UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-KSB
[x] ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2005
[] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from n/a to n/a
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. |
Issuer’s telephone number (604) 685-0364
Securities registered pursuant to section 12(b) of the Act
None
Securities registered pursuant to section 12(g) of the Act
100,000,000 shares of common stock with a par value of $0.0001 each
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) [x] Yes
[ ] 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-KSB or any
amendment to this Form 10-KSB. [x]
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. $1,629,594
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
February 28, 2006: $1,350,000 approximately
Aggregate market value of non-voting common equity held by non-affiliates as
of February 28, 2006: 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 February 28, 2006: 17,205,715
Outstanding shares of preferred stock as of February 28, 2006: Nil
Documents incorporated by reference: None
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ X ]
Northstar Electronics, Inc.
Index
Risk Factors
Part I
Item 1. Description of Business
Item 2. Description of Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Part II
Item 5. Market for Registrant’s Common Equity and Related Stockholders
Matters
Item 6. Management’s Discussion and Analysis or Plan of Operation
Item 7. Financial Statements
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Item 8A Controls and Procedures
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners and Management
Item 12. Certain Relationships and Related Transactions
Item 13. Exhibits and Reports on form 8-K
Item 14. Principal Accountants Fees and Services
Signatures
Note Regarding Forward Looking Statements
Except for statements of historical fact, certain information contained herein
constitutes ‘forward looking statements’ within the meaning of Section
27A of the securities Act and Section 21E of the Securities Exchange Act. Forward
looking statements address our current plans, intentions, beliefs and expectations
and are statements of our expected future economic performance. Statements containing
terms like ‘believes’, ‘does not believe’, ‘plans’,
‘expects’, ‘intends’, ‘estimates’, ‘anticipates’,
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 report
on Form 10-KSB.
We cannot guarantee our future results, level of activity, performance or achievements.
Neither we 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.
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 $984,768 for the year ended December
31, 2005 and have accumulated losses of $5,154,947 from inception, we face a
risk of insolvency.
We have never earned substantial operating revenue. We have been dependent on
equity financing to pay operating costs and to cover operating losses.
Because we have no significant sales history and are substantially dependent
on a major contractor to generate future sales, our future is uncertain if our
relationship with that major contractor fails.
The auditor’s report for our December 31, 2005 consolidated financial
statements includes an additional paragraph that identifies conditions which
raise substantial doubt about our ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
PART I
Item 1. Description of Business
The Company was incorporated May 11, 1998 as Scientific Technologies, Inc. under
the laws of the State of Delaware. The name of the Company was changed to Northstar
Electronics, Inc. (NEI) September 1999. Subsequently, there has been
no material reclassification, merger, consolidation, purchase or sale of any
significant amount of assets other than in the ordinary course of business.
There have been no bankruptcy, receivership or similar proceedings.
The business of the Company is primarily that of its wholly owned subsidiaries,
Northstar Technical Inc. (NTI) and Northstar Network Ltd. (NNL).
NTI develops, manufactures and sells undersea wireless sonar communications
systems and produces, under contract, defense and aerospace electronic systems.
NNL was incorporated to pursue defense, aerospace and homeland security
contract manufacturing opportunities.
Sonar Products and Technologies
NTI developed a wireless communications technology with undersea applications.
The technology is used in underwater sensing devices to take certain measurements
that are then transmitted using underwater sound waves to a receiving unit,
which processes the data and displays it on a computer monitor. The technology
has many potential uses in a variety of industries including offshore oil and
gas, defense, marine transportation, oceanography, environmental and fishing.
Homeland Security and Military Defense
The Company expects that design and manufacture of homeland security and anti-terrorism
systems will grow to become a major component of Northstar’s business
over the next five years as the United States Department of Homeland Security
and the United States Navy launches and ramps up its efforts to protect ports,
on shore high value assets and ships from terrorists. Northstar Electronics
has designed and is manufacturing sonar hardware for homeland security and military
defense systems. These systems are designed to detect and track combat divers
and explosive laden underwater vehicles and are intended to provide warning
to naval ships, harbors and ports.
Research and Development - AQUACOMM
AQUACOMM is a multi year fully funded in-house research and development program
at Northstar that was created specifically to develop new, leading edge multiple
application sonar technologies and products for a variety of industries, including:
defense, offshore oil and gas, commercial fishing, oceanography, marine environment
and marine transportation. The Company has received funding for this project
from the Canadian Federal Government’s Atlantic Innovation Fund and the
National Research Council, as well as from equity investment. Scheduled to last
until March 31, 2006, Northstar believes that AQUACOMM will result in the development
of several new technologies during this period. To date, Northstar has expended
$2,981,895 on this development program and has recovered $1,795,101.
Northstar intends to use its Venture Technology Business Model to maximize the
success of AQUACOMM technologies. In this model, a technology developed through
AQUACOMM will be partnered with an established company in a specific industry
sector. One example could be the co-development of a military underwater
communications system. Northstar would develop the “wet” end
and an established defense contractor would be responsible for the “dry”
end. Since the defense contractor is well established in the field, it would
be the defense contractor that would undertake the product introduction, marketing
and sales efforts. Another example of the type of technology that could be developed
under AQUACOMM is the development of a Subsea wireless communications system
for the offshore oil and gas industry. Northstar expects to develop such a system
and intends to market the system through a strategic alliance with an international
oil field communications company. To date, no such product or arrangement is
in place.
The NETMIND System
The Company’s first underwater sonar product based on our core technology
was the NETMIND system. NETMIND is both a conservation tool as well as an efficiency
tool. Electronic sensors attached to a fishing trawl measure the height and
width of the net opening, the water temperature, the depth of the net and the
amount of fish caught plus other parameters. The sensor information is transmitted
via a wireless communications link back to the ship.
