10-K 1 neik_10k.htm ANNUAL REPORT

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549


FORM 10-K

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


For the fiscal year ended December 31, 2015


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


For the transition period from   n/a


Commission file number: 333-90031


Northstar Electronics, Inc.

Name of small business issuer in its charter


Delaware

 

#33-0803434

State or other jurisdiction of

incorporation or organization

 

IRS Employer Identification No.


2020 General Booth Blvd, Unit 230,

Virginia Beach, VA, USA   23451

Address of principal executive offices and Zip Code


Issuer's telephone number (647-286-4594)


Securities registered pursuant to section 12(b) of the Act

None


Securities registered pursuant to section 12(g) of the Act

None


Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act [  ]


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 for 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.  (1) [  ] Yes [X] No     (2) [X] Yes [  ] No







Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [  ]


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated Filer [  ]

Accelerated Filer [  ]

Non-accelerated filer    [  ]

Smaller reporting Company [X]

(Do not check if a smaller reporting company)

 


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes [  ]   No [X]


State issuer's revenues for its most recent fiscal year: $0


State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of a specified date within the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange Act).


Note - If determining whether a person is an affiliate will involve an unreasonable effort and expense, the issuer may calculate the aggregate market value of the common equity held by non-affiliates on the basis of reasonable assumptions, if the assumptions are stated.

 

Aggregate market value of voting common equity held by non-affiliates as of December 31, 2015:  $630,000 approximately


Aggregate market value of non-voting common equity held by non-affiliates as of December 31, 2015:  Not Applicable


State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. Outstanding shares of common stock as of April 19, 2016: 79,396,847


Documents incorporated by reference: None


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








ii




INDEX


Risk Factors

1

PART I

1

  Item 1. Description of Business

1

  Item 2. Description of Properties

3

  Item 3. Legal Proceedings

3

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

4

PART II

4

  Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

4

  Item 6. Management's Discussion and Analysis or Plan of Operation

4

  Item 7. Financial Statements

7

  Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

8

  Item 8A. Controls and Procedures

8

PART III

10

  Item 9. Directors, Executive Officers, Promoters and Control Persons

10

  Item 10. Executive compensation

10

  Item 11. Security Ownership of Certain Beneficial Owners and Management

10

  Item 12. Certain Relationships and Related Transactions

10

  Item 13. Exhibits and Reports on Form 8-K

10

  Item 14. Principal Accountants Fees and Services

10

SIGNATURES

12


Note Regarding Forward Looking Statements


Except for statements of historical fact, certain information contained herein constitutes 'forward looking statements'. Forward looking statements address our current plans, intentions, beliefs and expectations and are statements of our expected future economic performance. Statements containing terms like 'will', 'believes', 'does not believe', 'plans', 'expects', 'intends', 'estimates', 'anticipates', 'may' and other phrases of similar meaning or the negative or other variations of these words or other comparable words or phrases are considered to imply uncertainty and are forward looking statements.


Such forward looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results or achievements of the Company to be materially different from any future results or achievements of the Company expressed or implied by such forward looking statements. Such factors include, but are not limited to changes in economic conditions, government regulations, contract requirements and abilities, behavior of existing and new competitor companies and other risks and uncertainties discussed in this annual Form 10-K report.


We cannot guarantee our future results, level of activity, performance or achievements. Neither I nor any other person assumes responsibility for the accuracy and completeness of these forward looking statements. We are under no duty to update any of the forward looking statements after the date of this report.




iii



Risk Factors


Investment in our common stock involves a high degree of risk. Prospective investors should carefully consider the following risk factors in addition to other information in this annual report before purchasing our common stock.


Because we have a net loss from operations of $108,456 for the year ended December 31, 2015 and have accumulated losses of $13,347,472 from inception, we face a risk of insolvency and we remain dependent on equity and debt financing to help pay operating costs and to help cover operating losses.  Business financing is being pursued.


The Company had previously been dependent on contract manufacturing which did not deliver long term positive financial results, as had been expected. We are, at present, working to develop a business area in the aerospace sector.   Our future is uncertain if we fail to develop this business area.  Please also refer to our December 31, 2015 year end audited financial statements and notes thereto.


The auditor's report for our December 31, 2015 consolidated financial statements includes an additional paragraph that identifies conditions which raise doubt about our ability to continue as a going concern. The audited financial statements do not include any adjustments that might result from the outcome of this uncertainty.


PART I


Item 1. Description of Business


The business of the Company is primarily that of a holding company with subsidiaries. The Company's wholly owned subsidiary, National Five Holding Ltd, incorporated in British Columbia, Canada, holds a 60 percent share interest in Northstar Sealand Enterprises Ltd ("NSEL"). NSEL has been incorporated to pursue a manufacturing, marketing, sales and maintenance opportunity in the aviation industry and is in negotiations with a major aviation company.


Corporate History


The Company's wholly owned subsidiary, Northstar Network Ltd., (NNL), had carried out defense, aerospace and homeland security contract manufacturing. NNL has been discontinued due to insufficient working capital, quality issues with suppliers and design changes made by the customer. The lack of capital funding was predominantly responsible for the shutdown of operations.   


Our second subsidiary Northstar Technical Inc., (NTI), had been involved in underwater sonar sensors primarily related to the fishing industry. NTI has been discontinued due to a downward trend in the commercial fishing industry. The time taken for new technology developments using underwater communicating techniques was long. The timeframe for market introduction was also   lengthy. Consequently in a fast changing industry, the products did not receive sufficiently strong market acceptance.



1




The Company did not consummate the signing of a Letter of Intent to acquire a development stage company specializing in advanced sonar technologies and systems.


Homeland Security and Military Defense:

The Company had expected that design and manufacture of homeland security and anti-terrorism systems would have  grown rapidly as the United States Department of Homeland Security and the United States Navy had planned to ramp up efforts to protect ports, other  onshore high value assets and ships.  However, the timing of their actions taken were too late for the Company to adequately participate.


Research and Development:

The Company did not expend any efforts on research and development during the year.


DESIGN ENGINEERING AND CONTRACT MANUFACTURING


The Company has experience in contract manufacturing and has produced electronic and mechanical systems under contract to defense and aerospace companies.. Products were built according to designs provided by our customers for whom the Company provided production engineering, contract manufacturing of components, sourcing and procurement of parts, assembly of full systems, testing and shipping.


The Company's former customers included Lockheed Martin MS2, Lockheed Martin Canada, Lockheed Martin Aeronautics and L-3.


NEW DIRECTION


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 on plans to obtain rights to a single engine airplane with industrial applications. If successful, we intend to market the airplane internationally and 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). NSEL, has experience in working on certified commercial aircraft and government military contracts, and has access to an established aircraft parts manufacturing facility.


