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 October, 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 ___
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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
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If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82-___________
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: October 31, 2002 By: /s/ Jason DeZwirek
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Jason DeZwirek, Chairman of the Board,
Executive V.P., Secretary and Director
QUARTERLY AND YEAR END REPORT
BC FORM 51-901
[LOGO] British Columbia 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 1-800-373-5393
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ISSUER DETAILS DATE OF REPORT
FOR QUARTER YY MM DD
NAME OF ISSUER ENDED 2002 10 30
API ELECTRONICS GROUP INC. 2002/08/31
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ISSUER ADDRESS
505 UNIVERSITY AVENUE, SUITE 1400
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CITY PROVINCE POSTAL ISSUER FAX NO. ISSUER TELEPHONE
TORONTO ON CODE 416-593-4658 NO.
M5G 1X3 416-593-6543
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CONTACT NAME CONTACT POSITION CONTACT TELEPHONE
JASON DEZWIREK CHAIRMAN NO.
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.
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DIRECTOR'S SIGNATURE PRINT FULL NAME DATE SIGNED
(TM) "Jason DeZwirek" JASON DEZWIREK YY MM DD
2002 10 30
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DIRECTOR'S SIGNATURE PRINT FULL NAME DATE SIGNED
(TM) "Phillip DeZwirek" PHILLIP DEZWIREK YY MM DD
2002 10 30
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SCHEDULE "A"
FINANCIAL INFORMATION
See attached unaudited consolidated financial statements of API Electronics
Group Inc. (the "Company") for the three months ended August 31, 2002.
API Electronics Group Inc.
Consolidated Financial Statements
For the three months ended August 31, 2002
(Expressed in US Dollars)
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
1
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API Electronics Group Inc.
Balance Sheets
(Expressed in US Dollars)
August 31 May 31
2002 2002
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Assets
Current
Cash $ 2,264,999 $ 1,408,637
Marketable securities 62,997 -
Accounts receivable 1,064,426 1,073,058
Inventories (Note 2) 1,905,385 1,852,483
Prepaid expenses 56,315 45,358
---------------------------
5,354,122 4,379,536
Capital assets (Note 3) 2,959,590 2,867,382
Goodwill (Note 4) 962,529 962,529
Intangible assets (Note 5) 309,427 325,712
---------------------------
$ 9,585,668 $ 8,535,159
===============================================================================
Liabilities and Shareholders' Equity
Current
Bank indebtedness (Note 6) $ 242,146 $ 284,488
Accounts payable 946,959 874,269
Current portion of long-term debt (Note 7) 1,039,672 1,072,706
---------------------------
2,228,777 2,231,463
Future income tax liability (Note 8) 536,750 530,000
Long term debt (Note 7) 1,278,597 1,299,125
---------------------------
4,044,124 4,060,588
---------------------------
Shareholders' equity
Share capital (Note 10) 5,817,007 4,642,007
Paid in capital 770,790 770,790
Cumulative foreign exchange translation (16,178) -
Deficit (1,030,075) (938,226)
---------------------------
5,541,544 4,474,571
---------------------------
$ 9,585,668 $ 8,535,159
===============================================================================
On behalf of the Board:
(signed) Jason DeZwirek Director
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(signed) Phillip DeZwirek Director
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The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
2
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API Electronics Group Inc.
Consolidated Statements of Operations and Deficit
(Expressed in US Dollars)
For the three months ended August 31 2002 2001
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Sales $ 1,641,595 $ 925,016
Cost of sales 1,215,288 596,487
---------------------------
Gross profit 426,307 328,529
---------------------------
Expenses
Selling 139,629 75,873
General and administrative 361,051 89,956
---------------------------
500,680 165,829
---------------------------
Operating income (loss) (74,373) 162,700
Other (income) expenses
Other income (13,507) (56,921)
Interest on long term debt 30,983 11,530
---------------------------
17,476 (45,391)
---------------------------
Income (loss) before income taxes (91,849) 208,091
Income taxes (Note 8) - -
---------------------------
Net income (loss) for the year (91,849) 208,091
Deficit, beginning of year (938,226) (80,583)
---------------------------
Deficit, end of year $(1,030,075) $ 127,508
===============================================================================
Earnings (loss) per share - basic (Note 13) $ (0.006) $ 0.03
===============================================================================
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
3
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API Electronics Group Inc.