NETMIND helps prevent over fishing and allows fishermen to fill and empty their
nets more efficiently with a cost effective benefit on profits. This gives regulators
flexibility in reducing quotas when attempting to conserve limited fishstocks.
The NETMIND Market
NETMIND was introduced to the fishing industry in late 1996. To date, approximately
240 systems have been sold in North America, Ireland, Spain, New Zealand and
Russia. The targeted customers have been strategic in that they are industry
leaders and government agencies. They include the National Oceanic and Atmospheric
Administration (NOAA) in the United States, the United States Department of
the Interior and the Federal Department of Fisheries and Oceans and Fishery
Products International in Canada. Customer feedback has shown that the NETMIND
system enhances efficiency, reduces gear damage and improves catch quality.
Raw Material Sources and Availability
Raw materials for the manufacture of the NETMIND system are available from various
sources. The principal suppliers are as follows:
Compass Ltd. - stainless steel chamber and end caps for sensors, mounting flanges
for hull mounted hydrophone and other miscellaneous stainless steel parts
MF Composites - polyurethane, resin and hardener
Battery Specialists - battery chargers
Mercury Wire Products - tow cable for hydrophone
Electrosonic - electronic components
Future Active Inc. - electronic components
UPE - circuit boards
Enerpower - battery packs
To date, NTI has received parts, supplies and materials from these suppliers
in a timely fashion and has met its production schedules. In our efforts to
reduce costs, we now produce transducers and other components in house.
Major Customer Dependency – NETMIND
NTI has sold approximately 240 NETMIND systems to over 160 different customers
with no dependence on one or a few major customers.
Competition – NETMIND
The system has one main competitor, Scanmar in Norway, which is a private company.
The NETMIND and Scanmar systems consist of wireless acoustic sensors used underwater
and both systems operate by illustrating how the fishing net is behaving while
being towed. However, NETMIND sensors are fully serviceable. The electronic
circuitry is contained in stainless steel cylinders within each component and
is easily removed for repair by opening the end cap.
We believe that NETMIND components have a longer battery life and a more effective
communication over a longer distance than its competitor. We believe the rugged
design of various NETMIND components has surpassed competitor’s designs
in that NETMIND’s unique sensors require very little maintenance.
While NETMIND continues to attempt to expand its market presence, we believe
the Company is smaller in size and resources when compared to its competitor.
As a consequence NETMIND pricing is competitive.
Distribution of the NETMIND System
NETMIND is sold directly to customers by our own sales staff and through marine
electronics dealers. We have dealer representation in Canada, the United States,
Ireland, New Zealand, Scotland, Spain, Portugal and Denmark. We support all
sales efforts with product brochures, pamphlets, and customer testimonials and
with booths at trade shows in Seattle, Washington and Providence, Rhode Island.
We also advertise in trade magazines, notably ‘The Navigator’ and
‘Fishing News International’. Articles on the NETMIND have appeared
recently in ‘National Fisherman’, Alaskan Fisherman’s Journal’
and ‘SEA Technology’.
Technology Protection – NETMIND
Since commercializing NETMIND in 1996, NTI has made many enhancements to its
system. These activities have resulted in an optimum design for which a patent
application may be submitted. The technology is difficult to replicate because
it consists of custom, linked, assembler language software running on custom
hardware and, regardless of patent protection, it is expected it would take
several years for a new player to reach parity with the present system.
The Company has obtained Canadian trademark rights to the name NETMIND effective
for fifteen years from August 24, 1999. No other intellectual property related
applications have been filed or prepared. In the meantime, NTI continues to
develop new and innovative NETMIND products.
Need for Government Approvals – NETMIND
There are no Government approvals required for the NETMIND system in the areas
it is currently sold.
Effect of Existing or Probable Government regulations – NETMIND
There is no effect on the Company’s sales arising from government regulations
and the Company does not anticipate any change to this in the future.
Research and Development Expenditures – NETMIND
NTI has carried out research and development activities on NETMIND enhancements
in 2005. None of these costs were borne directly by customers nor did these
costs directly affect NTI’s pricing structure.
Costs and Effects of Compliance with Environmental Laws – NETMIND
NTI has incurred no costs nor suffered any effects to maintain compliance with
any environmental laws.
CONTRACT MANUFACTURING (CM)
NEI’s second business activity, conducted through both its subsidiary
companies (NTI and NNL) is contract manufacturing where the Company assembles
electronic systems under contract to the defense and aerospace industry (called
‘build to print’). We build products according to designs provided
by our customers. The Company’s main customer is currently Lockheed Martin,
for whom Northstar provides production engineering, sourcing and procurement
of parts, assembly of parts into systems, testing and shipping. The Company
has manufactured submarine control consoles under several contracts with Lockheed
Martin Naval Electronics in Manassas, Virginia and is working on a $1.2M command
and control console contract awarded by Lockheed to the Company in the fourth
quarter of 2005 and expected to be substantially completed by the second quarter
of 2006.
The Company markets its services in this area primarily through a network of
contacts in the industry, attendance at trade shows and at conferences and special
missions sponsored by the Department of Defense. In the past Northstar has attended
defense and aerospace exhibitions in the United States and Canada and has participated
in several missions to meet prime contractors involved in the Joint Strike Fighter
Program in the United States.
The CM Market
NTI has focused attention on the North American military market. The United
States and Canada have many programs where NTI’s services could be used.
This includes programs to manufacture control consoles for submarines, helicopters
and fixed wing aircraft.
