As filed with the Securities and Exchange Commission on November 27, 2002
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
[_] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended May 31, 2002
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number: 0-29142
API ELECTRONICS GROUP INC.
(formerly InvestorLinks.com Inc.)
------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Province of Ontario, Canada
----------------------------------------------------
(Jurisdiction of incorporation or organization)
505 University Ave., Suite 1400, Toronto, Ontario M5G 1X3
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(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
None
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Common Shares, no par value
------------------------------------------
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:
None
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the Annual
Report:
15,403,814 Common Shares as of October 31, 2002
---------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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.
Yes [X] No [_] Inapplicable [_]
Indicate by check mark which financial statement item the registrant has elected
to follow:
Item 17 [X] Item 18 [_]
2
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not Applicable
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not Applicable
ITEM 3. KEY INFORMATION
A. SELECTED FINANCIAL DATA
General
The selected consolidated statement of operations data set forth below for the
one year period ended May 31, 2002, and the selected consolidated balance sheet
data set forth below at May 31, 2002 are derived from the consolidated financial
statements of the Company included in Part III, Item 17 of this Annual Report,
which consolidated financial statements have been audited by BDO Dunwoody LLP.
Note 1(a) to the consolidated financial statements included in Part III, Item 17
of this Annual Report describes the Company's acquisition of API Electronics,
Inc. ("API") in August 2001, and the accounting for the business acquisition.
API is deemed to be the acquirer for Canadian generally accepted accounting
principles ("Cdn. GAAP"). For US generally accepted accounting principles ("US
GAAP"), API is also deemed to be the acquirer. Accordingly, comparative figures
for the fiscal years ended May 31, 2001, 2000, 1999 and 1998 for Cdn. GAAP and
US GAAP included in the selected financial data are those of API and are derived
from the financial statements of API which have been audited by Perry Colletti,
CPA. The comparative financial statements of the Company included in Part III,
Item 17 of this Annual Report include the financial statements of API for the
fiscal years ended May 31, 2001 and 2000 which have been audited by Perry
Colletti, CPA. API has conducted operations for approximately twenty (20) years.
Note 1(b) to the consolidated financial statements included in Part III, Item 17
of this Annual Report describes the Company's acquisition (the "Filtran
Acquisition") of the outstanding shares of Filtran, Inc., Filtran Limited,
Canadian Dataplex Limited and Tactron Communications (Canada) Limited,
collectively referred to as the "Filtran Group" of companies as of May 31, 2002.
For Cdn. GAAP and US GAAP the Filtran Group acquisition has been accounted for
using the purchase method.
Because of the reverse take-over of the Company by API, the Selected Financial
Data for Cdn. GAAP and US GAAP does not include any financial data for
InvestorLinks.com Inc. ("InvestorLinks"), the Company's former name. Prior to
the acquisition of the Company by API on August 31, 2001, the Company closed its
internet web-site, then its primary business, and wrotedown all related assets
to their estimated net recoverable amounts.
The Company changed its fiscal year end from April 30 to May 31 for the fiscal
year ended May 31, 2002.
The selected financial data should be read in conjunction with the consolidated
financial statements of the Company and the notes thereto included in Part III,
Item 17 of this Annual Report, and "Item 5 -- Operating and Financial Review and
Prospects" herein.
3
The information set forth in this Annual Report is current as of November 10,
2002, unless an earlier or later date is indicated, and references to the "date
of this Annual Report" shall be deemed to refer to such date.
The Company's accounts are presented in US dollars. In this Annual Report, all
dollar amounts are expressed in US dollars except where otherwise indicated.
Selected Consolidated Financial Data
API Electronics Group Inc.
(formerly known as InvestorLinks.com Inc.)
Prepared Pursuant to
United States Generally Accepted Accounting Principles
(In thousands of US $, except per share data)
FISCAL YEARS ENDED MAY 31 AUDITED
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Income Statement Data:
Net sales ...................................... $ 2,903 $ 2,653 $ 1,787 $ 1,776 $ 2,485
Income (loss) from operations .................. (933) 175 (281) (121) 238
Net income (loss) .............................. (911) 102 (367) (151) 164
Net income (loss) per common share ............. (0.09) 0.03 (0.11) (0.05) 0.05
Balance Sheet Data:
Current assets. ................................ 4,380 1,672 1,328 1,092 1,032
Capital assets ................................. 2,867 882 803 843 899
Goodwill and intangible assets ................. 1,288 10 21 32 42
Total assets ................................... 8,535 2,564 2,153 1,967 1,973
Current liabilities ............................ 2,231 742 688 289 193
Long-term debt ................................. 1,299 1,495 1,240 1,147 1,097
Future income tax liability .................... 530 -- -- -- --
Shareholders' equity ........................... $ 4,475 $ 327 $ 225 $ 531 $ 683
4
Selected Consolidated Financial Data
API Electronics Group Inc.
(formerly known as InvestorLinks.com Inc.)
Prepared Pursuant to
Canadian Generally Accepted Accounting Principles
(In thousands of US $, except per share data)
FISCAL YEARS ENDED MAY 31 AUDITED
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Statement of Operations:
Net sales .......................................... $ 2,903 $ 2,653 $ 1,787 $ 1,776 $ 2,485
Income (loss) for operations ....................... (879) 175 (281) (121) 238
Net income (loss) .................................. (858) 102 (306) (151) 164
Earnings (loss) per common share ................... (0.12) 0.02 (0.05) (0.02) 0.03
Balance Sheet Data:
Current assets ..................................... 4,380 1,672 1,328 1,092 1,032
Capital assets ..................................... 2,867 882 803 843 899
Goodwill and intangible assets ..................... 1,288 10 21 32 42
Total assets ....................................... 8,535 2,564 2,153 1,967 1,973
Current liabilities ................................ 2,231 742 688 289 193
Long-term debt ..................................... 1,299 1,132 1,240 1,147 1,097
Future income tax liability ........................ 530 -- -- -- --
Shareholders' equity ............................... $ 4,475 $ 690 $ 225 $ 531 $ 683
Reconciliation to United States Generally Accepted Accounting Principles
The consolidated financial statements of the Company have been prepared in
accordance with Cdn. GAAP, which differ materially in certain respects from US
GAAP. For a description of these differences see Note 19 to the consolidated
financial statements of the Company for its fiscal year ended May 31, 2002
included in Item 17 of this Annual Report.
Dividend Policy
The Company does not intend to pay dividends in cash or in kind in the future.
The Company expects to retain its earnings to finance the further growth of the
Company. The directors of the Company will determine if and when dividends
should be declared and paid in the future based upon the earnings and financial
conditions of the Company at the relevant time and such other factors as the
directors may deem relevant. All of the Common Shares of the Company are
entitled to an equal share in any dividends declared and paid.
B. CAPITALIZATION AND INDEBTEDNESS
Not Applicable
5
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not Applicable
D. RISK FACTORS
Uncertainties and Risk Factors
The Company is subject to a number of significant uncertainties and risks
including, but not limited to, those described below and those described
elsewhere in this Annual Report, which may ultimately affect the Company in a
manner and to a degree that cannot be foreseen at this time. On August 31, 2001,
the Company completed an acquisition by which the primary business of the
Company became the manufacture and supply of semiconductors and microelectronic
circuits for military, aerospace, and commercial applications through its
newly-acquired, wholly-owned subsidiary API. As of May 31, 2002, the Company
acquired Filtran Group, an affiliated group of companies that are suppliers of
electronic components for customers in the communications, computer,
instrumentation and process control industries, with manufacturing facilities in
the United States and Canada. Prior to that, the primary business of the Company
for the period beginning June 6, 2000 and ending August 31, 2001 was the
operation of the Internet investment site www.InvestorLinks.com through its
wholly-owned subsidiary IL Data Canada, Inc. ("IL"). The Company's web-site
activities were effectively discontinued prior to April 30, 2001 and the related
assets were sold during the fiscal year ended May 31, 2002. Prior to June 6,
2000, the Company had been engaged in developing and exploiting mineral
properties. Because of the complete change in the Company's business resulting
from the August 31, 2001 acquisition of API, the risk factors below focus only
on the Company's semiconductor, microelectronic circuit and electronic component
business activities since the acquisition of API. Risks of the internet business
are not discussed since such risks are no longer relevant to the Company.
Because, as of the date of this Annual Report, other than holding a minority
equity interest in Stroud Resources Ltd. as a passive investment, which
investment was written-off prior to August 31, 2001, the Company is no longer
involved in the business of exploiting mineral properties, risks related to the
exploitation of mineral properties also are not described in this Item 3D.
General Risks and Risks Relating to an Investment in the Securities of the
Company
Stock Market Price and Volume Volatility
The market for the common stock of the Company may be highly volatile for
reasons both related to the performance of the Company or events pertaining to
the industry, as well as factors unrelated to the Company or its industry.
Shares of the Company's Common Stock can be expected to be subject to volatility
in both price and volume arising from market expectations, announcements and
press releases regarding the Company's business, and changes in estimates and
evaluations by securities analysts or other events or factors. In recent years,
the securities markets in the United States and Canada have experienced a high
level of price and volume volatility, and the market price of securities of many
companies, particularly small-capitalization companies such as the Company, have
experienced wide fluctuations which have not necessarily been related to the
operations, performances, underlying asset values, or prospects of such
companies. For these reasons, the shares of the Company's Common Stock also can
be expected to be subject to volatility resulting from purely market forces over
which the Company will have no control. Further, despite the existence of a
market for trading the Company's Common Stock in the United States, the market
has limited liquidity and the stockholders of the Company may be unable to sell
significant quantities of Common Stock in the public trading markets without a
significant reduction in the price of the stock.
6
Stock Market Issues
The Company's Common Stock currently trades on the OTC Bulletin Board ("OTCBB")
in the United States. The OTCBB is operated by NASDAQ. It is anticipated that
OTCBB will be replaced by BBX (Bulletin Board Exchange) sometime in 2003. Unlike
the OTCBB, the BBX will have corporate governance and other public interest
standards similar to those used by Nasdaq National Market and the Nasdaq
SmallCap Market. Such standards and regulations may restrict the Company's
capital raising or other activities by requiring stockholder approval for
certain issuances of stock, for certain acquisitions, and for the adoption of
stock option or stock purchase plans.
Dilution Through Employee, Director and Consultant Options and Warrants
Because the success of the Company is highly dependent upon its employees,
directors and consultants, the Company may in the future grant to some or all of
its key employees, directors and consultants options or warrants to purchase
shares of its Common Stock as non-cash incentives. Subject to certain
limitations, those options may be granted at exercise prices below those for the
Common Stock prevailing in the public trading market at the time, or may be
granted at exercise prices equal to market prices at times when the public
market is depressed. To the extent that significant numbers of such options may
be granted and exercised, the interests of the other stockholders of the Company
may be diluted. As of the date of this Annual Report, the Company has granted
outstanding options to purchase 325,000 Common Shares to employees, directors,
and consultants, and has issued warrants to purchase 3,299,158 Common Shares to
its directors. There have been proposals from lawmakers in the United States to
require that options be expensed when issued, which could have a negative impact
on the Company's financial statements with respect to the reconciliation between
Canadian Generally Accepted Accounting Principals and GAAP.
Dividends
The Company intends to invest all available funds to finance the growth of the
Company's business and therefore investors cannot expect to receive any
dividends on the Common Stock of the Company in the foreseeable future. Even
were the Company to determine a dividend could be declared, the Company could be
precluded from paying dividends by restrictive provisions of loans, leases or
other financing documents or by legal prohibitions under applicable corporate
law.
Directors and Assets Outside Canada
Since certain of the Company's past directors and one of its current directors
are domiciled outside of Canada, it may not be possible to effect service of
process upon such directors, and since all or a substantial portion of the
assets of such directors are located outside Canada, there may be difficulties
in enforcing against such directors judgments obtained in Canadian courts.
Similarly, because a significant portion of the Company's assets are located
outside Canada, there may be difficulties in enforcing against the Company
judgments obtained in Canadian courts.
Certain Forward-looking Statements
This Annual Report (including the documents incorporated or deemed to be
incorporated by reference herein) contains certain forward-looking statements
(as such term is defined in the Private Securities Litigation Reform Act of
1995) and information relating to the Company that are based on the beliefs of
the management of the Company as well as assumptions made by and information
currently available to the management of the Company. When used in this Annual
Report, the words "anticipate," "believe," "estimate," "expect," "intend,"
"plan" and similar expressions, as they relate to the Company or the management
of the Company, identify forward-looking statements. Such statements reflect the
current
7
views of the Company with respect to future events, the outcome of which is
subject to certain risks, including among others general economic and market
conditions, the state of the international, federal, state and local regulatory
environment, lack of demand for the Company's services, and other risks
described in this Item 3D of this Annual Report and elsewhere. Should one or
more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results or outcomes may vary materially from
those described herein as anticipated, believed, estimated, expected, intended
or planned.
Future Capital Needs
The Company may require additional funds for future capital expenditures.
Adequate funds for these purposes, whether from additional financings,
collaborative arrangements with other companies, or other sources, may not be
available when needed or on favorable terms.
Conflicts of Interest
Certain of the directors and officers of the Company are also directors and/or
officers and/or shareholders of other companies. Such associations may give rise
to conflicts of interest from time to time. The directors of the Company are
required by law to act honestly and in good faith with a view to the best
interests of the Company and to disclose any interest, which they may have in
any project or opportunity of the Company. If a conflict of interest arises at a
meeting of the board of directors, any director in a conflict must disclose his
interest and abstain from voting on such matter. In determining whether or not
the Company will participate in any project or opportunity, the directors will
primarily consider the degree of risk to which the Company may be exposed and
its financial position at the time.
Risks Related to Potential Acquisitions
The Company may in the future pursue strategic acquisitions of businesses and
technologies. Acquisitions may entail numerous risks, including:
. difficulties in assessing values for acquired businesses and
technologies;
. difficulties in the assimilation of acquired operations and
products;
. diversion of management's attention from other business concerns;
. assumption of unknown material liabilities of acquired companies;
. amortization of acquired intangible assets, which could reduce
future report earnings; and
. potential loss of customers or key employees of acquired companies.
The Company may not be able to integrate successfully any operations, personnel,
services or products that it acquires in the future.
Control by Principal Stockholders, Officers and Directors Could Adversely Affect
the Company's Stockholders
The Company's officers, directors and greater-than-five-percent stockholders
(and their affiliates), acting together, have the ability to control
substantially all matters submitted to the Company's stockholders for approval
(including the election and removal of directors and any merger, consolidation
or sale of all or substantially all of the Company's assets) and to control the
Company's management and affairs. Accordingly, this concentration of ownership
may have the effect of delaying, deferring or preventing a change in control of
the Company, impeding a merger, consolidation, takeover or other business
combination involving the Company or discouraging a potential acquirer from
making a tender offer or otherwise attempting to obtain control of the Company,
which in turn could materially adversely affect the market price of the
Company's stock.
8
Risks Related to the Company's Primary Businesses, the Operation of API and
Filtran Group
Downturns in the Highly Cyclical Semiconductor Industry and/or the Electronic
Component Industry Would Adversely Affect API's and/or Filtran Group's Operating
Results and the Value of the Company
The semiconductor and electronic component industries are highly cyclical, and
the value of the Company's business may decline during the "down" portion of
these cycles. The markets for API's products depend on continued demand in the
aerospace, military defense systems, and commercial end-markets, and these
end-markets may experience changes in demand that could adversely affect our
operating results and financial condition. The markets for Filtran Group's
products depend upon continued demand in the telecommunications, computer,
instrumentation and process control end-markets, and these end-markets may
experience changes in demand that could adversely affect our operating results
and financial condition. The recent downturn in the telecommunications industry
has negatively affected Filtran Group's sales.
The Semiconductor and Electronic Components Businesses Are Highly Competitive
and Increased Competition Could Reduce the Value of an Investment in the Company
The semiconductor and electronic component industries, including the areas in
which API and Filtran Group do business, are highly competitive. API and Filtran
Group expect intensified competition from existing competitors and new entrants.
Competition is based on price, product performance, product availability,
quality, reliability and customer service. Even in strong markets, pricing
pressures may emerge. For instance, competitors may attempt to gain a greater
market share by lowering prices. The market for commercial products is
characterized by declining selling prices. API and Filtran Group anticipate that
their average selling prices will continue to decrease in future periods,
although the timing and amount of these decreases cannot be predicted with any
certainty. API and Filtran Group compete in various markets with companies of
various sizes, many of which are larger and have greater financial and other
resources than API or Filtran Group has, and thus may be better able to pursue
acquisition candidates and to withstand adverse economic or market conditions.
In addition, companies not currently in direct competition with API or Filtran
Group may introduce competing products in the future. API and Filtran Group have
numerous competitors. Some of API's current major competitors include Microsemi
Corporation (NASDAQ National Market Symbol "MSCC"), Semtech Corp. (NASDAQ:
"SMTC"), International Rectifier Corp. (NYSE: "IRF"), Knox Semiconductor,
National Hybrid, Aeroflex Incorporated, and Alpha Industries. Filtran Group has
numerous competitors. Some of Filtran Group's current major competitors include
Pulse Engineering, a division of Technitrol (NYSE:TNL), Midcom Inc., Bel Fuse,
Inc. (NASOAQ:BELFA and NASDAQ:BELFB), ATC Frost Magnetics, Inc. and Halo
Electronics. API and Filtran Group may not be able to compete successfully in
the future or competitive pressures may harm API's and Filtran Group's financial
conditions and/or operating results.
New Technologies Could Result in the Development of Competing Products and a
Decrease in Demand for API's and Filtran Group's Products
The failure of either API or Filtran Group (or both of them) to develop new
technologies or to react to changes in existing technologies could materially
delay their development of new products (which for API are typically adaptations
of existing products formerly manufactured by others), which could result in
decreased revenues and/or a loss of API's and/or Filtran Group's market share to
competitors. Rapidly changing technologies and industry standards, along with
frequent new product introductions, characterize much of the semiconductor and
electronic component industries. The financial performance of API and Filtran
Group depend on their ability to design, develop, manufacture, assemble, test,
market and support new products (which for API are typically adaptations of
existing products formerly manufactured by
9
others), and enhancements on a timely and cost-effective basis. A fundamental
shift in technologies in API's or Filtran Group's product markets could have a
material adverse effect on each company's competitive position within its
industry.
Growth-Related Risks
Both API and Filtran Group may be subject to growth-related risks, including
capacity constraints and pressure on their internal systems and controls. The
ability of API and Filtran Group to manage their growth effectively will require
them to continue to implement and improve their operational and financial
systems and to expand, train and manage their employee base. The inability of
API and/or Filtran Group to manage this growth could have a material adverse
impact on their business, operations and prospects.
Risks Related to Complexity of Manufacturing Processes
Both API's and Filtran Group's manufacturing processes are highly complex,
require advanced and costly equipment and are continuously being modified in an
effort to improve yields and product performance. Impurities or other
difficulties in the manufacturing process can lower yields. Either API's or
Filtran Group's operations could be materially adversely affected if production
at any of their facilities were interrupted for any reason. API and/or Filtran
Group may experience manufacturing difficulties in the future.
API or Filtran Group May Not be Able to Develop New Products to Satisfy Changes
in Demand
Neither API nor Filtran Group can assure investors that it will successfully
identify new product opportunities and develop and bring products to market in a
timely and cost-effective manner, or that products or technologies developed by
others will not render API's or Filtran Group's products or technologies
obsolete or noncompetitive. In addition, to remain competitive API and Filtran
Group must continue to reduce package sizes (in the case of API), improve
manufacturing yields and expand sales. Neither API nor Filtran Group may be able
to accomplish these goals.
Failure to Protect API's or Filtran Group's Proprietary Technologies or Maintain
the Right to Use Certain Technologies May Negatively Affect API's or Filtran
Group's Ability to Compete
API and Filtran Group rely heavily on their proprietary technologies, which
consist primarily of drawings, specifications, and processes purchased from
others. API's and Filtran Group's future success and competitive position may
depend in part upon their ability to obtain or maintain protection of certain
proprietary technologies used in principal products. Neither API nor Filtran
Group generally have, nor do they generally intend to apply for, patent
protection on any aspect of their technology or their business processes or
methods. API's and Filtran Group's reliance upon protection of some of their
technology as "trade secrets" will not necessarily protect API or Filtran Group
from the use by other persons of their technology, or their use of technology
that is similar or superior to that which is embodied in API's or Filtran
Group's trade secrets. Others may be able independently to duplicate or exceed
API's or Filtran Group's technology in whole or in part. Neither API nor Filtran
Group can assure investors that it will be able to maintain the confidentiality
of its technology, dissemination of which could have a material adverse effect
on its business. In addition, litigation may be necessary to determine the scope
and validity of API's or Filtran Group's proprietary rights. Obtaining or
protecting API's or Filtran Group's proprietary rights may require API or
Filtran Group to defend claims of intellectual property infringement by their
competitors. While neither API nor Filtran Group is currently engaged as a
defendant in intellectual property litigation that it believes will have a
material adverse effect on its business, API and Filtran Group could become
subject to lawsuits in which it is alleged that API or Filtran Group has
infringed upon the intellectual property rights of others.
10
If any such infringements exist, arise or are claimed in the future, API or
Filtran Group may be exposed to substantial liability for damages and may need
to obtain licenses from patent owners, discontinue or change its processes or
products or expend significant resources to develop or acquire non-infringing
technologies. Neither API nor Filtran Group can assure investors that it would
be successful in such efforts or that such licenses would be available under
reasonable terms. API's or Filtran Group's failure to develop or acquire
non-infringing technologies or to obtain licenses on acceptable terms or the
occurrence of related litigation itself could have a material adverse effect on
API's or Filtran Group's operating results and financial condition,
respectively.
API Must Commit Resources to Product Production Prior to Receipt of Purchase
Commitments and Could Lose Some or All of the Associated Investment
API sells products primarily pursuant to purchase orders for current delivery,
rather than pursuant to long-term supply contracts. Many of these purchase
orders may be revised or canceled without penalty. As a result, API must commit
resources to the production of products without any advance purchase commitments
from customers. API's inability to sell products after it has devoted
significant resources to them could have a material adverse effect on API's
business, financial condition and results of operations.
Variability of API's Manufacturing Yields May Affect API's Gross Margins
API's manufacturing yields vary significantly among products, depending on the
complexity of a particular integrated circuit's design and API's experience in
manufacturing that type of integrated circuit. In the past, API has experienced
difficulties in achieving planned yields, which have adversely affected API's
gross margins.
The fabrication of integrated circuits is a highly complex and precise process.
Problems in the fabrication process can cause a substantial percentage of wafers
to be rejected or numerous integrated circuits on each wafer to be
nonfunctional, thereby reducing yields. These difficulties include:
. defects in masks, which are used to transfer circuit patterns onto
API's wafers;
. impurities in the materials used;
. contamination of the manufacturing environment; and
. equipment failure.
