10-Q - Quarterly report [Sections 13 or 15(d)]

Document Info
Form Name: 10-Q
Filed: November 13, 2018
 
10Q 10-Q 1 neik_10q.htm QUARTERLY REPORT

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, 2018


[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from: ______ to ______


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.


1000-355 Burrard St.

Vancouver, BC, Canada  V6C 2G8

Address of principal executive offices


(778) 838-3313

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 [  ]  No [X]


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 November 14, 2018: 127,838,231


Transitional Small Business Disclosure Format (check one):  Yes [  ]  No [X]


































2




TABLE OF CONTENTS



PART I - FINANCIAL INFORMATION

4

Item 1. Financial Statements

4

Consolidated Balance Sheets

4

Consolidated Statements of Operations

5

Consolidated Statements of Cash Flows

7

Notes to Consolidated Financial Statements

8

Item 2. Management's Discussion and Analysis or Plan of Operation.

11

Item 3. Controls and Procedures

13

PART II - OTHER INFORMATION

14

Item 1. Legal Proceedings.

14

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

14

Item 3. Defaults Upon Senior Securities.

14

Item 4. Submission of Matters to a Vote of Security Holders.

14

Item 5. Other Information.

14

Item 6. Exhibits.

14

SIGNATURES

15



















3




PART I - FINANCIAL INFORMATION


Item 1. Interim Consolidated Financial Statements



NORTHSTAR ELECTRONICS, INC.

Consolidated Balance Sheets

U.S. Dollars


 

September 30

2018

 

December 31

2017

 

unaudited

 

audited

Assets

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

Cash

$

971

 

$

16,438

 

 

 

 

 

 

 

$

971

 

$

16,438

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

Accounts payable and accrued liabilities

$

1,110,115

 

$

941,115

Loans payable

 

442,916

 

 

434,291

Due to director

 

507,523

 

 

424,538

Legal liability

 

2,984,327

 

 

3,001,471

 

 

5,044,881

 

 

4,801,415

 

 

 

 

 

 

Stockholders' Deficit

 

 

 

 

 

Authorized:

 

 

 

 

 

200,000,000 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:

 

 

 

 

 

127,838,231 Common shares (98,579,815 - December 31, 2017)

 

12,784

 

 

9,858

597,716 Preferred shares (597,716 - December 31, 2017)

 

404,299

 

 

404,299

Additional paid-in capital

 

8,608,925

 

 

8,333,396

Subscriptions receivable

 

(240,050)

 

 

(5,035)

Accumulated deficit

 

(13,829,868)

 

 

(13,527,495)

 

 

(5,043,910)

 

 

(4,784,977)

 

 

 

 

 

 

 

$

971

 

$

16,438


Nature of operations and going concern (Note 1)







See notes to the interim consolidated financial statements



4




NORTHSTAR ELECTRONICS, INC.

Consolidated Statements of Operations

Three and Nine Months Ended September 30, 2018 and 2017

Unaudited

U.S. Dollars



 

Three Months

 

Nine Months

 

2018

 

2017

 

2018

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

  Management

$

30,000

 

$

30,000

 

$

90,000

 

$

75,000

  Consulting fees

 

10,000

 

 

-

 

 

10,000

 

 

-

  Administration

 

15,000

 

 

15,000

 

 

45,000

 

 

45,000

  Professional fees

 

5,625

 

 

(3,500)

 

 

21,375

 

 

26,650

  Foreign exchange (gain)

 

50,523

 

 

192,467

 

 

(90,850)

 

 

209,647

  Engineering and development

 

28,000

 

 

-

 

 

88,000

 

 

15,000

  Investor relations

 

695

 

 

(1,600)

 

 

1,945

 

 

24,725

  Marketing and sales

 

12,000

 

 

-

 

 

36,000

 

 

-

  Office and administration

 

4,405

 

 

8,138

 

 

25,094

 

 

20,910

Interest expense

 

25,100

 

 

34,895

 

 

75,809

 

 

77,615

Total expenses

 

181,348

 

 

275,400

 

 

302,373

 

 

494,547

    

 

 

 

 

 

 

 

 

 

 

 

Net loss for the period

$

(181,348)

 

$

(275,400)

 

$

(302,373)

 

$

(494,547)

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per common share

$

(0.00)

 

$

(0.00)

 

$

(0.00)

 

$

(0.01)

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding

 

103,292,315

 

 

85,319,142

 

 

100,167,910

 

 

91,756,091












See notes to the interim consolidated financial statements



5




NORTHSTAR ELECTRONICS, INC.