NTI signed a contract with Lockheed Martin, Manassas, Virginia in 1999 to assemble,
test and deliver control consoles for the Canadian Navy’s Victoria Class
submarines. Since NTI successfully completed the project to the satisfaction
of both Lockheed Martin and the Navy, Lockheed Martin has awarded follow-on
contracts to NTI. In 2003, Lockheed Martin and NTI signed a Manufacturing License
Agreement approved by the US State Department. The Agreement allows for NTI
to manufacture command and control consoles for Lockheed Martin on projects
they have anywhere in the world. As well, NTI is permitted to offer Lockheed
Martin’s console technology directly to the Canadian Armed Forces. The
current control console contract was awarded pursuant to the manufacturing license
agreement.
Competition – CM
For control consoles produced for Lockheed Martin, NTI’s competition would
be primarily similar sized companies as NTI in the United States, Canada or
abroad. We are not aware, at this time, of any companies in particular that
are direct competitors. However, we expect that, dependent upon the economic
and political factors influencing Lockheed Martin, there will indeed be strong
competition for future contracts. NTI’s main competitive advantages are
price (our labor and overhead rates are low compared to many other jurisdictions)
and quality (we have proven performance) based on the success to date of the
submarine control console contract.
Marketing – CM
With respect to other Lockheed Martin divisions and with other prime contractors,
we expect to use our success on the submarine console contract to showcase our
expertise. The benefits of our marketing efforts are contacts made through networking
in the industry and attendance at trade shows, conferences and special missions
sponsored by the department of defense. In 2005, we continued to attend defense
and aerospace exhibitions in Canada and the United States and we participated
in several missions to meet prime contractors involved in the Joint Strike Fighter
Program in the United States.
Technology Protection – CM
NTI currently owns no proprietary technology requiring protection with respect
to its CM activities.
Raw Material Sources and Availability – CM
Materials and parts are available on an as needed basis from a variety of sources
in the United States and Canada.
Dependence on One or a Few Major Customers – CM
NTI currently depends to a great extent on Lockheed Martin for its contracts.
Lockheed Martin is comprised of many semi-autonomous divisions, which have many
customers. We are dealing with four divisions, similar to dealing with four
independent companies, regarding contract opportunities. We are attempting to
reduce our dependency on these Lockheed Martin divisions by contacting other
large prime contractors about CM opportunities with them. We expect this activity
will result in NTI developing new business in addition to business with Lockheed
Martin in the future.
Need for Government Approvals – CM
There are no government approvals applicable to our CM activities, except any
required as part of a contract. In that event, the requirement would be passed
down from the prime contractor as a part of the statement of work
Effect of Existing or Probable Government Regulations – CM
Commerce between the United States and Canada in the defense and aerospace industry
is governed by some general rules and regulations. These typically require a
prime contractor, such as Lockheed Martin, to obtain certain United States government
clearances before providing NTI with potentially sensitive information. Similarly,
a Canadian prime contractor would need Canadian government clearances to give
classified information to a United States subcontractor. To date, these clearances
have not caused any problems for our CM activities and we do not anticipate
any in the foreseeable future.
Research and Development Expenditures – CM
NTI has incurred no expenditures in fiscal 2005 on CM research and development
activities.
Costs and Effects of Compliance with Environmental Laws – CM
The Company has incurred no costs or adverse effects in its compliance with
any environmental laws.
SYSTEM INTEGRATION
NNL carries out multifaceted contracts that require several subcontractors to
perform specialized tasks. This ability to integrate the work of several components
to create one complete system is one of Northstar’s main areas of business
– system integration.
As a result of its capabilities and expertise, NNL has developed a unique approach
to securing and executing large defense contracts. NNL will bring together a
number of Small Medium Size Enterprises (SME) affiliate companies thereby being
able to present a capability to prime defense contractors. A major potential
project in this area is the $2Billion Canadian Maritime Helicopter Project.
Because NNL offers ‘one stop shopping’ for approximately 25 companies
with a wide range of relevant expertise, it is anticipated that some contract
work for various Canadian government procurements will flow to NNL. Verbal commitments
have been made to NNL by contractors bidding programs in Canada to include NNL
under the Industrial Regional Development Plan (IRB). To date, no contracts
have been signed or awarded to the Company.
NNL has signed a memorandum of interest (MOI) with three separate Lockheed Martin
companies in the United States and with four major subcontractors of Lockheed
Martin, for potential work on the Joint Strike Fighter (JSF) program. This program
is a $200Billion + multinational program led by the United States Government
to design and produce the next generation fighter aircraft, in order to replace
existing fleets of F-16, F-18, A-10 and Harrier aircraft worldwide. Sales are
predicted to exceed 3,000 aircraft in the US and UK alone, with an additional
export market of 3,000 aircraft expected.
The JSF contract is the largest defense contract ever awarded and it will continue
for 35 years or longer. Northstar has developed relationships with Lockheed
Martin, Harris Corporation, TRW, BAE Systems and Northrop Grumman, which the
Company expects will lead to contract work on the JSF program.
In 2003, NNL as prime contractor, submitted a bid with TYCO International to
provide multi mode and single mode fiber optic assemblies for the JSF. Prototype
test assemblies were provided to the customer and extensive testing was carried
out on them as well as on the assemblies of competing companies. As a result
of the testing, the NNL cables are one of several cables selected for potential
use in the program. The supply of assemblies is expected to continue for the
lifetime of the JSF program with the first contract award now anticipated for
2007.
To date, Northstar has not yet been awarded any contracts related to the JSF
contract.