Because a large portion of API's costs of manufacturing are relatively fixed, it
is critical for API to improve the number of shippable integrated circuits per
wafer and increase the production volume of wafers in order to maintain and
improve API's results of operations. Yield decreases can result in substantially
higher unit costs, which could materially and adversely affect API's operating
results and have done so in the past. Moreover, API cannot assure investors that
it will be able to continue to improve yields in the future or that it will not
suffer periodic yield problems, particularly during the early production of new
products or introduction of new process technologies. In either case, API's
results of operations could be materially and adversely affected.
Risks Related to Supply of Materials and Services
API purchases most of its raw materials, including silicon wafers, on a purchase
order basis from a number of vendors. Filtran Group also purchases its raw
materials, including bobbins, cores and diodes, on a purchase order basis from a
number of vendors. Although API and Filtran Group try to have alternative supply
sources for all necessary materials, some materials and services have a single
source supplier. If any subcontractors or vendors are unable to provide these
materials in the future, the relationships with API's customers or Filtran
Group's customers could be seriously affected and its revenues, financial
11
condition and cash flows could be severely damaged. Although API and Filtran
Group seek to reduce their dependence on sole and limited source suppliers both
for services and for materials, disruption or financial, operational, production
or quality assurance difficulties at any of these sources could occur and cause
API or Filtran Group to have delivery problems.
API's and Filtran Group's Inventories May Become Obsolete
The life cycles of some of API's and Filtran Group's products depend heavily
upon the life cycles of the end products into which these products are designed.
Products with short life cycles require API and Filtran Group to manage closely
their production and inventory levels. Inventory may also become obsolete
because of adverse changes in end-market demand. The life cycles for electronic
components have been shortening over time at an accelerated pace. API and
Filtran Group may be adversely affected in the future by obsolete or excess
inventories which may result from unanticipated changes in the estimated total
demand for API's or Filtran Group's products or the estimated life cycles of the
end products into which API's or Filtran Group products are designed.
API's and Filtran Group's International Operations and Sales Expose API and
Filtran Group to Material Risks
API and Filtran Group expect revenues from foreign markets to continue to
represent a portion of total revenues. API and Filtran Group maintain contracts
with entities in the United States, Canada, Europe and certain other countries.
There are risks inherent in doing business internationally, including:
. changes in, or impositions of, legislative or regulatory
requirements, including tax laws in the countries in which API
and/or Filtran Group sells its products;
. trade restrictions;
. transportation delays;
. work stoppages;
. economic and political instability;
. changes in import/export regulations, tariffs and freight rates;
. difficulties in collecting receivables and enforcing contracts
generally; and
. currency exchange rate fluctuations.
In addition, the laws of certain foreign countries may not protect API's or
Filtran Group's products or intellectual property rights to the same extent as
do Canadian and US laws. Therefore, the risk of piracy of API's and Filtran
Group's technology and products may be greater in these foreign countries.
Although neither API nor Filtran Group has experienced any material adverse
effect on its operating results as a result of these and other factors, API and
Filtran Group cannot assure investors that such factors will not have a material
adverse effect on API's and Filtran Group's financial condition and operating
results in the future.
Delays in Production, Implementing New Production Techniques or Resolving
Problems Associated with Technical Equipment Malfunctions Could Adversely Affect
API's and Filtran Group's Manufacturing Efficiencies
API's and Filtran Group's manufacturing efficiencies will be an important factor
in their future profitability, and API and Filtran Group cannot assure investors
that they will be able to maintain or increase their manufacturing efficiencies.
API's and Filtran Group's manufacturing processes are highly complex, require
advanced and costly equipment, and are continually being modified in an effort
to improve yields and product performance. API and Filtran Group may experience
manufacturing problems in achieving acceptable yields or experience product
delivery delays in the future as a result of, among other
12
things, capacity constraints, construction delays, upgrading or expanding
existing facilities, or changing process technologies, any of which could result
in a loss of future revenues. API's and Filtran Group's operating results also
could be adversely affected by the increase in fixed costs and operating
expenses related to increases in production capacity if revenues do not increase
proportionately.
Interruptions, Delays or Cost Increases Affecting API's Materials, Parts,
Equipment or Subcontractors May Impair API's Competitive Position. Filtran Group
Has Similar Risks.
API's manufacturing operations depend upon obtaining adequate supplies of
materials, parts and equipment, including silicon, mold compounds, and lead
frames on a timely basis from third parties. API's results of operations could
be adversely affected if it is unable to obtain adequate supplies of materials,
parts and equipment in a timely manner, or if the costs of materials, parts or
equipment increase significantly. From time to time, suppliers may extend lead
times, limit supplies or increase prices due to capacity constraints or other
factors. Although API generally uses materials, parts and equipment available
from multiple suppliers, it has a limited number of suppliers for some
materials, parts and equipment. While API believes that alternate suppliers for
these materials, parts and equipment are available, an interruption could
materially impair API's operations.
Some of API's products are assembled and tested by third-party subcontractors.
API does not have any long-term agreements with these subcontractors. As a
result, API may not have assured control over its product delivery schedules or
product quality. Due to the amount of time typically required to qualify
assemblers and testers, API could experience delays in the shipment of its
products if it is forced to find alternative third parties to assemble or test
them. Any product delivery delays in the future could have a material adverse
effect on API's operating results and financial condition. API's operations and
ability to satisfy customer obligations could be adversely affected if its
relationships with these subcontractors were disrupted or terminated.
Although API seeks to reduce its dependence on its sole and limited source
suppliers, disruption or termination of any of these sources could occur, and
such disruptions or terminations could harm API's business and operating
results. In the event that any of API's subcontractors were to experience
financial, operational, production or quality assurance difficulties resulting
in a reduction or interruption in supply, its operating results would suffer
until alternate subcontractors, if any, became available.
Filtran Group is subject to similar risks as API, with respect to suppliers of
bobbins, cores and diodes and other key materials, although the downturn in
demand in the telecommunications industry has resulted in decreased lead times
for acquiring these materials.
Risks Related to Reliance on Sales to Military and Aerospace Markets
A significant portion of API's sales are to military and aerospace markets,
which are subject to the business risks of changes in governmental
appropriations and changes in national defense policies and priorities. All of
API's contracts with prime US Government contractors contain customary
provisions permitting termination at any time, at the convenience of the US
Government or the prime contractors upon payment to API for costs incurred plus
a reasonable profit. If API experiences significant reductions or delays in
procurements of its products by the US Government, or terminations of government
contracts or subcontracts, its operating results could be materially and
adversely affected. Certain contracts are also subject to price re-negotiation
in accordance with US Government sole source procurement provisions.
Risks Related to Markets in Which Filtran Group Sells its Products -
Telecommunications Industry
13
Filtran Group's primary market is the telecommunications industry. The
telecommunications industry has experienced a substantial downturn over the past
two years. As a result demand for Filtran Group's products from its customers in
that industry has decreased. There can be no assurance that demand from Filtran
Group's telecommunications customers will recover and if so, when. There also
can be no assurance that Filtran Group can penetrate other markets to replace
the decrease in purchase orders from its telecommunications customers.
Environmental Liabilities Could Adversely Impact API's and Filtran Group's
Financial Position
United States federal, state and local laws and regulations and federal,
provincial and local laws, rules and regulations in Canada, impose various
restrictions and controls on the discharge of materials, chemicals and gases
used in API's and Filtran Group's manufacturing processes. In addition, under
some laws and regulations, API or Filtran Group could be held financially
responsible for remedial measures if its properties are contaminated or if it
sends waste to a landfill or recycling facility that becomes contaminated, even
if API or Filtran Group did not cause the contamination. Also, API and Filtran
Group may be subject to common law claims if it releases substances that damage
or harm third parties. Further, future changes in environmental laws or
regulations may require additional investments in capital equipment or the
implementation of additional compliance programs in the future. Any failure to
comply with environmental laws or regulations could subject API and Filtran
Group to serious liabilities, and could have a material adverse effect on its
operating results and financial condition.
In the conduct of API's or Filtran Group's manufacturing operations, these
companies have handled and do handle materials that are considered hazardous,
toxic or volatile under US federal, state and local laws and Canadian, federal,
provincial and local laws, rules and regulations. The risk of accidental release
of such materials cannot be completely eliminated. In addition, contaminants may
migrate from or within, or through property. These risks may give rise to
claims. Where third parties are responsible for contamination, the third parties
may not have funds, or make funds available when needed, to pay remediation
costs imposed under environmental laws and regulations.
Potential Effects of System Outages
Risks are presented by electrical or telecommunications outages, computer
hacking or other general system failure. To try to manage API's and Filtran
Group's operations efficiently and effectively, they rely heavily on their
internal information and communications systems and on systems or support
services from third parties. Any of these are subject to failure. System-wide or
local failures that affect API's or Filtran Group's information processing could
have material adverse effects on its business, financial condition, results of
operations and cash flows. In addition, insurance coverage for the risks
described above may be unavailable.
Dependence on Key Personnel
API and Filtran Group are dependent upon a small number of key personnel. For
example, Thomas W. Mills, President and Chief Operating Officer of API, has held
these positions since 1991, has been employed by API since 1981, is extremely
familiar with all aspects of API's business, and has a proven track record of
capable leadership. Jerome Rabinowitz, Vice President of Sales, has increased
sales dramatically since he started with API in 1999. Similarly, Ian Bolt,
Filtran Group's Marketing Manager, has been with Filtran Group since 1969 and
Koang Eng Lim, its Chief Engineer, has been affiliated with Filtran Group since
1982. The loss of the services of one or more of such personnel could have a
material adverse effect on API or Filtran Group. The Company's success will
depend in large part on the efforts of these individuals. It is not currently
proposed that there will be any long-term employment agreements or key-man
insurance in respect of such key personnel. The Company will face intense
competition for
14
qualified personnel, and there can be no assurance that the Company will be able
to attract and retain such personnel.
Dependence on Recruiting and Retention of Sales and Customer Support Personnel
The future revenue growth of API and Filtran Group will depend in large part on
their ability successfully to expand their sales force and their customer
support capability. API and Filtran Group may not be able successfully to manage
the expansion of such functions or to recruit and train additional sales,
consulting and client/customer support personnel. If API or Filtran Group are
unable to hire and retain additional sales personnel, they may not be able to
increase their revenues to the extent necessary to ensure profitability. If API
or Filtran Group are unable to hire trained consulting and client/customer
support personnel, they may be unable to meet client or customer demands.
Neither API nor Filtran Group is likely to be able to increase its revenues in
the event it fails to expand its sales force or its consulting and
client/customer support staff. Even if API and Filtran Group are successful in
expanding their sales forces and client/customer support capabilities, such
expansion may not result in revenue growth.
Fluctuations and Changes in Earnings
While API has been in business for approximately twenty years, it has
experienced losses in some of its recent financial years, including the fiscal
years ended May 31, 1999, 2000, and 2002. API expects to experience significant
fluctuations in future quarterly results that may be caused by many factors,
including (i) the pace of development of its business; (ii) changes in the level
of marketing and other operating expenses to support future growth; (iii)
competitive factors; and (iv) general economic conditions.
While Filtran Group has been operating for over 30 years, it has experienced
losses in some of its recent financial years, including its fiscal year ended
August 31, 2000 and for the nine months ended May 31, 2002. Filtran Group's
current loss is the direct result of the downturn in the telecommunications
industry, which has caused a decrease in demand for Filtran Group's products.
Filtran Group is concentrating on developing sales from manufacturers of
high-end equipment manufacturers; however, there can be no assurance that
Filtran Group will be successful in such efforts. Filtran Group may continue to
experience fluctuations in earnings and/or depressed earnings until the
telecommunications industry recovers from its downturn and demand for products
from that industry recovers, or until its sales efforts generate sufficient
demand from customers in other industries. Filtran Group may also experience
fluctuations in quarterly results as a result of other factors, including (i)
the pace of development in its business; (ii) changes in the level of marketing
and other operating expenses to support future growth; (iii) competitive
factors, and (iv) general economic conditions.
Dependence on Additional Financing
Both API and Filtran Group may require additional financing in order to support
expansion, develop new or enhanced services or products, respond to competitive
pressures, acquire complementary businesses or technologies, or take advantage
of unanticipated opportunities. The ability of the Company and API or the
Company and Filtran Group to arrange such financing in the future will depend in
part upon the prevailing capital market conditions, as well as the business
performance of API and Filtran Group. There can be no assurance that the Company
and API or the Company and Filtran Group will be successful in their efforts to
arrange additional financing under satisfactory terms. If additional financing
is raised by the issuance of shares of the Company's Common Stock, the Company's
shareholders may suffer dilution. If adequate funds are not available, or are
not available on acceptable terms, the Company, API and Filtran Group may not be
able to take advantage of opportunities, or otherwise respond to competitive
pressures and remain in business.
15
Risks Related to Fire, Natural Disaster, Other Disasters, and Equipment Problems
If a fire, natural disaster or any other catastrophic event prevents API and/or
Filtran Group from operating their factories for more than a few days, API's and
Filtran Group's revenues and financial condition could be severely impacted. API
has one manufacturing facility and Filtran Group has two manufacturing
facilities located in different locations and although it is unlikely that a
fire, natural disaster or similar occurrence would affect all such facilities,
the loss of the use of one of these facilities would negatively impact the
Company. In addition, it is possible that a catastrophic event such as the
attacks of September 11, 2001, could impact all facilities for some period of
time. There are a number of foundries which, given appropriate lead times, could
meet some of API's and Filtran Group's fabrication needs. However, in the event
API or Filtran Group has to use such foundries, it cannot guarantee that it will
be able to meet its customers' required delivery schedules. Because of the
unique nature of API's and Filtran Group's manufacturing processes, it would be
difficult for API or the Filtran Group to arrange for independent suppliers to
produce semiconductors, microelectronic circuits or other electronic components
in a short period of time. While API and Filtran Group believe that they have
sufficient manufacturing capacity to meet their near term plans, prolonged
problems with the equipment at any of the facilities could cause either API or
Filtran Group to miss its production goals.
ITEM 4. INFORMATION ON THE COMPANY
INTRODUCTION
API Electronics Group Inc. (formerly InvestorLinks.com Inc.), incorporated in
the Province of Ontario, Canada (the "Company"), completed an acquisition on
August 31, 2001, by which the primary business of the Company became the
manufacture and supply of semiconductors and microelectronic circuits for
military, aerospace and commercial applications through its newly acquired,
wholly-owned subsidiary API Electronics, Inc. As of May 31, 2002, the Company
purchased the Filtran Group of companies, manufacturers of inductors, filters
and transformers, with manufacturing facilities in both Canada and the United
States. Prior to August 31, 2001, and since June 6, 2000 the Company had been
primarily engaged in the business of a financial resource and directory portal
provider on the Internet, through the operation of the Internet investment site
www.InvestorLinks.com. That business was effectively closed down prior to the
end of the fiscal year ending April 30, 2001 and the assets of that business
were sold during the fiscal year ending May 31, 2002. Prior to September 7,
2001, and during the fiscal year ending April 30, 2001, the Company's name was
InvestorLinks.com Inc. Prior to June 6, 2000, and during the fiscal year ended
April 30, 2000, the Company's name was Opus Minerals Inc., and the Company was
in the business of locating, acquiring, exploring, and, if warranted, developing
and exploiting mineral properties.
The Company is a publicly traded company whose Common Shares (the "Common Stock"
or the "Common Shares") trade in the United States on the National Association
of Securities Dealers OTC Bulletin Board under the symbol "APIEF." Previously,
the Company's Common Stock traded on the Canadian Venture Exchange under the
symbol "YIK," and on the NASD OTC Bulletin Board under the symbol "IVLKF." The
Company voluntarily delisted from the TSX Venture Exchange, formerly knows as
the Canadian Venture Exchange, as of August 31, 2001.
A. HISTORY AND DEVELOPMENT OF THE COMPANY
The Company's legal name and commercial name is API Electronics Group Inc., and
the legal and commercial name of its primary businesses and wholly-owned
subsidiaries are API Electronics, Inc. and the Filtran Group of companies
consisting of Filtran Inc., Canadian Dataplex Ltd., Filtran Ltd. and Tactron
Communications (Canada) Inc. The Company was incorporated on May 14, 1985, in
the Province
16
of Ontario, Canada under the name Shediac Bay Resources Inc. The Company is a
corporation domiciled in the Province of Ontario, Canada, and operates under the
Ontario Business Corporations Act.
Both the registered office and principle place of business of the Company is
located at 505 University Avenue, Suite 1400, Toronto, Ontario, Canada M5G 1X3.
The telephone numbers of the Company's registered office and principle place of
business in Ontario, Canada are (416) 593-6543 and 1(800) 606-2326. The Company
is not required to have an agent in its home country, Canada, or in the host
country, the United States.
From the time of the Company's incorporation on May 14, 1985 until June 6, 2000,
the Company was in the business of locating, acquiring, exploring, and, if
warranted, developing and exploiting, mineral properties. As noted above, the
Company's name at the time it was incorporated was Shediac Bay Resources Inc.
Effective September 13, 1991, the Company changed its name from Shediac Bay
Resources Inc. to Dally Development Corp. The Company was inactive from 1991 to
April 1993, at which time a change in management, stockholdings and control of
the Company occurred. At this time the Company raised working capital to allow
it to become active by acquiring or entering into new mineral ventures.
In April 1993, the Company acquired 1024680 Ontario Ltd., a corporation
organized under the laws of the Province of Ontario ("1024680"). As a result of
the share-for-share exchange, 1024680's sole stockholder, 867323 Ontario Ltd., a
corporation organized under the laws of the Province of Ontario ("867323"),
acquired approximately 58.9% of the Company's outstanding shares of Common Stock
(after taking into consideration the transaction with Sheppard Ventures Inc.
discussed below). Immediately following the share-for-share exchange, Ms.
Elizabeth J. Kirkwood, who, together with members of her immediate family, owned
and controlled 867323, became the President, a director and an indirect
principal stockholder of the Company.
Concurrent with the transaction described above with respect to 1024680, the
Company acquired all of the outstanding shares and warrants of Sheppard Ventures
Inc., a corporation organized under the laws of the Province of Ontario
("Sheppard"), through a share-for-share exchange. As a result of this
transaction, Sheppard's stockholders acquired approximately 38.9% of the
Company's outstanding shares of Common Stock (after taking into consideration
the transaction with 1024680 discussed above), and Mr. John R. Gowdy, the sole
officer and director of Sheppard and a principal indirect owner of Sheppard,
became a director and an indirect significant stockholder of the Company.
In April 1993, the Company acquired all of the outstanding shares and warrants
of TNK Resources, Inc., a corporation organized under the laws of the Province
of Ontario ("Preceding TNK"), through a share-for-share exchange.
Effective May 1, 1993, the Company amalgamated with its three newly-acquired,
wholly-owned subsidiaries (1024680, Sheppard and Preceding TNK), and changed the
name of the Company to TNK Resources Inc.
In September 1994, through a share-for-share exchange, the Company acquired
14,000,000 shares of common stock in Vertex (then known as Sommerset Industries
Inc., or "Sommerset"), a public company whose common stock was traded on the
CDN, which then represented approximately 70% of the total issued and
outstanding Sommerset shares. Following the acquisition, Sommerset changed its
name to Midswana Diamond Exploration Corp.
Effective May 18, 1999, the Company changed its name from TNK Resources Inc. to
Opus Minerals Inc.
17
In February 2000, the Company sold all of its diamond exploration prospects to
its partially owned subsidiary, First Strike Diamonds Inc., then Vertex
Ventures, Inc. ("First Strike"), in exchange for 6,266,667 common shares of
First Strike. In April 2000, the Company issued a dividend-in-kind of the
6,266,667 common shares of First Strike to the Company's shareholders. In June
2000, the Company sold its remaining 2,800,000 common shares of First Strike. As
of June 7, 2000 and through the date of this Annual Report, the Company is not
involved in the business of exploiting mineral properties.
On June 6, 2000, the Company acquired all of the shares of IL Data Canada, Inc.
in exchange for 6,800,000 Common Shares of the Company at an attributed value of
Canadian $1,700,000. IL Data Canada Inc. owned 100% of IL Data Corporation,
Inc., which, through a series of transactions, owned and operated the investment
web-site www.InvestorLinks.com. From June 6, 2001 through August 31, 2001, the
Company's primary business was that of a financial resource and directory portal
provider on the Internet. On July 25, 2000, the Company changed its name from
Opus Minerals Inc. to InvestorLinks.com Inc. In connection with these
transactions, the Company's Common Stock began trading on the National
Association of Securities Dealers OTC Bulletin Board under the symbol "IVLKF."
The Company no longer operates this web-site.
On August 30, 2001, the Company's shareholders approved the acquisition of all
of the issued and outstanding shares of API Electronics, Inc., a Delaware
corporation ("API") by the issuance of 6,500,000 post-consolidation units at
$.40 per unit. Each unit consists of one common share, 1/2 of one Series A
common share purchase warrant exercisable at $.45 per share for a period of 18
months from the date of issuance, and 1/2 of one Series B common share purchase
warrant exercisable at $.75 per share for a period of two years from date of
issuance. This transaction constituted a reverse take-over of the Company by
API, the deemed acquiring company. Also on August 30, 2001, the Company's
shareholders approved a change of the Company's name from InvestorLinks.com Inc.
to API Electronics Group Inc., and the consolidation of the authorized common
shares on the basis that every three pre-consolidation Common Shares were
converted into one post-consolidation Common Share. The name change and share
consolidation became effective on September 10, 2001. On September 10, 2001,
shares of the Company's Common Stock began trading on the National Association
of Securities Dealers OTC Bulletin Board under the symbol "APIEF." As of August
31, 2001, the Company's primary business became the manufacture and distribution
of semiconductors and microelectronic circuits for military, aerospace, and
commercial applications through its newly acquired, wholly-owned subsidiary API.
The Company plans to devote a substantial portion of its resources to the
business of API. Additional details regarding the transactions summarized in
this paragraph can be found below in Item 17 of this Annual Report (see in
particular Note 1(a) to the financial statements contained therein).
Effective May 31, 2002, the Company acquired the 100% of the shares of the
Filtran Group of companies for $2,670,835. The purchase price was paid as
follows: $716,505 in cash and a promissory note for $1,954,270. As part of the
acquisition of the Filtran Group, the Company paid $325,712 in cash to Philip
Walter White, the former principal of the Filtran Group of companies, for
entering into a Non-Competition and Confidentiality Agreement with the Company.