Marketing

NSEL has started market assessments in several large international markets where there appears to be volume sales potential for the single engine airplane. They have also begun to explore potential marketing partnerships with other aviation companies. Projections made by NSEL show a potential growth in demand for suitable single engine aircraft, subject to economic factors. Preliminary plans have been started on methods to achieve market presence, including direct sales, magazine ads, web site, and participation in trade shows.



2



Technology Protection

The Company currently owns no proprietary technology requiring protection with respect to its activities. It intends to acquire proprietary technology and, if successful, intends to put appropriate protection measures in place.


Need for Government Approvals

If the Company is successful in acquiring the rights to the aforementioned single engine airplane, there will be required government approvals applicable to our expected future activities.

The approvals would likely be for an in country Type Certificate and other certificates, as required, in other countries where the airplane would be marketed.


Effect of Existing or Probable Government Regulations

 If successful with the acquisition of the rights to the single engine airplane, the Company intends to abide by the applicable regulations in each country where it intends to carry out marketing and sales. The costs of meeting the regulatory requirements can be high and the Company will do its best efforts to procure the funds required.


Research and Development Expenditures

The Company did not incur expenditures in fiscal 2015 on research and development activities.


Costs and Effects of Compliance with Environmental Laws

The Company incurred no costs or adverse effects in its compliance with any environmental laws.


PRODUCTION


The Company has experience in carrying out work requiring multiple subcontractors to perform specialized tasks.  The ability to integrate the work of multiple components to create a complete system will be NSEL's main area of business - system integration.


EMPLOYEES


As of December 31, 2015 the Company has a team of highly experienced consultants who provide administration, marketing and engineering services under contract.


PUBLIC INFORMATION


The Company electronically files with the Securities and Exchange Commission (SEC) all its reports, including but not limited to its annual and quarterly reports. The SEC maintains an internet site (http://www.sec.gov) that contains reports and other information regarding issuers that do file electronically. The Company maintains a web site address at www.northstarelectronics.com


Item 2. Description of Properties


The Company maintains an office at:

3959 W 36th Avenue, Vancouver BC Canada  V6N 2S7



3




Item 3. Legal Proceedings


There are no known undisclosed legal filings registered or contemplated against the Company.


The Company is contingently liable to repay $2,294,755 in assistance received under the Atlantic Innovation Fund, repayable annually at the rate of 5% of gross revenues from sales of products resulting from the Company's research and development project. The Company became in default of this conditional loan, was unable to represent itself in court because of its location and the Innovation Fund was awarded a $7,500,000 judgement against the Company. The Company generated negligible revenues from the program, is in absolute disagreement with this outcome and is working on a plan to deal effectively with the matter.


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


There have been no changes since the previous filing.  The Company has filed with the SEC an SB-1 registration statement April 2000, an S-8 registration November 2000 and quarterly reports (form 10QSB) for June and September 2000 and for March, June and September 2001, 2002, 2003, 2004, 2005, 2006 and 2007, form 10Q's for March, June and September 2008, 2009, 2010  and 2011 and annual reports (form 10KSB) for December 31, 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007 and form 10K for 2008, 2009, 2010, 2011 and the years 2012 thru 2014.





























4




PART II


Item 5. Market for Registrant's Common Equity and Related Stockholder Matters


No change since previous filing.


Item 6. Management's Discussion and Analysis or Plan of Operation


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".  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 following discussion, comparison and analysis should be read in conjunction with the Company's accompanying audited consolidated financial statements for the years ended December 31, 2015 and 2014 and the notes related thereto. The discussion of results, causes and trends should not be construed to infer conclusions that such results, causes or trends necessarily will continue in the future.


DISCUSSION


The following table sets forth for the years indicated items included in the Company's consolidated statement of operations:


 

2015

 

2014

 

2013

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

Total revenue

$

-

 

$

10,526

 

$

7,410

 

$

-

 

$

379,020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

-

 

 

-

 

 

-

 

 

-

 

 

207,930

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross margin

 

-

 

 

10,526

 

 

7,410

 

 

-

 

 

171,090

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

108,456

 

 

86,113

 

 

109,696

 

 

281,013

 

 

1,979,045

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss)

$

(108,456)

 

$

(75,587)

 

$

(102,286)

 

$

(281,013)

 

$

(1,807,955)

Net (loss) per share

$

(0.00)

 

$

(0.00)

 

$

(0.00)

 

$

(0.00)

 

$

(0.10)


During the years ended December 31, 2015, 2014, 2013 and 2012 the Company attempted to adequately recover from the loss of its contracts and to improve its internal systems.





5



A shortage of working capital in support of operations has been an issue as the Company took measures to provide that support.  Sufficient capital was not raised and consequent business operations were kept at a minimum.  


New financing opportunities were pursued late in the 2014 fiscal year. In 2014 and 2013, the Company generated nominal gross revenues of $10,526 and $7,410, respectively, from consulting work.

The Company experienced operating losses of $108,456 for 2015, $75,587 for 2014, $102,286 for 2013 and $281,013 for 2012 while maintaining an office and continuing its search for its next opportunity.


Discontinued NETMIND operations were reduced to servicing existing customers.  The Company was unable to finance its operations and attract personnel to manufacture and market the NETMIND product.


Defense Sonar Development Contract Opportunity

Discontinued


Contract Manufacturing and System Integration

Although the Company remains open to carrying out work in  contract manufacturing and system integration, we are not actively pursuing contracts at this time in those areas..  


Results of Operations


Revenues decreased significantly in the years 2015 and 2014 resulting in negligible cash flow. The Company generated $10, 526 contract and $0 sales revenues during this period.


During 2015 and 2014, the Company did not spend funds on design engineering and prototype development related to the development of engineering systems.


Liquidity and Capital Resources


The Company used cash in operations of $(95,956) in 2015 compared to cash used by operations of $(50,587) in 2014 and $(52,086) in 2013. In 2015 the Company raised equity financing of $55,000 (2014: $0 and 2013: $0). In 2012 the Company raised equity financing of $40,000. The net cash was used to fund operations.


The Company's working capital and capital requirements will depend on many factors, including the ability of the Company to obtain aircraft sales in order to generate sufficient funds to cover the current level of operating expenses. During the most recent fiscal year (2015) the Company decreased its current debt by $45,859 (increased by: 2014 $92,389 and increased   by: 2013 - $49,566).   


The Company is attempting to negotiate a secure equity financing in the short term.


With respect to the trade payables, the Company's suppliers have been reasonably cooperative with the Company to date.



6




The Company will maintain its focus on reducing the outstanding amounts payable with settlements and debt financing. The Company expects its suppliers will continue to be supportive in the future, and the Company will continue with its communications regarding future prospects.


The Company is contingently liable to repay $2,294,755 in assistance received under the Atlantic Innovation Fund, repayable annually at the rate of 5% of gross revenues from sales of products resulting from the Company's research and development project. The Company became in default of this conditional loan, was unable to represent itself in court because of its location and the creditor was awarded a $7,500,000 judgement against the Company. The Company generated negligible revenues from the program, is in absolute disagreement with this outcome and is working on a plan to deal effectively with the matter.


