FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities and Exchange Act of 1934
For the month of April, 2002
API ELECTRONICS GROUP INC. (Formerly: Investorlinks.com Inc.)
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(Translation of registrant's name into English)
505 University Ave., Suite 1400, Toronto, Ontario M5G 1X3
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(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover form 20-F or Form 40-F:
Form 20-F [X] Form 40-F [ ]
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2b under the Securities Exchange Act of 1934:
Yes: [ ] No: [X]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82-
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
API ELECTRONICS GROUP INC.
(Formerly Investorlinks.com Inc.)
Date: April 29, 2002 By: /s/ Jason DeZwirek
-------------- -----------------------
Jason DeZwirek, Chairman of the Board,
Executive V.P., Secretary and Director
API Electronics Group Inc.
Consolidated Interim Financial Statements
Third Quarter
For the period ended February 28, 2002
(Unaudited)
Expressed in US$
2
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API Electronics Group Inc.
Consolidated Interim Balance Sheet
(Expressed in US$)
February 28, May 31,
2002 2001
------------ -------
(Unaudited) (Audited)
Assets
Current
Cash $ 309,052 $ 41,073
Accounts receivable 541,870 340,383
Inventory 1,299,660 1,277,399
Prepaid expenses 13,744 13,174
---------- ----------
2,164,326 1,672,029
Investments 1,848 -
Capital assets 854,373 881,700
Goodwill 2,638 10,552
---------- ----------
$3,023,185 $2,564,281
Liabilities and Shareholders' Equity
Current
Bank indebtedness $ 254,350 $ 354,346
Accounts payable 591,107 341,216
Equipment loan payable - current portion 12,000 36,000
Current maturities of capital lease obligations 7,648 10,440
---------- ----------
865,105 742,002
Bank indebtedness 34,562 43,717
Equipment loan payable 27,000 138,000
Due to shareholders - 43,575
Capital lease obligations - 4,258
Convertible promissory note - 1,265,492
---------- ----------
926,667 2,237,044
Shareholders' equity
Share capital (Note 2) 2,778,110 407,820
Deficit (681,592) (80,583)
---------- ----------
2,096,518 327,237
========== ==========
$3,023,185 $2,564,281
========== ==========
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
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API Electronics Group Inc.
Consolidated Interim Statement of Operations
and Retained Earnings (Deficit)
(Unaudited)
(Expressed in US$)
Nine Months Ended Three Months Ended
February 28 February 28
----------------- ------------------
2002 2001 2002 2001
---------- ---------- --------- ---------
Sales $2,321,625 $1,952,669 $ 681,772 $ 631,862
Cost of sales 1,765,486 1,544,446 571,128 522,489
---------- ---------- --------- ---------
Gross profit 556,139 408,223 110,644 109,373
Expenses
Selling expenses 231,034 167,558 63,110 61,697
General and administrative 949,513 202,365 580,141 68,683
---------- ---------- --------- ---------
1,180,547 369,923 643,251 130,380
---------- ---------- --------- ---------
Operating Income (624,408) 38,300 (532,607) (21,007)
---------- ---------- --------- ---------
Other (Income) Expenses
Other income (68,544) (819) (9,416) -
Interest expense 23,891 35,417 5,066 13,605
---------- ---------- --------- ---------
(44,653) 34,598 (4,350) 13,605
---------- ---------- --------- ---------
Income (loss) before income
taxes (579,755) 3,702 (528,257) (34,612)
Income taxes 21,254 292 (8,746) 225
---------- ---------- --------- ---------
Net income (loss) (601,009) 3,410 (519,511) (34,837)
Retained earnings (deficit),
beginning of period (80,583) (182,684) (162,081) (144,437)
---------- ---------- --------- ---------
Deficit, end of period $ (681,592) $ (179,274) $(681,592) $(179,274)
========== ========== ========= =========
Earning (loss) per share -
basic $ (0.05) $ 0.001 $ (0.05) $ (0.01)
========== ========== ========= =========
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
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API Electronics Group Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(Expressed in US$)
Nine Months Ended Three Months Ended
February 28 February 28
------------------- -------------------
2002 2001 2002 2001
---------- --------- --------- ---------
Cash provided by (used in) operating activities
Net income (loss) for the period $ (601,009) $ 3,410 $(519,511) $(34,837)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Amortization 106,154 81,192 31,086 27,064
Net change in non-cash working capital
balances (Note 3) (249,313) (121,994) 7,214 (26,909)
---------- --------- --------- --------
(744,168) (37,392) (481,211) (34,682)
---------- --------- --------- --------
Investing activities
Capital assets (187,353) (5,555) (70,703) -
---------- --------- --------- --------
Financing activities
Cash acquired through reverse take-over,
net of cost of acquisition 1,178,375 - - -
Issue of share capital 204,127 - 198,420 -
Share issue costs (8,226) - (8,226) -
Bank indebtedness (109,151) - (3,051) -
Capital leases obligations (7,050) (6,796) (2,613) (2,554)
Equipment loan (15,000) - - -
Due to shareholders (43,575) 42,000 - 42,000
---------- --------- --------- --------
1,199,500 35,204 184,530 39,446
---------- --------- --------- --------
Net increase (decrease) in cash 267,979 (7,743) (367,384) 4,764
Cash, beginning of period 41,073 81,163 676,436 68,656
---------- --------- --------- --------
Cash, end of period $ 309,052 $ 73,420 $ 309,052 $ 73,420
========== ========= ========= ========
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
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API Electronics Group Inc.