Interim Consolidated Statement of Changes in Stockholders' Deficit

Nine Months Ended September 30, 2018

Unaudited

U.S. Dollars



 

Number

of

Shares

 

Par

Value

 

Additional

Paid-In

Capital

 

Subscriptions

receivable

 

Accumulated

Deficit

 

Preferred

Shares

 

Total

Stockholders'

Deficit

Balance December 31, 2017

98,579,815

 

$  9,858

 

$ 8,333,396

 

$        (5,035)

 

$(13,527,495)

 

$ 404,299

 

$ (4,784,977)

Subscription collected

-

 

-

 

-

 

5,035

 

-

 

-

 

5,035

Issuance for cash

28,258,416

 

2,826

 

265,629

 

(240,050)

 

-

 

-

 

28,405

Shares for service

1,000,000

 

100

 

9,900

 

-

 

-

 

-

 

10,000

Net loss

-

 

-

 

-

 

-

 

(302,373)

 

-

 

(302,373)

Balance September 30, 2018

127,838,231

 

$ 12,784

 

$ 8,608,925

 

$    (240,050)

 

$(13,829,868)

 

$ 404,299

 

$ (5,043,910)


























See notes to the interim consolidated financial statements



6




NORTHSTAR ELECTRONICS, INC.

Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2018 and 2017

Unaudited

U.S. Dollars


 

 

2018

 

2017

 

 

 

 

 

Operating Activities

 

 

 

 

  Net loss

$

(302,373)

$

(494,547)

  Items not involving cash

 

 

 

 

    Foreign exchange loss (gain)

 

(90,850)

 

208,267

    Non-cash interest

 

75,809

 

77,615

    Non-cash investor relations

 

-

 

24,500

    Non-cash consulting

 

10,000

 

-

  Changes in non-cash working capital

 

 

 

 

    Changes in operating assets and liabilities

 

169,000

 

147,190

Net cash used in operating activities

 

(138,414)

 

(36,975)

 

 

 

 

 

Financing Activities

 

 

 

 

  Issuance of common shares for cash (net of costs)

 

33,440

 

32,500

  Loans payable

 

8,625

 

-

  Increases in debt (repayment to) directors

 

82,985

 

-

Net cash provided by financing activities

 

125,050

 

32,500

 

 

 

 

 

Decrease in cash

 

  (15,467)

 

(4,475)

  Cash, beginning

 

16,438

 

6,078

 

 

 

 

 

  Cash, ending

$

971

$

1,604

 

 

 

 

 

Non-cash Transactions

 

 

 

 

Shares issued for services

$

10,000

$

19,500

Warrants issued for services

 

-

 

5,000

 

$

10,000

$

24,500












See notes to the unaudited interim consolidated financial statements



7




NORTHSTAR ELECTRONICS, INC.

Notes to Interim Consolidated Financial Statements

Nine Months Ended September 30, 2018

Unaudited

U.S. Dollars


1. NATURE OF OPERATIONS AND ABILITY TO CONTINUE AS A GOING CONCERN


Northstar Electronics, Inc. (the "Company") was incorporated on May 11, 1998 in the state of Delaware. The Company is doing research and development on single engine aircrafts for business use.


The Company's business activities are conducted in Canada.  However, the financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") with all figures translated into United States dollars for financial reporting purposes.  


These unaudited consolidated interim financial statements have been prepared by management in accordance with GAAP 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, 2017 Form 10-K.


The results of operations for the nine months ended September 30, 2018 are not necessarily indicative of the results to be expected for the entire fiscal year. The accompanying interim 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 ended September 30, 2018 the Company incurred a net loss of $302,373 and at September 30, 2018 had a working capital deficiency of $5,043,910.


Management has undertaken initiatives for the Company to continue as a going concern; for example: the Company is attempting to secure an equity financing in the short term. Management is unable to predict the results of its initiatives at this time. These factors raise substantial doubt about the ability of the Company to continue as a going concern.  


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.




8



2. SHARE CAPITAL


COMMON STOCK


During the nine months ended September 30, 2018, the Company issued 28,258,416 shares of common stock for cash of $268,455 of which $240,050 was received subsequent to September 30, 2018. Each share had one-half share purchase warrant attached to it which allows the holder to purchase one common share for each full share purchase warrant at an exercise price of $0.05 for a term of two years from the issuance date.


During the nine months ended September 30, 2018 the Company issued 1,000,000 shares of common stock with a fair value of $10,000 for consulting services. Each share had one-half share purchase warrant attached to it which allows the holder to purchase one common share for each full share purchase warrant at an exercise price of $0.05 for a term of two years from the issuance date.


PREFERRED SHARES


At September 30, 2018, the outstanding number of preferred Classes A, B and C shares are 582,716 (December 31, 2017: 582,716), 15,000 (December 31, 2017: 15,000) and nil (December 31, 2017: nil), respectively


WARRANTS


 

Exercise

 

Number of Warrants

Expiry Date

Price

 

2018

 

2017

Open (1)

$ 0.50

 

389,170

 

389,170

Open (1)

$ 0.75

 

389,170

 

389,170

Open (2)

$ 0.25

 

51,600

 

51,600

April 20, 2019

$ 0.04

 

2,500,000

 

2,500,000

November 7, 2018

$ 0.05

 

1,562,500

 

1,562,500

December 25, 2018

$ 0.05

 

265,000

 

265,000

May 18, 2019

$ 0.05

 

1,495,000

 

-

September 30, 2020

$ 0.05

 

13,134,208

 

-

Total outstanding and exercisable

 

 

19,786,648

 

5,157,440

Weighted average outstanding life of

warrants (years)

 

 

1.46 - Open

 

0.94 - Open


(1)

These warrants were issued in 2005. The expiry date of the warrants are six months after the closing bid price for the common stock of the Company has been over $0.65 and $1.00 per share respectively for five consecutive trading days.