The Filtran Group of companies include Filtran Ltd., Filtran Inc., Canadian
Dataplex Ltd. and Tactron Communications (Canada) Limited, which are wholly
owned by the Company and Filtran Ltd., a wholly-owned subsidiary of Tactron
Communications (Canada) Limited. Tactron Communications (Canada) Limited is a
holding company for Filtran Ltd. The Filtran Group of companies are
manufacturers of electronic components, particularly inductors, filters and
transformers.
18
Principal Capital Expenditures and Divestitures Since August 31, 2001
The following chart contains a description, including the amount invested, of
the Company's principal capital expenditures and divestitures (including
interests in other companies), since August 2001, the date of the Company's
acquisition of API.
- -------------------------------------------------------------------------------------------------------------------------
Date Parties Type Description of Capital Amount Invested or
Expenditure or Divestiture Divested
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
August 30, 2001 Company, API Agreement and Company acquired all of the $2,600,000 invested
Acquisition Corp., Plan of Merger shares of API Electronics, Inc. (attributed value of
API Electronics, 6,500,000
Inc. and the post-consolidation Common
Shareholders of API Shares and Warrants to
Electronics, Inc. Purchase Common Shares)
- -------------------------------------------------------------------------------------------------------------------------
May 31, 2002 Company, Filtran, Share Purchase The Company purchased all of the $2,670,835 consisting of
Inc., Canadian Agreement outstanding shares of Filtran, $716,505 in cash and a
Dataplex Ltd., Inc., Canadian Dataplex Ltd., promissory note for
Tactron Tactron Communications (Canada) $1,954,270. The
Communications Limited and Filtran Ltd. promissory note bears
(Canada) Limited, interest at the rate of
Filtran Ltd. and 5% per annum, payable
the shareholders of semi-annually. One-half
Filtran, Inc., of the principal is due
Canadian Dataplex and payable on March 31,
Ltd., Tactron 2003 and the balance
Communications becomes due and payable
(Canada) Limited on March 31, 2004.
and Filtran Ltd.
- -------------------------------------------------------------------------------------------------------------------------
May 31, 2002 The Company and Non-Competition Philip Walter White agreed to $325,712 paid by the
Philip Walter White and non-competition and Company to Philip Walter
Confidentiality non-solicitation restrictions for White.
Agreement a term of five (5) years and
permanent confidentiality
restrictions. Mr. White was the
primary principal of the Filtran
Group of companies.
- -------------------------------------------------------------------------------------------------------------------------
Descriptions of capital expenditures and divestitures of the Company occurring
prior to August 31, 2001 are excluded because the activities of the Company
prior to such time are not relevant to its current activities. As of the date of
this Annual Report, there are no material capital expenditures or divestitures
in progress.
With respect to API, there were no material capital expenditures or divestitures
for the period beginning June 1, 1999 and ending August 30, 2001.
Public Takeover Offers
There have been no public takeover offers by third parties in respect of the
Company's shares or by the Company in respect of other companies' shares since
June 1, 1999.
19
B. BUSINESS OVERVIEW
Business Overview - API Electronics, Inc. and the Filtran Group of Companies
API Electronics, Inc. - Operations, Activities and Products
Effective on August 31, 2001, subsequent to the end of the Company's fiscal year
ending April 30, 2001, the Company completed its acquisition of API Electronics,
Inc., a Delaware corporation, which then became a wholly-owned subsidiary of the
Company. This transaction constituted a reverse take-over of the Company by API,
the deemed acquiring company. As a result of the reverse take-over, the primary
business of the Company became the manufacture and supply of semiconductors and
microelectronic circuits for military, aerospace, and commercial applications
through its newly-acquired, wholly-owned subsidiary API.
API manufactures niche specialty products that major semiconductor manufacturers
no longer produce or do not plan on producing in the future. API has focused on
the discontinued parts niche of the electronic component industry since its
formation approximately 20 years ago. In support of API's goals and objectives,
API has focused on maximizing the potential of the various products for which it
has become the sole source supplier. Through the implementation of engineering
process controls and total quality management principles, API has achieved
manufacturing efficiencies and effectiveness via specialization and
concentration on these niche products. This strategy has enabled API gradually
to increase its prices, thereby enhancing margins in these sole source
offerings.
API's reputation is that of a preferred supplier of custom replacement parts for
critical, fixed-design systems. Such niche products include Varactor tuning
diodes, specialty suppressor diodes for the relay market, and custom
microelectronic hybrid circuits designed, built and tested to customer
specifications. API also manufactures power and small-signal transistors,
silicon rectifiers, zener diodes, high-voltage diodes, and resistor/capacitor
networks. All microelectronic products are manufactured using semiconductor,
hybrid, and surface-mount technologies or a combination. All methods and
processes are controlled and monitored by API's Quality Assurance programs.
Applications for API's semiconductor products include: Telecommunications,
Aerospace, Military Defense Systems, Automated Test Equipment, Computing
Equipment, Medical Equipment, Robotics, Instrumentation and Automotive Systems.
API currently serves a broad group of customers with products and services
falling into four main categories: Hybrid Circuit, Power and Small-Signal
Transistor, Varactor Tuning Diode and Value-Added Distribution. API's products
facilitate the power supply in end products such as missiles, the space shuttle,
F-15 and F-16 fighter planes and B-1 bombers.
API's principal markets consist of the government and military markets
(approximately 70% of revenues), laboratory and commercial equipment, and other
replacement parts (approximately 30% of revenues). The Company's customers
include government agencies, Departments of Defense, and large military
contractors such as Honeywell/Allied Signal, BAE Systems Controls, Deutch
Relays, Litton Systems and Lockheed-Martin. Other customers include Raytheon,
Northrop Grumman Litton, Alcatel, Tektroniz, Racal, Ball Aerospace and the
Defense Electronic Supply Center.
The main thrust of API's strategy has been to increase its market penetration
through the addition of the following competitors' product lines:
20
1. Ampower - Power Transistors
2. Unitrode - Power and Darlington Transistors
3. Solid Power Corp. - Homotaxial Power Transistors
4. MSI Electronics - Varactor Tuning, Abrupt, and Hyperabrupt Diodes
5. ASI Microsystems - Custom Hybrid Circuits
6. REL Labs - Standard Hybrid Amplifiers, Oscillators, and Networks
API has obtained the original designs of these companies to manufacture brand
new spare parts for aircraft, military, medical and commercial systems that were
built over the past three decades and are still providing essential services.
Additionally, API plans to invest in engineering and research and development to
become more active in High Current/High Voltage devices and introduce a line of
specialty power rectifiers. Offering foundry capabilities to other organizations
needing manufacturing facilities will also serve to achieve API's goal of
increased market penetration. API will look to return to its previous Qualified
Product List (QPL) offerings and concentrate on achieving QPL status on other
products. Also, the purchase of standard materials in volume will capitalize on
discounted price points and support improved margins.
Seeking better to communicate its capabilities to the industry as a whole,
including customers, sales reps, and distributors, API has instituted a
cost-effective sales and marketing program. Updated catalogs, brochures, line
cards, and product lists are augmented by its web-site describing API and its
capabilities. API seeks to improve its product sales in overseas markets through
an increased emphasis on the part of its domestic direct sales force and
improved communication with overseas sales representatives and distributors.
Principal Markets in which API Competes
API's customers are located primarily in the United States, Canada, Israel, and
certain countries that are members of the North Atlantic Treaty Organization.
These are the primary markets in which API competes.
New Products
API has not introduced any significant new products or services in the year
prior to the date of this Annual Report.
Seasonality
API's revenues and business are not, in general, seasonal.
Raw Materials
Raw materials required by API's business consist primarily of silicon wafers. A
broad market for silicon wafers exists worldwide, and the prices of silicon
wafers has not historically been volatile.
Marketing Channels
API's marketing channels consist primarily of the use of an in-house sales
manager with a sales staff of two persons, and regional agents who act as
independent contractors to API. API does not use any special sales methods such
as installment sales.
21
Dependence on Patents, Licenses, Contracts and Processes
API is not dependent on patents, licenses, industrial contracts, commercial
contracts, financial contracts, or new manufacturing processes in such a manner
that such dependence would be material to API's business or profitability.
Material Effects of Government Regulations
Except as noted below, government regulations of the United States and the State
of New York related to environmental compliance, labor conditions, and
government contracting are typical in API's industry and do not have a material
effect on the company's business. API does, however, lack ISO-9002 certification
and has not been able to maintain itself on all pre-qualification lists
necessary to contract with the United States Electronic Defense Supply Center,
including MIL-PRF-19500 (QML-19500) and MIL-PRF-38534 (QML-38534). The Company
is currently upgrading its manufacturing facilities in order to become ISO 9002
compliant, and expects to receive certification prior to the end of fiscal year
2003. The United States Department of Defense regulates certification and
qualification requirements of the Defense Electronic Supply Center.
Business Overview - Filtran Group of Companies - Operations, Activities and
Products
The Company acquired 100% of the stock of the Filtran Group of companies as of
May 31, 2002. The companies included in the group are Filtran, Inc., Canadian
Dataplex Ltd., Tactron Communications (Canada) Inc. and Filtran Ltd. Filtran
Ltd. is owned directly by Tactron Communications (Canada) Limited, a holding
company that is wholly-owned by the Company.
Filtran Ltd. was incorporated in 1969 to manufacture filters and transformers.
Filters are frequency selective networks, usually consisting of a combination of
capacitors and inductors or transformers. Widely used in telegraphy and telex
networks that worked on the principle of frequency division multiplexing, these
analog techniques devices have been superseded by digital transmission methods.
Approximately 25 years ago Filtran, Inc. established itself in the US, initially
in eastern Florida but relocated in Ogdensburg, N.Y., which is a one-hour drive
from Ottawa. Filtran Ltd. located in Ottawa does the engineering, purchasing,
and marketing and provides the overall administration for Filtran Inc. as well
as manufacturing of all products for Canadian and European customers. Filtran
Inc. is strictly a manufacturing facility for US customers.
Over the last 30 years Filtran Group has grown to be the largest manufacturer of
specialty transformers in Canada. Manufacturers of telecommunications equipment,
computers and computer peripherals, process control equipment, power supplies,
test equipment, medical devices and similar products use these products. The
power rating of these specialty transformers ranges from microwatts in signal
transformers to 2,000W - 3,000W for laminated power transformers. Filtran Group
does not make the larger transformers of the type used in power distribution
networks to cities, businesses or private homes.
Many changes have been made to Filtran Group's product lines over the years. As
linear power supplies have been superseded, in most instances, by switched mode
designs, Filtran Group has developed a range of ferrite based transformers and
inductors for high frequency applications and all the commonly used topologies.
Similarly, signal transformers have become smaller and the pulse rate for most
digital telecommunications systems has increased dramatically. Many newer
products use a number of toroidal transformers or inductors in a miniature flat
pack case. The Filtran Group's products facilitate the power supply in end
products such as army field radios and various types of telecommunications
equipment.
22
Filtran was the first transformer manufacturer in Canada to produce surface
mount devices (SMD's). Millions of these are in use all over the world. Because
of the co planarity requirements of SMD's the company has invested in automatic
equipment to solder these under a blanket of dry nitrogen.
The main demand today for the Filtran Group's filters is in the ferrite core
transformers for ADSL application by the telecommunications industry. Inventory
levels of this product have been exhausted and there is demand for new product.
The growth rate in this area is substantial and the Company expects this demand
to continue in the foreseeable future; however, there is no expectation for
overall demand in the telecommunications industry to return to 1999 levels.
There is a smaller demand for filters in railway switching and signaling
systems. The Company believes that Filtran Group is the only company in North
America which still designs and builds filters for sale to others.
Filtran Ltd. and Filtran Inc. have always been custom manufacturers, either
building the product to the customer's print or designing and then building to
its specifications. The products include transformers of all kinds from small
signal types to large laminated units weighing 50 lb. or more.
About 3 years ago, as part of its long-term growth plan, Filtran Ltd. acquired a
local company called Canadian Dataplex Ltd., which company was established 25
years ago. Canadian Dataplex Ltd. had engineering skills in the design and
manufacturing of custom power supplies, which have now been integrated into the
Filtran Group.
Filtran Group builds a wide variety of inductors (chokes) from small signal
units up to heavy laminated devices. Filtran also designs and manufactures
filters for use by others. Some of these operate at frequencies into the GHz
region while others block the ripple from diesel generators delivering several
hundred amps at frequencies of a few hundred Hz. Most filters are passive; i.e.
they are formed by arrays of inductors and capacitors.
Principal Markets in which the Filtran Group Competes
Filtran's customers are located primarily in Canada and the US.
There are two major markets for Filtran's products - telecommunications
companies and high-end equipment manufacturers.
1. Telecommunications Companies
All Canadian and US telecommunications equipment manufacturers are potential
customers for the Filtran companies. Filtran also does business with
telecommunications companies in Europe and Asia. Previously the high labor costs
in Canada and the US excluded the Filtran Group from the high volume product
sales. Now that the Filtran Group has established the relationships to outsource
the manufacture of certain products to companies in Asia, particularly China,
labor costs are no longer a barrier for Filtran Group to compete for these
orders.
2. High End Equipment Manufacturers
Filtran's target customers for non-telecommunications products are manufacturers
of professional quality equipment. There are an enormous variety of these high
end product equipment manufacturers in every major city in Canada and the US,
which constitutes a large untapped market for Filtran Group.
Filtran Group has always built products to "Best Commercial Standards" and
generally has not manufactured products for either the military and
entertainment markets. Many companies have proved by
23
experience that it is not possible to build to more than one quality level in
the same manufacturing facility. Manufacturing to military standards requires an
administrative and overhead structure greater than can be provided by Filtran
Group and still remain competitive in other market segments. The entertainment
market uses large volumes but buys almost solely on the basis of price.
3. Major Customers
Harris Corporation, R.F. Communications Division US
Qualitrol US
Lucent Technologies US
Carsan Engineering US
Alstom Signalling US
Electronics 2000 UK & Europe
Mitel Corp. Canada, US & UK
Computing Devices Canada
Sterne Canada
M.C.K. Canada
Telecite Canada
Jabil Italy
Siemens Germany
The volume of business provided to the Filtran Group by these customers equals
about 50% of total sales. No single customer represents more than 10% of total
sales
New Products
Filtran Group has not introduced any significant new products or services in the
year prior to the date of this Annual Report.
Seasonality
The revenues and business of the Filtran Group are not, in general, seasonal.
Raw Materials
The primary raw materials required by Filtran Group's business consist of cores,
bobbins, wire, lamination, tapes (polyamide, polyfilm, masking, copper,
glasscloth, antistatic), epoxy, solder tips, varnish, metal plates, PVC
insulation, diodes, and circuit boards. Filtran Group's purchasing policies
require the companies to find alternate sources for materials; however, some
materials have a single source supplier due to customer specifications or unique
construction requirements. Most of Filtran Group's raw material suppliers are
located in the United States. These materials are readily available. The lead
time for ordering manufactured materials has decreased to 4 to 6 weeks from up
to 24 months a few years ago during the technology boom. The prices for these
materials are relatively stable.
Marketing Channels
Filtran's principal markets are the United States and Canada. Filtran Group also
sells products in a large number (over 30) of European and Asian countries.
Filtran Group sells its products primarily through independent sales
representatives and distributors. Over the past three (3) years, Filtran Group
has invested heavily in its web-site, which functions as a sales channel.
Filtran Group also is focusing on strengthening its direct sales force. Filtran
Group recently hired an experienced internal sales
24
representative and plans to hire a field engineer/sales representative in the
second quarter of the fiscal year 2003. Filtran Group does not use any special
sales methods such as installment sales.
Dependence on Patents, Licenses, Contracts and Processes
Filtran Group is not dependent on patents, licenses, industrial contracts,
commercial contracts financial contracts, or new manufacturing processes in such
a manner that such dependence would be material to Filtran Group's business or
profitability.
Material Effects of Government Regulations
Government regulations of the United States, the State of New York, the Province
of Ontario and Canada related to environmental compliance and labor conditions
are typical in Filtran Group's industry and do not have a material effect on
Filtran Group's business.
Revenue Breakdown
Set forth below is a breakdown of the Company's revenues by business and by
geographical market for the fiscal years ended May 31, 2002, May 31, 2001, and
May 31, 2000.
For the fiscal years ended May 31, 2002, May 31, 2001 and May 31, 2000
Revenues by Category of Activity:/(1)/
2002 2001 2000
- ------------------------------------------------------------------------------------------------------------
API's Activities 2,903,000 2,653,000 1,787,000
- ------------------------------------------------------------------------------------------------------------
Total Revenues 2,903,000 2,653,000 1,787,000
- ------------------------------------------------------------------------------------------------------------
Revenues by Geographic Market:
- ------------------------------------------------------------------------------------------------------------
United States 2,603,000 2,258,000 1,432,000
- ------------------------------------------------------------------------------------------------------------
Other 300,000 395,000 355,000
- ------------------------------------------------------------------------------------------------------------
Total Revenues 2,903,000 2,653,000 1,787,000
- ------------------------------------------------------------------------------------------------------------
(1) Does not include the Filtran Group of companies because such companies were
acquired as of May 31, 2002.
Closure of US Operations and Decline in Revenues of IL Data Canada, Inc.
The InvestorLinks.com web-site was not able to generate sufficient revenues to
warrant expenses incurred by the Company in maintaining the web-site in the
manner it was initially maintained. The Company closed down the web-site
operations prior to the end of the fiscal year ended April 30, 2001, and sold
the assets of that business during the fiscal year ended May 31, 2002.
C. ORGANIZATIONAL STRUCTURE
The Company, with its subsidiaries as described below, is a part of a group. The
corporate office of API Electronics, Inc., a corporation incorporated under the
laws of the State of Delaware in the United States, is
25
located at 505 University Avenue, Suite 1400, Ontario, Canada M5G 1X3. The
Company holds 100% of the ownership interest and voting power of API
Electronics, Inc.
The corporate office of Filtran Inc., a company incorporated under the laws of
the State of New York, is located at 102 Ford Street, Bldg. 5A, Ogdensburg, NY
13669. The corporate office of Filtran Ltd., a company incorporated under the
laws of Ontario, is located at 229 Colonnade Road, Nepean, Ontario K2E 7K3. The
corporate office of Canadian Dataplex Ltd., a company incorporated under the
federal laws of Canada, is located at 5-155 Terrence Matthews Cresent, Kanata,
Ontario K2M 2A8. The corporate office of Tactron Communications (Canada)
Limited, a company organized under the laws of Ontario and which is the holding
company for Filtran Ltd., is located at 3 Elenor Drive, Nepean, Ontario K2E 6A3.
The Company holds 100% ownership interest and voting power of Filtran Inc.,
Canadian Dataplex Ltd. and Tactron Communications (Canada) Limited. Tactron
Communications (Canada) Limited owns 100% ownership interest and voting power of
Filtran Ltd. Tactron Communications (Canada) Limited is a holding company for
Filtran Ltd. and does not have operations.
IL Data Corporation, Inc., an inactive indirect subsidiary of the Company and a
corporation incorporated under the laws of the State of Nevada in the United
States is located at 505 University Avenue, Suite 1400, Toronto, Ontario, Canada
M5G 1X3. IL Data Corporation, Inc. is a wholly-owned subsidiary of IL Data
Canada, Inc., a corporation incorporated under the laws of the Province of
Ontario, Canada. IL Data Canada, Inc. is a wholly-owned subsidiary of the
Company and is inactive. It is located at the same address as its parent
company. The Company holds 100% of the ownership interest and voting power of IL
Data Canada, Inc., which in turn holds 100% of the ownership interest and voting
power of IL Data Corporation, Inc.
D. PROPERTY, PLANTS, AND EQUIPMENT
The executive offices of the Company and two of its subsidiaries, API
Electronics, Inc. and IL Data Canada, Inc., are located at 505 University
Avenue, Suite 1400, Toronto, Ontario, Canada M5G 1X3. The Company's wholly-owned
subsidiary, API Electronics, Inc., owns outright, without any major
encumbrances, a 15,000 square foot manufacturing facility in Hauppauge, New
York. The productive capacity of this manufacturing facility is sufficient to
meet present needs and needs in the foreseeable future. All of API's products
are produced at this manufacturing facility, which is located at 375 Rabro
Drive, Hauppauge, New York 11788. To the Company's knowledge, except as
generally described in Item 3D of this Annual Report above, there are no
environmental issues that may affect the Company's utilization of the assets
located at this manufacturing facility.
The executive office for Filtran Ltd. is located at 229 Colonnade Road, Nepean,
Ontario K2E 7K3. Filtran Ltd. owns the facility and there are no outstanding
mortgages on the property. The facility is approximately 16,000 square feet and
it is used to manufacture electronic components comprised primarily of:
transformers, filters, inductors and power supplies. Golder Associates was
retained by Filtran Ltd. to prepare documentation in support of an application
for a Certificate of Approval (Air) for atmospheric emissions sources at Filtran
facility at 229 Colonnade Road. The application was successful and Filtran has
received their Certificate of Approval from the Ministry of the Environment. To
the Company's knowledge, except as generally described above, there are no
environmental issues that may affect the Company's utilization of the assets
located at this manufacturing facility. The capacity of this manufacturing
facility is sufficient to meet the present needs of Filtran Ltd. and its needs
in the foreseeable future.
The executive office for Filtran Inc. is located at 102 Ford Street, Bldg 5A,
Ogdensburg, NY 13669. Filtran Inc. has a lease to own agreement with the City of
Ogdensburg for the facility. Filtran Inc. has financed the "purchase" of this
facility. As of August 31, 2002, the outstanding principal balance on the
26
note evidencing such financing is $120,702. The loan is secured by a mortgage on
the property. The facility is approximately 16,500 square feet and it is used to
manufacture electronic components comprised primarily of: transformers, filters
and inductors. There are no environmental issues at Filtran Inc. that management
is aware of and Filtran Inc. believes it complies with existing environmental
regulations and meets existing environmental standards. The capacity of this
manufacturing facility is sufficient to meet the present needs of Filtran, Inc.
and its needs in the foreseeable future.
The executive office for Canadian Dataplex Limited is located at 5-155 Terrence
Matthews Cresent, Kanata, Ontario K2M 2A8. Canadian Dataplex Limited financed
the purchase of this facility. As of August 31, 2002, the outstanding principal
balance of on the note evidencing such financing is $40,236. Canadian Dataplex
has granted a mortgage to the lender, TD Canada Trust, covering the facility.
The facility is approximately 3,500 square feet and it is used to manufacture
electronic components comprised primarily of: power supplies and transformers.
There are no environmental issues at Canadian Dataplex that management is aware
of and Canadian Dataplex believes that it complies with existing environmental
regulations and meets existing environmental standards. The facility is
sufficient to meet the present needs of Canadian Dataplex.
The executive office for Tactron Communications (Canada) Limited is located at 3
Elenor Drive, Nepean, Ontario K2E 6A3. A former principal of Tactron
Communications (Canada) Limited makes the space available to this company at no
charge. This entity is a holding company for Filtran Ltd. and does not have
operations.