Summary of Significant Accounting Policies
(Unaudited)
February 28, 2002 and 2001
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Business Acquisition and
Nature of Business API Electronics Group Inc. (the "API" or
"Company"), formerly Investorlinks.Com
Inc., and API Electronics Inc. ("API
Electronics"), a private company
incorporated under the laws of the State
of New York, completed the business
combination referred to in Note 1 to the
consolidated interim financial statements.
As stated in Note 1, the business
combination has been accounted for as a
reverse take-over of the Company by API
Electronics.
The Company's business focus is the
manufacture and supply of high reliability
semiconductors and microelectronics
circuits for military, aerospace and
commercial applications.
Principles of Consolidation The consolidated financial statements
include the accounts of the API, the legal
parent, together with its wholly owned
subsidiary, API Electronics.
Basis of Presentation These consolidated interim financial
statements have been prepared in accordance
with Canadian generally accepted accounting
principles. All amounts are disclosed in US
dollars unless otherwise indicated.
Capital Assets Capital assets are amortized using the
straight-line basis over the following
years:
Building - 20 years
Machinery and equipment - ranging from 5 to 10 years
Website - 3 years
Goodwill Goodwill is being amortized over 5 years.
Foreign Currency Translation The accompanying consolidated financial
statements are stated in United States
dollars, "the reporting currency". The
transactions of the Company have been
recorded during the period in Canadian
dollars. The translation of Canadian
dollars into United States dollars have
been made at the period end exchange rate
for balance sheet items and the average
exchange rate for the period for revenues,
expenses, gains and losses.
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Accounting The preparation of financial statements in
Estimates conformity with Canadian generally accepted
accounting principles requires management
to make estimates and assumptions that
affect the amounts reported in the
financial statements. Actual results could
differ from those estimated.
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API Electronics Group Inc.
Notes to Interim Consolidated Financial Statements
(Unaudited)
(Expressed in US$)
For the nine months ended February 28, 2002 and 2001
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1. Business Acquisition
On August 31, 2001, the Company acquired all of the 197 issued and
outstanding shares of API Electronics for US $2,600,000. The purchase price
was satisfied by the issuer of 6,500,000 units of the Company at US $0.40
per unit. Each unit consists of one common share and 1/2 of one Series A
common share purchase warrants exercisable at US $0.45 per share expiring
February 28, 2003 and 1/2 of one Series B common share purchased warrant
exercisable at US $0.75 expiring August 30, 2003. As a result of the
transaction, the original shareholders of API Electronics owned 60% of the
issued shares of the Company. The business acquisition resulted in a change
in business focus and an introduction of new management for the Company.
Accordingly, the acquisition has been accounted for as a reverse take-over
of the Company by API Electronics. Application of reverse take-over
accounting results in the following:
i) API Electronics is deemed to be the acquirer for accounting
purposes and its assets and liabilities are included in the
consolidated balance sheet at their carrying valves. The
comparative figures are those of API Electronics.
ii) The consolidated balance sheet combines the assets and
liabilities of the Company as an acquisition under the purchase
method of accounting for business combinations.
