Northstar Electonics, Inc. (NEIK) SHAREHOLDER UPDATE
October 31, 2009
To Shareholders,
Much has transpired at the Company over the past several months and we would like to bring you up-to-date on the key events, what they mean to our future in terms of growth, and how our contract landscape appears for the coming years.
Our Board believes it is important to shareholders and investors to have an understanding of these developments and the impact they will have on Northstar’s future.
We believe there is potential for these breakthroughs to generate a rapid pace of growth in both revenues and profits. The “building blocks” of these accomplishments will aid in delivering on Northstar’s contract with our shareholders to provide a significant increase in shareholder value and capital gains going forward.
Key Points on Northstar’s Business Development in 2009
1) Addition of new major contract, L3 Communications, US$2.5M
• The contract is for the production of consoles for navy patrol frigates. Winning this contract demonstrates NEI’s ability to expand in the defense area with other major contractor customers. L3 Communications is a US$15B contractor supplying government defense departments around the world.
• Northstar’s high quality workmanship and engineering, brought to bear in this project enhance future opportunities L-3 and with other industry giants such as Boeing and Raytheon.
2) Increased production performance on the Lockheed Martin P3/CP140 Contract
• With the placement of a contract operating line of credit (LOC) for US$800,000 from an international financial institution, production throughput has increased significantly. This new capability demonstrates to Lockheed Martin, our major customer, our flexibility to adapt to critical timing needs and future volume expansions -- elements that are beneficial for P3 project expansion (67 aircraft) and other aircraft projects (C130J).
• With the unique “Network Model” employed at NEI, diverse and significant production capacity exists through our sub-contractors. This means if an extraordinary order for parts comes to us, throughput can be met quickly to meet the demand. Complete in-house handling of these tasks could put strain on any company. It’s analogous to “out-sourcing” prevalent with other forms of manufacturing.
3) Increased Aeronautics Industry Certification
• Northstar’s subsidiary, Northstar Network Ltd. (NNL), achieved AS9100 certification in October. This is a “gold” standard in the industry and opens the way to larger, more sophisticated contract work within the industry.
• Achieving AS9100 raises our profile within the industry and allows us to bring in new manufacturing affiliates across the country, thereby increasing our overall production capacity to handle larger contracts.
4) Expansion with new Western Canadian affiliate sub-contractor.
• Recently, Precision Metalcraft of Winnipeg, MB was added to NNL’s affiliate program. This new association brings new Western Canada aerospace sub-contracting support which has previously not been available to the company. Additionally it brings expertise for very complex metal fabrication capabilities to NNL. Other specialized affiliate sub-contractors are anticipated within North America as well.
5) Proven ability to work within highly demanding reporting and administrative procedures.
• The company has proven itself to work within complex reporting, analysis and review procedures with its major defense customers. This is an important asset to have when dealing with our main customers, Lockheed Martin, L-3 Communications and other giants of the industry. This capability has taken much time, effort and money to put in place and gives us not only a competitive advantage, but also locks us into our large customers who desire subcontractors with operational knowledge of their internal ways and means of doing business.
• These key points illustrate NEI’s maturing into a recognized industry participant offering valued services and capabilities to major defense contractors and aerospace companies.
Update on Near Term Business and Contracts
1) Lockheed Martin P3/C140 Additional
Aircraft (67)
We expect an add-on to our existing contract with Lockheed Martin Aeronautics on the P3 program. This add-on contract is for 67 aircraft and should be the largest contract the company has received to date. With streamlined production in place, our margins should be significantly higher than in the start-up phase that we are currently completing.
2) Bombardier 415 Water Bomber
Northstar expects to bid on all “door” sets (hatches and access doors). Bombardier has thoroughly reviewed the facilities of NNL and our sub-contractor affiliates in the initial evaluation process. The Newfoundland & Labrador government recently announced the purchase of these new aircraft for forest protection services. The contract award to Northstar is anticipated in the first quarter, 2010 and is expected to be for approximately US$3M.
3) Lockheed Martin Aeronautics, C130J component manufacturing.
Northstar was one of the three Atlantic Canada companies targeted for manufacturing work on this project. The Lockheed team working with NNL on the P3 project is now heading up production of this aircraft in Marietta, Georgia.
Northstar has demonstrated the production and financial strength necessary to meet the new criteria associated with this project. We expect an initial contract in the spring/summer of 2010. As with the P3 program, we fully anticipate that the C130J program will grow significantly over time. In this case, we believe the total dollar value of the work to be received will be multiples of the US$20M or so we have or expect to have on the P3 project.
4) Boeing Helicopter Division
Boeing has begun its initial survey of Northstar’s capabilities and facilities for bid submission to its Helicopter Division in Pennsylvania, USA. Similar part component manufacture as with Lockheed Martin Aeronautics is anticipated. No specific project bid RFQ has been received at this time but is anticipated during the fourth quarter, 2009 or early 2010.
5) Raytheon
Northstar’s subsidiary, NNL, has attracted the interest of Raytheon for production and contract manufacturing capabilities. A comprehensive marketing effort has been undertaken to their major suppliers of defense related equipment and custom component manufacturing. Although these are preliminary activities, they are the basis for large-scale, defense-related contracts we expect to start within the next two years.
Future View
NEIK has increased in price almost three times over this past month on increasing trading volumes. We believe this was a direct reaction to the announcement to the public that the Company had secured a strong Line of Credit from a highly reputable financial institution and the announcement that our subsidiary has achieved an international level of certification for our defense and aerospace contract work.
In the years as CEO of Northstar, never have we been at the crossroads of so many different and significant opportunities that could propel the company to a much larger market cap, corresponding stock price and within 2-3 years, qualify the company for a major listing. I am especially pleased that Northstar stockholders, who have waited in anticipation, should finally be rewarded with a stock price that will reflect the culmination of these past years of investment and long range planning. Northstar is now maturing into a national and international provider of engineering and contract manufacturing services to the defense and aerospace industries.
Wilson Russell, CEO
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