In order to streamline Filtran Group's operations, Canadian Dataplex will be
moving its operations to Filtran Ltd. at 229 Colonnade Road. The Canadian
Dataplex facility will either be sold or leased. Filtran Ltd. underwent building
improvements in the first quarter in connection with which a new roof was put on
the facility at 229 Colonnade Road. The approximate cost was $18,000. API is
upgrading its manufacturing facility in Hauppauge, New York, and anticipates
investing more than $500,000 in its building and equipment. As of the date of
this Annual Report, the Company does not have any other material plans to
construct, expand, or improve its facilities or the facilities of its
subsidiaries.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS (IN US$)
A. OPERATING RESULTS
Comparative Figures are Those of API Electronics, Inc.
Effective on August 31, 2001, the Company completed its acquisition of API, a
Delaware corporation, which then became a wholly-owned subsidiary of the
Company. This transaction constituted a reverse take-over of the Company by API,
the deemed acquiring company. As a result of the reverse take-over, the primary
business of the Company became the manufacture and supply of semiconductors and
microelectronic circuits for military, aerospace and commercial applications.
Note 1(a) to the consolidated financial statements included in Part III, Item 17
of this Annual Report describes the Company's acquisition of API on August 31,
2001, and the accounting for the business acquisition. API is deemed to be the
acquiror for Canadian generally accepted accounting principles ("Cdn. GAAP").
For US generally accepted accounting principles ("US GAAP"), API is also deemed
to be the acquirer. Accordingly, comparative figures for the fiscal years ended
May 31, 2001, 2000, 1999 and 1998 for Cdn. GAAP and US GAAP included in the
Company's selected financial data are those of API and are derived from the
financial statements of API which have been audited by Perry Colletti, CPA. The
comparative financial statements of the Company included in Part III, Item 17 of
this Annual Report
27
include the financial statements of API for the fiscal years ended May 31, 2001
and 2000 which have been audited by Perry Colletti, CPA. API has been in
operations for approximately twenty years.
Acquisition of the Filtran Group.
Effective May 31, 2002, the Company acquired the Filtran Group of companies,
consisting of Filtran, Inc., Filtran Ltd., Canadian Dataplex Limited and Tactron
Communications (Canada) Limited, the holding company for Filtran Ltd. The
Filtran Group of companies are suppliers of electronic components (primarily
inductors, transformers and filters) for customers in the communications,
computer, instrumentation and process control industries, with manufacturing
facilities in the United States and Canada.
Note 1(b) to the consolidated financial statements included in Part III, Item 17
of this Annual Report describes the Filtran Acquisition of the outstanding
shares of Filtran, Inc., Filtran Ltd., Canadian Dataplex Limited and Tactron
Communications (Canada) Limited of May 31, 2002. For Cdn. GAAP and US GAAP the
Filtran Group acquisition has been accounted for using the purchase method.
Closure of US Operations of IL Data Canada, Inc.
Prior to April 30, 2001, the Company ceased operations of the InvestorLinks.com
web-site. During the three-month period ending July 31, 2001, the Company closed
down its US operations, terminated the employment of all US employees, and
transferred the Company's US assets to Canada. The assets of the web-site, which
constituted the Company's prior business, were disposed of during the fiscal
year ended May 31, 2002.
Results of Operations
Summary
API Electronics Group, Inc. 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 supplier of defense electronic components to the U.S.
Department of Defense and its subcontractors. API also has a strong commercial
user base.
The following discussion of the results of operations of the Company is a
comparison of the Company's two fiscal year periods ended May 31, 2002 and 2001.
Sales Revenue
The Company recorded increased sales during the fiscal year ended May 31, 2002.
Revenues increased by 9.4% to $2.9 million from $2.65 million the previous year.
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.
Cost of Goods Sold and Gross Margin
The cost of products sold as a percentage of sales increased during 2002 period
compared to 2001. The cost of goods sold was 77.7% of sales in 2002 compared to
72.8% of sales in 2001. Accordingly, the gross margin for 2002 period decreased
to 22.3% from the 27.2% gross margin in the 2001 period. The decrease is
attributed mainly to increased competitive pricing in the market.
28
Selling Expenses
Selling expenses increased from $246,844 for the year ended May 31, 2001 to
$339,048 for the year ended May 31, 2002. As a percentage of sales the 2002
selling expenses came in at 11.7% compared to 9.3% for 2001. The increase was
primarily attributed to the addition of one sales person to support increased
product sales levels.
General and Administrative Expenses
General and administrative expenses increased substantially from $300,598 for
the 2001 year to $685,747 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
$108,758 (2001 - $0), professional services of $94,747 (2001 - $9,000),
shareholder information of $9,070 (2001 - $0), transfer agent fees of $10,382
(2001 - $0) all increased substantially and were attributable to increased costs
that are inherent with public company compliance.
Management continues to emphasize efficiencies and control of overheads. There
are several areas where certain expenses could be classified as non-recurring in
nature.
Professional services expense was higher than normal as additional fees were
incurred in API's first year as a public company. Also, investor relations
expense was higher than normal as additional fees were incurred to launch the
profile of API in the investment community. These expenses are expected to
decrease on a going forward basis.
Business Development
The Company incurred business development expenses of $610,341 in the fiscal
year ended May 31, 2002 to assist it in the transition from a private company to
a public company. Of this amount, the Company has disclosed $501,582 as a
business development expense and the balance of $108,759 has been included in
general and administrative expenses. Management expects that it will not be
necessary to incur significant business development cost on a going forward
basis. Any future business development expenses incurred going forward may be
included in general and administrative expenses.
Other Income and Expense
Other income increased to $75,565 for 2002 from $13,719 for 2001 due to the
rental income and recovery of expenses of $30,000 for 2002 ($12,000 - 2001) from
a Massachusetts corporation and a foreign exchange gain of $20,512 (nil - 2001).
On November 30, 2001 the Company and the Massachusetts corporation agreed to
mutually end the cost sharing arrangement. Interest expense decreased to $37,467
for 2002 from $86,542 due to the interest paid to the principal shareholder of
API of $38,673 for the period from June 1, 2000 to September 20, 2000. On
September 20, 2000, the loan was converted to a non-interest bearing demand
promissory note.
Net Income/Loss
The Company incurred a net loss for the 2002 year of $857,643 compared to a net
income of $102,101 for the 2001 year. The loss is attributed in substantial part
to the business development costs of $501,583 as described above.
29
The following discussion of the results of operations of the Company is a
comparison of the Company's two fiscal year periods ended May 31, 2001 and 2000.
Sales Revenue
The Company recorded strong sales growth during the fiscal year ended May 31,
2001. Sales increased by 48.5% to $2,653,000 from $1,787,000 posted during the
year ended May 31, 2000. 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 by the military industry.
Cost of Goods Sold and Gross Margin
The cost of sales as a percentage of sales decreased during fiscal 2001 compared
to fiscal 2000. The cost of goods sold was 72.8% of sales in 2001 compared to
83.7% in 2000. Accordingly, the gross margin for 2001 period increased
substantially to 27.2% from the 16.3% gross margin posted in 2000. The increase
is attributed mainly to greater utilization of capacity and higher sales levels
that provided greater coverage of the fixed cost components of cost of sales.
Selling Expenses
Selling expenses decreased slightly to $247,000 for the year ended May 31, 2001
from $254,000 for the year ended May 31, 2000. As a percentage of sales, the
2001 selling expenses came in at 9.3% compared to 14.2% for 2000. The favourable
decrease was attributed primarily to the higher sales levels that provided
greater coverage of the fixed components of selling expenses.
General and Administrative Expenses
General and administrative expenses decreased slightly to $301,000 for the 2001
year from $318,000 incurred during the 2000 year.
The largest expense decrease was that of professional fees expenses which
decreased from $55,000 in 2000 to $9,000 in 2001. This decrease was offset by
increase in salaries that went from $132,000 in 2000 to $151,000 in 2001.
Management has continued to emphasize efficiencies and control of overhead
expenses.
Other Income and Expense
Other income increased slightly to $14,000 for the year ended May 31, 2001 from
$3,000 for the year ended May 31, 2000. Other expense relates to interest on
long-term debt and the Company saw a substantial increase to $86,000 in 2001
from $27,000 in 2000 and this was attributed to higher debt levels that were
required to finance growing operations.
Net Income/Loss
The Company posted net income of $102,000 in 2001 compared to a net loss of
$306,000 incurred for the 2000 year.
30
Impact of Inflation
Inflation has not been material to the business of the Company. The Company's
financial statements are presented in United States dollars. The United States
has not experienced hyperinflation during the last five years.
Impact of Foreign Currency Fluctuations on the Company
Foreign currency fluctuations have not had substantial impact on the Company.
The Company does not hedge its foreign currency investments or holdings.
Impact of Governmental Policies or Factors on the Company
Except as explained below, no governmental economic, fiscal, monetary or
political policies or factors have materially affected, directly or indirectly,
the Company's operations or investments by United States shareholders in the
past. Except as noted in the following sentence, the Company does not anticipate
that such policies or factors will materially affect, directly or indirectly,
the Company's operations or investments by United States shareholders in the
future. Notwithstanding the foregoing, the Company's operation of API
Electronics, Inc. will be affected by governmental policies related to defense
spending (see also Item 4B - Material Effects of Government Regulations above
and Item 5D - TREND INFORMATION below).
B. LIQUIDITY AND CAPITAL RESOURCES
Summary
At May 31, 2002, the Company had cash reserves of $1,366,294 compared to $41,073
as at May 31, 2001.
At May 31, 2002 working capital amounted to $2,148,073 compared to $930,027 at
May 31, 2001. The increase in working capital is attributed primarily to the
cash acquired through the reverse take-over of $1,178,376 and the issuance of
share of capital of $2,296,212 during 2002.
During 2002, cash was used to fund operations in the amount of $811,048
(2001-$56,735), to fund the acquisition of the Filtran Group of companies of
$955,374 and to purchase capital assets of $257,217 (2001-$187,850).
The Company anticipates that it will have sufficient liquidity for current
requirements.
At May 31, 2001 the Company had cash reserves of $41,000 compared to $81,000 as
at May 31, 2000.
At May 31, 2001 working capital totaled $930,000 compared to $640,000 at May 31,
2000. The increase in the working capital is attributed primarily to the
increased sales level.
Specific working capital components increased significantly. Accounts receivable
rose 27.8% to $340,000 at May 31, 2001 from $266,000 as at May 31, 2000.
Inventory increased 31.3% to $1,277,000 at May 31, 2001 from $973,000 as at May
31, 2000. Accounts payable rose 24.0% to $341,000 at May 31, 2001 from $275,000
at May 31, 2000. The higher levels of accounts receivable, inventory, and
accounts payable are consistent with higher sales levels that require increases
in these items to support.
31
Long-term debt (current and long-term portion) increased to $288,000 in 2001
from $21,000 at May 31, 2000. The amount due to a principal officer for working
capital loans decreased to $900,000 at May 31, 2001 from $1,228,000 as at May
31, 2000.
Cash Flow
Cash used in operating activities increased from $(56,735) for the year ended
May 31, 2001 to $(811,048) for year ended May 31, 2002. This increase is
attributed primarily to the 2002 loss of $857,643.
The major source of cash in 2002 was provided by the exercise of warrants and
options. This exercise of securities added cash totaling $2,296,212 during the
year. The other significant source of cash was $1,178,376 acquired via the
reverse take-over transaction of API as described in note 1(a) of the
consolidated financial statements. In connection with the API acquisition, the
Company issued common stock and common stock purchase warrants to the
stockholders of API. One half of the warrants are exercisable at $0.45 per share
and the other half of the warrants are exercisable at $0.75 per share.
Approximately 50% of these warrants were exercised during the fiscal year ended
May 31, 2002. If the warrants that remain outstanding are fully exercised, the
cash consideration to the Company would be in excess of $1,970,418.
The major uses of cash during 2002 were the Filtran Group acquisition in the
amount of $955,374 and the purchase of capital assets in the amount of $257,217.
On June 19, 2002, the Company completed a $1,175,000 private placement offering
of 500,000 units at $2.35 per unit. Each unit consists of one common share and
one warrant. The warrants expire on June 30, 2004 and entitles the holders to
purchase one additional common share at a price of $3.00 per share. Proceeds
from the private placement will be used for general working capital purposes and
to fund ongoing acquisition activities.
Cash generated (used) in operating activities increased favourably to $(57,000)
for the year ended May 31, 2001 from $(252,000) for year ended May 31, 2000.
This increase is attributed primarily to the 2001 net income of $102,000
compared to the 2000 net loss of $305,000. This was offset by a net change in
non-cash working capital in 2001 of $(318,000) compared to a net change of
$(54,000) posted during 2000.
The major source of cash in 2001 was provided by the increase in long-term debt
in the amount of $222,000. The major source of cash in 2000 was provided by the
increase in bank indebtedness in the amount of $261,000 and the increase in
long-term debt of $100,000.
The major use of cash during 2001 was the purchase of capital assets in the
amount of $188,000. The major use of cash during 2000 was also the purchase of
capital assets in the amount of $58,000.
Capital Assets and Intangibles
The acquisition of the Filtran Group substantially improved API's design and
manufacturing capabilities. The addition of machinery and equipment in the
amount of $312,841 and land and building in the amount of $1,577,094 brought
API's state-of-the-art facilities to 48,500 square feet. In addition, the
Company acquired the goodwill of the Filtran Group, which is comprised of its
excellent management team, its qualified workforce and its quality control
system, which includes its ISO 9001 certification. The value of goodwill is
reflected in the financial statement in the amount of $962,529.
Furthermore, API acquired a non-compete agreement from Filtran Group former
principal for the amount of $325,712 to help ensure all the benefits and
synergies of the acquisition can be realized in the future.
32
As of the date of this Annual Report, the Company's capital assets are
sufficient for the Company's present requirements.
The Company holds cash and cash equivalents in Canadian currency. One of the
Company's primary subsidiary, API Electronics, Inc., holds cash and cash
equivalents in United States currency. The Company's other primary group of
subsidiaries, the Filtran Group, holds cash and cash equivalents in United
States and Canadian currencies. Neither the Company nor any of its subsidiaries
uses financial instruments for hedging purposes.
The Company did not have material commitments for capital expenditures as of the
end of its fiscal year ending May 31, 2002.
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
During the last three financial years, the Company did not spend any money on
Company-sponsored research and development activities, and the Company did not
have research and development policies. The Company's wholly-owned subsidiaries,
API and the Filtran Group of companies have not spent material amounts of money
on research and development activities, and do not have formal research and
development policies.
D. TREND INFORMATION
The past 18 months have been very difficult for the technology industry.
Notwithstanding the difficulty, over the past two years the Company has
experienced a 48% increase in sales in 2001 and a modest increase of 9% in 2002.
With the acquisition of the Filtran Group of companies, the Company expects
sales to increase significantly. For the first quarter of 2003 consolidated
sales, which included the Filtran Group's sales of $910,000, increased by 78%
over sales for the comparative 2002 first quarter period (unaudited). For the
2003 first quarter, API's sales decreased by 21% as compared to the 2002 first
quarter sales (unaudited). With the inclusion of the Filtran Group's sales for
the 2003 fiscal year, the Company expects sales to double over the sales for the
2002 fiscal year.
Despite the decline in sales for API during the first quarter of 2003, over the
next few quarters, API believes that new orders should increase as a result of
the new military budget approved by the US government. API is also taking cost
cutting steps through restructuring its manufacturing and IT systems. API
continues to emphasize new product development, and a new ISO 9000-2000 quality
system should be in place by the new year.
API is spending more than $500,000 on the upgrade of its Hauppauge, NY facility
(equipment and building). API believes it is poised to emerge from the downturn
in the technology industry with a sharper strategic focus, improved products and
a significantly lower cost structure.
Although demand from defense industry customers of API has continued to be
strong since 9/11/01, Filtran Group has experienced decreased demand as a result
of the downturn in the telecommunications industry. The telecommunications
industry continues to carry substantial uncertainty, so it would be difficult to
predict when demand from that sector can be expected to increase. This lack of
demand has increased sales price pressures over the last two years, which
Filtran Group is continuing to experience.
In order to increase sales, Filtran Group has been attempting to enter the Video
DSL market. The VDSL market is one of the few areas experiencing growth in the
telecommunications industry. Filtran Group is focused on overcoming pricing
pressures in that market, which it believes it must do in order to gain
33
significant sales. To do so, Filtran Group has outsourced the manufacturing of
certain products to manufacturers in China. Filtran Group is working closely
with these manufacturers to maintain quality control and to decrease the cost to
manufacture these units, in order to generate such sales.
Filtran Group is aggressively pursuing growth strategies with the hiring of
additional qualified sales persons in the United States. Filtran Group has hired
a business development specialist who has begun setting up a nationwide
representative network in the United States. In order to support its increased
sales efforts, Filtran Group is developing a new product catalogue and continues
to improve its web-site. Before the end of the calendar year 2002, Filtran Group
will introduce a new standard product catalog that will feature many new
products including surface mount chip inductors, filter connectors and many new
designs in its standard product lines of transformers, inductors, chokes,
filters and power supplies. Filtran Group believes its growth potential is best
in the United States markets, particularly in the military, transportation,
industrial equipment, medical, power conversion and other electrical and
electronic equipment OEM's that have historically comprised Filtran Group's
Canadian customer base.
Filtran Group also is developing a synergistic partnership with API targeting
the military relay market. Much of the groundwork has already been completed on
this project and Filtran Group expects to receive contracts resulting from these
efforts within the 6 month period following the date of this Annual Report.
Forward-Looking Statements
The Company desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 and is making this cautionary
statement in connection with such safe harbor legislation. This Form 20-F, or
any other written or oral statements made by or on our behalf may include
forward-looking statements which reflect our current views with respect to
future events and financial performance. The words "believe," "expect,"
"anticipate," "intends," "estimate," "forecast," "project,"
ITEM 6. DIRECTORS, SENIOR MANAGEMENT, AND EMPLOYEES
A. DIRECTORS, SENIOR MANAGEMENT AND KEY EMPLOYEES AND PERSONNEL AS OF THE
DATE OF THIS ANNUAL REPORT
Phillip DeZwirek
Phillip DeZwirek is the Vice-Chairman and Treasurer of the Company. As of
the date of this Annual Report, Phillip DeZwirek also serves as the Chief
Financial Officer and Controller of the Company. From August 31, 2001
until the end of the 2001 calendar year, Phillip DeZwirek had been a
director, Chairman of the Board, Chief Executive Officer, Chief Financial
Officer and Treasurer of the Company. Phillip DeZwirek has been a
director, Chairman of the Board and the Chief Executive Officer of CECO
Environmental Corp. since August 1979. Mr. DeZwirek also served as Chief
Financial Officer of CECO Environmental Corp. from August 1979 until
January 26, 2000. Mr. DeZwirek's principal occupations during the past
five years have been serving as Chairman of the Board and Vice President
of CECO Filters (since 1985); serving as Treasurer and Assistant Secretary
of CECO Group (since December 10, 1999); serving as a director of Kirk &
Blum and kbd/Technic (since 1999); serving as President of Can-Med
Technology, Inc. d/b/a Green Diamond Corp. (since 1990); and serving as
Chairman and as a director of Digital Fusion Multimedia Corp. (from
January 1995 until June 1998). Mr. DeZwirek has also been involved in
private investment activities for the past five years.
Date of Birth: December 5, 1937
34
Current Outside Business Activities:
Chairman of the Board and Chief Executive Officer of CECO Environmental
Corp.
Chairman of the Board and Vice President of CECO Filters
Treasurer and Assistant Secretary of CECO Group
Director, Kirk & Blum
Director, kbd/Technic
President of Can-Med Technology, Inc. d/b/a Green Diamond Corp.
Thomas W. Mills
On August 31, 2001 Thomas W. Mills became a director and the President and
Chief Operating Officer of the Company. Thomas W. Mills is President and
Chief Operating Officer of the Company's wholly-owned subsidiary, API
Electronics, Inc. He has worked within the electronics industry since 1967
and has specialized in semiconductors since 1969. His management career
has spanned Production Control, Production/Manufacturing, Quality
Control/Assurance, Program/Project Operation, and Vice President of
Operations. Mr. Mills, who has been with API Electronics, Inc. since 1981,
holds an economics degree and has taken courses in Industrial Engineering.
Date of Birth: January 31, 1945
Current Outside Business Activities: None.
Jason DeZwirek
Jason DeZwirek is a director and the Chairman, Chief Executive Officer and
Secretary of the Company. From August 31, 2001 until the end of the 2001
calendar year, Jason DeZwirek was a director, Executive Vice President,
and Secretary of the Company. Jason DeZwirek has been Vice President and a
Director of CECO Environmental Corp. since February 1994 and the Secretary
of CECO since February 20, 1998. He also serves as Vice President of
Can-Med Technology, Inc. d/b/a Green Diamond Corp. Mr. DeZwirek's
principal occupation since October 1999 has been as Founder and President
of kaboose.com Inc., a company engaged in the development of interactive
educational content. Mr. DeZwirek has also been involved in private
investment activities for the past five years.
Date of Birth: September 3, 1970
Current Outside Business Activities: President of kaboose.com Inc. Vice
President, Secretary and Director of CECO Environmental Corp. Vice
President of Can-Med Technology, Inc. d/b/a Green Diamond Corp.
Joanne E. Mills
On August 31, 2001, Joanne E. Mills became the Assistant Secretary of the
Company. Joanne E. Mills is the Secretary of API Electronics, Inc., a
wholly-owned subsidiary of the Company, and has worked for API
Electronics, Inc. since 1990. She currently serves as the Human Resources
35
Director of API Electronics, Inc., where she administers health and dental
plans, the 401(k) retirement plan, payroll direction, insurance plans, and
various other administrative functions.
Date of Birth: August 11, 1946
Current Outside Business Activities: None.
Jerome Rabinowitz
Jerome Rabinowitz has been the Vice-President of Sales and Marketing of
the Company since August 31, 2001. He has been Vice President-Sales of API
since March 1999. Mr. Rabinowitz has been employed in the electronics
industry since 1965 and specialized in the semiconductor sector since
1969. He has held management positions in sales, marketing, purchasing and
inventory control. During 1997 and 1998, he was employed by ACI
Electronics, Inc. as a marketing director. From March 1998 to March 1999,
he was vice president of sales at Knight Electronics.
Date of Birth: January 15, 1943
Current Outside Business Activities: None
Koang Eng Lim, M.Sc, P.Eng
Koang E. Lim is Chief Engineer at Filtran Group. Koang E. Lim has over 35
years of specialized experience in electrical network design starting in
1965 with Bell-Northern Research in London, England. He graduated from
London University with Bachelor and Master degrees in Engineering in 1958
and 1963, respectively, and is registered with the Professional Engineers
of Ontario. He spent 6 years with BNR in the network group doing research
and development of filters, equalizers and software. He was granted a
patent for Active Lattice Networks in 1968.