The net capital assets of the Company acquired, at fair value, as at August
31, 2001 are as follows:
Cash and cash equivalents $1,213,248
Marketable securities 1,848
Other current assets 122,305
Capital assets 3,559
Current liabilities (397,191)
----------
Net assets acquired 943,769
Less: Cost of acquisition 34,872
----------
Consideration attributed to share capital of shares issued $ 908,897
==========
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API Electronics Group Inc.
Notes to Interim Consolidated Financial Statements
(Unaudited)
(Expressed in US$)
For the nine months ended February 28, 2002 and 2001
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2. Share Capital
(a) Authorized
Unlimited special shares
Unlimited common shares
(b) Issued Common Shares
Number of
Shares Consideration
----------- -------------
Pre-business combination for API Electronics
Balance at June 1, 2000 and May 31, 2001 100 $ 407,820
Issued upon the capitalization of the promissory note 97 1,265,492
---------- ----------
Balance at August 31, 2001 197 $1,673,312
========== ==========
Pre-business combination for the Company
Balance at April 30, 2001 13,179,020 $2,985,416
Share consolidation (1) (8,786,048) -
---------- ----------
Balance at August 31, 2001 4,392,972 $2,985,416
---------- ----------
(1) Pursuant to Articles of Amendment, the Company consolidated the issued and outstanding common shares on the basis of
one common share for every three issued and outstanding common share in the capital of the Company.
Issued from date of reverse take-over
Share capital is comprised of the number of issued
and outstanding shares of the Company and the
stated capital of API Electronics 4,392,972 $1,673,312
Shares issued upon the reverse take-over (Note 1) 6,500,000 908,897
Share issued upon exercise of stock options 10,000 5,707
Shares issued upon exercise of warrants 440,933 198,420
Share issue costs (8,226)
---------- ----------
11,343,905 $2,778,110
========== ==========
8
(c) Warrants
Warrants outstanding, April 30, 2001 226,667
Issued pursuant to advisory services 250,000
Issued pursuant to business acquisition (Note 1)
- Series A 3,250,000
- Series B 3,250,000
Exercised - Series A warrants (440,933)
----------
Warrants outstanding, February 28, 2002 6,535,734
==========
9
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API Electronics Group Inc.
Notes to Interim Consolidated Financial Statements
(Unaudited)
(Expressed in US$)
For the nine months ended February 28, 2002 and 2001
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2. Share Capital - continued
As at February 28, 2002 the following warrants are outstanding and
exercisable:
Number Share for Exercise Expiry
Outstanding Warrants Price Date
----------- --------- -------- -----------------
222,667 1 for 1 $9.00 August 8, 2002
250,000 1 for 1 $0.40 August 31, 2003
2,809,067 1 for 1 $0.45 February 28, 2002
3,250,000 1 for 1 $0.75 August 30, 2003
(d) Stock Options
Weighted
Number of Average
Options Special Price
--------- -------------
Options outstanding, April 30, 2001 123,667 $7.80
Cancelled (113,667) 8.51
Granted 500,000 0.60
Exercised (10,000) Cdn. 0.90
-------- ---------
Options outstanding, February 28, 2002 500,000 $0.60
======== =========
As at February 28, 2002 the following options are outstanding:
Number Exercise Expiry
Issued to Outstanding Price Date
--------- ----------- -------- ----------------
Directors 100,000 0.45 July 31, 2006
Directors 150,000 0.45 August 31, 2006
Directors 100,000 0.75 July 31, 2006
Directors 150,000 0.75 August 31, 2006
10
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API Electronics Group Inc.
Notes to Interim Consolidated Financial Statements
(Unaudited)
(Expressed in US$)
For the nine months ended February 28, 2002 and 2001
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3. Changes in Non-Cash Working Capital Balances
Non-cash working capital changes are as follows:
Nine Months Ended Three Months Ended
February 28 February 28
------------------------ -----------------------
2002 2001 2002 2001
--------- --------- --------- --------
Accounts receivable $(176,281) $(120,111) $ 9,871 $(13,973)
Inventory (22,261) (41,987) 18,740 (8,913)
Prepaid expenses 96,529 2,160 59,994 742
Accounts payable (147,300) 37,944 (81,391) (4,765)
--------- --------- --------- --------
$(249,313) $(121,994) $ 7,214 $(26,909)
========= ========= ========= ========
Supplemented cash flow information
Cash paid for interest $ 23,891 $ 35,417 $ 5,066 $ 13,605
Cash paid for taxes - 67 - -
Non-Cash Transaction
Convertible promissory note
converted into common stock $1,265,492 $ - $ - $ -
Disposal of capital assets in
settlement of equipment
loan $ 120,000 $ - $ - $ -
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QUARTERLY AND YEAR END REPORT
[GRAPHIC British Columbia BC FORM 51-901
REMOVED] Securities Commission (previously Form 61)
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Freedom of Information and Protection of Privacy Act: The personal information
requested on this form is collected under the authority of and used for the
purpose of administering the Securities Act. Questions about the collection or
use of this information can be directed to the Supervisor, Financial Reporting
(604-899-6729), PO Box 10142, Pacific Centre, 701 West Georgia Street, Vancouver
BC V7Y 1L2. Toll Free in British Columbia 1-800-373-6393
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INSTRUCTIONS
This report must be filed by Exchange Issuers within 60 days of the end of their
first, second and third fiscal quarters and within 140 days of their year end.