EMPLOYEES As of December 31, 2005 the Company had a total of 22 full time employees.
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 leases its corporate offices located at 1455 – 409 Granville
Street, Vancouver, British Columbia, Canada V6C 1T2
Northstar Technical Inc. leases its offices and operations facilities at 1 Duffy
Place, Unit #6,
St. John’s, Newfoundland, Canada A1B 4M6
Northstar Network Ltd. leases its offices and operations facilities at 67 Majors
Path, Unit #102, St. John’s, Newfoundland, Canada A1A 4Z9
Item 3. Legal Proceedings
The Company is a defendant in a lawsuit commenced against them in 1999 by their
former master distributor. The former distributor has alleged that the Company
has interfered with the ability of the former distributor to sell products.
The Company has filed a counter claim for monies owing by the former distributor
to the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No change since previous filing.
The Company has filed with the SEC an SB-1 registration statement April 20,
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 and 2005 and annual reports (form 10KSB) for December 31, 2000, 2001, 2002,
2003 and 2004.
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
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, 2005 and 2004 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:
2005 |
2004 |
2003 |
2002 |
2001 |
|
| Total revenue | $1,629,594 |
$1,461,528 |
$1,641,960 |
$976,234 |
$1,176,527 |
| Cost of goods sold | 583,870 |
245,305 |
230,213 |
253,377 |
472,227 |
| Discounts | 94,066 |
129,111 |
198,950 |
148,425 |
171,830 |
677,936 |
374,416 |
429,163 |
401,802 |
644,057 |
|
| Gross margin | 951,658 |
1,087,112 |
1,212,797 |
574,432 |
532,470 |
| Expenses | 1,936,426 |
1,918,653 |
1,905,942 |
1,366,567 |
974,394 |
| Net (loss) | $(984,768) |
$(831,541) |
$(693,145) |
$(792,135) |
$(441,924) |
| Net income (loss) per share | $(0.06) |
$(0.05) |
$(0.05) |
$(0.08) |
$(0.06) |
NORTHSTAR
ELECTRONICS, INC.
Consolidated
Balance Sheets
December
31
(U.S.
Dollars)
|
|
2005 |
2004 |
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
Current |
|
|
|
Cash |
$46,905 |
$57,641 |
|
Accounts receivable (note 5) |
819,419 |
251,635 |
|
Inventory |
440,707 |
156,086 |
|
Prepaid expenses |
24,864 |
15,605 |
|
Total Current Assets |
1,331,895 |
480,967 |
Intangible asset (note 6) |
37,285 |
37,285 |
|
Equipment (note 6) |
78,193 |
106,144 |
|
|
|
|
|
Total Assets |
$1,447,373 |
$624,396 |
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
Current |
|
|
|
Accounts payable and accrued liabilities |
$1,372,745 |
$409,007 |
|
Loans payable (note 7) |
50,000 |
50,000 |
|
Deferred revenue (note 2a and 2g) |
461,544 |
127,616 |
|
Current portion of long-term debt (note 9) |
148,988 |
100,937 |
|
Total Current Liabilities |
2,033,277 |
815,176 |
|
|
|
|
|
|
|
|
|
Long term debt (note 9) |
447,855 |
454,711 |
Discount on long term debt (note 9) |
259,107 |
166,655 |
|
Due to Cabot Management Limited (note 8) |
89,873 |
88,866 |
|
Due to Director (note 8) |
120,055 |
1,036 |
|
Total Liabilities |
2,950,167 |
1,398,828 |
|
|
|
|
|
Contingencies and Commitment (notes 10 and 11) |
|
|
|
|
|
|
|
Stockholders’ Equity (Deficit) |
|
|
|
|
|
|
|
Common Stock |
|
|
|
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 |
|
|
|
17,060,715 (15,913,805 – 2004) Common shares |
1,706 |
1,591 |
|
Additional Paid-in Capital |
3,829,439 |
3,531,360 |
|
Other Comprehensive Income (loss) |
(178,992) |
(137,204) |
|
Accumulated Deficit |
(5,154,947) |
(4,170,179) |
|
Total Stockholders’ Equity (Deficit) |
(1,502,794) |
(774,432) |
|
|
|
|
|
Total Liabilities and Stockholders’ Equity (Deficit) |
$1,447,373 |
$624,396 |
NORTHSTAR
ELECTRONICS, INC.
Consolidated
Statements of Operations
Years
Ended December 31
(U.S.
Dollars)
|
|
2005 |
2004 |
2003 |
|
|
|
|
|
|
Revenues (notes 2 and 4) |
$1,629,594 |
$1,461,528 |
$1,641,960 |
|
Discounts |
94,066 |
129,111 |
198,950 |
|
|
|
|
|
|
Revenues net of Discounts |
1,535,528 |
1,332,417 |
1,443,010 |
|
Cost of Goods Sold |
583,870 |
245,305 |
230,213 |
|
|
|
|
|
|
Gross Margin |
951,658 |
1,087,112 |
1,212,797 |
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
Research and development |
890,510 |
781,151 |
848,277 |
|
Tax credits on research and development |
(118,928) |
(161,450) |
(138,810) |
|
Salaries, wages and benefits |
238,552 |
442,831 |
358,970 |
|
Travel and marketing |
192,068 |
238,728 |
163,143 |
|
Consulting |
224,709 |
136,201 |
219,161 |
|
Rent |
122,088 |
121,434 |
108,623 |
|
Professional fees |
98,898 |
94,552 |
91,440 |
|
Office |
93,006 |
86,561 |
45,387 |
|
Business development |
55,076 |
68,281 |
82,221 |
|
Telephone, light and heat |
47,086 |
50,217 |
48,820 |
|
Interest on long-term debt |
47,816 |
14,052 |
18,574 |
|
Interest and bank charges |
16,822 |
7,528 |
9,917 |
|
Miscellaneous |
0 |
3,283 |
12,404 |
|
Amortization |
28,723 |
35,284 |
37,815 |
|
|
1,936,426 |
1,918,653 |
1,905,942 |
|
Net Loss |
(984,768) |
(831,541) |
(693,145) |
|
Other Comprehensive Income (Loss) |
(41,788) |
(54,831) |
(107,586) |
|
Total Comprehensive Loss |
$(1,026,556) |
$(886,372) |
$(800,731) |
|
Net Loss Per Share |
$(0.06) |
$(0.05) |
$(0.05) |
|
|
|
|
|
|
Weighted Average Number of Shares |
|
|
|
|
Outstanding |
16,371,329 |
15,774,802 |
14,446,986 |
NORTHSTAR
ELECTRONICS, INC.