Koang E. Lim was a Senior Lecturer in the University of Singapore from
1972-78, responsible for teaching electrical communication and network
theory to 3/rd/ and 4/th/ year students. From 1978 to 1981, he was with
Spar Aerospace in St. Anne de Bellevue, Montreal, working on filters,
amplitude and delay equalizers for satellite communications. From 1981 to
1982, he was with Gandalf, engaged in the development of active filters
for use in modems.
Koang E. Lim joined Filtran Group in August 1982. He retired in 2000 and
now works for the Company on a consulting basis. As a Chief Engineer at
Filtran Group, he is responsible for engineering designs and completing
quote files and is a liaison with customers for technical issues. His
responsibilities include final approval of products made at Filtran
Group's facilities and offshore facilities.
Date of Birth: June 9, 1931
Current Outside Business Activities: None
Ian Bolt
36
Ian Bolt is Marketing Manager at Filtran Group. Ian has over thirty years
of experience in all areas of operations of Filtran Group. Ian is a Higher
National Certificate (HNC) graduate from Croydon Technical College in the
U.K. in 1963. He gained experience with large multinational corporations
before joining Filtran Group. He worked as assistant manufacturing manager
for radio tube receivers production at Mullards, now Phillipps
Electronics, for two years before joining Canadian General Electrics as
Radio Engineer. At CGE he was responsible for all technical aspects of
manufacturing production. He moved to be quality assurance manager at
Ferritronics to support the design and manufacture for voice telephony for
military radios.
Mr. Bolt joined Filtran Group in December 1969. In his present position as
Marketing Manager, he oversees the material control and service managers
and all customer service relations.
Date of Birth: August 3, 1945
Current Outside Business Activities: None
Jason DeZwirek is Phillip DeZwirek's son. Joanne E. Mills and Thomas W. Mills
are married to each other. There are no other family relationships between any
two or more of the directors or senior management members named above. There are
no arrangements or understandings with major shareholders, customers, suppliers
or others, pursuant to which any person referred to above was selected as a
director or member of senior management.
The Company's directors and officers as of the end of the most recent fiscal
year and as of the date of this Annual Report are summarized in the following
table:
- --------------------------------------------------------------------------------------------------
Name Position(s)
- --------------------------------------------------------------------------------------------------
Phillip DeZwirek Director, Vice Chairman, Chief Financial Officer,
Treasurer, and Controller
- --------------------------------------------------------------------------------------------------
Thomas W. Mills Director, President, and Chief Operating Officer
- --------------------------------------------------------------------------------------------------
Jason DeZwirek Director, Chairman, Chief Executive Officer and
Secretary
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Joanne E. Mills Assistant Secretary
- --------------------------------------------------------------------------------------------------
B. COMPENSATION
Compensation Required to be Disclosed Under the Ontario Securities Act
The Ontario Securities Act requires that the Company disclose information about
the compensation paid to, or earned by the Company's Chief Executive Officer and
each of the other four most highly compensated executive officers of the Company
earning more than Canadian $100,000 in total salary and bonus for the fiscal
year in question. The only executive officers of the Company for whom disclosure
is required under the Ontario Securities Act for the fiscal year ended May 31,
2002 are: Jason DeZwirek, the Chief Executive Officer and Chairman, Thomas W.
Mills, President, Jerome Rabinowitz, Vice President-Sales at API, and Ian Bolt,
Marketing Manager at Filtran Group of companies.
37
Information regarding Phillip DeZwirek, the Vice-Chairman and Treasurer of the
Company, also is included.
Summary of Compensation
The following table is a summary of compensation paid to the Named Executive
Officers for the Company's most-recently completed fiscal year:
==============================================================================================================
Annual Compensation Long Term Compensation
--------------------------------------------------------------------------------------------------------------
Fiscal
Name and Position of Year- Other Annual Securities Under All Other
Principal ending Salary Bonus Compensation Options/ Granted Compensation
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Jason DeZwirek/(1)/ 2002 $27,522 Nil Nil 100,000/(2)/ Nil
Chairman, Chief
Executive Officer,
Secretary
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Phillip DeZwirek/(3)/ 2002 Nil Nil Nil 100,000/(2)/ Nil
Vice-Chairman, Chief
Financial Officer,
Treasurer
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Thomas W. Mills/(4)/ 2002 $91,000 Nil Nil 100,000/(2)/ $6,588/(5)/
President, Chief
Operating Officer
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Jerome Rabinowitz/(6)/ 2002 $104,400 $5,000 Nil Nil Nil
Vice President - Sales
and Marketing
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Ian Bolt 2002 Canadian Nil Canadian Nil Nil
Marketing Manager at $125,000 $32,000/(7)/
Filtran Group
--------------------------------------------------------------------------------------------------------------
==============================================================================================================
(1) Jason DeZwirek was elected a Director and appointed Secretary and Executive
Vice President on August 31, 2001. He continued as Secretary and
additionally assumed the positions of Chairman and Chief Executive Officer
at the end of the 2001 calendar year. Amounts paid to Jason DeZwirek by the
Company were paid to him as consulting fees.
(2) Of the 100,000 options granted to each director of the Company; 50,000 are
exercisable at $0.45 and 50,000 are exercisable at $0.75, all expiring
August 31, 2006 and all convertible on a one-for-one basis upon exercise.
(3) Phillip DeZwirek was elected a Director and appointed Treasurer, Chief
Financial Officer and Chairman on August 31, 2001. He continued as a
Director and has held the positions of Vice-Chairman, Chief Financial
Officer and Treasurer since the end of the 2001 calendar year.
(4) Thomas Mills was elected a Director and appointed President on August 31,
2001.
(5) Thomas Mills received the use of a company car, resulting in expenses of
$6,588 to the Company.
(6) Jerome Rabinowitz was appointed Vice President - Sales and Marketing of the
Company on August 31, 2001.
(7) Ian Bolt is the Marketing Manager of Filtran Group and has use of a vehicle
leased by the Company, which costs the Company (Canadian) $32,000 per year.
Compensation Previously Disclosed Publicly
The Company disclosed compensation to certain of the Company's directors in an
October 2, 2002 Notice of Special Meeting of Shareholders to be held November 7,
2002 and Management Information Circular
38
relating to its election of directors and appointment of auditors (the
"Circular"), which Circular was publicly disclosed in a Form 6-K filing with the
United States Securities and Exchange Commission.
In the Circular, the Company disclosed that API, the Company's wholly-owned
subsidiary, pays Thomas W. Mills an annual salary of $91,000, and an annual car
allowance of $6,588. API pays Jerome Rabinowitz an annual salary of $104,246 and
in the fiscal year ended May 31, 2002 paid him a bonus of $5,000. The Company
pays Jason DeZwirek an annual salary of $42,000. API Electronics, Inc. does not
pay any further compensation to Mr. or Mrs. Mills, Jason DeZwirek, Mr.
Rabinowitz or to any of its directors.
Cash Compensation of Directors During the Financial Year Ended May 31, 2002
No directors of the Company were compensated in cash by the Company or any of
its subsidiaries during the financial year ended May 31, 2002, for their
services in their capacity as directors.
Stock Option Plan
In 1995, a stock option plan was authorized for directors, officers, and
employees. The terms of the plan restrict options granted at any point in time
to 10% of the outstanding shares of the Company. Also, no optionee can be
granted options of more than 5% of the outstanding Common Shares of the Company
at one point in time. The maximum term of any option granted is five years.
Stock Options Granted to Directors and Officers
The Company granted stock options to certain officers and directors during its
fiscal year ending May 31, 2002, which stock options are described below and are
included in Item 6E below. During the financial year ended May 31, 2002, the
Company granted to Phillip DeZwirek, Jason DeZwirek and Thomas Mills 100,000
options each; 50,000 of such options are exercisable at $0.45 and 50,000 of such
options are exercisable at $0.75. All of such options expire August 31, 2006 and
convertible on a one-for-one basis upon exercise.
Long-Term Incentive Plan Awards
The Company did not have a long-term incentive plan (the definition of
"long-term incentive plan" contained in the Ontario Securities Act expressly
excludes a stock option plan) during the financial year ended May 31, 2002.
Pension and Retirement Benefits
During the fiscal year ending May 31, 2002, the Company provided its employees
and employees of its subsidiaries with a simplified retirement benefit plan
whereby the Company matched employees' contributions up to the lesser of three
percent of each employees' annual income or $6,000. Neither the Company nor its
subsidiaries have set aside or accrued any funds for the purpose of providing
pension, retirement, or similar benefits.
C. BOARD PRACTICES
From April 10, 2001 until August 31, 2001, the Board of directors consisted of
James C. Cassina, Elizabeth J. Kirkwood, Sandra J. Hall, and Richard J. Lachick.
39
On August 31, 2001, the number of directors was increased from four to five,
Elizabeth J. Kirkwood and Richard J. Lachick resigned from the board of
directors, and Phillip DeZwirek, Thomas W. Mills, and Jason DeZwirek were
appointed to the Board of Directors. In addition, effective August 31, 2001,
Sandra J. Hall and James C. Cassina resigned as directors of the Company. At the
November 7, 2002 annual shareholders meeting, the number of directors was
reduced from five to three. The three directors named below continue to serve as
of the date of this Annual Report. The current terms of each of the Company's
directors began on November 7, 2002, the date of the Company's 2002 Annual
Meeting of Shareholders, and will expire on the date of the Company's 2003
Annual Meeting of Shareholders. Each of the directors named below has served as
a Director of the Company since the date set forth beside his name:
Name Beginning of Tenure Expiration of Term
- ---- ------------------- ------------------
Phillip DeZwirek August 31, 2001 2003 annual meeting*
Thomas W. Mills August 31, 2001 2003 annual meeting*
Jason DeZwirek August 31, 2001 2003 annual meeting*
* such directors may be re-elected at such meeting
None of the Company's directors are parties to service contracts with the
Company or any of its subsidiaries providing for benefits upon termination of
employment.
The Company does not have a Remuneration Committee. As of the date of this
Annual Report, the Company's Audit Committee consists of two non-independent
directors, Phillip DeZwirek and Jason DeZwirek, both of whom are executive
officers and directors of the Company. Phillip DeZwirek and Jason DeZwirek also
are major shareholders of the Company. Phillip and Jason DeZwirek are father and
son. The members are appointed by the Company's directors at the conclusion of
the annual meeting to hold office until the next annual meeting, or until their
successors are elected or appointed. The Audit Committee recommends the
Company's auditors to the Board of Directors, and reviews the financial
statements of the Company and reports thereon to the Company's Board of
Directors before the financial statements are approved by the Board of
Directors.
D. EMPLOYEES
The Company, including its subsidiaries, employed the following numbers of
employees as of the dates and at the locations set forth below:
40
- ---------------------------------------------------------------------------------
Location 5/10/00 10/31/00 4/30/01 10/1/01 5/31/02 10/1/02
- ---------------------------------------------------------------------------------
Toronto, Ontario,
Canada 2 1 1 0 1 1
- ---------------------------------------------------------------------------------
Charlottesville,
Virginia 0 7 2 0 0 0
- ---------------------------------------------------------------------------------
Hauppauge,
New York 0 0 0 50 35 32
- ---------------------------------------------------------------------------------
Ogdensburg,
New York 0 0 0 0 22 19
- ---------------------------------------------------------------------------------
Nepean,
Ontario 0 0 0 0 126 122
- ---------------------------------------------------------------------------------
Kanata,
Ontario 0 0 0 0 7 4
- ---------------------------------------------------------------------------------
TOTAL 2 8 3 50 191 178
- ---------------------------------------------------------------------------------
41
The Company, including its subsidiaries, employed the following numbers of
employees as of the dates and in the categories of activities set forth below:
- ------------------------------------------------------------------------------------------------
Activity 5/10/00 10/31/00 4/30/01 10/1/01 5/31/02 10/1/02
- ------------------------------------------------------------------------------------------------
Corporate
Offices 2 1 1 0 1 1
- ------------------------------------------------------------------------------------------------
Web-site
Management 0 7 2 0 0 0
- ------------------------------------------------------------------------------------------------
API *
Management 0 0 0 3 3 3
- ------------------------------------------------------------------------------------------------
API
Sales 0 0 0 2 2 2
- ------------------------------------------------------------------------------------------------
API Design
Engineering 0 0 0 1 1 1
- ------------------------------------------------------------------------------------------------
API Testing /
Environmental
Engineering 0 0 0 2 2 1
- ------------------------------------------------------------------------------------------------
API Process
Engineering 0 0 0 4 4 3
- ------------------------------------------------------------------------------------------------
API Quality
Assurance 0 0 0 2 2 2
- ------------------------------------------------------------------------------------------------
API Production
Management 0 0 0 3 3 3
- ------------------------------------------------------------------------------------------------
API
Assembly 0 0 0 31 16 16
- ------------------------------------------------------------------------------------------------
API Accounting /
Human Resources 0 0 0 2 2 1
- ------------------------------------------------------------------------------------------------
Filtran *
Management 0 0 0 0 2 2
- ------------------------------------------------------------------------------------------------
Filtran
Sales 0 0 0 0 4 4
- ------------------------------------------------------------------------------------------------
Filtran Design
Engineering 0 0 0 1 6 5
- ------------------------------------------------------------------------------------------------
Filtran Testing /
Environmental
Engineering 0 0 0 0 7 7
- ------------------------------------------------------------------------------------------------
Filtran Quality
Assurance 0 0 0 0 4 4
- ------------------------------------------------------------------------------------------------
Filtran Production
Management 0 0 0 0 10 8
- ------------------------------------------------------------------------------------------------
Filtran
Assembly 0 0 0 0 101 95
- ------------------------------------------------------------------------------------------------
Filtran Accounting/
Human Resources 0 0 0 0 7 6
- ------------------------------------------------------------------------------------------------
Filtran Purchasing,
Stock, Shipping and
Maintenance 0 0 0 0 12 12
- ------------------------------------------------------------------------------------------------
Filtran Production 0 0 0 0 2 2
- ------------------------------------------------------------------------------------------------
TOTAL 2 8 3 51 191 178
- ------------------------------------------------------------------------------------------------
* API = API Electronics, Inc., a wholly-owned subsidiary of the Company
** Filtran = Filtran Inc., Canadian Dataplex Ltd. and Tactron Communications
(Canada) Limited, wholly-owned subsidiaries of the Company and Tactron
Communications' wholly-owned subsidiary, Filtran Limited.
42
E. SHARE OWNERSHIP
Share Ownership of Directors and Officers
As of October 31, 2002, an aggregate of 15,403,814 Common Shares and no Special
Shares of the Company were issued and outstanding. The table below sets forth
the share ownership in the Company of the persons listed in subsection 6.B of
this Item 6 above as of October 31, 2002, based on numbers reported to the
Company by the persons set forth below. None of the persons set forth below have
different voting rights.
- -----------------------------------------------------------------------------
Name Number of Common Percentage of Issued and
Shares Held Outstanding Common Shares/(d)/
- -----------------------------------------------------------------------------
Phillip DeZwirek 2,969,241/(a)/ 19.28%
- -----------------------------------------------------------------------------
Thomas W. Mills 329,916/(b)/ 2.14%
- -----------------------------------------------------------------------------
Jason DeZwirek 2,804,283/(c)/ 18.21%
- -----------------------------------------------------------------------------
Jerome Rabinowitz None ---
- -----------------------------------------------------------------------------
Ian Bolt None ---
- -----------------------------------------------------------------------------
_____________
Notes:
(a) Mr. Phillip DeZwirek holds 50% of Icarus Investments Corp., which in turn
holds 50.01% of Can-Med Technology, Inc. Can-Med Technology, Inc. (doing
business as Green Diamond Corp.) held 2,804,283 Common Shares of the
Company as of October 31, 2002. All of such shares are attributed to Mr.
DeZwirek, which represent approximately 18.21% of the outstanding Common
Shares of the Company. Mr. Phillip DeZwirek controls Technapower Industries
Corporation, a company that held 164,958 Common Shares of the Company,
representing an additional 1.07% of the Company's Common Shares, as of
October 31, 2002. Mr. DeZwirek also holds options to purchase 100,000
shares of common stock of the Company and warrants to purchase 2,969,241
shares of common stock of the Company, which are not included in this
chart.
(b) Excludes options to purchase 100,000 shares of common stock of the Company
held by Mr. Mills and ownership of warrants to purchase 329,916 shares of
common stock of the Company.
(c) Mr. Jason DeZwirek holds 50% of Icarus Investments Corp., which in turn
holds 50.01% of Can-Med Technology, Inc. Can-Med Technology Inc. (doing
business as Green Diamond Corp.) held 2,804,283 Common Shares of the
Company as of October 31, 2002. All of such shares are attributed to Mr.
DeZwirek, which represents approximately 18.21% of the outstanding Common
Shares of the Company. Mr. DeZwirek also holds options to purchase 100,000
shares of common stock of the Company and warrants to purchase 2,804,283
shares of common stock of the Company, which are not included in this
chart.
(d) Percentages are computed by dividing the number of Common Shares held
(excluding options and warrants to purchase Common Shares), by the
15,403,814 Common Shares of the Company issued and outstanding as of
October 31, 2002. Note that percentages held by the Company's major
shareholders, as disclosed in Item 7A below, which reflect shares
beneficially owned (including options and warrants), may be higher.
Stock Option Plan
In 1995, a stock option plan was authorized for directors, officers and
employees. The terms of the plan restrict options granted at any point in time
to 10% of the outstanding shares of the Company. Also, no optionee can be
granted options of more than 5% of the outstanding Common Shares of the Company
at one point in time. The maximum term of any option granted is five years.
Stock Options Held by Directors and Officers
The following table sets forth all outstanding stock options granted to
directors and officers of the Company for whom individual disclosure is required
under Ontario law or for whom the Company has elected to disclose publicly as of
the date of this Annual Report:
43
Common Share Purchase Options
- ------------------------------------------------------------------------------------------
Optionee Number of Shares Exercise Price Expiration Date
- ------------------------------------------------------------------------------------------
Phillip DeZwirek 50,000 $.45 August 31, 2006
- ------------------------------------------------------------------------------------------
Phillip DeZwirek 50,000 $.75 August 31, 2006
- ------------------------------------------------------------------------------------------
Thomas W. Mills 50,000 $.45 August 31, 2006
- ------------------------------------------------------------------------------------------
Thomas W. Mills 50,000 $.75 August 31, 2006
- ------------------------------------------------------------------------------------------
Jason DeZwirek 50,000 $.45 August 31, 2006
- ------------------------------------------------------------------------------------------
Jason DeZwirek 50,000 $.75 August 31, 2006
- ------------------------------------------------------------------------------------------
Jerome Rabinowitz None --- ---
- ------------------------------------------------------------------------------------------
Ian Bolt None --- ---
- ------------------------------------------------------------------------------------------
No purchase price was associated with any of the stock options set forth above.
The number of shares and exercise prices associated with the stock options set
forth above reflect post-consolidation numbers and prices--see Note 10(d) to the
financial statements contained in Part III, Item 17 of this Annual Report.
Warrants Held by Directors and Officers
The following table sets forth all outstanding warrants to purchase Common
Shares granted to persons for whom individual disclosure is required under
Ontario law or for whom the Company has elected to disclose publicly as of the
date of this Annual Report:
Warrants to Purchase Common Shares
- ---------------------------------------------------------------------------------------------
Warrant Holder Number of Shares Exercise Price Expiration Date
- ---------------------------------------------------------------------------------------------
Phillip DeZwirek/(a)/ 1,484,621 $.45 February 28, 2003
- ---------------------------------------------------------------------------------------------
Phillip DeZwirek/(a)/ 1,484,621 $.75 August 30, 2003
- ---------------------------------------------------------------------------------------------
Thomas W. Mills 164,958 $.45 February 28, 2003
- ---------------------------------------------------------------------------------------------
Thomas W. Mills 164,958 $.75 August 30, 2003
- ---------------------------------------------------------------------------------------------
Jason DeZwirek/(b)/ 1,402,142 $.45 February 28, 2003
- ---------------------------------------------------------------------------------------------
Jason DeZwirek/(b)/ 1,402,142 $.75 August 30, 2003
- ---------------------------------------------------------------------------------------------
Jerome Rabinowitz None --- ---
- ---------------------------------------------------------------------------------------------
Ian Bolt None --- ---
- ---------------------------------------------------------------------------------------------
______________
Notes:
(a) Mr. Phillip DeZwirek holds 50% of Icarus Investments Corp., which in turn
holds 50.01% of Can-Med Technology, Inc. Can-Med Technology, Inc. (doing
business as Green Diamond Corp.) held Series A Warrants to purchase
1,402,142 Common Shares of the Company at an exercise price of $.45 and
Series B Warrants to purchase 1,402,142 Common Shares of the Company at an
exercise price of $.75 as of September 28, 2001. Ownership of all of such
warrants has been attributed to Phillip DeZwirek. Mr. Phillip DeZwirek also
controls Technapower Industries Corporation, a company that held Series A
Warrants to purchase 82,479 Common Shares of the Company at an exercise
price of $.45 and Series B Warrants to purchase 82,479 Common Shares of the
Company at an exercise price of $.75 as of October 31, 2002.
(b) Mr. Jason DeZwirek holds 50% of Icarus Investments Corp., which in turn
holds 50.01% of Can-Med Technology, Inc. Can-Med Technology, Inc. (doing
business as Green Diamond Corp.) held Series A Warrants to purchase
1,402,142 Common Shares of the Company at an exercise price of $.45 and
Series B Warrants to purchase 1,402,142 Common Shares of the Company at an
exercise price of $.75 as of October 31, 2002. Ownership of all of such
warrants has been attributed to Jason DeZwirek.
44
The warrants described in the table above were issued in connection with the
transaction described in Note 1(a) to the financial statements contained in Part
III, Item 17 of this Annual Report, and for the consideration described therein.
The number of shares and exercise prices associated with the stock options set
forth above reflect post-consolidation numbers and prices--see Note 10(c) to the
financial statements contained in Part III, Item 17 of this Annual Report.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. MAJOR SHAREHOLDERS
The following table discloses all known major shareholders beneficially owning
5% or more of the Company's issued and outstanding shares of Common Stock as of
October 31, 2002 (plus Thomas Mills, who owns just under 5%). As of October 31,
2002 (and as of the date of this Annual Report), an aggregate of 15,403,814
Common Shares and no Special Shares of the Company were issued and outstanding.
None of the major shareholders have different voting rights.