"Exchange Issuer" means an issuer whose securities are listed and posted for
trading on the Canadian Venture Exchange and are not listed and posted on any
other exchange or quoted on a trading or quotation system in Canada. Three
schedules must be attached to this report as follows:
SCHEDULE A: FINANCIAL STATEMENTS
Financial statements prepared in accordance with generally accepted accounting
principles are required as follows:
For the first, second and third financial quarters:
Interim financial statements prepared in accordance with section 1751 of the
CICA Handbook, including the following: balance sheet, income statement,
statement of retained earnings, cash flow statement, and notes to the financial
statements.
The periods required to be presented, consistent with CICA Handbook
section 1751, are as follows:
o a balance sheet as of the end of the current interim period and a
comparative balance sheet as of the end of the immediately preceding fiscal
year;
o a statement of retained earnings cumulatively for the current fiscal
year-to-date, with a comparative statement for the comparable year to-date
period of the immediately preceding fiscal year; and
o income statements and cash flow statements for the current interim period
and cumulatively for the current fiscal year-to-date, with comparative
statements for the comparable interim periods (current and year-to-date) of
the immediately preceding fiscal year.
For the financial year end:
Annual audited financial statements prepared on a comparative basis.
Exchange Issuers with a fiscal year of less than or greater than 12 months
should refer to National Policy No. 51 Changes in the Ending Date of a Financial
Year and in Reporting Status for guidance.
Issuers in the development stage are directed to the guidance provided in CICA
Accounting Guideline AcG-11 Enterprises in the Development Stage that states
"enterprises in the development stage are encouraged to disclose in the income
statement and in the cash flow statement cumulative balances from the inception
of the development stage."
Issuers that have been involved in a reverse take-over should refer to the
guidance found in BCIN #52-701 (previously NIN #91/21) with respect to such
transactions including the requirement or disclosure of supplementary
information regarding the legal parent's prior financial operations.
SCHEDULE B: SUPPLEMENTARY INFORMATION
The supplementary information set out below must be provided when not included
in Schedule A.
1. Analysis of expenses and deferred costs
Provide a breakdown of amounts presented in the financial statements
for the following: deferred or expensed exploration, expensed research,
deferred or expensed development, cost of sales, marketing expenses,
general and administrative expenses, and any other material expenses
reported in the income statement and any other material deferred costs
presented in the balance sheet.
The breakdown should separately present, at a minimum, each component
that comprises 20% or more of the total amount for a material
classification presented on the face of the financial statements. All
other components of a material classification may be grouped together
under the heading "miscellaneous" or "other" in the cost breakdown; the
total for "miscellaneous" should not exceed 30% of the total for a
material classification.
Breakdowns are required for the year-to-date period only.
Breakdowns are not required for comparative periods.
Issuers in the development stage are reminded that Section 3(9)(b) of
the BC Securities Commission's Rules requires a schedule or note to the
financial statements containing an analysis of each of exploration,
research, development and administration costs, whether expensed or
deferred and if the issuer is a natural resource issuer, that analysis
for each material property. Because the analysis required by Rule
3(9)(b) must be included in the financial statements, the information
does not have to be repeated in Schedule B. Consistent with CICA
Accounting Guidelines AcG-11, staff considers an issuer to be in the
development stage when it is devoting substantially all of its efforts
to establishing a new
12
business and planned principal operations have not commenced. Further, in
staff's view, the lack of significant revenues for the past two years
normally indicates that an issuer is in the development stage.