Statements of Cash Flows
(Expressed in US Dollars)
For the three months ended August 31 2002 2001
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Cash was provided by (used in)
Operating activities
Net income (loss) for the year $ (91,849) $ 208,091
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Amortization 92,519 37,534
Changes in non-cash working capital
balances (Note 11(a)) (45,534) (154,759)
---------------------------
(44,864) 90,866
---------------------------
Investing activities
Purchase of capital assets (168,442) (10,678)
---------------------------
(213,306) 80,188
---------------------------
Financing activities
Increase in future income tax liability 6,750 -
Decrease in cumulative foreign exchange (16,178) -
Issue of share capital 1,175,000 -
Bank indebtedness repayments (42,342) (53,051)
Repayment of long term debt (53,562) (10,742)
Increase in long term debt - 51,999
---------------------------
1,069,668 (11,794)
---------------------------
Net increase in cash for the year 856,362 68,394
Cash, beginning of year 1,408,637 41,073
---------------------------
Cash, end of year $ 2,264,999 $ 109,467
=======================================================================================
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
4
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API Electronics Group Inc.
Summary of Significant Accounting Policies
(Expressed in US Dollars)
August 31, 2002 and 2001
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Nature of Business API Electronics Group Inc.'s ("the Company")
business focus is the manufacture and design of
high reliability semiconductor and
microelectronics circuits for military, aerospace
and commercial applications. Through recent
acquisitions, the Company has expanded its
manufacturing and design of electronic components
to include filters, transformers, inductors, and
custom power supplies for land and amphibious
combat systems, mission critical information
systems and technologies, shipbuilding and marine
systems, and business aviation.
Business Acquisition and
Name Change On August 31, 2001, Investorlinks.com Inc. a
public company incorporated under the laws of the
Province of Ontario, 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(a) to the financial statements.
Pursuant to Articles of Amendment dated September
10, 2001, the Company changed its name from
Investorlinks.com Inc. to API Electronics Group
Inc. As stated in Note 1(a), the business
combination has been accounted for as a reverse
take-over of the Company by API Electronics.
On May 31, 2002 the Company completed the
acquisition of all the outstanding common shares
of Filtran Inc. ("Filtran USA"), a private
company incorporated under the laws of the State
of New York; Filtran Limited ("Filtran Canada"),
a private company incorporated under the laws of
Ontario; Canadian Dataplex Limited ("CDL"), a
private company incorporated under the laws of
Canada, Tactron Communications (Canada) Limited
("TCCL"), a private company incorporated under
the laws of Ontario. Filtran USA, Filtran Canada,
CDL, TCCL are known collectively as the "Filtran
Group". The Filtran Group's business focus is
similar to that of the Company. The business
combination, which has been accounted for using
the purchase method, is described in Note 1 (b)
to the financial statements.
Principles of Consolidation The consolidated financial statements include the
accounts of the Company (the legal parent),
together with its wholly owned subsidiaries, API
Electronics and the Filtran Group.
Basis of Presentation These consolidated financial statements have been
prepared in accordance with Canadian generally
accepted accounting principles. All amounts are
disclosed in US dollars unless otherwise
indicated.
5
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API Electronics Group Inc.
Summary of Significant Accounting Policies
(Expressed in US Dollars)
August 31, 2002 and 2001
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Revenue Recognition Revenue is recognized when risk and title passes to the
customer, which is generally upon shipment of the
product. Revenues from contracts are recognized on the
percentage of completion basis, measured by the
percentage of contract costs incurred to date compared
to estimated total contract costs for each contract.
Marketable Securities Marketable securities are recorded at the lower of cost
and stated market price
Inventory Raw materials are recorded at the lower of cost and net
realizable value. Finished goods and work in process are
stated at the lower of cost, which includes material,
labour and overhead, and net realizable value. Cost is
generally determined on a first-in, first-out basis.