The availability of sufficient future funds will depend to an extent on obtaining manufacturing contracts on a timely basis. Accordingly, the Company may be required to issue securities to finance start-up and working capital requirements for the expected new aviation business and ongoing general business expansion. There can be no assurance whether or not such future financings will be available or on satisfactory terms.




Item 7. Financial Statements


NORTHSTAR ELECTRONICS, INC.

Index to Consolidated Financial Statements December 31, 2015 and 2014 (U.S. Dollars)


Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Changes in Stockholders' Equity (Deficit)

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

















7







REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of Northstar Electronics, Inc.:

 

I have audited the accompanying consolidated balance sheet of Northstar Electronics, Inc. ("the Company") as at December 31, 2015, the related consolidated statement of operations, stockholders' equity and cash flows for the years 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.

 

I conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement.  I was not engaged to perform an audit of the Company's internal control over financial reporting.  My audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.  An audit also 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.  I believe that our audits provide a reasonable basis for our opinion.

 

In my opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the company as at December 31, 2015, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles in the United States of America.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1, the Company has not generated revenues since its inception, has incurred annual losses, and further losses are anticipated. The Company requires additional funds to meet its obligations and ongoing operations. Management's plans in this regard are described in Note 1. These factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 


Toronto, ON, Canada

/s/ Kappin Professional Corporation

May 20, 2016

Chartered Accountants

 

  


Phone: 647 2864594 | Email: kappinprocorp@gmail.com | Address: 28 count Crystan Avenue, Markham L6C 0K3

  

F-1





NORTHSTAR ELECTRONICS, INC.

Balance Sheets

December 31


(US Dollars)

 

2015

 

2014

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

Cash and cash equivalents

$

23,752

$

17,288

Prepaid expenses

 

-

 

-

 

 

 

 

 

Total Current Assets

 

23,752

 

17,288

 

 

 

 

 

Total assets

$

23,752

$

17,288

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

Accounts payable and accrued liabilities

$

315,816

$

409,098

Loans payable (note 4)

 

424,276

 

421,631

Due to Directors (note 5)

 

499,734

 

454,956

 

 

 

 

 

Total Current Liabilities

 

1,239,826

 

1,285,685

Long-term debt (note 10)

 

-

 

-

 

 

 

 

 

Total liabilities

 

1,239,826

 

1,285,685

 

 

 

 

 

Stockholders' Deficit

 

 

 

 

 

 

 

 

 

Common Stock (notes 15&16)

 

 

 

 

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:

 

 

 

 

79,396,847 Common shares

(70,771,847 - 2014)

 

7,940

 

7,078

535,496 Preferred series A shares

(535,496 - 2014)

 

456,209

 

456,209

Additional Paid-in Capital

 

8,105,572

 

8,051,434

Accumulated Other Comprehensive Income (Loss)

 

134,035

 

28,256

Loss on discontinued operations

 

(4,072,358)

 

(4,072,358)

Contingency reserve

 

7,500,000

 

7,500,000

Accumulated Deficit

 

(12,780,130)

 

(12,780,130)

Deficit accumulated in the development stage

 

(567,342)

 

(458,886)

 

 

 

 

 

Total Stockholders' Deficit

 

(1,216,074)

 

(1,268,397)

 

 

 

 

 

Total Liabilities and Stockholders' Deficit

$

23,752

$

17,288


See notes to financial statements

Nature of operations and going concern (note 1)

Contingent liabilities (note 7)



F-2






NORTHSTAR ELECTRONICS, INC.

Statements of Operations and Comprehensive Loss

Years Ended December 31

(US Dollars)


 

 

2015

 

2014

 

2013

 

 

 

 

 

 

 

Revenues

$

-

$

10,526

$

7,410

Cost of Goods Sold

 

-

 

-

 

-

 

 

 

 

 

 

 

Gross Margin

 

-

 

10,526

 

7,410

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

Salaries, wages and benefits

 

-

 

-

 

-

Research and development

 

-

 

-

 

-

Travel, marketing and business development

 

4,926

 

-

 

-

Management fees

 

50,000

 

50,000

 

50,000

Administration

 

27,050

 

25,000

 

25,000

Consulting

 

2,460

 

-

 

25,200

Rent and storage

 

-

 

-

 

-

Professional fees

 

6,250

 

-

 

-

Office and miscellaneous

 

20,634

 

11,113

 

9,496

Bad debts

 

-

 

-

 

-

Finders fee

 

-

 

-

 

-

Loss on disposal of assets

 

-

 

-

 

-

Foreign exchange loss (gain)

 

(2,864)

 

-

 

-

Depreciation

 

-

 

-

 

-

Amortization of intangible asset

 

-

 

-

 

-

Interest and penalties

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

108,456

 

86,113

 

109,696

 

 

 

 

 

 

 

Net loss for the year

 

(108,456)

 

(75,587)

 

(102,286)

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

Gain on settlement of account payable

 

105,779

 

-

 

-

Net (loss) and comprehensive gain (loss)

 

(2,677)

$

(75,587)

$

(102,286)

 

 

 

 

 

 

 

Loss Per Share (Basic and Diluted)

 

$ (0.00)

 

$ (0.00)

 

$ (0.00)

 

 

 

 

 

 

 

Weighted Average Number of Common

Shares Outstanding (Basic and Diluted)

 

75,084,347

 

60,035,600

 

59,720,600




See notes to financial statements



F-3






NORTHSTAR ELECTRONICS, INC.

Statements of Changes in Stockholders' Deficit

Years Ended December 31

(US Dollars)


 

Number of

Shares

 

Par

Value

 

Additional

Paid-In

Capital

 

Other

Comprehensive

Income (Loss)

 

Accumulated

Deficit

 

Preferred

Shares

 

Total

Stockholders'

Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2011

53,377,824

$

5,338

$

7,058,546

$

4,038,898

$

(12,780,130)

$

409,299

$

(1,268,049)

Net loss

-

 

-

 

-

 

(583,000)

 

(281,013)

 

-

 

(864,013)

Issued for cash

1,805,554

 

181

 

39,819

 

-

 

-

 

-

 

40,000

Issued for consulting and services

6,784,400

 

678

 

164,660

 

-

 

-

 

-

 

165,338

Issued to settle debt

4,000,000

 

400

 

199,600

 

-

 

-

 

-

 

200,000

Settlement of discontinued business

5,000,000

 

500

 

582,500

 

-

 

-

 

-

 

583,000

Correction

407,401

 

41

 

(41)

 

-

 

-

 

-

 

-

Balance December 31, 2012

71,375,179

$

7,138

$

8,045,084

$

3,455,898

 

(13,061,143)

$

409,299

$

(1,143,724)

Net loss

-

 

-

 

-

 

-

 

(102,286)

 

-

 

(102,286)

Converted to preferred

(1,933,332)

 

(193)

 