- -------------------------------------------------------------------------------------------
Name Number of Common Percentage of Issued and
Shares Beneficially Outstanding Common Shares
Owned (a)
- -------------------------------------------------------------------------------------------
Can-Med Technology, Inc. doing
business as Green Diamond Corp. 5,608,566/(b)/ 30.80%
- -------------------------------------------------------------------------------------------
Phillip DeZwirek 6,038,483/(c)/ 32.69%
- -------------------------------------------------------------------------------------------
Jason DeZwirek 5,708,566/(d)/ 31.18%
- -------------------------------------------------------------------------------------------
Thomas W. Mills 759,832/(e)/ 4.80%
- -------------------------------------------------------------------------------------------
_______________
Notes:
(a) Computed by dividing the number of shares beneficially held by each
shareholder, including Common Shares and Common Shares underlying options
and warrants exercisable within 60 days, by the total number of issued and
outstanding Common Shares of the Company plus each shareholder's Common
Shares underlying options and warrants exercisable within 60 days.
(b) Includes 2,804,283 Common Shares and 2,804,283 Common Shares underlying
warrants exercisable within 60 days.
(c) Includes 2,804,283 Common Shares and 2,804,283 Common Shares underlying
warrants exercisable within 60 days held of record by Can-Med Technology,
Inc. d/b/a Green Diamond Corp. ("Green Diamond Corp."). Mr. Phillip
DeZwirek is the President of Green Diamond Corp., and holds a 50% equity
interest in Icarus Investments Corp., which in turn holds a 50.01% equity
interest in Green Diamond Corp. Also includes 164,958 Common Shares and
164,958 Common Shares underlying warrants exercisable within 60 days held
of record by Technapower Industries Corporation, a corporation controlled
by Mr. Phillip DeZwirek. Also includes 100,000 Common Shares underlying
options exercisable within 60 days held of record by Mr. Phillip DeZwirek.
(d) Includes 2,804,283 Common Shares and 2,804,283 Common Shares underlying
warrants exercisable within 60 days held of record by Can-Med Technology,
Inc. d/b/a Green Diamond Corp. ("Green Diamond Corp."). Mr. Phillip
DeZwirek, Mr. Jason DeZwirek's father, is the President of Green Diamond
Corp., and Mr. Jason DeZwirek holds a 50% equity interest in Icarus
Investments Corp., which in turn holds a 50.01% equity interest in Green
Diamond Corp. Also includes 100,000 Common Shares underlying options
exercisable within 60 days held of record by Mr. Jason DeZwirek.
(e) Includes 329,916 Common Shares and 329,916 Common Shares underlying
warrants exercisable within 60 days. Also includes 100,000 Common Shares
underlying options exercisable within 60 days held of record by Thomas
Mills.
Each of the major shareholders listed above obtained his or its Common Shares
effective August 31, 2001. There have been no other significant changes in the
percentage ownership held by any of the above major shareholders prior to August
31, 2001, or after such date.
45
The following table discloses the geographic distribution of the holders of
record of the Company's Common Stock as of October 30, 2002:
- -------------------------------------------------------------------------------------------------
Number of Number of Shares Percentage of Percentage of
Country Shareholders Shareholders Shares
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Canada 1,034 12,421,570 81.10% 80.64%
- -------------------------------------------------------------------------------------------------
United States
(host country) 235 2,967,743 18.43% 19.27%
- -------------------------------------------------------------------------------------------------
Australia 4 1,166 0.31% 0.01%
- -------------------------------------------------------------------------------------------------
Denmark 1 2 0.08% 0.00%
- -------------------------------------------------------------------------------------------------
Botswana 1 13,333 0.08% 0.09%
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Total 1,275 15,403,814 100% 100%
- -------------------------------------------------------------------------------------------------
The Company may be indirectly controlled by Can-Med Technology Inc., which, as
of October 31, 2002, held 2,818,878 shares of Common Stock of the Company
(excluding warrants), representing approximately 18.30% of the Company's issued
and outstanding shares of Common Stock as of October 31, 2002. The Company may
be indirectly controlled by Phillip DeZwirek, who indirectly, through his
ownership of a portion of Can-Med Technology Inc. and Technapower Industries
Corporation, held approximately 19.37% of the Company's issued and outstanding
shares of Common Stock (excluding options and warrants) as of October 31, 2002.
The Company may be indirectly controlled by Jason DeZwirek, who indirectly,
through his ownership of a portion of Can-Med Technology Inc., held
approximately 18.30% of the Company's issued and outstanding shares of Common
Stock (excluding options and warrants) as of October 31, 2002. The Company is
not aware of any other corporations, foreign governments, natural persons, or
legal persons that may directly or indirectly own or control the Company. All
of the shares of common stock held by Can-Med Technology, Inc. are attributed
to both Phillip DeZwirek and Jason DeZwirek.
There are no arrangements known to the Company, the operation of which may at a
subsequent date result in a change in control of the Company.
B. RELATED PARTY TRANSACTIONS SINCE MAY 10, 2000
The Company acquired API as of August 31, 2001. See Note 1(a) to the financial
statements included in Part III, Item 17 of this Annual Report for a discussion
of the acquisition of API. In connection with that transaction, the Company
issued to the stockholders of API, in exchange for all of the outstanding stock
of API, 6,500,000 units of the Company, each unit consisting of one common share
and 1/2 of one Series A common share purchase warrant exercisable at $0.45 per
share, expiring March 30, 2003 and 1/2 of one Series B common share purchase
warrant exercisable at $0.75 per share, expiring September 30, 2003. As a result
of the share exchange, the Company issued to (i) Can-Med Technology, which is
50.01% owned by Icarus Investments Corp., which is owned 50% by Phillip DeZwirek
and 50% by Jason DeZwirek, 2,818,878 shares of common stock, 1,409,439 Series A
warrants and 1,409,439 Series B warrants, (ii) Technapower Industries, a Company
controlled by Phillip DeZwirek, 164,958 shares of common stock, 82,479 Series A
warrants and 82,479 Series B warrants, and (iii) Thomas Mills, 329,916 shares
of common stock, 164,958 Series A warrants and 164,958 Series B warrants.
On September 20, 2000, API signed a demand promissory note with Phillip
DeZwirek, a principal shareholder of API, in the principal amount of $1,265,492,
representing amounts due to Mr. Phillip DeZwirek from API. Mr. DeZwirek had
advanced such amounts to API over time primarily as working capital loans. The
note was subsequently (i) assigned to a third party and (ii) exchanged by that
third party with the Company for a convertible note, convertible into that
number of shares equal to, after issuance,
46
forty-nine percent (49%) of the outstanding shares of API upon the date of
conversion. The note was converted on July 1, 2001 into forty-nine percent (49%)
of the outstanding shares of API. The shares were transferred to a limited
number of investors in private transactions prior to the acquisition of API by
the Company.
For the fiscal year ended May 31, 2002, aggregate amounts of $30,826 were paid
by the Company to Kaboose.com Inc., a company of which Jason DeZwirek, the
Chairman and Chief Executive Officer, a director and controlling shareholder of
the Company, is an executive officer, director and controlling shareholder, for
the design, development and maintenance of the Company's web-site.
The bank debt of API is guaranteed by Phillip DeZwirek and Thomas W. Mills. See
Note 6 to the financial statements included in Part III, Item 17 of this Annual
Report.
See Item 6.B. for current compensation paid to officers and directors of the
Corporation.
C. INTERESTS OF EXPERTS AND COUNSEL
Not Applicable.
ITEM 8. FINANCIAL INFORMATION
Consolidated Financial Statements
See the Consolidated Financial Statements set forth in Part III, Item 17 hereof
and filed as a part of this Annual Report.
Export Sales
Export sales did not constitute a significant portion of the Company's total
sales volume as of May 31, 2002, the end of the Company's most recent fiscal
year.
Legal or Arbitration Proceedings
As of the date of this Annual Report, there are no legal or arbitration
proceedings that may have, or have had in the recent past, significant effects
on the Company's financial position or profitability.
Company Policy on Dividend Distributions
The Company does not intend to pay dividends in cash or in kind in the
foreseeable future. The Company expects to retain its earnings to finance the
further growth of the Company. The directors of the Company will determine if
and when dividends should be declared and paid in the future based upon the
earnings and financial conditions of the Company at the relevant time and such
other factors as the directors may deem relevant. All of the Common Shares of
the Company are entitled to an equal share in any dividends declared and paid.
Significant Changes
No significant changes have occurred since May 31, 2002, the date of the
Consolidated Financial Statements set forth in Part III, Item 17 hereof and
filed as a part of this Annual Report.
ITEM 9. THE OFFER AND LISTING
47
Not applicable except for Item 9A(4) and Item 9C.
A(4). PRICE HISTORY
Price History in the Canadian Market
The following table sets forth the reported high and low sale prices and, as
applicable, the volume of trading of the Company's Common Shares, as adjusted to
reflect a 1:3 consolidation of the Company's Common Shares effective September
10, 2001 and a 1:10 consolidation of the Company's Common Shares effective May
18, 1999, and as reported by the Canadian Dealing Network Inc. ("CDN") (prior to
December 22, 2000) or the TSX Venture Exchange, formerly known as the Canadian
Venture Exchange ("CDNX") (after December 22, 2000 through August 8, 2001), as
applicable, for the periods indicated:
Canadian $
Period High Low
------ ---- ---
Past 6 Calendar Months/(a)/ Not
--------------------------- ---
Applicable
----------
Quarterly Data Since Q1 2000
----------------------------
2002: Second Quarter (10/31/01)/(a)/ .. 1.50 1.29
First Quarter (7/31/01) ......... 0.75 0.27
2001: Fourth Quarter (4/30/01) ........ 1.38 0.75
Third Quarter (1/31/01)/(c)/ .... 2.28 1.38
Second Quarter (10/31/00)/(d)/ .. N/A N/A
First Quarter (7/31/00)/(d)/ N/A N/A
2000: Fourth Quarter (4/30/00)/(d)/ ... 12.00 5.25
Third Quarter (1/31/00) ......... 12.00 2.70
Second Quarter (10/31/99) ....... 2.70 0.81
First Quarter (7/31/99) ......... 1.20 0.75
2002: FYE 5/31/02/(b)/ ................ $ 1.50 $0.27
2001: FYE 4/30/01/(c,d)/ .............. 2.28 0.75
2000: FYE 4/30/00/(d)/ ................ 12.15 0.75
1999: FYE 4/30/99: .................... 16.50 2.10
1998: FYE 4/30/98: .................... 72.00 6.00
(a) The Company's trading was halted on the CDNX as of August 8, 2001. The
Company's Board of Directors has determined that it will not seek to
re-establish trading of its Common Shares on the CDNX and requested to be
delisted voluntarily from the CDNX.
(b) The Company's Common Shares ceased trading in Canada as of August 8, 2001.
Accordingly, the information is for the period beginning May 1, 2001 and
ending August 8, 2001.
(c) Beginning December 22, 2000, the date on which trading commenced on the
CDNX.
(d) The Company's Common Shares were not traded in Canada from March 3, 2000
until December 22, 2000.
Prior to December 22, 2000, the Company's Common Shares were traded on the CDN,
and were traded under the symbol OPUS from May 1999 until March 3, 2000. On
March 3, 2000, when the Company announced a transaction with IL Data
Corporation, the Company's Common Shares were removed from
48
the visible quotation provided by the CDN because the transaction represented a
change in control, a change in business and a change of name for the Company.
The IL Data Corporation transaction was completed on June 6, 2000, the name
change occurred on July 25, 2000, and the Company filed an application for
quotation with CDN on August 11, 2000.
In the meantime, some companies that were quoted on CDN were invited to apply
for listing on the CDNX. The Company made the application for listing on the
CDNX and filed the necessary documentation, and began listing the shares of the
Company on Tier 3 of CDNX as of December 22, 2000.
For the period from December 22, 2000 through August 8, 2001, the Common Stock
of the Company was listed on the CDNX under the symbol "YIK" and CUSIP
#461459109. The Company's trading was halted on the CDNX as of August 8, 2001,
and its shares no longer trade on CDNX. This is a result of the fact that the
Company's Board of Directors, based on business and timing factors, decided not
to obtain pre-approval from the CDNX for its August 31, 2001 acquisition of API
Electronics, Inc., which constituted a reverse take-over transaction requiring
pre-approval. The Company's Board of Directors determined not to seek to
re-establish trading of its Common Shares on the CDNX, and requested to be
delisted voluntarily from the CDNX.
Price History in the United States Market
During the fiscal year ending April 30, 2001 and through September 7, 2001,
while the Company's name was InvestorLinks.com Inc., the Common Stock of the
Company was traded over-the-counter on the National Association of Securities
Dealers OTC Bulletin Board ("OTCBB") under the symbol "IVLKF." On August 30,
2001, the Company's shareholders approved a change of the Company's name from
InvestorLinks.com Inc. to API Electronics Group Inc., and the consolidation of
the authorized common shares on the basis that every three pre-consolidation
Common Shares were converted into one post-consolidation Common Share. The name
change and share consolidation became effective on September 10, 2001, when the
Company filed Articles of Amendment in Ontario. On September 10, 2001, shares of
the Company's Common Stock began trading on the OTC under the symbol "APIEF."
The following table sets forth the reported high and low bid prices of the
Common Shares, as adjusted to reflect a 1:3 consolidation of the Company's
Common Shares effective September 10, 2001 and a 1:10 consolidation of the
Company's Common Shares effective May 18, 1999, and as reported by the NASD for
the fiscal periods indicated (the Common Stock commenced trading on the OTCBB in
February 1997). Such over-the-counter market quotations are based on closing
prices and reflect interdealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
49
Period High Low
------ ---- ---
Past 6 Calendar Months
----------------------
2002: October ........................... $ 0.72 $ 0.51
September ......................... 1.13 0.39
August ............................ 1.79 0.91
July .............................. 2.98 1.14
June .............................. 3.18 2.59
May ............................... 2.81 2.30
Quarterly Data Since
--------------------
Q1 2001
-------
Fiscal 2003: Second Quarter (until 10/31/02) 1.12 0.47
First Quarter (8/31/02) ........... 3.98 0.91
Fiscal 2002: Fourth Quarter (5/31/02) .......... 3.48 2.30
Third Quarter (2/28/02) ........... 2.79 1.50
Second Quarter (11/30/01) ......... 2.05 0.25
First Quarter (8/31/01) ........... 0.75 0.33
Fiscal 2001: Fourth Quarter (4/30/01) .......... 0.600 0.375
Third Quarter (1/31/01) ........... 3.844 0.750
Second Quarter (10/31/00) ......... 10.125 3.750
First Quarter (7/31/00) ........... 8.718 3.375
2002: FYE 5/31/02 ....................... 3.48 0.25
2001: FYE 4/30/01 ....................... 10.125 0.375
2000: FYE 4/30/00 ....................... 9.186 0.450
1999: FYE 4/30/99 ....................... 13.11 1.500
1998: FYE 4/30/98 ....................... 56.25 6.000
The Company's Common Stock is not registered to trade in the United States in
the form of American Depository Receipts (ADR's) or similar certificates.
The Company's Common Stock is issued in registered form and the following
information is taken from the records of Equity Transfer Services Inc. (located
in Toronto, Ontario, Canada), the registrar and transfer agent for the Common
Stock. The Company's Common Stock is not subject to any special restrictions on
transfer.
As of October 30, 2002, the stockholders' list for the Company's Common Shares
showed 1,275 registered stockholders and 15,403,814 Common Shares outstanding.
Since a portion of the Company's Common Shares is held by agents in street name,
and the Company (pursuant to applicable Canadian and corporate law) only sends
information concerning the Company, including with respect to its Annual General
Meeting, to shareholders who request this information, the Company cannot
estimate the total number of beneficial holders of its Common Shares. For the
same reason the Company is unaware of how many of its outstanding Common Shares
are held by United States residents. In accordance with Rule 12g5-1 of the
50
Securities Exchange Act of 1934, the Company's share register indicated, as of
October 30, 2002, 235 stockholders having addresses in the United States
(including voting trustees, depositories, share transfer agents, or any person
acting on behalf of the Company within the United States), which persons held
2,967,743 of the Company's issued and outstanding Common Shares, representing
approximately 18.43% of the total issued and outstanding Common Shares as of
such date.
C. MARKETS
See Item 9A(4) above.
ITEM 10. ADDITIONAL INFORMATION
A. SHARE CAPITAL
Not applicable.
B. MEMORANDUM AND ARTICLES OF ASSOCIATION
The Company's corporation number as assigned by the Ontario Ministry of Consumer
and Commercial Relations is 1028514. The Company's Articles of Amalgamation do
not contain the Company's purpose or its objectives, as neither is required
under the laws of Ontario.
No director of the Company is permitted to vote on any resolution to approve a
material contract or transaction in which such director has a material interest.
(Bylaws, Paragraph 17). Neither the Articles of Amalgamation nor the Bylaws of
the Company limit the directors' power, in the absence of an independent quorum,
to vote compensation to themselves or any members of their body. The Bylaws
provide that directors shall receive remuneration, as the board of directors
shall determine from time to time. (Bylaws, Paragraph 15). The board of
directors may, without the authorization of the shareholders, (i) borrow money
upon the credit of the Company; (ii) issue, reissue, sell or pledge debt
obligations of the Company; whether secured or unsecured (iii) give a guarantee
on behalf of the Company to secure performance of obligations; and (iv) charge,
mortgage, hypothecate, pledge or otherwise create a security interest in all
currently owned or subsequently acquired real or personal, movable or immovable,
tangible or intangible, property of the Company to secure obligations of the
Company. (Bylaws, Paragraph 38). Neither the Articles of Amalgamation nor the
Bylaws of the Company discuss the retirement or non-retirement of directors
under an age limit requirement, and there is no number of shares required for
director qualification.
A description of the rights, preferences and restrictions attached to each class
of the Company's shares as set forth in the Company's Articles of Amalgamation
follows:
The Company's Articles of Amalgamation provide that the Company is authorized to
issue an unlimited number of Common Shares ("Common Shares") and an unlimited
number of Special Shares ("Special Shares"). Of the Special Shares, the Company
has designated a class of up to 500,000 Preference Shares ("Preference Shares").
While the Company has issued Common Shares, it has not issued any Preference
Shares or other Special Shares.
Dividend Rights. The Company's Articles of Amalgamation provide that no
dividends shall be declared, set aside, or paid on the Preference Shares. Thus,
only holders of Common Shares are entitled to be paid dividends under the
Company's current Articles of Amalgamation.
51
Voting Rights. Neither the Company's Articles of Amalgamation nor its Bylaws
provide for the election or reelection of directors at staggered intervals. The
holders of Common Shares and Preference Shares have equal voting rights at
meetings of the Company's shareholders.
Rights to Share in the Company's Profits. See "Dividend Rights" above.
Rights to Share in Any Surplus in the Event of Liquidation. Under the Company's
Articles of Amalgamation, upon the dissolution, winding up or liquidation of the
Company, holders of Preference Shares are entitled to receive a sum equivalent
to the amount paid for the Preference Shares prior to any distribution to the
holders of Common Shares or shares ranking junior to the Preference Shares.
Holders of Preference Shares are not entitled to share in any further
distribution of the assets or property of the Company. Holders of the Common
Shares are entitled to receive the remaining property of the Company upon
dissolution.
Redemption Provisions. Under the Company's Articles of Amalgamation, the
Company, when redeeming shares:
. Shall not redeem Preference Shares prior to the expiration of five
years from the issuance date without the prior consent of the holder of
the Preference Shares to be redeemed;
. Shall, at least thirty days prior to the redemption date, mail a notice
to all registered holders of Preference Shares stating its intention to
redeem such shares. The notice shall set forth the redemption price,
the date on which redemption is to occur, and the number of the
holder's shares that are to be redeemed. If only a portion of the
holder's shares is to be redeemed, the Company shall issue such holder
a new certificate for the balance of such shares. After the redemption
date, the holders shall not be entitled to exercise any rights of
shareholders unless the Company failed to pay the redemption price;
. May at any time, with the consent of the holder, purchase for
cancellation all or part of the Preference Shares; and
. May purchase any of its issued Common Shares subject to the provisions
of the Ontario Business Corporations Act.
Sinking Fund Provisions. Neither the Company's Articles of Amalgamation nor its
Bylaws contain sinking fund provisions.
Liability to Further Capital Calls by the Company. Neither the Company's
Articles of Amalgamation nor its Bylaws contain provisions allowing the Company
to make further capital calls with respect to any shareholder of the Company.
Discriminatory Provisions Based on Substantial Ownership. Neither the Company's
Articles of Amalgamation nor its Bylaws contain provisions which discriminate
against any existing or prospective holders of securities as a result of such
shareholder owning a substantial number of shares.
Miscellaneous Provisions. Under the Company's Articles of Amalgamation, holders
of Preference Shares shall not be entitled to sell, assign, transfer or dispose
of Preference Shares without the previous, express consent of the directors and
the prior written consent of the Ontario Securities Commission. In the event the
Company were to pay dividends on the issued and outstanding shares, the dividend
must be claimed within six years of the payment date and payment shall be
forfeited and shall revert to the Company if not so claimed.
52
Neither the Articles of Amalgamation nor the Bylaws of the Company address the
process by which the rights of holders of stock may be changed. The general
provisions of the Ontario Business Corporations Act apply to this process, and
require shareholder meetings and independent voting for such changes.
Annual general meetings of the Company's shareholders are held on such day as is
determined by resolution of the directors. (Bylaws, Paragraph 45). Special
meetings of the Company's shareholders may be convened by order of the Chairman
or Vice-Chairman of the Board, the Managing Director, the President if a
director, a Vice-President who is a director, or the board of directors.
(Bylaws, Paragraph 46). Shareholders of record must be given notice of such
special meeting not less than 33 days nor more than 50 days before the date of
the meeting. Notices of special meetings of shareholders must state the nature
of the business to be transacted in detail and must include the text of any
special resolution or bylaw to be submitted to the meeting. (Bylaws, Paragraph
47). The Company's board of directors is permitted to fix a record date for any
meeting of the shareholders that is between 21 and 50 days prior to such
meeting. (Bylaws, Paragraph 51). However, as a result of Ontario securities laws
applicable to the Company, the record date must be no fewer than 30 and no more
than 60 days prior to the meeting date. The only persons entitled to admission
at a meeting of the shareholders are shareholders entitled to vote, the
Company's directors, the Company's auditors, and others entitled by law, by
invitation of the chairman of the meeting, or by consent of the meeting.
(Bylaws, Paragraph 50).
Neither the Articles of Amalgamation nor the Bylaws of the Company discuss
limitations on the rights to own securities or exercise voting rights thereon.