Capital Assets Capital assets are recorded at cost less accumulated
amortization and are amortized using the straight-line
basis over the following years:
Buildings 20 years
Computer equipment 3 years
Computer software 3 years
Furniture and fixtures 5 years
Machinery and equipment Ranging from 5 to 10 years
Website development 3 years
Goodwill Effective January, 2002, the Canadian Institute of
Chartered Accountants issued new accounting standards
relating to accounting for goodwill and other intangible
assets acquired in business combinations. Goodwill will
no longer be required to be amortized, but is now
subject to an annual test for impairment. Any impairment
in the value of the goodwill is written off against
earnings.
Prior to 2002, goodwill was amortized on a straight-line
basis over 5 years.
Intangible Assets Intangible assets which have a finite life are amortized
over their estimated useful lives.
The non-compete agreement is amortized using the
straight-line basis over 5 years.
Income taxes The Company accounts for income taxes under the asset
and liability method. Under this method, future income
tax assets and liabilities are recognized for the future
tax consequences attributable to differences between
financial reporting and tax bases of assets and
liabilities and available loss carryforwards. A
valuation allowance is established to reduce tax assets
if it is more likely than not that all or some portions
of such tax assets will not be realized.
6
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API Electronics Group Inc.
Summary of Significant Accounting Policies
(Expressed in US Dollars)
August 31, 2002 and 2001
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Foreign Currency
Translation The 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 year end exchange rate for monetary balance
sheet items, the historical rate for non-monetary
balance sheet items, and the average exchange rate for
the year for revenues, expenses, gains and losses. The
gains or losses on translation are included in net
income (loss) for the year.
The Filtran Group is a self-sustaining group which is
translated at current rates of exchange. All exchange
gains and losses will be accumulated in the foreign
exchange translation account on the balance sheet. The
foreign exchange translation amount as at August 31,
2002 was $(16,178).
Accounting Estimates The preparation of these consolidated financial
statements in conformity with Canadian generally
accepted accounting principles requires management to
make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the
consolidated financial statements and reported amounts
of revenues and expenses during the reporting periods.
By their nature, these estimates are subject to
uncertainty and the effect on the consolidated financial
statements of changes in such estimates in future
periods could be material.
Advertising Costs The Company's policy is to expense advertising costs as
incurred. Advertising expenses included in selling
expenses is $1,803 (2001 - $1,250).
Stock-Based
Compensation Plans The Company has a stock-based compensation plan which is
described in Note 8. No compensation expense is
recognized for these plans when stock or stock options
are issued to employees. Any consideration paid on the
exercise of options or purchase of stock is credited to
share capital.
7
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API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
August 31, 2002 and 2001
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1. (a) Business Acquisition, Name Change and Share Consolidation
On August 31, 2001, the Company acquired all of the 197 issued and
outstanding shares of API Electronics for $2,600,000. The purchase
price was satisfied by the issue of 6,500,000 units of the Company at
$0.40 per unit. Each unit consists of one common share and 1/2 of one
Series A common share purchase warrants exercisable at $0.45 per share
expiring February 28, 2003 and 1/2 of one Series B common share
purchased warrant exercisable at $ 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
Company has accounted for the acquisition as a reverse take-over 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 values. 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 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 (132,815)
-----------
Net assets acquired 1,208,145
Less: Cost of acquisition (34,872)
-----------
Consideration attributed to share capital of shares issued $ 1,173,273
===========
Pursuant to Articles of Amendment dated September 10, 2001, the
Company changed its name from Investorlinks.com.Inc. to API
Electronics Group Inc. and consolidated the issued and outstanding
common shares on the basis of one common share for every three issued
and outstanding common share of the Company.
(b) Business Acquisition
On May 31, 2002, the Company acquired all of the issued and
outstanding shares of the Filtran Group of companies for $2,996,547
(Cdn $4,100,000). The purchase price was satisfied through payment of
cash in the amount of $1,042,277 and a promissory note given in the
amount of $1,954,270 (Cdn $3,000,000). Also incurred were professional
fees in connection with the acquisition in the amount of $327,065
giving a total acquisition cost of $3,323,612.