(46,717)

 

-

 

-

 

46,910

 

-

Issued to settle loan

700,000

 

70

 

27,930

 

-

 

-

 

-

 

28,000

Issued to settle account payable

630,000

 

63

 

25,137

 

-

 

-

 

-

 

25,200

Balance December 31, 2013

70,771,847

$

7,078

$

8,051,434

$

3,455,898

$

(13, 163,429)

$

456,209

$

(1,192,810)

Net loss

-

 

-

 

-

 

-

 

(75,587)

 

-

 

(75,587)

Balance, December 31, 2014

70,771,847

$

7,078

$

8,051,434

$

3,455,898

$

(13,239,016)

$

456,209

$

(1,268,397)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issued for cash

8,625,000

 

862

 

54,138

 

-

 

-

 

-

 

55,000

Net loss

-

 

-

 

-

 

105,779

 

(108,456)

 

-

 

(2,677)

Balance, December 31, 2015

79,396,847

$

7,940

 

8,105,572

 

3,561,677

$

(13,347,472)

$

456,209

 

(1,216,074)












See notes to financial statements



F-4






NORTHSTAR ELECTRONICS, INC.

Statements of Cash Flows

Years Ended December 31

(US Dollars)


 

 

2015

 

2014

 

2013

 

 

 

 

 

 

 

Operating Activities

 

 

 

 

 

 

Net gain (loss)

$

(2,677)

$

(75,587)

$

(102,286)

Items not involving cash:

 

 

 

 

 

 

    Settlement of account payable

 

(105,779)

 

-

 

-

    Services paid with common stock

 

-

 

-

 

25,200

    Loss on discontinued business

 

-

 

-

 

-

    Equity based compensation

 

-

 

-

 

-

Changes in Non-Cash Working Capital:

 

 

 

 

 

 

   Accounts receivable

 

-

 

-

 

-

   Prepaid expenses

 

-

 

-

 

-

   Accounts payable and accrued liabilities

 

12,500

 

25,000

 

25,000

   Deferred revenue

 

-

 

-

 

-

Cash Used in Operating Activities

 

(95,956)

 

(50,587)

 

(52,086)

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

 

Deferred contract costs

 

-

 

-

 

-

Acquisition of equipment

 

-

 

-

 

-

Cash Used in Investing Activities

 

-

 

-

 

-

 

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

 

Issuance of share capital for cash

 

55,000

 

-

 

-

Loan advances

 

2,642

 

20,000

 

-

Long term financing

 

-

 

-

 

-

Advances from directors

 

44,778

 

47,389

 

52,566

Cash Provided by Financing Activities

 

102,420

 

67,389

 

52,566

 

 

 

 

 

 

 

Effect of Foreign Currency Translation on Cash

 

-

 

-

 

-

 

 

 

 

 

 

 

Increase (Decrease) in Cash and Cash equivalents

 

6,464

 

16,802

 

480

Cash and Cash Equivalents, Beginning

 

17,288

 

486

 

6

Cash and Cash Equivalents, Ending

$

23,752

$

17,288

$

486

 

 

 

 

 

 

 

Supplemental Information

 

 

 

 

 

 

Income taxes paid

$

-

$

-

$

-

Interest paid

$

-

$

-

$

-

Common stock issued for debt

$

-

$

-

$

-



See notes to financial statements



F-5





NORTHSTAR ELECTRONICS, INC.

Notes to Financial Statements

Years Ended December 31, 2015 and 2014

(US Dollars)


1.  NATURE OF OPERATIONS AND GOING CONCERN


Northstar Electronics Inc (the "Company") was incorporated on May 11, 1998 in the state of Delaware.  These financial statements are consolidated with the Company's wholly owned subsidiary, National Five Holding Ltd. Any intercompany transactions have been eliminated on consolidation. The accounts of Northstar Technical Inc. ("NTI") and Northstar Network Ltd. ("NNL"), formerly wholly owned subsidiaries of the Company, have been written off in prior years as the operations of these subsidiaries have been discontinued.


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 with all figures translated into United States dollars for financial reporting purposes.


The accompanying financial statements have been prepared on a going concern basis, which assumes the Company will be able to continue as a going-concern and contemplates the realization of assets and satisfaction of liabilities in the normal course of business.  As at December 31, 2015 the Company incurred a net loss from operations of $108,456 (2014: $75,587 and 2013: $102,286) and had a working capital deficiency of $1,216,074 (2014: $1,268,397 and 2013: $1,192,810).  


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 investors.  These initiatives are in recognition that for the Company to continue as a going-concern it must generate sufficient cash flows to meet its obligations and expenses.  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 will remain in doubt.


2. SIGNIFICANT ACCOUNTING POLICIES


a. Revenue recognition

For sales under certain long-term contracts, the Company uses the out-put percentage of completion method to recognize revenue.  Actual sales and cost values for units being delivered are used as the basis for recording revenue and its associated margin.  Under this method, revenue is recognized when title to products is transferred to the customer.


For sales under other certain long-term contracts, the Company uses the input-basis percentage of completion method to recognize revenue.  Under this method, revenue is recognized based on the ratio of cost incurred to date to the total estimated costs at the completion of the contract.  




F-6





2. SIGNIFICANT ACCOUNTING POLICIES (continued)


b. Cash and Cash Equivalents

Cash and cash equivalents consist of commercial accounts, trust accounts and interest-bearing bank deposit. Items are considered to be cash equivalents if the original maturity is three months or less.


c. Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable consist primarily of amounts due to the Company resulting from normal business activities. The Company maintains an allowance for doubtful accounts for estimated uncollectible accounts receivable. The allowance is based on our assessment of known delinquent accounts. Accounts are written off against the allowance account when they are determined to be no longer collectible.


d. Inventory

Inventories consist of raw material stated at the lower of cost and net realizable value, with cost being determined on a first-in, first-out (FIFO) basis, and unbilled work in progress stated at cost.


e. Research and development

Research and development costs are expensed to operations as incurred.


f. Deferred contract costs

The Company accounts for contract costs incurred prior to commencement of production under long term contracts in accordance with FASB Accounting Standards Codification Topic ASC 340, 'Other Assets and Deferred Costs'.  Costs on long-term contracts and programs in progress represent recoverable costs incurred for production or contract-specific facilities and equipment, allocable operating overhead, advances to suppliers and general and administrative expenses, whose recovery from future contract revenue is probable.  Deferred contract costs are recognized into income on a pro-rata basis in accordance with the sales incurred to date as a percentage of expected sales.


g. Investment tax credits

Investment tax credit refunds arising from the incurrence of qualifying research and development expenditures are not recognized until the applicable project is approved as a qualifying research and development project by Canada Revenue Agency. The refunds are recorded as a reduction of the applicable expense.


h. Equipment

Equipment is recorded at cost less any government assistance received, and is amortized over the estimated useful lives of the equipment using the following annual rates:


Computer equipment

30% declining-balance

Computer software

30% declining-balance

Furniture and equipment

20% declining-balance

Manufacturing equipment

20% declining-balance

Leasehold improvements

20% straight-line




F-7





2. SIGNIFICANT ACCOUNTING POLICIES (continued)


i. Long-lived assets

The Company accounts for long-lived assets in accordance with the provisions of ASC 350 (formerly SFAS No.144, Accounting for the Impairment or Disposal of Long-Lived Assets).  The statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.  If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.  Assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.


j. Government assistance

The Company's subsidiaries have been awarded research and development assistance under certain Government of Canada assistance programs.  Amounts received or receivable under these programs are recorded as other income at the time the amounts are approved for payment by the government agency.  Advances for expenses which the Company has yet to incur are also included in deferred revenue (2015 - $0: 2014 - $0: 2013 - $0).


k. Foreign currency translation

The Company's operations and activities are conducted principally in Canada.  Hence the Canadian dollar is the functional currency.  Amounts incurred in U.S. dollars are translated into the functional currency as follows:


(i)

Monetary assets and liabilities at the rate of exchange in effect as at the balance sheet date;

(ii)

Non-monetary assets and liabilities at the exchange rates prevailing at the time of the acquisition of the assets or assumption of the liabilities; and

(iii)

Revenues and expenditures at rates approximating the average rate of exchange for the year.


For reporting purposes, assets and liabilities of non-U.S. subsidiaries that operate in a local currency environment are translated to U.S. dollars at year end exchange rates.  Profit and loss accounts are translated at the average rates for the year.  Translation adjustments are recorded as other comprehensive income (loss) and accumulated other comprehensive loss within stockholders' equity.


l. Other comprehensive income (loss)

The Company has other comprehensive income (loss) arising from foreign currency translations and from the write off of the subsidiary company liabilities which are in excess of their assets. Accordingly, pursuant to ASC 220, "Reporting Comprehensive Income," other comprehensive income (loss) is shown as a separate non cash component of stockholders' equity (deficit).





F-8





2. SIGNIFICANT ACCOUNTING POLICIES (continued)


m. Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Significant areas requiring the use of management estimates relate to deferred contract costs, revenue recognition, the determination of the impairment of long-lived assets, the estimation of useful lives, rates and methods for amortization, inventory valuation and realization, recognition of bad debt allowances, the calculation of stock based compensation, valuation of deferred tax assets and liabilities, accounts payable and accrued liabilities and deferred revenue.  Management believes the estimates are reasonable however actual results could differ from those estimates and would impact future results of operations and cash flows.  


n. Income taxes

Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not.  The Company has adopted ASC 740 whereby the Company is required to compute tax asset benefits for net operating losses carried forward.  Potential benefits of net operating losses have not been recognized in these financial statements because the Company cannot be assured that it is more likely than not that it will utilize the net operating losses carried forward in future years.  Accordingly any potential benefits of income tax losses are offset by a valuation allowance.


The Company will periodically assess its tax filing exposures related to periods that are open to examination. Based on the latest available information, we evaluate tax positions to determine whether the position will more likely than not be sustained upon examination by the Internal Revenue Service.  If it is determined that the tax position is more likely than not to be sustained, the Company records the largest amount of benefit that is more likely than not to be realized when the tax position is settled.  If the Company cannot reach that determination, no benefit is recorded.  Interest and penalties related to income taxes are recorded as a component of income tax expense in the financial statements.


On January 1, 2007, the Company adopted the provisions of FIN 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, Accounting for Income Taxes. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in the entity's financial statements in accordance with SFAS No. 109. As of the date of adoption, the Company had no unrecognized income tax benefits, and accordingly, the adoption of FIN 48 did not result in a cumulative effect adjustment to the Company's retained earnings and the annual effective tax rate was not affected. Should the Company incur interest and penalties relating to tax uncertainties, such amounts would be classified as a component of interest expense and operating expense, respectively.  





F-9





2. SIGNIFICANT ACCOUNTING POLICIES (continued)


o. Net loss per share before comprehensive income

Net loss per share calculations are based on the weighted average number of common shares outstanding during the year.  Diluted loss per share is not shown as the effects of the outstanding stock options and warrants are anti-dilutive.


p. Shipping and handling costs

Shipping and handling costs are recognized as incurred and included in Cost of Sales in the consolidated statement of operations and comprehensive loss.


q. Warranties

Provisions for estimated expenses related to product warranties are made at the time products are sold. These estimates are established using historical information on the nature, frequency, and average cost of warranty claims.


r. Equity-based compensation

Equity-based compensation is calculated in accordance with ASC 505 and ASC 718 (formerly SFAS 123(R), Share-based Payments).  ASC 505 and ASC 718 requires the cost of all share-based payment transactions to be recognized in an entity's financial statements,   establishes fair value as the measurement objective and requires entities to apply a fair-value-based measurement method in accounting for share-based payment transactions.  ASC 505 and ASC 718 applies to all awards granted, modified, repurchased or cancelled after July 1, 2005 and unvested portions of previously issued and outstanding awards.  The Company adopted this statement for its first quarter starting January 1, 2006.  Prior to 2006, the Company adopted the disclosure provisions of ASC 505 and ASC 718 for stock options granted to employees and directors.  The Company disclosed on a supplemental basis, the pro-forma effect of accounting for stock options awarded to employees and directors, as if the fair value based method had been applied, using the Black-Scholes option-pricing model.


s. Fair value measurements

Effective January 1, 2008 the Company adopted ASC 820, Fair Value Measurements. ASC 820 provides a definition of fair value, establishes a hierarchy for measuring fair value under generally accepted accounting principles and requires certain disclosures about fair values used in the financial statements.   ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the primary or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:

Level 1 - Quoted prices in active markets for identical assets or liabilities.


Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.




F-10





2. SIGNIFICANT ACCOUNTING POLICIES (continued)


Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.


t. Recently adopted accounting pronouncements

In March 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-11(ASU 2010-11), "Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives." The amendments in this Update are effective for each reporting entity at the beginning of its first fiscal quarter beginning after June 15, 2010. Early adoption is permitted at the beginning of each entity's first fiscal quarter beginning after issuance of this Update. Adoption of this standard did not have a material effect on the financial position, results of operations or cash flows of the Company.


In February 2010, the FASB Accounting Standards Update 2010-10 (ASU 2010-10), "Consolidation (Topic 810): Amendments for Certain Investment Funds." The amendments in this Update are effective as of the beginning of a reporting entity's first annual period that begins after November 15, 2009 and for interim periods within that first reporting period. Early application is not permitted. The Company's adoption of provisions of ASU 2010-10 did not have a material effect on the financial position, results of operations or cash flows.