Consolidated
Statements of Changes in Stockholders’ Equity (Deficit)
Years
Ended December 31
(U.S.
Dollars)
|
|
|
|
Additional |
|
Other |
|
Total |
|
|
Number of |
Par |
Paid-in |
|
Comprehensive |
Accumulated |
Stockholders’ |
|
|
Shares |
Value |
Capital |
|
Income(Loss) |
Deficit |
Equity (Deficit) |
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003 |
15,838,074 |
$1,584 |
$3,423,191 |
$ (82,373) |
$(3,338,638) |
$ 3,764 |
|
|
Issuance of common stock: |
|
|
|
|
|
|
|
|
For services |
244,394 |
24 |
97,120 |
|
0 |
0 |
97,144 |
|
On exercise of option |
1,000,000 |
100 |
0 |
|
0 |
0 |
100 |
|
Cancellation of common stock:
|
|
|
|
|
|
|
|
|
Issued in error (note 12) |
(1,000,000) |
(100) |
100 |
|
0 |
0 |
0 |
|
Other (note 12) |
(168,663) |
(17) |
17 |
|
0 |
0 |
0 |
|
Stock option benefit – legal fees |
0 |
0 |
10,932 |
|
0 |
0 |
10,932 |
|
Other comprehensive (loss) |
0 |
0 |
0 |
|
(54,831) |
0 |
(54,831) |
|
Net loss |
0 |
0 |
0 |
|
0 |
(831,541) |
(831,541) |
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004 |
15,913,805 |
$1,591 |
$3,531,360 |
|
$(137,204) |
$(4,170,179) |
$(774,432) |
|
Issuance of common stock: |
|
|
|
|
|
|
|
|
For services |
757,740 |
76 |
201,091 |
|
0 |
0 |
201,167 |
|
For cash |
389,170 |
39 |
99,841 |
|
0 |
0 |
99,880 |
|
Finders fee: |
|
|
|
|
|
|
|
|
In cash |
0 |
0 |
(12,689) |
|
0 |
0 |
(12,689) |
|
In common stock |
0 |
0 |
(7,781) |
|
0 |
0 |
(7,781) |
|
Stock option benefit [note 2(l)] |
0 |
0 |
17,617 |
|
0 |
0 |
17,617 |
|
Other comprehensive (loss) |
0 |
0 |
0 |
|
(41,788) |
0 |
(41,788) |
|
Net loss |
0 |
0 |
0 |
|
0 |
(984,768) |
(984,768) |
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005 |
17,060,715 |
$1,706 |
$3,829,439 |
|
$(178,992) |
$(5,154,947) |
$(1,502,794) |
NORTHSTAR
ELECTRONICS, INC.
Consolidated
Statements of Cash Flows
Years
Ended December 31
(U.S.
Dollars)
|
|
2005 |
2004 |
2003 |
|
|
|
|
|
|
Operating Activities |
|
|
|
|
Net loss |
$(984,768) |
$(831,541) |
$(693,145) |
|
Adjustments to reconcile net loss to net cash |
|
|
|
|
used in operating activities |
|
|
|
|
Amortization |
28,723 |
35,284 |
37,815 |
|
Stock based and uncompensated services |
17,617 |
10,932 |
75,644 |
|
Services paid with common stock |
193,386 |
97,144 |
72,276 |
|
Changes in operating assets and liabilities |
|
|
|
|
Accounts receivable |
(558,690) |
(6,784) |
162,195 |
|
Prepaid expenses |
(8,783) |
(3,792) |
(5,543) |
|
Inventory |
(278,980) |
17,882 |
15,039 |
|
Accounts payable and accrued liabilities |
942,204 |
157,411 |
(165,703) |
|
Deferred revenue |
338,054 |
(110,754) |
132,714 |
|
|
|
|
|
|
Cash Used in Operating Activities |
(311,237) |
(634,218) |
(368,708) |
|
|
|
|
|
|
Investing Activities |
|
|
|
|
Acquisition of equipment |
0 |
(13,531) |
(45,810) |
|
Proceeds on disposal of equipment |
3,112 |
0 |
9,415 |
|
|
|
|
|
|
Cash Used in Investing Activities |
3,112 |
(13,531) |
(36,395) |
|
|
|
|
|
|
Financing Activities |
|
|
|
|
Issuance of common stock for cash |
87,191 |
100 |
1,096,040 |
|
Loans payable (repayment) |
(2,205) |
(2,927) |
(73,823) |
|
Net proceeds from long-term financing |
107,540 |
78,845 |
49 |
|
Advances from (repayment to) director |
118,434 |
23,900 |
(132,030) |
|
|
|
|
|
|
Cash Provided by Financing Activities |
310,960 |
99,918 |
890,236 |
|
|
|
|
|
|
Effect of Foreign Currency Translation on Cash |
(13,570) |
(7,568) |
10,217 |
|
|
|
|
|
|
Inflow (Outflow) of Cash |
(10,735) |
(555,399) |
495,350 |
|
Cash, Beginning of Year |
57,641 |
613,040 |
117,690 |
|
|
|
|
|
|
Cash, End of Year |
$46,905 |
$57,641 |
$613,040 |
|
|
|
|
|
|
Supplemental Information |
|
|
|
|
Interest paid |
$47,289 |
$14,052 |
$18,574 |
NORTHSTAR ELECTRONICS,
INC.
