolidated interim financial
information reflects all adjustments necessary to present fairly the Company's
consolidated financial position at September 30, 2010 and the consolidated results
of operations and the consolidated cash flows for the nine months then ended. For
the nine months ended September 30, 2010: 100% of the Company's revenues were
generated from contracts with two major customers. The Company is continually
marketing its services for new and follow-on contracts.
The results of operations for the nine months ended September 30, 2010 are
not necessarily indicative of the results to be expected for the entire fiscal
year. The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern, which contemplates the
realization of assets and satisfaction of liabilities in the normal course of
business. During the nine months to September 30, 2010 the Company incurred a
net loss of $670,754 and at September 30, 2010 had a working capital
deficiency (an excess of current liabilities over current assets) of $4,174,987
(December 31, 2009: $4,193,961), including $1,186,290 of long term debt due
within one year (December 31, 2009: $1,339,568).
Management has undertaken initiatives for the Company to continue as a going
concern, for example: the Company is negotiating to secure an equity financing in
the short term and is in discussions with several financing firms. Subsequent to
the quarter end, the Company secured the first phase of funding for production
activities. The Company also expects to increase contract revenues. The Company
continues to seek manufacturing more assembly contracts to increase revenue. In
that regard, a $9.1 million contract addition to the Lockheed Martin Aeronautics
P-3 contract was received on August 27, 2010 These initiatives are in recognition
that the Company to continue as a going concern must generate sufficient cash flow
to cover its obligations and expenses. In addition, management believes these
initiatives can provide the Company with a solid base for profitable operations,
positive cash flows and reasonable growth. Management is unable to predict the
results of its initiatives at this time. Should management be unsuccessful in its
initiative to finance its operations the Company's ability to continue as a going
concern, is not certain. These financial statements do not give effect to any
adjustments to the amounts and classifications of assets and liabilities which
might be necessary should the Company be unable to continue its operations as a
going concern.
2. SHARE CAPITAL
During the nine months ended September 30, 2010 the following capital transactions
occurred:
COMMON STOCK
January 1 to March 31, 2010:
For services: 178,810 shares fairly valued at $32,191 - the market value of those
services
For cash: 1,100,000 shares fairly valued for cash of $160,000.
For conversion of Preferred shares: 160,000 fairly valued for cash of $32,828
April 1 to June 30, 2010:
For services: 125,964 shares fairly valued at $23,900 - the market value of those
services
For cash: 1,000,000 shares fairly valued for cash of $125,000.
For prepaid expenses: 508,844 shares fairly valued at $97,000 - the market value
of those expenses
For reduction of a loan payable: 30,000 shares fairly valued at $6,600 - the
amount of the loan repaid
July 1 to September 30, 2010:
For services: 43,000 shares fairly valued at $4,750 - the market value of those
services
For cash: 841,172 shares fairly valued for cash of $82,059.
PREFERRED STOCK
For cash: 408,000 series A shares of preferred stock for $342,772 (inclusive of
100,000 preferred shares for $90,000 received during the three months ended
March 31, 2010 and 80,586 preferred shares for $66,527 received during the three
months ended September 30, 2010). The preferred shares bear interest at 10% per
annum paid semi annually not in advance and are convertible to shares of common
stock of the Company after two years from receipt of funds at a 20% discount to
the then current market price of the Company's common stock. The preferred
shares may be converted after six months and before two years under similar
terms but with a 15% discount to market. At September 30, 2010 the Company had
received $409,299 for 488,586 preferred shares but had not issued the shares.
3. LONG TERM DEBT
Balance owing December 31, 2009 $ 2,048,058
Net repayments (267,400)
Effect of foreign exchange on translation to US 33,053
------------
Balance due September 30, 2010 1,813,711
Less current portion (1,186,290)
------------
$ 627,421
============
4. REVENUE
Nine months 2010 Nine months 2009
-----------------------------------
Revenue consists of:
Product sales $ 0 $ 23,240
Contract sales 2,767,591 2,229,233
Government assistance 0 0
Other 0 4,972
$ 2,767,591 $ 2,227,445
5. CONTINGENCIES
(i) The Company is a defendant in a lawsuit commenced against them in 1999
by their former master distributor. The former product distributor has alleged
that the Company interfered with the ability of the former distributor to sell
products. The Company has filed a counter claim for monies owing by the former
distributor to the Company. There has been no action from either side to date.