The business combination was accounted for using the purchase method,
whereby the fair market values of the net assets of the Filtran Group
are reflected in the Company's balance sheet as at May 31, 2002.
8
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API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
August 31, 2002 and 2001
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1. (b) Business Acquisition (continued)
The net assets acquired at fair value, as at May 31, 2002 are as
follows:
Cash $ 101,623
Current assets 1,204,202
Capital assets 1,984,492
Current liabilities (507,256)
Long-term liabilities (217,690)
Future income tax liabilities (530,000)
-----------
Fair value of tangible net assets 2,035,371
Non-compete agreement 325,712
Goodwill 962,529
-----------
Total cost of acquisition $ 3,323,612
===========
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2. Inventories
August 31 May 31
2002 2002
-------------------------
Inventory for the three months ended August
31, 2002 was estimated based upon gross
margin percentage
$ 1,905,385 $ 1,852,483
=========================
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3. Capital Assets
August 31, 2002
----------------------------------------
Cost Accumulated Net
Amortization Book Value
Land $ 393,283 $ - $ 393,283
Buildings 1,921,175 179,876 1,741,299
Computer equipment 39,108 1,715 37,393
Computer software 50,567 4,496 46,071
Furniture and fixtures 37,946 6,625 31,321
Machinery and equipment 1,521,262 834,268 686,994
Web site development costs 30,826 7,597 23,229
----------------------------------------
$3,994,167 $1,034,577 $2,959,590
========================================
9
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API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollar)
August 31, 2002 and 2001
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3. Capital Assets (continued)
May 31, 2002
----------------------------------------
Cost Accumulated Net
Amortization Book Value
Land $ 394,12 $ - $ 394,127
Buildings 1,780,573 160,099 1,620,474
Computer equipment 38,063 - 38,063
Computer software 50,322 - 50,322
Furniture and fixtures 40,252 6,751 33,501
Machinery and equipment 1,511,764 806,557 705,207
Web site development costs 30,826 5,138 25,688
----------------------------------------
$3,845,927 $ 978,545 $2,867,382
========================================
Included in machinery and equipment is $133,362 (May 31, 2002 - $133,362)
of property held under capital leases.
Depreciation and amortization expense amounted to $92,519 (2001 - $37,534).
Of this amount $36,799 (2001 - $30,027) was included in cost of sales.
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4. Goodwill
August 31, 2002 May 31, 2002
---------------------------------
Goodwill $ 1,015,289 $ 1,015,289
Less: Accumulated amortization (52,760) (52,760)
-----------------------------
$ 962,529 $ 962,529
=============================
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5. Intangible Assets
August 31, 2002 May 31, 2002
---------------------------------
Non-compete agreement (Note 1 (b)) $ 325,712 $ 325,712
Less: Accumulated amortization (16,285) -
-----------------------------
$ 309,427 $ 325,712
=============================
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6. Bank Indebtedness
The Company's bank indebtedness is secured by all of its assets pursuant to
a general security agreement and in addition is guaranteed by two of its
former major shareholders. The bank indebtedness is due on demand and bears
interest at prime plus 1/2%.
The Company's wholly owned subsidiary, Filtran Canada has a line of credit
of Cdn $1,000,000 with the Bank of Nova Scotia. As at August 31, 2002, the
Company has borrowed $Nil (May 31, 2002 - $42,343) against this line of
credit. The line of credit bears interest at prime plus 1/2 percent and is
secured by a special assignment of inventory, accounts receivable and
unlimited guarantee from TCCL and a guarantee of Cdn $500,000 from CDL.