2. Related party transactions
Provide disclosure of all related party transactions as specified in
Section 3840 of the CICA Handbook.
3. Summary of securities issued and options granted during the period
Provide the following information for the year-to-date period:
(a) summary of securities issued during the period, including date of
issue, type of security (common shares, convertible debentures, etc.),
type of issue (private placement, public offering, exercise of
warrants, etc.) number, price, total proceeds, type of consideration
(cash, property, etc.) and commission paid, and
(b) summary of options granted during the period, including date, number,
name of optionee for those options granted to insiders, generic
description of other optionees (e.g. "employees",) exercise price and
expiry date.
4. Summary of securities as at the end of the reporting period
Provide the following information as at the end of the reporting period:
(a) description of authorized share capital including number of shares for
each class, dividend rates on preferred shares and whether or not
cumulative, redemption and conversion provisions,
(b) number and recorded value for shares issued and outstanding,
(c) description of options, warrants and convertible securities
outstanding, including number or amount, exercise or conversion price
and expiry date, and any recorded value, and
(d) number of shares in each class of shares subject to escrow or pooling
agreements.
5. List the names of the directors and officers as at the date this report is
signed and filed.
SCHEDULE C: MANAGEMENT DISCUSSION AND ANALYSIS
1. General Instructions
(a) Management discussion and analysis provides management with the
opportunity to discuss an issuer's business, current financial
results, position and future prospects.
(b) Focus the discussion on material information, including liquidity,
capital resources, known trends, commitments, events, risks or
uncertainties, that is reasonably expected to have a material effect
on the issuer.
(c) For an issuer with active ongoing operations the discussion should be
substantive (e.g. generally two to four pages in length); for an
issuer with limited operations the discussion may not be as extensive
(e.g. one page).
(d) The discussion must be factual, balanced and non-promotional.
(e) Where the discussion relates to a mineral project, as defined in
National Instrument 43-101 "Standards of Disclosure for Mineral
Projects," the disclosure must comply with NI 43-101.
2. Description of Business
Provide a brief description of the issuer's business. Where an issuer is
inactive and has no business, disclose these facts together with a
description of any plans to reactivate and the business the issuer intends
to pursue.
3. Discussion of Operations and Financial Condition
Provide a meaningful discussion and analysis of the issuer's operations for
the current year-to-date period presented in the financial statements.
Discuss the issuer's financial condition as at the date of the most recent
balance sheet presented in the financial statements.
The following is a list of items that should be addressed in management's
discussion and analysis of the issuer's operations and financial condition.
This is not intended to be an exhaustive list of the relevant items.
(a) expenditures included in the analysis of expenses and deferred costs
required under Securities Rule 3(9)(b) and Schedule B;
(b) acquisition or abandonment of resource properties material to the
issuer including material terms of any acquisition or disposition;
(c) acquisition or disposition of other material capital assets including
material terms of the acquisition, or disposition;
(d) material write-off or write-down of assets;
(e) transactions with related parties, disclosed in Schedule B or the
notes to the financial statements;
(f) material contracts or commitments;
(g) material variances between the issuer's financial results and
information previously disclosed by the issuer, (for example if the
issuer does not achieve revenue and profit estimates previous
released, discuss this fact and the reasons for the variance);
(h) material terms of any existing third party investor relations
arrangements or contracts including:
i. the name of the person;
ii. the amount paid during the reporting period; and
iii. the services provided during the reporting period;
(i) legal proceedings;
(j) contingent liabilities;
(k) default under debt or other contractual obligations;
(l) a breach of corporate, securities or other laws, or of an issuer's
listing agreement with the Canadian Venture Exchange including the
nature of the breach, potential ramifications and what is being done
to remedy it;
(m) regulatory approval requirements for a significant transaction
including whether the issuer has obtained the required approval or has
applied for the approval;
(n) management changes; or
13
(o) special resolutions passed by shareholders.
4. Subsequent Events
Discuss any significant events and transactions that occurred during the
time from the date of the financial statements up to the date that this
report is certified by the issuer.
5. Financings, Principal Purposes and Milestones
(a) In a tabular format, compare any previously disclosed principal
purposes from a financing to actual expenditures made during the
reporting period.
(b) Explain any material variances and the impact, if any, on the issuer's
ability to achieve previously disclosed objectives and milestones.
6. Liquidity and Solvency
Discuss the issuer's working capital position and its ability to meet its
ongoing obligations as they become due.