(ii) The Company is contingently liable to repay $1,997,144 in
assistance received under the Atlantic Innovation Fund. The assistance is
repayable annually at the rate of 5% of gross revenues from sales of
products resulting from the Company's Aquacom research and development project.
Gross revenues are to be calculated for the fiscal year immediately
preceding the due date of the respective payment. Repayment is to
continue until the assistance is repaid in full. At June 30, 2010 the Company
has accrued $52,531 as repayable.
6. NEW ACCOUNTING PRONOUNCEMENTS
Management does not believe that any recently issued but not yet effective
accounting pronouncements, if currently adopted, would have a material effect on
the accompanying consolidated financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion should be read in conjunction with the
accompanying unaudited consolidated financial information for the three and
nine month periods ended September 30, 2010 and September 30, 2009
prepared by management and the audited consolidated financial statements
for the twelve months ended December 31, 2009 as presented in the Company's Form
10K and amendments as filed.
Although the Company has experienced a net loss this quarter, it continues to
expend effort to secure additional contracts for the manufacture and assembly of
military/government systems, submarine command and control consoles, multi-mode
fiber optic cables, precision, machined parts and other components for aerospace
and defense systems.
The Company believes that its overall business prospects look promising and
anticipates increased revenues in the near to medium future.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Certain statements in this report and elsewhere (such as in other filings by the
Company with the Securities and Exchange Commission ("SEC"), press releases,
presentations by the Company of its management and oral statements) may constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Words such as "expects," "anticipates," "intends,"
"plans," "believes," "seeks," "estimates," and "should," and variations of these
words and similar expressions, are intended to identify these forward-looking
statements. Actual results may materially differ from any forward-looking
statements. Factors that might cause or contribute to such differences include,
among others, competitive pressures and constantly changing technology and market
acceptance of the Company's products and services. The Company undertakes no
obligation to publicly release the result of any revisions to these forward-
looking statements, which may be made to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
THE COMPANY'S SERVICES
The Company, through its subsidiaries is an underwater sonar technology developer,
a defense electronics contract manufacturer (CM) and a defense systems integrator
(DSI).
UNDERWATER SONAR PRODUCTS AND TECHNOLOGIES
A) PROJECT X
The company is seeking arrangements with Lockheed Martin Canada to market the
prototype units developed in conjunction with the original Lockheed development
team. Production of this unit is anticipated in 2011.
B) DEFENSE SONAR SYSTEMS
The Company is a subcontractor on Lockheed Martin's anti-terrorism Swimmer
Detection System (SDS). The SDS is a wide band high frequency sonar system
designed specifically to detect and classify underwater terrorist threats. The
design and technology is applicable to innovative military sonar products.
DEFENSE CONTRACT MANUFACTURING
The Company, with its updated facilities, completed further details and reviews
for prospective new submarine console work from Lockheed Martin Manassas MS2,
expects awarding of the contract during this business quarter.
The Company's wholly owned subsidiary, Northstar Network Ltd., continued work on
the original Master Purchase Order for the Wing Assembly Upgrade Components for
the P-3 ORION aircraft from Lockheed Martin Aeronautics and is presently preparing
to start work on the recent $9.1M addition to the Master Purchase Order. The
Company is manufacturing components for new production service life extension kits
for this Lockheed Martin Service Life Extension Program. These components will
add more than 15,000 flying hours to each aircraft, representing 15 to 20
additional years of service for this critical maritime patrol and reconnaissance
resource.
In addition to the P3 Project, work continued with some delays for the
manufacture/assembly of the new Machine Control Consoles and new Trainer Consoles
for L3 Communication MAPPS Ltd. for the Canadian Navy Frigate Upgrade program.
Over 60 units will be delivered under this contract. The delays were a result of
the Company's lack of working capital in the quarter which is presently improving.