In February 2010, the FASB issued ASU No. 2010-09 "Subsequent Events (ASC Topic 855) "Amendments to Certain Recognition and Disclosure Requirements" ("ASU No. 2010-09"). ASU No. 2010-09 requires an entity that is an SEC filer to evaluate subsequent events through the date that the financial statements are issued and removes the requirement for an SEC filer to disclose a date, in both issued and revised financial statements, through which the filer had evaluated subsequent events. The adoption did not have an impact on the Company's financial position and results of operations.


In January 2010, the FASB issued Accounting Standards Update ("ASU") No. 2010-06, "Improving Disclosures about Fair Value Measurements." ASU No. 2010-06 amends ("ASC") 820 and clarifies and provides additional disclosure requirements related to recurring and non-recurring fair value measurements and employers' disclosures about postretirement benefit plan assets. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009. The adoption of ASU 2010-06 did not have a material impact on the Company's financial statements.













F-11





2. SIGNIFICANT ACCOUNTING POLICIES (continued)


t. Recently adopted accounting pronouncements, continued


In January 2010, the FASB issued an amendment to ASC 505, Equity, where entities that declare dividends to shareholders that may be paid in cash or shares at the election of the shareholders are considered to be a share issuance that is reflected prospectively in EPS, and is not accounted for as a stock dividend. This standard is effective for interim and annual periods ending on or after December 15, 2009 and is to be applied on a retrospective basis. The adoption of this standard did not have a significant impact on the Company's consolidated financial statements.


In January 2010, the FASB issued an amendment to ASC 820, Fair Value Measurements and Disclosure, to require reporting entities to separately disclose the amounts and business rationale for significant transfers in and out of Level 1 and Level 2 fair value measurements and separately present information regarding purchase, sale, issuance, and settlement of Level 3 fair value measures on a gross basis. This standard, for which the Company is currently assessing the impact, is effective for interim and annual reporting periods beginning after December 15, 2009 with the exception of disclosures regarding the purchase, sale, issuance, and settlement of Level 3 fair value measures which are effective for fiscal years beginning after December 15, 2010.


The adoption of this standard is not expected to have a significant impact on the Company's consolidated financial statements.


In October 2009, the FASB issued an amendment to the accounting standards related to certain revenue arrangements that include software elements. This standard clarifies the existing accounting guidance such that tangible products that contain both software and non-software components that function together to deliver the product's essential functionality, shall be excluded from the scope of the software revenue recognition accounting standards. Accordingly, sales of these products may fall within the scope of other revenue recognition standards or may now be within the scope of this standard and may require an allocation of the arrangement consideration for each element of the arrangement.


In October 2009, FASB issued an amendment to the accounting standards related to the accounting for revenue in arrangements with multiple deliverables including how the arrangement consideration is allocated among delivered and undelivered items of the arrangement. Among the amendments, this standard eliminated the use of the residual method for allocating arrangement considerations and requires an entity to allocate the overall consideration to each deliverable based on an estimated selling price of each individual deliverable in the absence of having vendor-specific objective evidence or other third party evidence of fair value of the undelivered items.


This standard also provides further guidance on how to determine a separate unit of accounting in a multiple-deliverable revenue arrangement and expands the disclosure requirements about the judgments made in applying the estimated selling price method and how those judgments affect the timing or amount of revenue recognition. This standard became effective on January 1, 2011 and had no material impact on the Company.




F-12





2. SIGNIFICANT ACCOUNTING POLICIES (continued)


t. Recently adopted accounting pronouncements, continued


In April 2011, the FASB issued new accounting guidance for purposes of measuring the impairment of receivables and evaluating whether a troubled debt restructuring has occurred. An entity should disclose the total amount of receivables and the allowance for credit losses as of the end of the period of adoption related to those receivables that are newly considered impaired under Section 310-10-35 for which impairment was previously measured under Subtopic 450-20, Contingencies-Loss Contingencies. Currently, this guidance is anticipated to be effective for interim and annual periods ending after June 15, 2011. The adoption of this guidance is not expected to have an impact on our consolidated financial position, results of operations, cash flows, or disclosures.


In December 2010, the FASB issued ASU 2010-28, Intangibles - Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. The ASU does not prescribe a specific method of calculating the carrying value of a reporting unit in the performance of step 1 of the goodwill impairment test (i.e. equity-value-based method or enterprise-value-based method).  However, it requires entities with a zero or negative carrying value to assess, considering qualitative factors such as those used to determine whether a triggering event would require an interim goodwill impairment test (listed in ASC 350-20-35-30, Intangibles - Goodwill and Other - Subsequent Measurement, whether it is more likely than not that a goodwill impairment exists and perform step 2 of the goodwill impairment test if so concluded. ASU 2010-28 is effective for the Company beginning January 1, 2011 and early adoption is not permitted. The Company does not expect the adoption of ASU 2010-28 to have a material impact on its consolidated financial position or results of operations.


The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.


3. FINANCIAL INSTRUMENTS


Fair values

The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities and loans payable approximate their fair values because of the short maturity of these financial instruments. The carrying value of the Company's long-term debt approximates fair value as the loans bear market rates of interest.  No interest has been imputed on non-interest bearing loans from government entities.


Interest rate risk

The Company is not exposed to significant interest rate risk due to the fixed rates of interest on its monetary assets and liabilities.




F-13





3. FINANCIAL INSTRUMENTS (continued)


Credit risk

The Company is exposed to credit risk with respect to its accounts receivable.  The Company follows a program of credit evaluations of customers and limits the amount of credit extended when deemed necessary. The Company maintains provisions for potential credit losses and any such losses to date have been within management's expectations.


Currency risk

The Company is subject to currency risk as certain of the assets and liabilities are denominated in Canadian currencies.  The exchange rate conversion to US dollars may vary from time to time.


4. CONCENTRATIONS AND ECONOMIC DEPENDENCE


For the years ended December 31, 2015 and 2014 the Company has discontinued its operations and had no accounts receivable. All of the Company's assets and liabilities are located in Canada.  


5. LOANS PAYABLE


 

2015

 

2014

 

2013

Demand loans

$

407,349

 

$

404,704

 

$

384,704

Repayable government assistance

 

-

 

 

-

 

 

-

Interest payable

 

16,927

 

 

16,927

 

 

16,927

   

$

424,276

 

$

421,631

 

$

401,631


The demand loans are unsecured with no fixed terms of repayment.


6. RELATED PARTY TRANSACTIONS


a.

The amounts due to directors have no specific terms of repayment and are subordinated to amounts due to ACOA (note 7).  


b.

The Company accrued management fees payable of $50,000 in total to a director of the Company for his services as an officer of the Company (2014: $50,000 and 2013: $50,000).


The above transactions were in the normal course of operations and were measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.


7. CONTINGENT LIABILITIES


The Company is contingently liable to repay $2,294,755 in assistance received under the Atlantic Innovation Fund, repayable annually at the rate of 5% of gross revenues from sales of products resulting from the Company's research and development project. The Company became in default of this conditional loan, was unable to represent itself in Newfoundland court and ACOA was awarded a $7,500,000 judgment against the Company. The Company generated negligible revenues from the program and is in absolute disagreement with this outcome. See note 12.