How to File Under National Instrument 13-101 - System for Electronic Document
Analysis and Retrieval (SEDAR)
BC Form 51-901 Quarterly and Year End Reports are filed under Category of
Filing: Continuous Disclosure and Filing Type: Interim Financial Statements or
Annual Financial Statements. Schedule A (Financial Statements) is filed under
Document Type: Interim Financial Statements or Annual Financial Statements.
Schedule B (Supplementary Information) and Schedule C (management Discussion)
are filed under Document Type: BC Form 51-901 (previously Document Type Form
61(BC)).
Meeting the Form Requirements
BC Form 510-901 consists of three parts: Instructions to schedules A, B and C,
issuer details and a certificate. To comply with National instrument 132-101 it
is not necessary to reproduce the instructions that are set out in BC Form
51-901. A cover page to the schedules titled BC Form 51-901 that includes the
issuer details and certificate is all that is required to meet the BC Form
51-901 requirements. The form of the certificate should be amended so as to
refer to one or two of the three schedules required to complete the report.
14
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QUARTERLY AND YEAR END REPORT
[GRAPHIC British Columbia BC FORM 51-901
REMOVED] Securities Commission (previously Form 61)
- --------------------------------------------------------------------------------
Freedom of Information and Protection of Privacy Act: The personal information
requested on this form is collected under the authority of and used for the
purpose of administering the Securities Act. Questions about the collection or
use of this information can be directed to the Supervisor, Financial Reporting
(604-899-6729), PO Box 10142, Pacific Centre, 701 West Georgia Street, Vancouver
BC V7Y 1L2. Toll Free in British Columbia 1-800-373-5393
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ISSUER DETAILS DATE OF REPORT
NAME OF ISSUER FOR QUARTER ENDED YY MM DD
API ELECTRONICS GROUP INC. 2002/02/28 2002 04 29
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ISSUER ADDRESS
505 UNIVERSITY AVENUE, SUITE 1400
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CITY PROVINCE POSTAL CODE ISSUER FAX NO. ISSUER TELEPHONE NO.
TORONTO ON M5G 1X3 416-593-4658 416-593-6543
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CONTACT NAME CONTACT POSITION CONTACT TELEPHONE NO.
JASON DEZWIREK CHAIRMAN 416-593-6543
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CONTACT EMAIL ADDRESS WEB SITE ADDRESS
jason@kaboose.com www.api-electronics.com
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CERTIFICATE
The three schedules required to complete this Report are attached and the
disclosure contained therein has been approved by the Board of Directors. A copy
of this Report will be provided to any shareholder who requests it.
15
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DIRECTOR'S SIGNATURE PRINT FULL NAME DATE SIGNED
TM "JASON DEZWIREK" JASON DEZWIREK YY MM DD
2002 04 25
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DIRECTOR'S SIGNATURE PRINT FULL NAME DATE SIGNED
TM "PHILIP DEZWIREK PHILIP DEZWIREK YY MM DD
2002 04 25
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SCHEDULE "A"
FINANCIAL INFORMATION
See attached unaudited consolidated financial statements of API Electronics
Group Inc. (the "Company") for the period ended February 28, 2002.
17
Schedule "B"
See attached consolidated financial statements of the Company for the period
ended February 28, 2002.
18
SCHEDULE "C"
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
A) Results of Operations
1. Summary
API Electronics Group Inc. is a leading manufacturer of electronic components.
API designs and manufactures power transistors, small signal transistors, tuning
diodes, hybrid circuits, resistor/capacitor networks, diodes and other critical
elements for advanced military, industrial, commercial, automotive and medical
applications.
2. Sales Revenue
The nine months ending February 28, 2002 saw API generate revenues of
$2,321,625. This revenue represented an increase of 18.9% compared to $1,952,669
for the nine month period ending February 28, 2001. The growth during the period
was led by the performance of core product lines and accelerated by favourable
market conditions for the Company's products in the military industry.
3. Cost of Goods Sold and Gross Margin
The cost of products sold as a percentage of sales decreased favourably during
the 2002 period as compared to the 2001 nine month period. The cost of goods
sold was 76% of sales in 2002 compared to 79.1% of sales in 2001. Accordingly,
the gross margin for 2002 period improved to 24.0% from the 20.9% gross margin
in the 2001 period. The increase is attributed mainly to improve operating
efficiencies and favourable markets. Future gross margins will continue to be
impacted by competitive pricing pressures and new product introductions.