SYSTEMS INTEGRATION
The Company continues to enhance its approach to securing and executing large
defense contracts by bringing together affiliate companies. The overall affiliate
capability, which is substantial, is presented to the prime contractors. Marketing
efforts continue in this area to broaden our exposure for manufacturing
opportunities.
The aforementioned P3 ORION Master Purchase Order and the L3 Communications MAPPS
Ltd. contract are examples of how Systems Integration works for us. In these
projects, six subcontractors carry out various tasks, with Northstar bringing all
component parts together for engineering, testing, quality control and delivery to
the customer.
RESULTS OF OPERATIONS
Comparison of the three and nine months ended September 30, 2010 with the three
and nine months ended September 30, 2009:
Gross revenues from sales, miscellaneous income and recovery of research and
development for the three month period ended September 30, 2010 were $528,520
compared to $875,049 in the comparative prior three month period. Gross revenues
from sales, miscellaneous income and recovery of research and development for
the nine month period ended September 30, 2010 were $2,767,591 compared to
$2,257,445 in the comparative prior nine month period.
Sales revenue for the three month period ended September 30, 2010 was $528,520
(40% decrease) compared to $875,049 of sales revenue recorded during the same
three month period of the prior year. This comparative decrease was primarily
due to insufficientfunds available to the Company to finance its work in progress.
Sales revenue for the nine month period ended September 30, 2010 was $2,767,591
(18% increase) comparable to $2,257,445 in the prior period. Gross margins
remained constant at (25%) for the current and prior comparative nine month
period. A major effort has been put forward to rectify the lack of working
capital and subsequent to the quarter, the Company has secured the first
phase ($250,000) of significant production funding.
The net loss for the three month period ended September 30, 2010 was $(366,859)
(a 27% increase) compared to a net loss of $(288,009) for the three months ended
September 30, 2009. The increase in the loss resulted from the overhead
incurred while waiting to commence production on its contracts.
Salaries increased to $643,797 for the nine months ended September 30, 2010
compared to salaries of $566,821 for the comparative prior nine months ended
September 30, 2009 as the Company expanded its workforce in anticipation of
increased contract sales. Salaries had been forecasted to increase slightly as
new projects in the aeronautics area were secured.
Travel and business development costs were $36,999 for the nine months and
$4,193 for the comparative prior period ended September 30, 2009 as the Company
invested in travel to meetings to increase its customer awareness. Additional
travel costs were associated with production review requirements.
The Company is actively pursuing contracts for its sonar capabilities in
military and anti terrorist applications. Resulting from the Letter of Intent
signed with DEW Engineering and Development of Ottawa, ON and our subsidiary,
Northstar Network Ltd. (NNL) in June 2010, preliminary assessment work commenced
on the preparations necessary for formal quotations expected in the present
quarter. Subsequent to the quarter, a bid was submitted to BAE as part of the
DEW arrangement. The DEW agreement provides for collaboration between NNL and
DEW on a number of Canadian defense projects with potential expenditures up to
$16M over the next several years for the manufacture and /assembly of material
components for land-based, military armored vehicles.
Work continued on the mechanical locking devices for a marine design and supply
company. Successful completion of the work has led to bid submission for major
production expansion of these units. A response is anticipated during the
present quarter. In the aeronautics area, preliminary preparation of production
requirements is being undertaken for prospective work on the Lockheed Martin
C130J Super Hercules program. In addition preliminary assessment is being made
for potential work on the LMA JSF35 Joint Strike Fighter program. Request for
proposals for component manufacturing on these two major aeronautics projects
are anticipated near the end of 2010 or early in 2011.
The Company has taken solid steps to ensure sufficient funding, staffing and
added supplier support is in place to take on several of the many prospective
projects being pursued at this time.
Cost recoveries of $nil are comparable to $nil recovered in the comparative
prior nine month period.
COMPARISON OF FINANCIAL POSITION AT SEPTEMBER 30, 2010 WITH DECEMBER 31, 2009
The Company's working capital deficiency increased at September 30, 2010 to
$4,174,987 with current liabilities of $4,548,735 which are in excess of current
assets of $373,748. At December 31, 2009 the Company had a working capital
deficiency of $4,193,961.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We have adopted various accounting policies that govern the application of
accounting principles generally accepted in the United States of America in the
preparation of our financial statements. Our significant accounting policies are
described in the footnotes to our annual financial statements at December 31,
2009. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires us to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes.