There is no provision of the Company's Articles of Amalgamation or Bylaws that
would delay, defer or prevent a change in control of the Company, and that would
operate only with respect to a merger, acquisition, or corporate restructuring
involving the Company (or any of its subsidiaries). The Company's Bylaws do not
contain a provision indicating the ownership threshold above which shareholder
ownership must be disclosed. With respect to the matters discussed in this Item
10B, the law applicable to the Company is not significantly different from
United States law. Neither the Articles of Amalgamation nor Bylaws contain
provisions governing changes in capital that are more stringent than the
conditions required by law.
C. MATERIAL CONTRACTS
The following table summarizes each material contract, other than contracts
entered into in the ordinary course of business, to which the Company or any
member of the Company's group is a party, for the two years immediately
preceding the publication of this Annual Report:
53
- -------------------------------------------------------------------------------------------------------------------------
Date Parties Type Terms and Conditions Consideration
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
March 1, 2001 Company and George Release Mr. Stubos agrees to (i) fully $35,000
Stubos and completely release and
discharge any and all actions,
causes of actions, claims and
demands arising out of any and
all relationships with the
Company and (ii) allow the
Company to purchase for
cancellation 500,000 Common
Shares and cancel his option to
buy 90,000 Common Shares.
- -------------------------------------------------------------------------------------------------------------------------
March 1, 2001 Company and Release Mr. Livadas agrees to (i) fully $25,000
Christos Livadas and completely release and
discharge any and all actions,
causes of actions, claims and
demands arising out of any and
all relationships with the
Company and (ii) allow the
Company to purchase for
cancellation 500,000 Common
Shares and cancel his option to
buy 90,000 Common Shares.
- -------------------------------------------------------------------------------------------------------------------------
March 1, 2001 Company, Frank Release and Kollar and Sierra Holdings $209,000 to be paid
Kollar and Sierra Consulting Limited agree to (i) fully and immediately at the time
Holdings Limited Agreement completely release and of the Release and
discharge any and all actions, $60,000 to be paid as
causes of actions, claims and set forth in the
demands arising out of any and Consulting Agreement.
all relationships with the
Company and (ii) allow the
Company to purchase for
cancellation 3,890,000 Common
Shares and cancel Mr. Kollar's
option to buy 290,000 Common
Shares.
- -------------------------------------------------------------------------------------------------------------------------
54
- ------------------------------------------------------------------------------------------------------------------------
June 19, 2001 Company and Non-binding Letter agreement confirming None agreed upon at the
API Electronics, Letter of mutual understanding time of the Letter.
Inc. ("API") Intent regarding the parties'
Regarding intention to complete
Potential negotiations and enter into a
Business formal agreement for the
Combination Company's purchase of API.
of the
Company and
API
- ------------------------------------------------------------------------------------------------------------------------
June 26, 2001 Company and Taurus Letter Taurus agrees to act as the . A work fee of
Agreement Company's exclusive $15,000
for financial financial advisor with respect . Reimbursement of
advisor to the potential acquisition of certain out-of-pocket
services API for a period of four costs
months commencing on the . In the event of and
date of the letter. upon completion of the
purchase of API,
250,000 broker
warrants for Units on
the same terms as
Units being issued to
purchase API
- ------------------------------------------------------------------------------------------------------------------------
June 26, 2001 Company and Letter Gilray, LLC agrees to execute a . $18,000
Gilray, LLC Agreement for Certificate of Satisfaction . Ownership of any and all
settlement of fully releasing IL Data furniture abandoned by
lease, dated Corporation Inc. and/or the tenant on the premises
July 3, 2000, Company from any further
between Gilray, responsibility under the lease.
LLC and IL Data
Corporation
Inc., to
commence August
1, 2000 and
terminate July
31, 2003
- ------------------------------------------------------------------------------------------------------------------------
July 24, 2001 Company and Release Kirkwood agrees to release Nil
Elizabeth J. 45,000 stock options previously
Kirkwood granted by the Company.
- ------------------------------------------------------------------------------------------------------------------------
July 24, 2001 Company and Sandra Release Hall agrees to release 45,000 Nil
J. Hall stock options previously
granted by the Company.
- ------------------------------------------------------------------------------------------------------------------------
55
- -------------------------------------------------------------------------------------------------------------------------
August 2, 2001 Company and James Stock Option Company granted Cassina options At the date of the
C. Cassina Agreement to purchase up to 50,000 Common agreement, market value
Shares at $0.45 per share, and of the Common Shares was
up to 50,000 Common Shares at $0.30.
$0.75 per share on or before
July 31, 2006. The number of
shares and exercise prices
associated with the stock
options set forth reflect
post-consolidation numbers and
prices.
- -------------------------------------------------------------------------------------------------------------------------
August 2, 2001 Company and Sandra Stock Option Company granted Hall options to At the date of the
J. Hall Agreement purchase up to 50,000 Common agreement, market value
Shares at $0.45 per share, and of the Common Shares was
up to 50,000 Common Shares at $0.30.
$0.75 per share on or before
July 31, 2006. The number of
shares and exercise prices
associated with the stock
options set forth reflect
post-consolidation numbers and
prices.
- -------------------------------------------------------------------------------------------------------------------------
July 27, 2001 InvestorLinks.com Agreement and The Company acquired all of the 6,500,000
Inc. and API Plan of Merger issued and outstanding shares post-consolidation Units
Electronics, Inc., of API Electronics, Inc. a valued at $.40 per Unit.
et al. Delaware corporation. Each Unit consists of
one Common Share, 1/2 of
one Series A Common Share
purchase warrant exercisable
at $.45 for a period of
18 months from the date of
issuance and 1/2 of one
Series B Common Share
purchase warrant exercisable
at $.75 for a period of
two years from date of
issuance.
- -------------------------------------------------------------------------------------------------------------------------
56
- -------------------------------------------------------------------------------------------------------------------------
August 31, 2001 API Electronics, Agreement of API Electronics, Inc. merges Each share of common
Inc. and API Merger into API Acquisition Corp. with stock of API Acquisition
Acquisition Corp. API Electronics, Inc. as the Corp. outstanding on the
surviving corporation. effective date of the
Agreement was cancelled
and no consideration was
paid with respect to any
such shares. Each share
of common stock of API
Electronics, Inc., the
surviving corporation,
outstanding on the
effective date of the
Agreement, was (i)
exchanged with
InvestorLinks.com Inc.,
an Ontario Corporation
and the parent of API
Acquisition Corp.
("IC"), for 33,163.27
shares of IC common
stock and A and B
warrants to purchase an
aggregate of 33,163.28
shares of IC common
stock and (ii) cancelled
immediately thereafter.
The surviving
corporation issued a new
certificate for 100
shares of common stock
to IC, which represented
all of the issued and
outstanding shares of
the surviving
corporation.
- -------------------------------------------------------------------------------------------------------------------------
57
- -------------------------------------------------------------------------------------------------------------------------
August 31, 2001 Company and Phillip Stock Option Company granted options to At the date of the
DeZwirek Agreement purchase up to 50,000 Common Agreement, market value
Shares at $0.45 per share, and of the Common Shares was
up to 50,000 Common Shares at $0.78 per share.
$0.75 per share on or before
August 31, 2006. The number of
shares and exercise prices
associated with the stock
options set forth reflect
post-consolidation numbers and
prices.
- -------------------------------------------------------------------------------------------------------------------------
August 31, 2001 Company and Thomas Stock Option Company granted options to At the date of the
W. Mills Agreement purchase up to 50,000 Common Agreement, market value
Shares at $0.45 per share, and of the Common Shares was
up to 50,000 Common Shares at $0.78 per share.
$0.75 per share on or before
August 31, 2006. The number of
shares and exercise prices
associated with the stock
options set forth reflect
post-consolidation numbers and
prices.
- -------------------------------------------------------------------------------------------------------------------------
August 31, 2001 Company and Jason Stock Option Company granted options to At the date of the
DeZwirek Agreement purchase up to 50,000 Common Agreement, market value
Shares at $0.45 per share, and of the Common Shares was
up to 50,000 Common Shares at $0.78 per share.
$0.75 per share on or before
August 31, 2006. The number of
shares and exercise prices
associated with the stock
options set forth reflect
post-consolidation numbers and
prices.
- -------------------------------------------------------------------------------------------------------------------------
58
- ---------------------------------------------------------------------------------------------------------------------------
May 31, 2002 Company and Share Purchase The Company purchased the The purchase price for
Philip Walter Agreement shares of Filtran Inc., Filtran the shares of Filtran
White, Rose Mary Limited, Canadian Dataplex Inc., Filtran Limited,
White, Coranne Ltd., and Tactron Canadian Dataplex Ltd.,
Adele White, Jane Communications (Canada) Limited and Tactron
Murphy, Coreen from their shareholders. Communications (Canada)
White, Derek White, Limited was $2,670,835
Gillian Pershaw, payable as follows:
Brian Kenneth $716,505 in cash and a
White, Edna Grace promissory note in the
Trepannier, principal amount of
Filtran Inc., $1,954,270. The
Filtran Limited, promissory note bears
Canadian Dataplex interest at the rate of
Ltd., and Tactron 5% per annum, calculated
Communications and payable
(Canada) Limited semi-annually. One-half
of the principal is due and
payable on May 31, 2003 and
the balance becomes due and
payable on May 31, 2004.
- ---------------------------------------------------------------------------------------------------------------------------
May 31, 2002 Company and Philip Non-Competition Philip Walter White, a The Company paid Philip
Walter White and principal of the Filtran Inc., Walter White $325,712 as
Confidentiality Filtran Limited, Canadian consideration for the
Agreement Dataplex Ltd., and Tactron Non-Competition and
Communications (Canada) Confidentiality
Limited agreed to Agreement
non-competition and
non-solicitation restrictions
for a term of five (5) years,
and permanent confidentiality
restrictions.
- ---------------------------------------------------------------------------------------------------------------------------
June 11, 2002 Company and Aton Subscription Aton Ventures Fund Ltd. Aton Ventures Fund Ltd.
Ventures Fund Ltd. Agreement purchased from the Company in a paid $235,000 in cash
private placement 100,000 units for the units.
for $2.35 per unit, each unit
consisting of one share of
common stock of the Company and
one warrant to purchase one
share of common stock of the
Company, exercisable at $3.00
per share.
- ---------------------------------------------------------------------------------------------------------------------------
59
- ---------------------------------------------------------------------------------------------------------------------------
June 11, 2002 Company and Aton Subscription Aton Select Fund Ltd. purchased Aton Select Fund Ltd.
Select Fund Ltd. Agreement from the Company in a private paid $235,000 in cash
placement 100,000 units for for the units
$2.35 per unit, each unit
consisting of one share of
common stock of the Company and
one warrant to purchase one
share of common stock of the
Company, exercisable at $3.00
per share.
- ---------------------------------------------------------------------------------------------------------------------------
June 14, 2002 Company and Syrah Subscription Syrah Invest Corp. purchased Syrah Invest Corp. paid
Invest Corp. Agreement from the Company in a private $705,000 in cash for the
placement 300,000 units for units.
$2.35 per unit, each unit
consisting of one share of
common stock of the Company and
one warrant to purchase one
share of common stock of the
Company, exercisable at $3.00
per share.
- ---------------------------------------------------------------------------------------------------------------------------
D. EXCHANGE CONTROLS
There are no governmental laws, decrees or regulations in Canada that restrict
the export or import of capital, or affect the remittance of dividends, interest
or other payments to a non-resident holder of Common Stock of the Company, other
than withholding tax requirements (see "Item 7 -- Taxation").
Except as provided in the Investment Canada Act discussed below, there are no
limitations imposed under the laws of Canada, the Province of Ontario, or by the
constituent documents of the Company on the right of a non-resident to hold or
vote the Common Stock of the Company.
The Investment Canada Act (the "ICA"), which became effective on June 30, 1985,
regulates the acquisition by non-Canadians of control of a Canadian business
enterprise. In effect, the ICA requires review by Investment Canada, the agency
which administers the ICA, and approval by the Canadian government, in the case
of an acquisition of control of a Canadian business by a non-Canadian where: (i)
in the case of a direct acquisition (for example, through a share purchase or
asset purchase), the assets of the business are Canadian $5 million or more in
value; or (ii) in the case of an indirect acquisition (for example, the
acquisition of the foreign parent of the Canadian business) where the Canadian
business has assets of Canadian $5 million or more in value or if the Canadian
business represents more than 50% of the assets of the original group and the
Canadian business has assets of $5 million or more in value. Review and approval
are also required for the acquisition or establishment of a new business in
areas concerning "Canada's cultural heritage or national identity" such as book
publishing, film production and distribution, television and radio production
and distribution of music, and the oil and natural gas industry, regardless of
the size of the investment.
60
As applied to an investment in the Company, three methods of acquiring control
of a Canadian business would be regulated by the ICA: (i) the acquisition of all
or substantially all of the assets used in carrying on the Canadian business;
(ii) the acquisition, directly or indirectly, of voting shares of a Canadian
corporation carrying on the Canadian business; or (iii) the acquisition of
voting shares of an entity which controls, directly or indirectly, another
entity carrying on a Canadian business. An acquisition of a majority of the
voting interests of an entity, including a corporation, is deemed to be an
acquisition of control under the ICA. An acquisition of less than one-third of
the voting shares of a corporation is deemed not to be an acquisition of
control. An acquisition of less than a majority, but one-third or more, of the
voting shares of a corporation is presumed to be an acquisition of control
unless it can be established that the acquisition the corporation is not, in
fact, controlled by the acquirer through the ownership of voting shares. For
partnerships, trusts, joint ventures or other unincorporated entities, an
acquisition of less than a majority of the voting interests is deemed not to be
an acquisition of control.
In 1988, the ICA was amended, pursuant to the Free Trade Agreement dated January
2, 1988 between Canada and the United States, to relax the restrictions of the
ICA. As a result of these amendments, except where the Canadian business is in
the cultural, oil and gas, uranium, financial services or transportation
sectors, the threshold for direct acquisition of control by US investors and
other foreign investors acquiring control of a Canadian business from US
investors has been raised from Canadian $5 million to Canadian $150 million of
gross assets, and indirect acquisitions are not reviewable.
In addition to the foregoing, the ICA requires that all other acquisitions of
control of Canadian businesses by non-Canadians are subject to formal
notification to the Canadian government. These provisions require a foreign
investor to give notice in the required form, which notices are for information,
as opposed to review, purposes.
E. TAXATION
Certain Canadian Federal Income Tax Consequences
Management of the Company has been advised by its Canadian legal counsel that
the following general summary fairly describes the principal Canadian federal
income tax consequences applicable to a holder of Common Shares of the Company
who is a resident of the United States and who is not a resident of Canada and
who does not use or hold, and is not deemed to use or hold, his or her Common
Shares of the Company in connection with carrying on a business in Canada (a
"non-resident shareholder").
This summary is based upon the current provisions of the Income Tax Act (Canada)
(the "ITA"), the regulations thereunder (the "Regulations"), the current
publicly announced administration and assessing policies of Revenue Canada,
Taxation, and all specific proposals (the "Tax Proposals") to amend the ITA and
Regulations announced by the Minister of Finance (Canada) prior to the date
hereof. This description is not exhaustive of all possible Canadian federal
income tax consequences and, except for the Tax Proposals, does not take into
account or anticipate any changes in law, whether by legislative, governmental
or judicial action, nor does it take into account provincial or foreign tax
considerations which may differ significantly from those discussed herein. The
following discussion is for general information only and is not intended to be,
nor should it be construed to be, legal or tax advice to any holder of Common
Shares of the Company, and no opinion or representation with respect to the
Canadian Federal Income Tax consequences to any such holder or prospective
holder is made. Accordingly, holders and prospective holders of Common Shares of
the Company should consult with their own tax advisors about the federal,
provincial and foreign tax consequences of purchasing, owning and disposing of
Common Shares of the Company.
Dividends
61
Dividends paid on the Common Shares of the Company to a non-resident holder will
be subject to withholding tax under the ITA. The Canada-US. Income Tax
Convention (1980) (the "Treaty") provides that the normal 25% withholding tax
rate is reduced to 15% on dividends paid on shares of a corporation resident in
Canada (such as the Company) to residents of the United States, and also
provides for a further reduction of this rate to 5% where the beneficial owner
of the dividends is a corporation which is a resident of the United States which
owns at least 10% of the voting shares of the corporation paying the dividend.
Capital Gains
A non-resident of Canada is subject to tax under the ITA in respect of a capital
gain realized upon the disposition of a share of a corporation if the shares are
considered to be "taxable Canadian property" of the holder within the meaning of
the ITA and no relief is afforded under any applicable tax treaty. For purposes
of the ITA, the Common Shares of the Company will be taxable Canadian property
to a non-resident holder unless the Common Shares are listed on a prescribed
stock exchange. The Common Shares are not listed on a prescribed stock exchange.
In the case of a non-resident holder to whom Common Shares of the Company
represent taxable Canadian property and who is a resident of the United States
and not a former resident of Canada, no Canadian taxes will be payable on a
capital gain realized on such shares by reason of the Treaty unless the value of
such shares is derived principally from real property situated in Canada within
the meaning of the Treaty.
Certain United States Federal Income Tax Consequences
The following is a general discussion of certain possible United States federal
income tax consequences, under current law, generally applicable to a US Holder
(as defined below) of Common Shares of the Company. This discussion does not
address all potentially relevant federal income tax matters and does not address
consequences peculiar to persons subject to special provisions of federal income
tax law, such as those described below as excluded from the definition of a US
Holder. In addition, this discussion does not cover any state, local or foreign
tax consequences (See "Certain Canadian Federal Income Tax Consequences" above).
The following discussion is based upon the sections of the Internal Revenue Code
of 1986, as amended (the "Code"), Treasury Regulations, published Internal
Revenue Service ("IRS") rulings, published administrative positions of the IRS
and court decisions that are currently applicable, any or all of which could be
materially and adversely changed, possibly on a retroactive basis, at any time.
In addition, this discussion does not consider the potential effects, both
adverse and beneficial, of recently proposed legislation, which, if enacted,
could be applied, possibly on a retroactive basis, at any time. The following
discussion is for general information only and it is not intended to be, nor
should it be construed to be, legal or tax advice to any holder or prospective
holder of Common Shares of the Company, and no opinion or representation with
respect to the United States federal income tax consequences to any such holder
or prospective holder is made. Accordingly, holders and prospective holders of
Common Shares of the Company should consult their own tax advisors about the
federal, state, local, and foreign tax consequences of purchasing, owning and
disposing of Common Shares of the Company.
US Holders
As used herein, a "US Holder" includes a holder of Common Shares of the Company
who is a citizen or legal resident of the United States, a corporation created
or organized in or under the laws of the United States or of any political
subdivision thereof and any other person or entity whose ownership of Common
Shares of the Company is effectively connected with the conduct of a trade or
business in the United States.
62
A US Holder does not include persons subject to special provisions of federal
income tax law, such as tax-exempt organizations, qualified retirement plans,
financial institutions, insurance companies, real estate investment trusts,
regulated investment companies, broker-dealers, non-resident alien individuals
or foreign corporations whose ownership of Common Shares of the Company is not
effectively connected with the conduct of a trade or business in the United
States and shareholders who acquired their stock through the exercise of
employee stock options or otherwise as compensation.
Distributions on Common Shares of Company
US Holders receiving dividend distributions (including constructive dividends)
with respect to Common Shares of the Company are required to include in gross
income for United States federal income tax purposes the gross amount of such
distributions to the extent that the Company has current or accumulated earnings
and profits, without reduction for any Canadian income tax withheld from such
distributions. Such Canadian tax withheld may be credited, subject to certain
limitations, against the US Holder's United States federal income tax liability
or, alternatively, may be deducted in computing the US Holder's United States
federal taxable income by those who itemize deductions. (See more detailed
discussions at "Foreign Tax Credit" below). To the extent that distributions
exceed current or accumulated earnings and profits of the Company, they will be
treated first as a return of capital up to the US Holder's adjusted basis in the
Common Shares and thereafter as gain from the sale or exchange of the Common
Shares.
Preferential tax rates for long-term capital gains are applicable to a US holder
that is an individual, estate or trust. There are currently no preferential tax
rates for long-term capital gains for a US holder that is a corporation.
Dividends paid on the Common Shares of the Company will not generally be
eligible for the dividends received-deduction provided to corporations receiving
dividends from certain United States corporations. A US holder which is a
corporation may, under certain circumstances, be entitled to a 70% deduction of
the United States source portion of dividends received from the Company (unless
the Company qualified as a "foreign personal holding company" or a "passive
foreign investment company," as defined below) if such US Holder owns shares
representing at least 10% of the voting power and value of the Company. The
availability of this deduction is subject to several complex limitations, which
are beyond the scope of this discussion.
Foreign Tax Credit
A US Holder who pays (or has withheld from distributions) Canadian income tax
with respect to the ownership of Common Shares of the Company may be entitled,
at the option of the US Holder, to either a deduction or a tax credit for such
foreign tax paid or withheld. Generally, it will be more advantageous to claim a
credit because a credit reduces United States federal income taxes on a dollar
for dollar basis, while a deduction merely reduces the taxpayer's income subject
to tax. This election is made on a year by year basis and applies to all foreign
taxes paid by (or withheld from) the US Holder during that year. There are
significant and complex limitations, which apply to the credit, among which is
the general limitation that the credit cannot exceed the proportionate shares of
the US Holder's United States income tax liability that the US Holder's foreign
source income bears to his or her or its worldwide taxable income. In the
determination of the application of this limitation, the various items of income
deduction must be classified into foreign and domestic sources. Complex rules
govern this classification process. There are further limitations on the foreign
tax credit for certain types of income such as "passive income," "high
withholding tax interest," "financial services income," "shipping income," and
certain other classifications of income. The availability of the foreign tax
credit and the application of the limitations on the credit are fact specific
and holders and prospective holders of Common Shares of the Company should
consult their own tax advisors regarding their individual circumstances.
63
Disposition of Common Shares of Company
A US Holder will recognize gain or loss upon the sale of Common Shares of the
Company equal to the difference, if any, between the amount of cash plus the
fair market value of any property received, and the shareholder's tax basis in
the Common Shares of the Company. This gain or loss will be capital gain or loss
if the Common Shares are a capital asset in the hands of the US Holder. In such
event the gain or loss will be short-term or long-term capital gain or loss
depending upon the holding period of the US Holder. Gains and losses are netted
and combined according to special rules in arriving at the overall capital gain
or loss for a particular tax year. Deductions for net capital losses are subject
to significant limitations. For US Holders who are individuals, any unused
portion of such net capital loss may be carried over to be used in later tax
years until such net capital loss is thereby exhausted. For US holders that are
corporations (other than corporations subject to Subchapter S of the Code), an
unused net capital loss may be carried back three years from the loss year and
carried forward five years from the loss year to be offset against capital gains
until such net capital loss is thereby exhausted.