4. Selling Expenses
Selling expenses increased from $167,658 for the nine month period ending
February 28, 2001 to $231,034 for the nine month period ending February 28,
2002. As a percentage of sales the 2002 selling expenses came in at 10% compared
to 8.5% for the 2001 period. The increase was primarily attributed to the
addition of one sales person to support increased product sales levels.
5. General and Administrative Expenses
General and administrative expenses increased substantially from $202,365 for
2001 period to $949,513 incurred during the nine month period ending February
28, 2002. The increase is attributed primarily to significant expenditures for
business development costs. The costs increased from $0 in the 2001 period to
$527,703 in the 2002 period. These costs relate primarily to business plan
development and investor relations to help create market awareness for products
and investors and to help provide support for any future financing and
acquisitions. The company believes aggressive spending in this area is critical
to assist the company gain exposure in the competitive public company
environment and ultimately to increase shareholder value. The other component of
general and administrative expenses that increased substantially were
professional fees which went from $9,078 in the 2001 period to $42,290 for the
2002 period. This increase is attributable to increased expenses that are
inherent with public company compliance. The company became a public company
following the business acquisition as
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described in note 1 of these interim consolidated financial statements.
6. Other Income and Expense
Other income increase from $819 in the nine month period ending February 28,
2001 to $68,544 for the nine month period ending February 28, 2002. The increase
is attributed to rental income and an insurance claim.
7. Net Income / Loss
The Company incurred a net loss for the nine month period ending February 28,
2002 of $601,009 compared to a net income of $3,410 generated for the nine month
period ending February 28, 2001.
B) Liquidity and Capital Resources
1. Summary
At February 28, 2002, the Company had cash reserves of $309,052 compared to
$41,073 as at May 31, 2001.
At February 28, 2002 working capital, the excess of current assets over current
liabilities totalled $1,299,221 compared to $930,027 at May 31, 2001. The
current ratio at February 28, 2002 was 2.5:1 compared to 2.25:1 at May 31, 2001.
The quick ratio (which excludes inventory and prepaid expenses from current
assets) is .98:1 at February 28, 2002 compared with .51:1 as at May 31, 2001.
The increase in the current and quick ratio is attributed primarily to the
increased sales level.
Specific working capital components saw increases consistent with the increases
in sales volume and production activity. Accounts receivable rose 59% from
$340,383 at May 31, 2001 to $541,870 at February 28, 2002. Accounts payable rose
73% from $341,216 at May 31, 2001 to $591,107 at February 28, 2002. Equipment
loans decreased from $138,000 at May 31, 2001 to $27,000 at February 28, 2002 as
a result of the Company disposing of assets in settlement of the equipment loan.
2. Cash Flow
Cash provided by operating activities decreased from $(37,392) for the nine
months ended February 28, 2001 to $(744,168) for the nine months ended February
28, 2002. The 2002 cash deficiency was financed primarily by the business
acquisition as described in note 1 of these interim consolidated financial
statements whereby $1,178,375 cash was acquired.
Other major sources of cash were provided by the exercise of warrants and
options. This exercise added cash totalling $204,127 during the nine months
ended February 28, 2002. Other major uses of cash were the acquisition of
capital assets in the amount of $187,353 for the 2002 period compared to $5,555
for the 2001 period.
3. Related Party Transactions
Office rent paid to a company of which a shareholder of the company is a
director (2002 - $6,034; 2001 - $0)
Consulting fees paid to a director of the Company (2002 - $12,113; 2001 - $0)
Web site development costs paid to a company of which a shareholder of the
company is a director (2002 - $30,826; 2001 - $0)
C) Financings
For the nine months ended February 28, 2002, there were no financings.
D) Subsequent Events
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On April 3, 2002, the Company signed a letter of intent to acquire
privately-held Filtran Group, a global supplier of electronic components. The
all-cash acquisition would see the Company acquire Filtran Group and all of its
subsidiaries, including: Filtran Inc. of Ogdensburg, New York; Filtran Ltd. Of
Nepean, Ontario, Canada; and Canadian Dataplex Ltd., also of Nepean. The deal
including purchase consideration is pending final due diligence by the Company
and although it is expected to close prior to the Company's May 31, 2002
yearend, there can be no assurance that the purchase will be consummated.
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