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

Document Info
Form Name: 10-Q
Filed: August 21, 2017
 
10Q 10-Q 1 neik_10q.htm QUARTERLY REPORT

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: June 30, 2017


[  ]  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

33-0803434

State or other jurisdiction

of organization

IRS Employee incorporation

or Identification No.


1130 West Pender Street, Suite 950

Vancouver, BC, Canada  V6E 4A4

Address of principal executive offices


(778) 838-3313

Issuer's telephone number


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, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer" "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer

[  ]

 

Accelerated filer

[  ]

Non-accelerated filer

[  ]

 

Smaller reporting company

[X]

Emerging growth company

[  ]

 

 

 






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 [X]


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 July 30, 2017: 93,924,815


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 Statement of Changes in Stockholders' Equity

6

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)


 

 

June 30,

2017

 

December 31,

2016

 

 

unaudited

 

audited

Assets

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

Cash and cash equivalents

$

6,725

$

6,078

Prepaid expenses

 

7,292

 

7,292

 

 

14,017

 

13,370

 

 

 

 

 

Total assets

$

14,017

$

13,370

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

Accounts payable and accrued liabilities

$

849,946

$

806,445

Loans payable

 

434,291

 

434,291

Due to Directors

 

367,739

 

314,550

Legal liability

 

2,772,973

 

2,706,869

Total liabilities

 

4,424,949

 

4,262,155

 

 

 

 

 

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:

 

 

 

 

93,924,815 Common shares (86,887,609 - December 31, 2016)

 

9,343

 

8,639

597,716 Preferred shares (629,626 - December 31, 2016)

 

404,299

 

436,209

Additional Paid-in Capital

 

8,282,943

 

8,194,737

Accumulated Deficit

 

(13,107,517)

 

(12,888,370)

Total stockholders' deficit

 

(4,410,932)

 

(4,248,785)

 

$

14,017

$

13,370








See notes to the interim consolidated financial statements

Nature of operations and going concern (note 1)



4



NORTHSTAR ELECTRONICS, INC.

Interim Consolidated Statements of Operations

Three and Six Months Ended June 30, 2017 and 2016

Unaudited

U.S. Dollars



 

 

Three Months

 

Six Months

 

 

2017

 

2016

 

2017

 

2016

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

  Management fees

$

30,000

$

12,500

$

45,000

$

25,000

  Administrative fees

 

15,000

 

6,250

 

30,000

 

12,500

  Professional fees

 

17,500

 

5,625

 

24,250

 

13,500

  Foreign exchange (gain) loss

 

(6,086)

 

371

 

17,180

 

300

  Engineering research and

development

 

-

 

84,000

 

15,000

 

84,000

  Investor relations

 

25,490

 

2,050

 

26,275

 

2,050

  Interest

 

24,605

 

4,364

 

48,670

 

4,364

  Marketing and sales

 

-

 

42,000

 

-

 

42,000

  Office

 

6,241

 

7,138

 

12,772

 

11,179

Total expenses

 

112,750

 

164,298

 

219,197

 

194,893

 

 

 

 

 

 

 

 

 

Net loss for the period

$

(112,750)

$

(164,298)

$

(219,197)

$

(194,893)

 

 

 

 

 

 

 

 

 

Basic and diluted loss per common share

$

(0.00)

 

(0.00)

$

(0.00)

$

(0.00)

 

 

 

 

 

 

 

 

 

Weighted average number

of shares outstanding

 

93,551,482

 

80,751,807

 

90,593,537

 

80,074,327

















See notes to the interim consolidated financial statements



5



NORTHSTAR ELECTRONICS, INC.

Interim Consolidated Statement of Changes in Stockholders' Deficit

Six Months Ended June 30, 2017

Unaudited

U.S. Dollars



 

Number of

Shares

 

Par

Value

 

Additional

Paid-In

Capital

 

Accumulated

Deficit

 

Preferred

Shares

 

Total

Stockholders'

Deficit

Balance, December 31, 2015

79,396,847

$

7,940

$

8,105,572

$

(12,325,082)

$

456,209

$

(3,755,361)

Issuance for cash

1,278,520

 

128

 

15,050

 

-

 

-

 

15,178

Issuance on conversion of

preferred C shares

1,747,435

 

125

 

19,875

 

-

 