(2)

These warrants were issued in 2008 and they do not have an expiry date.




9



3. LEGAL LIABILITY


During 2000 to 2008, the Company's former subsidiaries Northstar Technical Inc. ("NTI") and Northstar Network Ltd. ("NNL") received funding from Atlantic Canada Opportunities Agency ("ACOA") to fund their projects. In accordance with agreements signed between NTI, NNL and the Company, the Company was jointly and severally liable for the obligations. In 2013, ACOA filed claims against NTI, NNL and the Company for repayments of advances due to events of default. The advance and interests ACOA claims totaled CAD$3,079,475 ($2,378,894). Further, the claim amount bears a daily interest of CAD$358 from February 15, 2013 to settlement. During the nine months ended September 30, 2018, the Company recorded interest expenses of $75,809.


4. RELATED PARTY TRANSACTIONS


During the nine months ended September 30, 2018, the Company accrued management fees payable of $90,000 (September 30, 2017: $75,000) in total to a director of the company.


At September 30, 2018, there is a balance of $507,523 (December 31, 2017: $424,538) owing to a director of the Company for management fees and expenses reimbursement.  The balance is included in current liabilities.


5. 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.


6. SUBSEQUENT EVENT


On October 2, 2018 the Company collected its subscriptions receivable in cash for the amount of $240,050.













10




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, 2018 and September 30, 2017 prepared by management and the audited consolidated financial statements for the twelve months ended December 31, 2017 as presented in the Company's Form 10K and amendments as filed.


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


We are now moving in a new direction whereby we intend to build our own systems in the civilian aviation sector. We believe that this affords improved control over the business outcomes compared to the contract manufacturing business.


The Company is working to purchase worldwide rights to a single engine Turbo Prop airplane with industrial applications from a subsidiary of a large international aerospace company. If successful, we intend to manufacture the airplanes and market them internationally and provide Maintenance, Repair and Overhaul (MRO) services in close proximity to customers. The main applications are Agricultural, Rapid Response Forest Fire Fighting and, most recently, Cloud Seeding. The Company's wholly owned subsidiary, National Five Holding Ltd, is a 60% shareholder of Northstar Sealand Enterprises Ltd (NSEL). The constituent parts of NSEL have experience in working on certified commercial aircraft and government military contracts, and have access to an established aircraft parts manufacturing facility.






11



Results of Operations


Comparison of the three and nine months ended September 30, 2018 with the three and nine months ended September 30, 2017:


Gross revenues from all sources for the three month period ended September 30, 2018 were $0 compared to $0 in the comparative prior three month period.  Gross revenues from all sources for the nine month period ended September 30, 2018 were $0 compared to $0 in the comparative prior nine month period. In prior years the Company earned modest consulting fees as the Company continued to reorganize its business.


The net loss for the three month period ended September 30, 2018 was $(181,348) compared to a net loss of $(275,400) for the three months ended September 30, 2017.  The net loss was comparable to the prior year as the Company continued to reduce office and administration expenses as well as engineering and marketing expenses. The effects on our operations were minimal and we were able to make meaningful advances in our efforts to purchase the rights to the airplane.


Comparison of Financial Position at September 30, 2018 with December 31, 2017


The Company's working capital deficiency increased at September 30, 2018 to $5,043,910 with current liabilities of $5,044,881 which are in excess of current assets of $971. At December 31, 2017 the Company had a working capital deficiency of $4,784,977. See also legal liabilities, note 3 to the financial statements for the nine months ended September 30, 2018.


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, 2017. 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 it may undertake in the future, they 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".




12



Liquidity and Capital Resources


Cash outflow for the nine months ended September 30, 2018 was $(15,467) compared to an outflow of cash of $(4,475) in the comparative prior nine months ended September 30, 2017. During the current period, the Company received $33,440 ($32,500 in the comparative prior period) from equity funding leaving cash on hand at September 30, 2018 of $971 compared to cash on hand of $16,438 at December 31, 2017. Until the Company receives revenues from new contracts it will be dependent upon equity and loan financings to compensate for the outflow of cash anticipated from operations.


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-Q, 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. The disclosure controls were effective at September 30, 2018.


(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.















13




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: Nil


Warrants Issued: Refer to the September 30, 2018 interim 9 month  financial statements.

 

Common Stock Issued:  During the nine months ended September 30, 2018, the Company issued 2,990,000 shares of common stock for cash of $28,405.


Preferred Stock Subscribed: Refer to the September 30, 2018 interim 9 month  financial statements.


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.












14




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.


November13, 2018

Northstar Electronics, Inc.

 

(Registrant)

 

 

 

By: /s/ Wilson Russell

 

Wilson Russell, PhD, President and Chief Financial Officer






























15