Notes to Consolidated Financial Statements
Years Ended December 31, 2005 and 2004
(U.S. Dollars)
1. ORGANIZATION, BASIS OF PRESENTATION AND NATURE OF OPERATION
These financial statements include the accounts of Northstar Electronics, Inc.
("the Company") and its wholly owned subsidiaries Northstar Technical
Inc. ("NTI") and Northstar Network Ltd. ("NNL"). All inter-company
balances and transactions are eliminated. The parent company was incorporated
May 11, 1998 in the State of Delaware and had no operations other than organizational
activities prior to the January 26, 2000 acquisition of 100% of the shares of
Northstar Technical Inc. for the issuance of 4,901,481 shares of treasury stock
with the former shareholders of the subsidiary receiving a majority of the total
shares then issued and outstanding. The transaction was accounted for as a reverse
take over resulting in the consolidated financial statements including the results
of operations of the acquired subsidiary prior to the merger. As a result of
the reverse takeover described above the liabilities of the accounting acquiree
in excess of its identifiable assets were treated as a recapitalization and
charged to additional paid-in capital.
The Company, through its subsidiaries, develops, produces and sells an undersea
wireless communications system ("Netmind") and manufactures, under
contract, defence and aerospace electronic systems. The Company also carries
out research and development activities for customers on specific fixed price
contract bases.
The Company's business activities are conducted principally in Canada and 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 reporting purposes.
The accompanying 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 2005
the Company incurred a comprehensive loss of $1,026,556 and at December 31,
2005 had a working capital deficiency (an excess of current liabilities over
current assets) of $701,382, including $148,988 of long term debt due within
one year and including $461,544 in deferred revenue which will be included in
revenue in 2006. Management has undertaken initiatives for the Company to continue
as a going concern. For example, the Company is negotiating to secure
an equity financing in the short term and is in discussions with several financing
firms. The Company also expects to increase revenues in 2006 from contract manufacturing
revenues and sales of its NETMIND system and related products. The Company has
tendered proposals and price quotations on an aircraft carrier anti terrorism
system manufacturing contract along with other anti terrorist and military contracts
anticipated to be awarded in 2006. These initiatives are in recognition that
for the Company to continue as a going concern it must generate sufficient cash
flow to cover its obligations and expenses. In addition, management believes
these initiatives can provide the Company with a solid base for profitable operations,
positive cash flows and reasonable growth. Management is unable to predict the
results of its initiatives at this time. Should management be unsuccessful in
its initiative to finance its operations the Company’s ability to continue
as a going concern is uncertain. These financial statements do not give effect
to any adjustments to the amounts and classifications of assets and liabilities
which might be necessary should the Company be unable to continue its operations
as a going concern.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Revenue recognition
Revenue from the sales of the NETMIND system is recognized on an accrual basis
based on agreed terms with the customers. Sales are recorded when the systems
are delivered and the customer is invoiced at the agreed terms and collection
is reasonably assured. Contract manufacturing sales are recorded as each contracted
unit is delivered to the contracting customer.
Revenue or loss from fixed price research and development contracts is recognized
using the percentage of completion method whereby revenue or loss is recognized
at the same percentage that contract costs to date is of total costs at contract
completion.
Total revenue includes sales of $957,874 and $671,720 in recovery of research
and development costs (2004: $828,260 and $633,268 respectively and 2003: $1,154,274
and $487,686 respectively). Recovery of research and development costs is recognized
on a periodic basis as cost recovery is applied for.
(b) Inventory
Inventories of materials are valued at the lower of average cost and net realizable
value. Labor components of inventories are valued at cost which is less than
the agreed contract price.
(c) Research and development
Research and development costs are expensed to operations as incurred.
(d) 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 research and
development expense.
(e) Equipment
Equipment is recorded at cost less any government assistance received and is
being amortized over their estimated useful lives or term of lease, whichever
is shorter, using the following 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) Long-lived assets
SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived
Assets” establishes a single accounting model for long-lived assets to
be disposed of by sale including discontinued operations. SFAS 144 requires
that these long-lived assets be measured at the lower of carrying amount or
fair value less cost to sell, whether reported in continuing operations or discontinued
operations.
As such, these long-lived assets of the Company are reviewed when changes in
circumstances require as to whether their carrying value has become impaired,
pursuant to SFAS 144. Management considers assets to be impaired if the carrying
value exceeds the future projected cash flows from related operations (undiscounted
and without interest charges). If impairment is deemed to exist, the assets
will be written down to fair value less cost to sell.
(g) Government assistance
The Company’s subsidiaries have been awarded assistance under certain
Government of Canada assistance programs. Amounts received or receivable under
these programs are recorded as revenue at the time the amounts are approved
for payment by the government agency. Advances for expenses which the company
has yet to incur are recorded as deferred revenue.