(20,000)

 

-

Issuance for debt

181,833

 

18

 

4,346

 

-

 

-

 

4,364

Issuance for goodwill

1,400,000

 

140

 

27,860

 

(28,000)

 

-

 

-

Net loss

-

 

-

 

-

 

(194,893)

 

-

 

(194,893)

Balance, June 30, 2016

84,004,635

 

8,351

 

8,172,703

 

(12,547,975)

 

436,209

 

(3,930,712)

Issuance for cash

2,882,974

 

288

 

22,034

 

-

 

-

 

22,322

Net loss

-

 

-

 

-

 

(340,395)

 

-

 

(340,395)

Balance, December 31,2016

86,887,609

 

8,639

 

8,194,737

 

(12,888,370)

 

436,209

 

(4,248,785)

Issuance for cash

2,500,000

 

250

 

24,750

 

-

 

-

 

25,000

Issuance on conversion of

preferred B shares

2,037,206

 

204

 

31,706

 

-

 

(31,910)

 

-

Issued for cash

750,000

 

75

 

7,425

 

-

 

-

 

7,500

Issued for services

1,750,000

 

185

 

19,315

 

-

 

 

 

19,500

Fair value of warrants issued

for services

-

 

-

 

5,000

 

-

 

-

 

5,000

Net loss

-

 

-

 

-

 

(219,147)

 

-

 

(219,147)

Balance, June 30, 2017

93,924,815

$

9,343

 

$8,282,943

$

(13,107,517)

$

404,299

$

(4,410,932)


















See notes to the interim consolidated financial statements



6



NORTHSTAR ELECTRONICS, INC.

Interim Consolidated Statements of Cash Flows

Six Months Ended June 30, 2017 and 2016

Unaudited

U.S. Dollars



 

 

2017

 

2016

 

 

 

 

 

Operating Activities

 

 

 

 

  Net loss

$

(219,147)

$

(194,893)

  Items not involving cash

 

 

 

 

    Foreign exchange loss

 

17,434

 

-

    Non-cash interest

 

48,670

 

4,364

    Non-cash investor relations

 

24,500

 

-

  Changes in non-cash working capital

 

 

 

 

    Changes in operating assets and liabilities

 

96,690

 

163,503

Net cash used in operating activities

 

(31,853)

 

(27,026)

 

 

 

 

 

Financing Activities

 

 

 

 

  Issuance of common shares for cash (net of costs)

 

32,500

 

32,500

  Loans payable

 

-

 

(25,000)

  Increases in debt (repayment to) directors

 

-

 

(339)

Net cash provided by financing activities

 

32,500

 

7,161

 

 

 

 

 

Increase (decrease) in cash

 

647

 

(19,865)

  Cash, beginning

 

6,078

 

23,752

 

 

 

 

 

  Cash, ending

$

6,725

$

3,887

 

 

 

 

 

Non-cash Transactions

 

 

 

 

Shares issued for services

$

19,500

$

-

Warrants issued for services

 

5,000

 

-

 

$

24,500

$

-















See notes to the interim consolidated financial statements



7



NORTHSTAR ELECTRONICS, INC.

Notes to Interim Consolidated Financial Statements

Six Months Ended June 30, 2017

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, 2016 Form 10-K.


The results of operations for the six months ended June 30, 2017 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 six months to June 30, 2017 the Company incurred a net loss of $219,147 and at June 30, 2017 had a working capital deficiency of $4,410,932.


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 six months ended June 30, 2017, the Company issued 2,500,000 shares of common stock for cash of $25,000.


During the six months ended June 30, 2017, the Company issued 750,000 common stock for cash of $7,500. Each common stock is attached with a warrant with an exercise price of $0.04 per common stock for a period of two years.  No value was attributed to these warrants.


During the six months ended June 30, 2017, the Company issued 2,037,206 shares of common stock for conversion of 31,910 preferred class B shares.


During the six months ended June 30, 2017 the Company issued 1,750,000 shares of common stock with a fair value of $19,500 for consulting services.  Each common stock is attached with a warrant with an exercise price of $0.04 per common stock for a period of two years.  The fair value of the warrants was determined to be $5,000 using the Black-Scholes Pricing Model with the following assumptions: dividend yield - 0%, volatility - 282%, risk-free rate - 1%, and expected life - 2 years.  