10
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API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
August 31, 2002 and 2001
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7. Long-term Debt
2002 2001
------------------------
Promissory note payable to former shareholders of the
Filtran Group, secured by a collatered mortgage on
real property registered in Ontario and the issued and
outstanding shares of the Filtran Group, repayable in
two equal payment of Cdn $1,500,000 on May 31, 2003 and
May 31, 2004 plus interest at 5% per annum $1,925,100 $1,954,270
Bank term loans, secured by machinery and
equipment, repayable in monthly instalments of $4,621
plus interest at rates varying from 7.75% to 10% 80,756 95,145
Loan payable, unsecured and non-interest bearing,
repayable in monthly instalments of $1,000 (i) 39,000 39,000
Mortgage payable, secured by real estate, repayable
in blended monthly instalments of $3,737 at interest
rates of 6.75% and 8.75% 160,938 166,262
Various equipment capital leases, with annual lease
payments of $26,949 including interest at
approximately 9% 97,623 102,089
Due to shareholder, non-interest bearing with no
specific terms of repayment 14,852 15,065
------------------------
2,318,269 2,371,831
Less: Current portion 1,039,672 1,072,706
------------------------
$1,278,597 $1,299,125
========================
(i) On March 16, 2001, the Company entered into a joint venture agreement
with a Massachusetts Corporation for the use and sale of
semi-conductor equipment. The agreement took effect on April 1, 2001.
During the year, the venture partners agreed to mutually end the
agreement. The Company returned equipment valued at $120,000 and the
Company's indebtedness was reduced by the same amount. As at August
31, 2002 the Company's indebtedness amounted to $39,000.
The long term debt repayable over the next five fiscal years is as follows:
(Nine 9 months ended) 2003 $ 1,039,672
2004 1,103,332
2005 81,141
2006 66,346
2007 19,301
Generally accepted accounting principles require disclosure of fair value
of financial instruments. Fair value is the amount at which the instrument
could be exchanged in a current transaction. Management has determined that
there is no significant difference between the fair value and the carrying
value of the long-term debt.
11
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API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
August 31, 2002 and 2001
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8. Income Taxes
As at August 31, 2002 the significant components of future income tax
assets consists of the following:
Future income tax assets
Loss carrying forwards $ 368,000
Capital assets 33,000
---------
401,000
---------
Future income tax liabilities
Capital assets (445,000)
Non-compete agreement (98,000)
---------
(543,000)
---------
Valuation allowance (394,750)
---------
$(536,750)
=========
As at May 31, 2002, the Company has non-capital losses of approximately
$914,000 to apply against future taxable income. These losses will expire
as follows: $114,000 in 2006 and $800,000 in 2009.
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9. Convertible Promissory Note
One June 1, 1999, the principal shareholder of API Electronics to whom the
Company owed $1,128,394 forgave interest due to him on his outstanding
principal loan balance for the year ended May 31, 2000.
On September 20, 2000 API Electronics signed a demand promissory note with
the principal shareholder in the amount of $1,265,492. Under the demand
promissory note, interest does not accrue on the unpaid balance unless and
until there is an event of default. The principal shareholder assigned the
note to a third party payee.
12
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API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
August 31, 2002 and 2001
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9. Convertible Promissory Note (continued)
On April 1, 2001 API Electronics exchanged the demand promissory note for a
convertible note. Under the convertible note, the unpaid principal is due
and payable April 1, 2006. Interest does not accrue on the unpaid balance
unless and until there is an event of default. The outstanding principal,
but not unpaid and accrued interest on this convertible note, if any, shall
at the option of the payee, convert into that number of common stock that
equal, after the issuance, 49% of the then outstanding shares of the share
capital of API Electronics on the date specified by the Payee by notice to
API Electronics. The principal amount on the convertible note is
$1,265,492. A component of the note, amounting to $363,070 has been
recorded as other paid in capital and represents the value attributable to
the convertibility feature of the note. This resulted in a debt discount in
the same amount which is amortized over the term of the note and the
amortization is included in interest expense.
On July 1, 2001 the note was converted into 49% of the outstanding common
shares of API Electronics.