(h) 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. |
|
|
2005 |
2004 |
2003 |
|
Net loss, as reported |
$(984,768) |
$(831,541) |
$(693,145) |
|
Deduct: stock-based employee compensation expense |
|
|
|
|
expense under intrinsic value method |
0 |
0 |
0 |
|
Add: total stock-based compensation expense |
|
|
|
|
determined under fair value based method mmethod |
(40,932) |
(38,552) |
(54,560) |
|
|
|
|
|
|
Net loss, pro-forma |
$(1,025,700) |
$(870,093) |
$(747,705) |
|
|
|
|
|
|
Net loss per share, as reported |
$(0.06) |
$(0.05) |
$(0.05) |
|
Deduct: stock-based employee compensation expense |
|
|
|
|
expense under intrinsic value method |
0 |
0 |
0 |
|
|
|
|
|
|
Add: total stock-based compensation expense |
|
|
|
|
determined under fair value based method |
(0.00) |
(0.01) |
(0.01) |
|
|
|
|
|
|
Net loss per share, pro-forma |
$(0.06) |
$ (0.06) |
$ (0.06) |
|
Expected life (years) 5 |
5.79 |
|
|
Risk free interest rate 2.75% |
3.99% |
|
|
Expected volatility 93.93% |
84.96% |
|
|
Expected dividend yield |
0.00% |
|
|
|
2005 |
2004 |
|
|
|
|
|
Trade receivables |
$713,581 |
$126,038 |
|
Investment tax credits receivable |
105,838 |
125,597 |
|
|
|
|
|
|
$819,419 |
$251,635 |
|
|
|
Accumulated |
|
|
|
2005 |
Amortization |
Net |
|
Computer equipment |
$56,314 |
$44,561 |
$11,753 |
|
Computer software |
75,474 |
62,592 |
12,882 |
|
Furniture and equipment |
52,257 |
34,709 |
17,548 |
|
Manufacturing equipment |
69,961 |
36,949 |
33,012 |
|
Leasehold improvements |
10,851 |
7,853 |
2,998 |
|
|
$264,857 |
$186,664 |
$78,193 |
|
|
|
Accumulated |
|
|
|
2004 |
Amortization |
Net |
|
Computer equipment |
$52,186 |
$21,173 |
$31,013 |
|
Computer software |
64,328 |
45,633 |
18,695 |
|
Furniture and equipment |
49,439 |
29,376 |
20,063 |
|
Manufacturing equipment |
73,940 |
39,812 |
34,128 |
|
Leasehold improvements |
7,729 |
5,484 |
2,245 |
|
|
$247,622 |
$141,478 |
$106,144 |
NORTHSTAR
ELECTRONICS, INC.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2005 and 2004
(U.S.
Dollars)
7. LOANS
PAYABLE
|
|
2005 |
2004 |
|
10% unsecured term loan with monthly interest payments only, due July 3, 2006. |
$50,000 |
$50,000 |
|
|
$50,000 |
$50,000 |
The amount due to Cabot Management Limited, an associated private company related by a common shareholder and director, bears no interest, has no set terms of repayment and is subordinated to amounts due to ACOA.
The amount due to a director bears no interest, has no set terms of repayment and is subordinated to amounts due to ACOA.
During the year the Company was charged $51,600 (Cdn$60,000 – 2004:Cdn $60,000) for technical consulting by a company controlled by a director. The 2005 fee is included in accounts payable at December 31,2005 and is to be settled by the issuance of shares of common stock by May 31,2006.
|
|
2005 |
2004 |
|
Atlantic Canada Opportunities Agency ("ACOA") |
|
|
|
Interest free loan with monthly principal repayments of $3,256 Cdn ($16,251 Cdn: 2004 - $55,323Cdn) |
$13,976 |
$45,918 |
|
12% loan with monthly principal repayments of $1,786 Cdn plus interest ($10,710 Cdn: 2004 $32,142 Cdn) |
9,211 |
26,678 |
|
Interest free loan repayable in 72 monthly consecutive instalments of $3,119 Cdn ($56,119 Cdn: 2004 - $93,547 Cdn) |
48,262 |
77,644 |
|
Interest free unsecured loan repayable in monthly payments of Cdn $5,938 commencing April, 2005 ($493,350 Cdn: 2004 - $498,750 Cdn) |
424,281 |
413,963 |
|
Interest free loan payable $867Cdn monthly ($26,624 Cdn: 2004 - $37,028 Cdn) |
22,.897 |
30,733 |
|
Interest free unsecured loan to a maximum of $275,000 Cdn repayable in monthly payments of Cdn $4,583 commencing July, 2006 ($177,001 Cdn: 2004 - $133,687 Cdn) |
152,221 |
110,960 |
|
Interest free unsecured loan to a maximum of $102,691 Cdn repayable in monthly payments of Cdn $1,712 commencing July, 2006 ($14,502 Cdn: 2004 - $19,768 Cdn) |
12,472 |
16,407
|
|
Interest free unsecured loan repayable in monthly payments of Cdn $2,875 commencing August, 2007 ($172,500 Cdn: 2004 - $nil Cdn) |
148,350 |
0 |
|
Interest free unsecured loan repayable in annually at 5% of gross annual export sales for the preceding fiscal year commencing August, 2008 ($28,234 Cdn: 2004 - $nil Cdn) |
24,280 |
0 |
|
|
855,950 |
722,303 |
|
Less: Current portion |
(148,988) |
(100,937) |
|
|
706,962 |
621,366 |
|
Discount on interest free loans payable |
(259,107) |
(166,655) |
|
|
$447,855 |
$454,711 |
| 2006 | $148,988 |
| 2007 | $158,957 |
| 2008 | $152,604 |
| 2009 | $101,539 |
| 2010 | $ 90,950 |
| Thereafter | $202,912 |
| $855,950 |
The Company is a defendant in a lawsuit commenced against them in 1999 by their former master distributor. The former distributor has alleged that the Company has interfered with the ability of the former distributor to sell products. The Company has filed a counter claim for monies owing by the former distributor to the Company.