Although these estimates are based on our knowledge of current events and actions
the Company may undertake in the future, these estimates may ultimately differ
from actual results. Certain accounting policies involve significant judgments and
assumptions by us and have a material impact on our financial condition and
results. Management believes its critical accounting policies reflect its most
significant estimates and assumptions used in the presentation of our financial
statements. Our critical accounting policies include revenue recognition,
accounting for stock based compensation and the evaluation of the recoverability
of long-lived and intangible assets. We do not have off-balance sheet
arrangements, financings or other relationships with unconsolidated entities or
other persons, also known as "special purpose entities".
LIQUIDITY AND CAPITAL RESOURCES
The Company has increased its shareholders' deficit as a result of its efforts
to increase its business activity and customer base. Cash outflow for the nine
months ended September 30, 2010 was $(276,689) compared to a cash outflow of
$(618,298) in the comparative prior nine month period. During the nine
months ended September 30, 2010 the Company received $523,586 from equity
funding and paid out $267,400 to reduce long term debt leaving cash on hand at
September 30, 2010 of $31,994 compared to cash on hand of $108,486 at December
31, 2009.
Until the Company receives revenues from new contracts and/or increases
its product sales revenue, it will be dependent upon equity and loan
financings to compensate for the outflow of cash anticipated from operations.
The Company is preparing a private placement preferred share offering pursuant
to Regulations D and S with the expectation of obtaining significant working
capital funding. Any funds so raised are targeted for contract
financing, product development, facilities, marketing and general working
capital. At this time, no commitment for funding has been made to the Company.
The Company's continued operations are dependent upon obtaining revenues
from outside sources or raising additional funds through debt or equity
financing.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
Based on the evaluation of the Company's disclosure controls and procedures (as
defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of
1934) as of the date of this Quarterly Report on Form 10-QSB, our chief executive
officer and chief financial officer has concluded that our disclosure controls and
procedures are designed to ensure that the information we are required to disclose
in the reports we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms and are operating in an effective manner.
(b) Changes in internal controls
There were no changes in our internal controls or in other factors that could
affect these controls subsequent to the date of their most recent evaluation.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
No change since previous filing.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Options Granted Date Exercise Price Expiry Date
-----------------------------------------------------------------------
Nil
Warrants Issued Date Exercise Price Expiry Date
Nil
Common Stock Issued Date Consideration
---------------------------------------------------------------------
1,075,000 January, 2010 cash of $157,500
10,345 January, 2010 services valued at $3,000
160,000 February, 2010 conversion of 40,000 preferred shares for $32,191
46,778 February, 2010 services valued at $12,541
121,687 March, 2010 services valued at $16,650
25,000 March, 2010 cash of $2,500
1,000,000 April 27, 2010 cash of $125,000
108,277 April 27, 2010 services and expenses valued at $19,900
30,000 May 12, 2010 repayment of loan in the amount of $6,600
26,531 June 2, 2010 expenses valued at $6,000
500,000 June 16, 2010 Expenses valued at $95,000
100,000 July 15, 2010 cash of $10,000
61,172 August 18, 2010 cash of $4,059
33,000 August 18, 2010 services and expenses valued at $3,750
480,000 August 20, 2010 cash of $48,000
200,000 August 24, 2010 cash of $20,000
10,000 August 24, 2010 services and expenses valued at $1,000
Preferred Stock Subscribed:
January 1, 2010 to March 31, 2010 - 100,000 series A shares, for cash of $90,000,
convertible to shares of common stock - proceeds were used in working capital.
July 1, 2010 to September 30, 2010 - 80,856 series A shares, for cash of $66,527,
convertible to shares of common stock - proceeds were used in working capital.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
No change since previous filing.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No change since previous filing.
ITEM 5. OTHER INFORMATION.
No change since previous filing
ITEM 6. EXHIBITS
No change since previous filing.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
November 10, 2010 Northstar Electronics, Inc.
(Registrant)
By: /s/ Wilson Russell
----------------------
Wilson Russell, PhD, President and Chief Financial Officer