- --------------------------------------------------------------------------------
10. Share Capital
(a) Authorized
Unlimited special shares
Unlimited common shares
(b) Issued Common Shares
Number of
Shares Consideration
----------------------------
(i) Pre-business combination for API Electronics
Balance at June 1, 2000 and May 31, 2001 100 $ 100
Issued upon the conversion of Note (Note 9) 97 902,422
----------------------------
Balance at August 31, 2001 197 $ 902,522
============================
(ii) Pre-business combination for the Company
Balance at April 30, 2001 13,179,020 $ 2,985,416
Share consolidation (Note 1(a)) (8,786,048) -
----------------------------
Balance at August 31, 2001 4,392,972 $ 2,985,416
============================
(iii) 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 $ 902,522
Shares issued upon the reverse take-over (Note 1(a)) 6,500,000 1,173,273
Shares issued upon exercise of stock options 210,000 125,707
Shares issued upon exercise of warrants 3,200,842 1,920,505
Shares issued upon exercise of broker warrants 500,000 250,000
Shares issued as finders fee 100,000 270,000
Shares issued upon private placement 500,000 1,175,000
----------------------------
Balance at August 31, 2002 15,403,814 $ 5,817,007
============================
13
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API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
August 31, 2002 and 2001
- --------------------------------------------------------------------------------
10. Share Capital (continued)
(c) Warrants
Common shares purchase warrants ("Warrants")
As at August 31, 2002 the following Warrants are outstanding and
exercisable:
Number Share for Exercise Expiry
Outstanding Warrants Price Date
---------------------------------------------------------------
226,667 1 for 1 $9.00 August 8, 2002
1,649,579 1 for 1 0.45 February 28, 2003
1,649,579 1 for 1 0.75 August 30, 2003
500,000 1 for 1 $3.00 June 30, 2004
The continuity of common share purchase warrants is as follows:
Warrants outstanding, April 30, 2001 226,667
Issued - pursuant to advisory services 250,000
- pursuant to business acquisition (Note 1a)
- Series A 3,250,000
- Series B 3,250,000
- Series A - broker warrants 125,000
- Series B - broker warrants 125,000
- Private Placement 500,000
Exercised
- Re: Advisory services (250,000)
- Series A (1,600,421)
- Series B (1,600,421)
- Series A - broker warrants (125,000)
- Series B - broker warrants (125,000)
----------
Warrants outstanding, August 31, 2002 4,025,825
==========
(d) Stock Options
As at August 31, 2002 the following options are exercisable, except as
indicated, and outstanding:
Number Exercise Expiry
Issued to Outstanding Price Date
-------------------------------------------------------------
Directors 150,000 $0.45 August 31, 2006
Directors 150,000 0.75 August 31, 2006
Directors 25,000 (i) 2.35 April 1, 2007
(i) 5,000 vest July 2002 and 5,000 vest each year thereafter.
14
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API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
August 31, 2002 and 2001
- --------------------------------------------------------------------------------
10. Share Capital (continued)
(d) Stock Options (continued)
The continuity of stock options is as follows:
Weighted
Number of Average
Options Price
-----------------------
Options outstanding, April 30, 2001 123,667 $ 7.08
Cancelled (113,667) 7.65
Granted - August, 2001 500,000 0.60
- April, 2002 25,000 2.35
Exercised (210,000) 0.60
-----------------------
Options outstanding, August 31, 2002 325,000 $ 0.73
=======================
- --------------------------------------------------------------------------------
11. Cash Flow Information
(a) Changes in non-cash working capital are as follows:
2002 2001
-----------------------
Accounts receivable $ 8,632 $(261,398)
Marketable securities (62,997) -
Inventory (52,902) 12,999
Prepaid expenses (10,957) 7,746
Accounts payable 72,690 85,894
-----------------------
$ (45,534) $(154,759)
=======================
(b) Supplemental Cash Flow Information
2002 2001
-----------------------
Cash paid for interest $ 30,983 $ 11,530
15
================================================================================
API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
August 31, 2002 and 2001
- --------------------------------------------------------------------------------
12. Related party Transactions
(a) Included in consulting expenses are fees of $11,632 (2001 - $NIL) paid
to an individual who is a director and officer of the Company.