PREFERRED SHARES


At June 30, 2017, the outstanding number of preferred Classes A, B and C shares are 582,716 (December 31, 2016: 582,716), 15,000 (December 31, 2016: 46,910) and nil (December 31, 2016: nil), respectively


WARRANTS


 

Number of

Warrants

 

Exercise Price

per Share

Balance December 31, 2016

829,940

 

$0.15 - $0.75

Issued

1,300,000

 

$0.004

Balance June 30, 2017

2,129,940

 

$0.64


As at June 30, 2017 the outstanding warrants are as follows:


Expiry Date

Exercise

Price

 

June 30,

2017

 

December 31,

2016

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 17, 2019

$0.004

 

1,300,000

 

-

Total outstanding and exercisable

 

 

2,129,940

 

829,940

Weighted average outstanding life of

options (years)

 

 

Open

 

Open




9



3.  LEGAL LIABILITY


During 2000 to 2008, the Company's former subsidiaries North Star 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$3,666,697 ($2,752,570).  Further, the claim amount bears a daily interest of $358 from February 15, 2013 to settlement. During the six months ended June 30, 2017, the Company recorded interest expenses of $48,670.



4.  RELATED PARTY TRANSACTIONS


During the six months ended June 30, 2017, the Company accrued management fees payable of $45,000 in total to a director of the company.


At June 30, 2017, there is a balance of $367,739 (December 31, 2016: $314,550) owing to a director of the Company for management fees and expenses reimbursement.  The balance is included in accounts payable and accrued 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


There were no material events outside of the normal course of business.

















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 six month periods ended June 30, 2017 and June 30, 2016 prepared by management and the consolidated financial statements for the year ended December 31, 2016 as presented in the Form 10K 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 continue to move 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 our business outcomes.


The Company is working on plans to obtain rights to a single engine turbo prop airplane with industrial applications. If successful, we intend to manufacture the airplane and market it internationally. We also intend to provide Maintenance, Repair and Overhaul (MRO) services in close proximity to customers. 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.


Results of Operations


Comparison of the three and six months ended June 30, 2017 with the three and six months ended June 30, 2016:


The net loss for the three month period ended June 30, 2017 was $(112,750) compared to a net loss of $(164,298) for the three months ended June 30, 2016.  The decrease in net loss for the three and six month period was in part due to the fact the Company incurred engineering expenses in the prior period related to its venture  development  and sales/marketing expense in determining market acceptance of its venture.  




11



Comparison of Financial Position at June 30, 2017 with December 31, 2016


The Company's working capital deficiency increased at June 30, 2017 to $4,410,932 with current liabilities of $4,424,949 which are in excess of current assets of $14,017. At December 31, 2016 the Company had a working capital deficiency of $4,248,785. See also contingent liabilities, note 3 to the financial statements for the six months ended June 30, 2017.


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, 2016. 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".


Liquidity and Capital Resources


Cash outflow from operations for the six months ended June 30, 2017 was $(31,853) compared to an outflow of cash of $(27,026) in the comparative prior six months ended June 30, 2016. During the current period, the Company received $32,500 ($32,500 in the comparative prior period) from equity funding and received $0 (received $0 in the comparative period) long term debt leaving cash on hand at June 30, 2017 of $6,725 compared to cash on hand of $3,887 at December 31, 2016. Until the Company receives revenues from its new potential business it will be dependent upon equity funding and loan financings to compensate for the outflow of cash anticipated from operations.


At this time, although the Company is in discussions with potential equity investing companies, no commitment for funding has yet 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.





12




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 June 30, 2017.


(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.


During the six months ended June 30, 2017 the Company issued the following shares of common stock:


During the three months ended March 31, 2017, the Company issued 2,500,000 shares of common stock for cash of $25,000.


During the three months ended March 31, 2017, the Company issued 2,037,206 shares of common stock for conversion of 31,910 preferred class B shares.


On April 6, 2017, the Company issued 1,200,000 shares of common stock for consulting services.


On April 25, 2017, the Company issued 1,300,000 shares of common stock for cash and consulting services.


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








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.


August 21, 2017

Northstar Electronics, Inc.

 

(Registrant)

 

 

 

By: /s/ Wilson Russell

 

Wilson Russell, PhD, President and Chief Financial Officer






























15