The Company is contingently liable to repay $1,795,101 in assistance received under the Atlantic Innovation Fund. The assistance is repayable annually at the rate of 5% of gross revenues from sales of products resulting from the Aquacomm research and development project. Gross revenues are to be calculated for the fiscal year immediately preceding the due date of the respective payment. Repayment is to continue until the assistance is repaid in full. To date, nil revenues from the program have been earned and nil royalties have been paid.
|
|
|
|
Weighted |
|
|
Number |
Exercise Price |
Average |
|
|
of Shares |
Per Share |
Exercise Price |
|
Balance, December 31, 2003 |
3,136,500 |
$0.50 to $1.00 |
$0.57 |
|
Granted during year |
1,195,000 |
$0.50 |
$0.50 |
|
Cancelled or expired |
(1,375,000) |
$0.50 to $1.00 |
$0.62 |
|
Exercised |
0 |
|
|
|
Balance, December 31, 2004 |
2,956,500 |
$0.75 to $0.50 |
$0.51 |
|
Granted during year |
137,500 |
$0.50 |
$0.50 |
|
Cancelled or expired |
(225,000) |
$0.50 |
$0.50 |
|
Exercised |
0 |
|
|
| Balance, December 31, 2005 |
2,869,000 |
$0.75 to $0.50 |
$0.52 |
|
|
Exercise |
Number of Shares |
||
| Expiry Date |
Price |
2005 |
2004 |
|
| December 31, 2005 |
$0.50 |
0 |
120,000 |
|
| January 26, 2006 |
$0.50 |
50,000 |
75,000 |
|
| September 17, 2006 |
$0.50 |
50,000 |
50,000 |
|
| June 25, 2007 |
$0.50 |
125,000 |
125,000 |
|
| June 25, 2007 |
$0.75 |
175,000 |
175,000 |
|
| July 5, 2007 |
$0.50 |
735,000 |
815,000 |
|
| April 30, 2008 |
$0.50 |
150,000 |
150,000 |
|
| July 8, 2008 |
$0.50 |
22,500 |
22,500 |
|
| February 12, 2009 |
$0.50 |
640,000 |
640,000 |
|
| October 12, 2009 |
$0.50 |
25,000 |
25,000 |
|
| March 1, 2010 |
$0.50 |
50,000 |
0 |
|
| December 15, 2010 |
$0.50 |
244,000 |
244,000 |
|
| April 24, 2011 |
$0.50 |
25,000 |
25,000 |
|
| December 4, 2011 |
$0.50 |
10,000 |
10,000 |
|
| November 17, 2012 |
$0.50 |
25,000 |
25,000 |
|
| December 19, 2012 |
$0.50 |
405,000 |
405,000 |
|
| May 1, 2013 |
$0.50 |
25,000 |
25,000 |
|
| April 7, 2014 |
$0.50 |
25,000 |
25,000 |
|
| March 1, 2015 |
$0.50 |
87,500 |
0 |
|
| Total outstanding and exercisable |
2,869,000 |
2,956,500 |
||
| Balance, December 31, 2004 | 1,428,570 @ $0.50 expiring August 2010 |
| Issued | 389,170 @ $0.50 expiring * |
| 389,170 @ $0.75 expiring ** | |
| 100,000 @ $0.50 expiring May 2009 | |
| 100,000 @ $0.75 expiring May 2009 | |
| 100,000 @ $1.00 expiring May 2009 | |
| 100,000 @ $1.25 expiring May 2009 | |
| Balance, December 31, 2005 | 2,606,910 |
|
2006 |
$ |
211,391 |
|
Thereafter |
|
2,120,924 |
|
|
$ |
2,332,315 |
|
|
|
2005 |
|
2004 |
|
Non-capital losses carry forwards |
$ |
2,332,315 |
$2,243 |
2,243,588 |
|
Approximate tax rate |
|
40% |
|
40% |
|
|
|
932,926 |
|
897,433 |
|
Less: Valuation allowance |
|
(932,926) |
|
(897,433) |
|
|
$ |
0 |
$ |
0 |
| Name of Director | Age | Office |
| Wilson Russell, PhD | 60 | President and Principal Financial Officer |
| Robert Blair, PhD | 74 | Director |
| David Buttle, PhD | 57 | Director |
| Class | Name and Address | Number of Shares | Percentage of Shares* |
| Common |
Wilson Russell 4742 Collingwood Street Vancouver, B.C. Canada V6S 2B4 |
3,316,191 | 19.44% |
| Common | David Buttle The Well House, Burkham Wokington, Berkshire United Kingdom RG114P5 |
44,399 | 0.26% |
| (Registrant) | Northstar Electronics, Inc. |
| By (Signature and Title) | /S/ WILSON RUSSELL |
| Date April 17, 2006 | Wilson Russell, PhD, President, Principal Financial Officer |
| By (Signature and Title) | /S/ ROBERT BLAIR |
| Date April 17, 2006 | Robert Blair, PhD, Director |
| By (Signature and Title) | /S/ DAVID BUTTLE |
| Date April 17, 2006 | David Buttle, PhD, Director |
| Date: April 17, 2006 | /s/ Wilson Russell________________ |
| Wilson Russell, President and Principal Financial Officer |