F-14





8. STOCK OPTIONS


For purposes of calculating the compensation cost consistent with ASC 505 and ASC 718, the fair value is estimated on the date of grant using the binomial method.  Volatility is based on an average of the implied volatility in the open market and the annualized volatility of the Company's stock history.  The following table shows the weighted-average assumptions used for grants of stock options as well as the fair value of the grants based on those assumptions:


 

 

2015

 

2014

Expected dividend yield

 

-

 

-

Forfeiture rate

 

-

 

-

Volatility

 

30.00%

 

30.00%

Risk free interest rate

 

2.70%

 

2.70%

Expected average life

 

2.5 year

 

2.5 year

Fair Value of options granted

 

n/a

 

n/a


The forfeiture rate is based on the historical annualized forfeiture rate, which is consistent with prior years.  This rate includes only pre-vesting forfeitures.  Volatility is based on an average of the implied volatility in the open market and the annualized volatility of the Company's stock price over the entire stock history.  The risk free interest rate used is the implied yield currently available from the Canadian Treasury zero-coupon yield curve over the contractual term of the options.  The expected weighted-average life is based on historical exercise behaviour, which compares the average life of the options that have already been exercised or cancelled with the exercise life of all unexercised options.  The exercise life of unexercised options assumes that the option will be exercised at the midpoint of the vesting date and the full contractual term.  These assumptions are consistent with the assumptions used in prior years.


Stock option activity for the years ended December 31, 2011 and 2010 are as follows:


 

Number of

Shares

 

Exercise Price

per Share

 

Weighted

Average

Exercise

Price

 

 

 

 

 

 

Balance December 31, 2013

50,000

 

$0.50

 

$0.50

Granted during the year

-

 

-

 

-

Cancelled/Expired

-

 

-

 

-

 

 

 

 

 

 

Balance December 31, 2014

50,000

 

$0.50

 

$0.50

Granted during the year

-

 

-

 

-

Cancelled/Expired

 (50,000)

 

$0.50

 

$0.50

Balance December 31, 2015

-

 

-

 

-






F-15





8. STOCK OPTIONS (continued)


As at December 31, 2015 the outstanding stock options granted to directors, employees and others are as follows:


 

Exercise

 

Number of Shares

Expiry Date

Price

 

2015

 

2014

 

 

 

 

 

 

March 31, 2015

$0.50

 

-

 

50,000

 

 

 

 

 

 

Total outstanding and exercisable

-

 

-

 

50,000

Weighted average outstanding life of

options (years)

-

 

-

 

1.16


Warrants


 

Number of

Shares

 

Exercise Price

per Share

 

Weighted

Average

Exercise

Price

 

 

 

 

 

 

Balance December 31, 2013

1,015,526

 

$0.15 - $0.75

 

$0.64

Granted during the year

-

 

-

 

-

Exercised during the year

-

 

-

 

-

 

 

 

 

 

 

Balance December 31, 2014

1,015,526

 

$0.15 - $0.75

 

$0.64

Granted during the year

-

 

-

 

-

Exercised during the year

-

 

-

 

-

Balance December 31, 2015

1,015,526

 

$0.15 - $0.75

 

$0.64


As at December 31, 2015 the outstanding warrants are as follows:


 

Exercise

 

Number of Shares

Expiry Date

Price

 

2015

 

2014

 

 

 

 

 

 

Open

$ 0.50

 

389,170

 

389,170

Open

$0.75

 

389,170

 

389,170

Open

$0.15

 

185,586

 

185,586

Open

$ 0.25

 

51,600

 

51,600

 

 

 

 

 

 

Total outstanding and exercisable

 

 

1,015,526

 

1,015,526

Weighted average outstanding life of

options (years)

 

 

Open

 

Open





F-16





8. STOCK OPTIONS (continued)


In 2005, the Company issued 389,170 Class A warrants exercisable at $0.50 per share and 389,170 Class B warrants exercisable at $0.75 per share.  The Class A and Class B warrants expire 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.


In 2008, the Company issued 51,600 warrants exercisable at $0.25 per share.


9. INCOME TAXES


Income taxes vary from the amount that would be computed by applying the estimated combined statutory income tax rate (34%) for the following reasons:


 

2015

 

2014

(Loss) earnings before income taxes

$

(677)

 

$

(1,807,955)

Income tax rate

 

34%

 

 

34%

 

 

 

 

 

 

Expected income tax expense (recovery)

based on above rates

 

(230)

 

 

(614,704)

Increase (decrease) due to:

 

 

 

 

 

Impact of lower statutory tax rates on foreign

subsidiaries

 

--

 

 

73,000

Non-deductible expenses

 

--

 

 

100,000

Other permanent differences

 

--

 

 

(50,000)

Effect of expiry of losses

 

--

 

 

400,000

Change in valuation allowance

 

230

 

 

91,704

Provision for income taxes

$

--

 

$

--


Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.  


The Company's carried losses for income tax purposes are $7,311,774, which may be carried forward to apply against future income tax, expiring between 2026 and 2030.  The future tax benefit of these loss carry-forwards has been offset with a full valuation allowance.  These losses expire as follows:


2026

 

681,591

2027

 

718,441

2028

 

1,791,899

2029

 

1,039,431

2030

 

1,272,447

2031

 

1,807,955

 

$

7,311,774




F-17





9. INCOME TAXES (continued)


The Company has adopted Financial Accounting Standards Board Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" - an interpretation of SFAS 109. (FIN 48), as codified in ASC 740. ASC 740 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with tax positions.


The Company did not file its U.S. federal income tax returns, including, without limitation, information returns on Internal Revenue Service ("IRS") Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations for the years ended December 31, 2007 through 2015. Failure to furnish any information with respect to any foreign business entity required, within the time prescribed by the IRS, subjects the Company to certain civil penalties.  


The Company did not file the information reports for the years ended December 31, 2007 through 2011 concerning its interest in foreign bank accounts on TDF 90-22.1, "Report of Foreign Bank and Financial Accounts" ("FBARs"). For not complying with the FBAR reporting and recordkeeping requirements, the Company is subject to civil penalties up to $10,000 for each of its foreign bank. The Company does not believe that the failure to file the FBAR was willful and intends to seek a waiver of any penalties. The Company is unable to determine the amount of any penalties that may be assessed at this time and believes that penalties, if any, that may be assessed would not be material to the consolidated financial statements.


In addition, because the Company did not generate any income in the United States or otherwise have any U.S. taxable income, the Company does not believe that it owes U.S. federal income taxes in respect to any transactions that the Company or any of its subsidiaries may have engaged in through December 31, 2015. However, there can be no assurance that the IRS will agree with the position, and therefore the Company ultimately could be held liable for U.S. federal income taxes, interest and penalties.