(b) On July 1, 2001 the convertible promissory note held by a principal
shareholder of API Electronics was converted into common shares of API
Electronics (Note 9)
These related party transactions were in the normal course of operations
and are recorded at the exchange amount agreed to by the related parties.
13. Per Share Data
The weighted average number of shares issued and outstanding for the three
months ended August 31, 2002 was 15,304,913. The number of shares
outstanding for the period from the beginning of the fiscal year to the
date of the reverse takeover is deemed to be the number of shares issued by
the legal parent to the shareholders of the legal subsidiary as described
in note 1(a). For the period from the date of the reverse takeover to the
end of the fiscal year, the actual weighted average of shares issued during
the period is used.
The effect of the exercise of outstanding options and warrants would be
anti-dilutive.
For comparative purposes, the August 31, 2001 weighted average number of
shares is 6,500,000, the actual number of shares issued to the legal
subsidiary in the reverse takeover described in note 1(a).
14. Financial Instruments
As at August 31, 2002 and May 31, 2002 there were no significant
differences between the carrying amounts and the fair values of these
instruments.
It is management's opinion that the Company is not exposed to significant
interest rate, currency, or credit risk.
16
API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
August 31, 2002 and 2001
- --------------------------------------------------------------------------------
15. Commitments and Contingencies
(a) Rent
The following is a schedule by years of approximate future minimum
rental payments under operating leases that have remaining
non-cancelable lease terms in excess of one year as of May 31, 2002.
(Nine months ended) 2003 $ 23,117
2004 22,243
2005 9,889
(b) 401(k) Plan
During 1998, the Company adopted a 401(k) deferred compensation
arrangement. Under the provision of the plan, the Company is required
to match 50% of employee contributions up to a maximum of 3% of the
employee's eligible compensation. Employees may contribute up to a
maximum of 15% of eligible compensation. The Company may also make
discretionary contributions up to a total of 15% of eligible
compensation. During the three months ended August 31, 2002, $6,301
(2001 - $13,155) has been charged to general and administrative
expenses.
- --------------------------------------------------------------------------------
16. Comparative Figures
Comparative figures have been reclassified to conform with the current
period presentation.
17
SCHEDULE "B"
See attached unaudited consolidated financial statements of the Company for the
three months ended August 31, 2002.
SCHEDULE "C"
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Three months ended August 31, 2002 compared to August
31, 2001
Summary
API Electronics Group Inc. ("API" or "Company") is a leading manufacturer of
electronic components and microelectronic circuits with precisely defined
functional capabilities for advanced military, industrial, commercial,
automotive and medical applications. The Company is a leading supplier of
defence electronic components to the U.S. Department of Defence and its
subcontractors as well as having a strong commercial user base.
API's business strategy has been to strengthen its leadership position for its
components through continued emphasis on technological advances, operational
efficiencies, cost reductions, competitiveness and acquisitions. To this end, on
May 31, 2002, API acquired all the outstanding shares of the privately-held
"Filtran Group" (Filtran Inc. of Ogdensburg, New York; Filtran Limited, Canadian
Dataplex Limited and Tactron Communications (Canada) Limited all of Nepean,
Ontario, Canada). Filtran Group is a leading global supplier of superior quality
electronic components to major producers of communications equipment, military
hardware, computer peripherals, process control equipment and instrumentation.
In business since 1969, Filtran Group is ISO 9001 registered and offers
off-the-shelf and custom designed products and regularly ships components to
clients in more than 34 countries. The acquisition broadens API's product
offerings for current and potential customers as well as providing synergies in
the areas of engineering and technological capabilities.
Sales Revenue
The Company continued to record strong sales growth during the three months
ended August 31, 2002. Revenues increased by 77.5% to $1,641,595 from $925,016
for the three months ended August 31, 2001. The growth during the period was
attributed to the Filtran Group's sales revenue in the amount of $910,061
reflected in API's operations for the first time.
Cost of Goods Sold and Gross Margin
The cost of goods sold was 74.0% of sales in 2002 compared to 64.5% of sales in
2001. Accordingly, the gross margin for 2002 period decreased to 26.0% from the
35.5% gross margin in the 2001 period. The decrease in the gross margin is
attributed mainly to increased competitive pricing in the market.
Overall, the 74% cost of sales ratio is comparable to the fiscal 2002 cost of
sales of 77.7% and the fiscal 2001 figure of 72.8%.
Selling Expenses
Selling expenses increased from $75,873 for the three months ended August 31,
2001 to $139,629 for the three months ended August 31, 2002. As a percentage of
sales the 2002 selling expenses came in at 8.5% and is in line with the 8.2%
posted for 2001. The 84% increase in selling expenses is consistent with the
77.5% increase in sales revenue.
General and Administrative Expenses
General and administrative expenses increased substantially from $89,956 for the
2001 year to $361,051 incurred during the 2002 year.
Several components of general and administrative expenses saw increases as a
direct result of API's new status as a public company. Investor relations of
$35,739 (2001 - $NIL), professional fees of $50,408 (2001 - $5,805), public
relations of $3,034 (2001 - $NIL), transfer agent fees of $2,384 (2001 - $NIL)
all increased substantially and were attributable to increased costs that are
inherent with public company
compliance. In addition, the August 31, 2001 reverse take-over transaction and
the May 31, 2002 acquisition of the Filtran Group (note 1a and 1b respectively
in the notes to the consolidated financial statements) resulted in increased
general and administrative expenses for API. Several components saw increases as
follows: Office salaries - $88,446 (2001 - $15,795), consulting - $23,967 (2001
- - $4,431), rent - $9,664 (2001 - $NIL), telephone - $11,527 (2001 - $7,389).
Management continues to emphasize efficiencies and control of overheads.
Other Income and Expense
Other income decreased substantially from $56,921 for the year ended August 31,
2001 to $13,507 for the year ended May 31, 2002. Other expense relates to
interest on long-term debt and the Company saw a substantial increase from
$11,530 in 2001 to $30,983 in 2002. The increase is attributed to the addition
of debt in the form of a promissory note issued in connection with the Filtran
Group acquisition.
Net Income / Loss
The Company incurred a net loss for the three months ended August 31, 2002 year
of $91,849 compared to a net income of $208,091 for the 2001 period.
Liquidity and Capital Resources
Summary
At August 31, 2002, the Company had cash reserves of $2,264,999 compared to
$1,408,637 as at May 31, 2002.
At August 31, 2002 working capital, the excess of current assets over current
liabilities totalled $3,125,345 compared to $2,148,073 at May 31, 2002. The
current ratio at August 31, 2002 was 2.4:1 compared to 2.0:1 at May 31, 2002.
The quick ratio (which excludes inventory and prepaid expenses from current
assets) is 1.3:1 at August 31, 2002 compared with 1.1:1 as at May 31, 2002. The
increase in the current and quick ratio is attributed primarily to the increased
sales level and cash received from a private placement.
Inventory rose 3% from $1,852,483 as at May 31, 2002 to $1,905,385 as at August
31, 2002. Accounts payable rose 8% from $874,269 at May 31, 2002 to $946,949 as
at August 31, 2002. Long-term debt (current and long-term portion) decreased
from $2,371,831 at May 31, 2002 to $2,318,269 at August 31, 2002.
The debt to equity ratio was 0.42 as at August 31. 2002 compared to 0.53 as at
May 31. 2002.
Cash Flow
Cash generated (used) in operating activities decreased from $90,866 for the
three months ended August 31, 2001 to $(44,864) for three months ended August
31, 2002. This increase is attributed primarily to the 2002 loss of $91,849.
The major source of cash in 2002 was provided by the issue of 500,000 units of
share capital that provided $1,175,000 in cash.
The major use of cash during 2002 was the purchase of capital assets in the
amount of $168,442 and the repayments of bank indebtedness ($42,342) and
long-term debt repayments of ($53,562).
Risks
The Company is exposed to a variety of risks in its operations. These include
operational, currency, foreign operations, credit, and interest rate. Steps have
been taken in all areas to mitigate these risks.