10. COMMON STOCK


During the year ended December 31, 2015, the Company issued 8,625,000 common shares for cash of $55,000 pursuant to a private placement. No shares were issued during the comparative year ended December 31, 2014.







F-18





10. COMMON STOCK (continued)


Preferred Shares


Issued for cash:

The preferred shares bear interest at 10% per annum paid semiannually 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. During the period from 2008 thru March 31, 2016 the Company had received an accumulated total of $456,209 for 535,496 preferred shares.


11. LOSS PER SHARE


The potentially dilutive securities that were excluded from the earnings (loss) per share calculation consist of stock options with an exercise price greater than the average market price of the Common Shares.  1,015,526 shares were potentially dilutive in 2015 (2014: 1,065,526).


12. NET BENEFIT FROM ABANDONMENT OF OPERATIONS


The Company became unable to provide sufficient cash to successfully operate its business and fulfill its contract obligations to its customer - due to its inability to perform, the Company lost its contracts and discontinued its subsidiaries.


Accounts of abandoned subsidiary companies written off:


Cash

$

36

Accounts receivable

 

(175,361)

Prepaid expense

 

(22,537)

Inventories

 

(318,219)

Fixed assets

 

(30,791)

Accounts payable

 

2,096,577

Loans payable

 

646,437

Long term debt

 

1,721,841

Due to Directors

 

633,094

Deferred revenue

 

112,054

Other comprehensive debits

 

(652,489)

 

 

 

Net benefit from abandonment of operations

 

4,010,642

ACOA contingent liability loss reserve

 

(7,500,000)

 

 

 

Net loss on abandonment of operations

 

(3,489,358)

Additional loss incurred December 31, 2012

 

(583,000)

 

 

 

Total loss

$

(4,072,358)




F-19






NOTE 13. REPORTING ISSUER REQUIREMENTS


The Company became delinquent in filing its quarterly and annual reports required by a reporting issuer and thereby gave up its reporting issuer status in the United States.












































F-20






Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure


There are no reportable disagreements on accounting or financial disclosure issues.


Item 8A. Controls and Procedures


Management's Annual Report on Internal Control over Financial Reporting


Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act).


Framework used by Management to Evaluate the Effectiveness of Internal Controls over Financial Reporting


I maintain internal controls and procedures that are designed to ensure that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC.  This information is accumulated and communicated to our executive officers to allow timely decisions regarding required disclosure within certain policies and procedures. These policies and procedures include:


-

maintenance of records in reasonable detail to accurately and fairly reflect the transactions and dispositions of  assets;

-

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and directors, and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.


For the year ended December 31, 2015 management has relied on the Committee of Sponsoring Organizations of the Treadway Commission (COSO), an Internal Control - Integrated Framework issued in 1992, to evaluate the effectiveness of our internal control over financial reporting.


Management's Assessment of the Effectiveness of Internal Controls over Financial Reporting as of December 31, 2015


Management conducted an evaluation of the effectiveness of our internal control over financial reporting and determined that our internal control over financial reporting was effective as of December 31, 2015, with the exception that the Company has not met its reporting requirements and is delinquent in is filings due to its poor financial condition.





8





Attestation Report of the Registered Accounting Firm


This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting.  Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management's report in this annual report.


Factors Considered in Determining Effectiveness of Internal Controls and Procedures


Our President/Chief Executive Officer/Chief Financial Officer, has evaluated the effectiveness of our internal controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") as of December 31, 2015.  


Our internal controls over financial reporting are designed by, or under the supervision of, our President/Chief Executive Officer/Chief Financial Officer, or persons performing similar functions, and effected by our board of directors, management and other personnel, and provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  Our internal control over financial reporting includes those policies and procedures that provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, that our receipts, expenditures and business transactions are being made in accordance with authorizations of our management and directors and that all of our reporting obligations are met.


Management's Assessment of the Effectiveness of Disclosure Controls over Financial Reporting as of December 31, 2015


Management conducted an evaluation of the effectiveness of our disclosure control over financial reporting and determined that our disclosure control over financial reporting was not effective as of December 31, 2015. Procedures and controls regarding complying with disclosure reporting requirements was not adequate in that the affirmation regarding disclosure controls and procedures did not meet the technical SEC and Sarbanes Oxley requirements. In the future, management will review the form of the 10-K to ensure that the affirmations meet the disclosure affirmation requirements and the internal control affirmation requirements. Measures have been taken to ensure this weakness in disclosure controls is remedied, principally by input from the Company's legal securities counsel with respect to the disclosure obligations of the Company and from adequate allocation of resources.









9






PART III


Item 9. Directors, Executive Officers, Promoters and Control Persons;


Compliance with Section 16(a) of the Exchange Act


Name of Director

 

Age

 

Office

Wilson Russell, PhD

 

70

 

President and Principal Financial Officer


Item 10. Executive compensation


During the year 2015 the Company paid or accrued as payable $50,000 (2014 $50,000; 2013 $50,000) to Wilson Russell, the Company's President, for his services.


Item 11. Security Ownership of Certain Beneficial Owners and Management


Class

Name and Address

Number of

Shares

Percentage of

Shares*

 

 

 

 

Common

Wilson Russell

9,014,721

11.35%

 

3959 36th Ave. W

 

 

 

Vancouver, B.C.

 

 

 

Canada  V6N 2S7

 

 

 

 

 

 

Common

All officers and directors as a group:

9,014,721

11.35%


*Based on 79,396,847 shares of common stock issued and outstanding December 31, 2015


Item 12. Certain Relationships and Related Transactions


None


Item 13. Exhibits and Reports on Form 8-K


No change in exhibits since previous filing.


No Form 8K was filed during the fourth quarter of 2015.


Item 14. Principal Accountants Fees and Services


During the years 2012, 2013 and 2014 the Company's auditors received approximately $15,000 in remuneration for audit and related services. No other services were provided to the Company by its auditors and principal accountants.




10






During 2011, the Company's auditors and principal accountants received approximately $98,113 in remuneration for audit and related (quarterly review) services. No other services were provided to the Company by its auditors and principal accountants.


During 2010, the Company's auditors and principal accountants received approximately $100,000 in remuneration for audit and related (quarterly review) services. No other services were provided to the Company by its auditors and principal accountants.


During 2009, the Company's auditors and principal accountants received approximately $96,382 in remuneration for audit and related (quarterly review) services. No other services were provided to the Company by its auditors and principal accountants.


During 2008, the Company's auditors received approximately $44,900 in remuneration for audit and related (quarterly review) services. No other services were provided to the Company by its auditors and principal accountants.


During 2007, the Company's auditors received approximately $52,300 in remuneration for audit and related (quarterly review) services. No other services were provided to the Company by its auditors and principal accountants.



























11






SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Northstar Electronics, Inc.

(Registrant)


By (Signature and Title):

 /s/ WILSON RUSSELL

Date May 20, 2016

Wilson Russell, PhD,

 

Chief Executive Officer and

Chief Financial Officer




































12