Other Considerations
In the following circumstances, the above sections of this discussion may not
describe the United States federal income tax consequences resulting from the
holding and disposition of Common Shares of the Company:
Foreign Personal Holding Company. If at any time during a taxable year more than
50% of the total combined voting power or the total value of the Company's
outstanding shares is owned, actually or constructively, by five or fewer
individuals who are citizens or residents of the United States and 60% or more
of the Company's gross income for such year was derived from certain passive
sources (e.g. from dividends received from its subsidiaries), the Company would
be treated as a "foreign personal holding company." In that event, US Holders
that hold Common Shares of the Company would be required to include in gross
income for such year their allowable portions of such passive income to the
extent the Company does not actually distribute such income.
Foreign Investment Company. If 50% or more of the combined voting power or total
value of the Company's outstanding shares are held, actually or constructively,
by citizens or residents of the United States, United States domestic
partnerships or corporations, or estates or trusts other than foreign estates or
trusts (as defined by the Code Section 7701(a)(31)), and the Company is found to
be engaged primarily in the business of investing, reinvesting, or trading in
securities, commodities, or any interest therein, it is possible that the
Company might be treated as a "foreign investment company" as defined in Section
1246 of the Code, causing all or part of any gain realized by the US Holder
selling or exchanging Common Shares of the Company to be treated as ordinary
income rather than capital gain.
Passive Foreign Investment Company. As a foreign corporation with US Holders,
the Company could potentially be treated as a passive foreign investment company
("PFIC"), as defined in Section 1297 of the Code, depending upon the percentage
of the Company's income which is passive, or the percentage of the Company's
assets which is held for the purpose of producing passive income.
Certain United States income tax legislation contains rules governing PFIC which
can have significant tax effects on US shareholders of foreign corporations.
These rules do not apply to non-US. shareholders. Section 1297 of the Code
defines a PFIC as a corporation that is not formed in the United States and, for
any taxable year, either (i) 75% or more of its gross income is "passive
income," which includes interest, dividends and certain rents and royalties or
(ii) the average percentage, by fair market value (or, if the
64
company is a controlled foreign corporation or makes an election, by adjusted
tax basis) of its assets that produce or are held for the production of "passive
income" is 50% or more.
A US shareholder who holds stock in a foreign corporation during any year in
which such corporation qualifies as a PFIC is subject to US federal income
taxation under one of two alternative tax regimes at the election of each such
US shareholder (the deferred tax charge regime and the Qualified Election Fund
"QEF" regime). The following is a discussion of these two alternative tax
regimes as applied to US shareholders of the Company. Both regimes, however, may
apply if the shareholder makes the QEF election after the first year in which it
owned stock in the PFIC.
A US shareholder who elects in a timely manner (an "Electing US Shareholder") to
treat the Company as a QEF, as defined in the Code, will be subject, under
Section 1293 of the Code, to current federal income tax for any taxable year in
which the Company qualifies as a PFIC on his or her pro-rata share of the
Company's: (i) "net capital gain" (the excess of net long-term capital gain over
net short-term capital loss), which will be taxed as long-term capital gain to
the Electing US Shareholder and (ii) "ordinary earnings" (the excess of earnings
and profits over net capital gain), which will be taxed as ordinary income to
the Electing US Shareholder, in each case, for the shareholder's taxable year in
which (or with which) the Company's taxable year ends, regardless of whether
such amounts are actually distributed.
The effective QEF election also allows the Electing US Shareholder to (i)
generally treat any gain realized on the disposition of his or her Common Shares
(or deemed to be realized on the pledge of his or her Common Shares) as capital
gain; (ii) treat his or her share of the Company's net capital gain, if any, as
long-term capital gain instead of ordinary income, and (iii) either avoid
interest charges resulting from PFIC status altogether, or make an annual
election, subject to certain limitations, to defer payment of current taxes on
his or her share of the Company's annual realized net capital gain and ordinary
earnings subject, however, to an interest charge. If the Electing US Shareholder
is not a corporation, such an interest charge would be treated as "personal
interest" and not deductible at all in taxable years beginning after 1990.
The procedure with which a US shareholder must comply in making an effective QEF
election will depend on whether the year of the election is the first year in
the US shareholder's holding period in which the Company is a PFIC. If the US
shareholder makes a QEF election in such first year, i.e. a timely QEF election,
then the US shareholder may make the QEF election by simply filing the
appropriate documents at the time the US shareholder files its tax return for
such first year. If, however, the Company qualified as a PFIC in a prior year,
then in addition to filing documents, the US shareholder must elect to recognize
(i) (under the rules of ss.1291 (discussed below), any gain that he would
otherwise recognize if the US shareholder sold his or her stock on the
application date or (ii) if the Company is a controlled foreign corporation, the
US shareholder will be deemed to have made a timely QEF election.
When a timely QEF election is made, if the Company no longer qualifies as a PFIC
in a subsequent year, normal Code rules will apply. It is unclear whether a new
QEF election is necessary if the Company thereafter re-qualifies as a PFIC. US
shareholders should seriously consider making a new QEF election under those
circumstances.
If a US shareholder does not make a timely QEF election during a year in which
it holds (or is deemed to have held) the Common Shares in question and the
Company is a PFIC (a "Non-electing US Shareholder"), then special taxation rules
under Section 1291 of the Code will apply to (i) gains realized on the
disposition (or deemed to be realized by reason of a pledge) of his or her
Common Shares and (ii) certain "excess distributions," as specially defined, by
the Company.
65
A Non-electing US Shareholder generally would be required to pro-rate all gains
realized on the disposition of his or her Common Shares and all excess
distributions over the entire holding period for the Common Shares. All gains or
excess distributions allocated to prior years of the US shareholder (other than
years prior to the first taxable year of the Company during such US
shareholder's holding period and beginning after January 1, 1987 for which it
was a PFIC) would be taxed at the highest tax rate for each such prior year
applicable to ordinary income. The Non-electing US Shareholder also would be
liable for interest on the foregoing tax liability for each such prior year
calculated as if such liability had been due with respect to each such prior
year. A Non-electing US Shareholder that is not a corporation must treat this
interest charge as "personal interest" which, as discussed above, is partially
or wholly non-deductible. The balance of the gain or the excess distribution
will be treated as ordinary income in the year of the disposition or
distribution, and no interest charge will be incurred with respect to such
balance.
If the Company is a PFIC for any taxable year during which a Non-electing US
Shareholder holds Common Shares, then the Company will continue to be treated as
a PFIC with respect to such Common Shares, even if it is no longer
definitionally a PFIC. A Non-electing US Shareholder may terminate this deemed
PFIC status by electing to recognize a gain (which will be taxed under the rules
discussed above for Non-Electing US Shareholders) as if such common shares had
been sold on the last day of the last taxable year for which it was a PFIC.
Under Section 1291(f) of the Code, the Department of the Treasury has issued
proposed regulations that would treat as taxable certain transfers of PFIC stock
by Non-electing US Shareholders that are generally not otherwise taxed, such as
gifts, exchanges pursuant to corporate reorganizations, and transfers at death.
Certain special, generally adverse, rules will apply with respect to the Common
Shares while the Company is a PFIC whether or not it is treated as a QEF. For
example under Section 1298(b)(6) of the Code, a US shareholder who uses PFIC
stock as security for a loan (including a margin loan) will, except as may be
provided in the regulations, be treated as having made a taxable disposition of
such stock.
The foregoing discussion is based on existing provisions of the Code, existing
and proposed regulations thereunder, and current administrative rulings and
court decisions, all of which are subject to change. Any such change could
affect the validity of this discussion. In addition, the implementation of
certain aspects of the PFIC rules require the issuance of regulations which in
many instances have not been promulgated and which may have retroactive effect.
There can be no assurance that any of the proposals will be enacted or
promulgated, and if so, the form they will take or the effect that they may have
on this discussion. Accordingly, and due to the complexity of the PFIC rules, US
persons who are shareholders of the Company are strongly urged to consult their
own tax advisors concerning the impact of these rules on their investment in the
Company.
Controlled Foreign Corporation. If more than 50% of the voting power of all
classes of stock or the total value of the stock of the Company is owned,
directly or indirectly, by citizens or residents of the United States, United
States domestic partnerships and corporations or estates or trusts other than
foreign estates or trusts, each of whom own 10% or more of the total combined
voting power of all classes of stock of the Company or the total value of the
stock of the Company ("United States shareholder"), the Company could be treated
as a "controlled foreign corporation" under Subpart F of the Code. This
classification would result in many complex consequences including the required
inclusion into income by such United States shareholders of their pro rata
shares of "Subpart F income" (as specially defined by the Code) of the Company
and the Company's earnings invested in US property and previously excluded
Subpart F withdrawn from certain types of investments (as specifically defined
by the Code). In addition, under Section 1248 of the Code, gain from the sale or
exchange of Common Shares of the Company by a US person who is or was a United
States shareholder (as defined in the Code, a holder of Common Shares of the
Company who is or was a United States shareholder at any time during the five
year period ending with
66
the sale or exchange) is treated as ordinary dividend income to the extent of
earnings and profits of the Company attributable to the stock sold or exchanged.
Because of the complexity of Subpart F, and because it is not clear that Subpart
F would apply to the holders of Common Shares of the Company, a more detailed
review of these rules is outside the scope of this discussion.
F. DIVIDENDS AND PAYING AGENTS
Not applicable.
G. STATEMENT BY EXPERTS
Not applicable.
H. DOCUMENTS ON DISPLAY
The documents concerning the Company which are referred to in this Annual Report
may be inspected at the Company's executive offices located at 505 University
Avenue, Suite 1400, Toronto, Ontario M5G 1X3.
I. SUBSIDIARY INFORMATION
InvestorLinks.com, formed in 1997, is owned 100% by IL Data Corporation Inc.,
which is owned 100% by IL Data Canada Inc., which is owned 100% by the Company.
Both IL Data Corporation Inc. and IL Data Canada Inc. are inactive. Effective
August 31, 2001, the Company acquired API Electronics, Inc., of Hauppauge, New
York as a wholly-owned subsidiary. Effective May 31, 2002, the Company acquired
Filtran Group, consisting of (A) Filtran, Inc. of Ogdenburg, New York, and
Canadian Dataplex Limited and Tactron Communications (Canada) Limited, both of
Ottawa, Ontario, all of which are wholly-owned subsidiaries of the Company and
(B) Filtran Limited, of Ottawa, Ontario, an indirect subsidiary of the Company
and a wholly-owned subsidiary of Tactron Communications (Canada) Limited.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable. The Company is a small business issuer.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
There are no reportable events for Item 13.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
Not applicable.
67
ITEM 15. CONTROLS AND PROCEDURES
A. Within the 90-day period prior to the filing of this report ("Date of
Evaluation"), an evaluation was carried out under the supervision and with the
participation of the Company's management, including the Chief Executive Officer
("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of our
disclosure controls and procedures. Based on that evaluation, the CEO and CFO
have concluded that the Company's disclosure controls and procedures are
effective to ensure that information required to be disclosed by the Company in
reports that it files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms.
B. There have been no significant changes in the Company's internal controls
or the occurrence of events or other factors that could significantly affect
these controls, subsequent to the Date of Evaluation.
ITEM 16. [RESERVED]
PART III
ITEM 17. FINANCIAL STATEMENTS
As noted in Note 1(a) to the consolidated financial statements of the Company
included with this Part III, Item 17 of the Annual Report, comparative figures
for API for the years ended May 31, 2001 and May 31, 2000 have been presented
because API is the deemed acquiring company in a reverse take-over of the
Company by API effective August 31, 2001.
The financial statements, which follow were prepared in accordance with Canadian
Generally Accepted Accounting Principles ("Cdn GAAP") and are expressed in US
dollars. A reconciliation from Cdn GAAP to US GAAP is disclosed in Note 19 to
the financial statements. The financial statements include the following:
(i) Auditors' Report of BDO Dunwoody LLP on the consolidated financial
statements for the year ended May 31, 2002
(ii) Auditors Report of Perry Colletti, CPA on the financial statements
for the years ended May 31, 2001 and 2000
(iii) Consolidated Balance Sheet at May 31, 2002 and 2001.
(iv) Consolidated Statements of Operations and Deficit for the years ended
May 31, 2002, 2001 and 2000.
(v) Statements of Cash Flows for the years ended May 31, 2002, 2001 and
2000.
(vi) Summary of Significant Accounting Policies
(vii) Notes to Consolidated Financial Statements
68
================================================================================
Auditors' Report
- --------------------------------------------------------------------------------
To the Shareholders of
API Electronics Group Inc.
We have audited the consolidated balance sheet of API Electronics Group Inc. as
at May 31, 2002 and the consolidated statements of operations and deficit and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
applicable in Canada and the United States of America. Those standards require
that we plan and perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at May 31, 2002 and the
results of its operations and its cash flows for the year then ended in
accordance with accounting principles generally accepted in Canada.
(signed) BDO Dunwoody LLP
Chartered Accountants
Toronto, Ontario
August 2, 2002
69
================================================================================
Auditors' Report
- --------------------------------------------------------------------------------
To the Shareholders of
API Electronics Group Inc.
I have audited the balance sheet of API Electronics Group Inc. as at May 31,
2001 and the statements of operations and deficit and cash flows for each of the
two years in the period ended May 31, 2001. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing standards
applicable in the United States of America. Those standards require that I plan
and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.
In my opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at May 31, 2001 and the
results of its operations and its cash flows for each of the two years in the
period ended May 31, 2001 in accordance with accounting principles generally
accepted in Canada.
(signed) Perry Colletti, CPA
Certified Public Accountant
Farmingdale, New York
July 14, 2001
70
================================================================================
API Electronics Group Inc.
Consolidated Balance Sheets
(Expressed in US Dollars)
May 31 2002 2001
- --------------------------------------------------------------------------------
Assets
Current
Cash $ 1,408,637 $ 41,073
Accounts receivable 1,073,058 340,383
Inventories (Note 2) 1,852,483 1,277,399
Prepaid expenses 45,358 13,174
--------------------------
4,379,536 1,672,029
Capital assets (Note 3) 2,867,382 881,700
Goodwill (Note 4) 962,529 10,552
Intangible assets (Note 5) 325,712 -
--------------------------
$ 8,535,159 $ 2,564,281
================================================================================
Liabilities and Shareholders' Equity
Current
Bank indebtedness (Note 6) $ 284,488 $ 342,146
Accounts payable 874,269 341,216
Current portion of long-term debt (Note 7) 1,072,706 58,640
--------------------------
2,231,463 742,002
Future income tax liability (Note 8) 530,000 -
Long term debt (Note 7) 1,299,125 229,550
Convertible promissory note (Note 9) - 902,422
--------------------------
4,060,588 1,873,974
--------------------------
Shareholders' equity
Share capital (Note 10) 4,642,007 100
Paid in capital 770,790 770,790
Deficit (938,226) (80,583)
--------------------------
4,474,571 690,307
--------------------------
$ 8,535,159 $ 2,564,281
================================================================================
On behalf of the Board:
(signed) Jason DeZwirek Director
- -------------------------------------------
(signed) Phillip DeZwirek Director
- -------------------------------------------
71
================================================================================
API Electronics Group Inc.
Consolidated Statements of Operations and Deficit
(Expressed in US Dollars)
For the years ended May 31 2002 2001 2000
- -------------------------------------------------------------------------------------
Sales $ 2,903,120 $ 2,653,040 $ 1,786,864
Cost of sales 2,255,841 1,930,582 1,496,134
---------------------------------------
Gross profit 647,279 722,458 290,730
---------------------------------------
Expenses
Business development 501,583 - -
Selling 339,048 246,844 254,351
General and administrative 685,747 300,598 317,594
---------------------------------------
1,526,378 547,442 571,945
---------------------------------------
Operating income (loss) (879,099) 175,016 (281,215)
---------------------------------------
Other (income) expenses
Other income (75,565) (13,719) (2,862)
Interest expense 37,467 86,342 27,457
---------------------------------------
(38,098) 72,623 24,595
---------------------------------------
Income (loss) before income taxes (841,001) 102,393 (305,810)
Income taxes (Note 8) 16,642 292 -
---------------------------------------
Net income (loss) for the year (857,643) 102,101 (305,810)
Deficit, beginning of year (80,583) (182,684) 123,126
---------------------------------------
Deficit, end of year $ (938,226) $ (80,583) $ (182,684)
=====================================================================================
Earnings (loss) per share - basic (Note 14) $ (0.08) $ 0.02 $ (0.05)
=====================================================================================
72
================================================================================
API Electronics Group Inc.
Statements of Cash Flows
(Expressed in US Dollars)
For the years ended May 31 2002 2001 2000
- -------------------------------------------------------------------------------------------
Cash was provided by (used in)
Operating activities
Net income (loss) for the year $ (857,643) $ 102,101 $ (305,810)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Amortization 150,138 120,132 108,243
Capitalized interest - 38,673 -
Changes in non-cash working capital
balances (Note 11(a)) (103,543) (317,641) (54,103)
-------------------------------------
(811,048) (56,735) (251,670)
-------------------------------------
Investing activities
Purchase of capital assets (257,217) (187,850) (57,628)
Business acquisition, net of cash acquired (955,374) - -
-------------------------------------
(1,212,591) (187,850) (57,628)
-------------------------------------
Financing activities
Cash acquired through reverse take-over,
net of acquisition costs 1,178,376 - -
Issue of share capital 2,296,212 - -
Bank indebtedness repayments (112,200) (5,083) 261,000
Repayment of long term debt (58,575) (12,422) (8,444)
Increase in long term debt 87,390 222,000 100,000
-------------------------------------
3,391,203 204,495 352,556
-------------------------------------
Net increase (decrease) in cash for the year 1,367,564 (40,090) 43,258
Cash, beginning of year 41,073 81,163 37,905
-------------------------------------
Cash, end of year $ 1,408,637 $ 41,073 $ 81,163
===========================================================================================
73
================================================================================
API Electronics Group Inc.
Summary of Significant Accounting Policies
(Expressed in US Dollars)
May 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------
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; and Tactron Communications (Canada)
Limited ("TCCL"), a private company incorporated
under the laws of Ontario. Filtran USA, Filtran
Canada, CDL and 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 for the year
ended May 31, 2002 include the accounts of the
Company (the legal parent), together with its
wholly owned subsidiaries, API Electronics and the
Filtran Group. The financial statements for the
year ended May 31, 2001 and 2000 are the accounts
of API Electronics (the legal subsidiary).
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.
74
================================================================================
API Electronics Group Inc.
Summary of Significant Accounting Policies
(Expressed in US Dollars)
May 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------
Revenue Recognition Revenue is recognized when risk and title passes
to the customer, which is generally upon shipment
of the product.
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 is no longer 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.
75
================================================================================
API Electronics Group Inc.
Summary of Significant Accounting Policies
(Expressed in US Dollars)
May 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------
Foreign Currency
Translation The consolidated financial statements are stated
in United States dollars, "the reporting
currency". The transactions of the Company (the
legal parent) 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 whose
primary economic environment is Canada and
accordingly 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. There was no foreign
exchange translation amount at year end as the
Filtran Group was acquired May 31, 2002.
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 $14,535 (2001 - $12,767;
2000 - $13,157).
Stock-Based
Compensation Plans The Company has a stock-based compensation plan
which is described in Note 10(d). 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.
76
================================================================================
API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
May 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------
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 warrant exercisable at $0.45 per share
expiring February 28, 2003 and 1/2 of one Series B common share
purchase 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.
Prior to the acquisition, the Company ceased operations and became a
public shell company whose principal asset was cash. 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 pre-business combination
(Note 10(b)(ii)).
(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.
77
================================================================================
API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
May 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------
1. (b) Business Acquisition - (continued)
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.
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
============
2. Inventories
2002 2001
--------------------------
Finished goods $ 1,232,246 $ 866,799
Work-in-process 123,442 151,500
Raw materials 496,795 259,100
--------------------------
$ 1,852,483 $ 1,277,399
==========================
3. Capital Assets
2002
----------------------------------------
Accumulated Net Book
Cost Amortization Value
Land $ 394,127 $ - $ 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
========================================
78
================================================================================
API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
May 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------
3. Capital Assets - (continued)
2001
----------------------------------------
Accumulated Net Book
Cost Amortization Value
Land $ 147,875 $ - $ 147,875
Buildings 465,060 137,320 327,740
Furniture and fixtures 6,751 6,751 -
Machinery and equipment 1,101,000 694,915 406,085
----------------------------------------
$ 1,720,686 $ 838,986 $ 881,700
========================================
Included in machinery and equipment is $133,362 (2001 - $42,001) of
property held under capital leases.
Depreciation and amortization expense amounted to $150,138 (2001 -
$120,132, 2000 - $108,243). Of this amount $115,979 (2001 - $96,106, 2000 -
$86,594) was included in cost of sales.
The Company is the lessee of various computer equipment under a capital
lease expiring in 2003. The assets and liabilities of capital leases are
recorded at the lower of the present value of the minimum lease payments or
the fair value of the asset. The assets are depreciated over the lower of
their related lease terms or their estimated productive lives. Depreciation
of assets under capital leases is included in depreciation expense for 2002
and 2001.
4. Goodwill
2002 2001
--------------------------
Goodwill $ 1,015,289 $ 52,760
Less: Accumulated amortization 52,760 42,208
--------------------------
$ 962,529 $ 10,552
==========================
5. Intangible Assets
2002 2001
--------------------------
Non-compete agreement (Note 1(b)) $ 325,712 $ -
Less: Accumulated amortization - -
--------------------------
$ 325,712 $ -
==========================
79
================================================================================
API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
May 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------
6. Bank Indebtedness
API Electronics's bank indebtedness of $242,145 is secured by all of its
assets pursuant to a general security agreement and in addition is
guaranteed by two of its directors. 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 May 31, 2002 the
Company has borrowed $42,343 (Cdn $65,000) 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.
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 $ 1,954,270 $ -
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% 95,145 55,917
Loan payable, unsecured and non-interest bearing,
repayable in monthly instalments of $1,000 (i) 39,000 174,000
Mortgages repayable, secured by real estate,
repayable in blended monthly instalments of $3,737
at interest rates of 6.75% and 8.75% 166,262 -
Various equipment capital leases, with annual lease
payments of $26,949 including interest at
approximately 9% 102,089 14,698
Due to shareholder, non-interest bearing with no specific
terms of repayment 15,065 43,575
------------------------------
2,371,831 288,190
Less: Current portion 1,072,706 58,640
------------------------------
$ 1,299,125 $ 229,550
==============================
80
================================================================================
API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
May 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------
7. Long Term Debt - (continued)
(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 2002, 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 May 31,
2002 the Company's indebtedness amounted to $39,000.
The long term debt repayable over the next five fiscal years is as
follows:
2003 $ 1,072,706
2004 1,117,270
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.
8. Income Taxes
The significant components of future income tax assets consists of the
following:
2002 2001
-------------------------------
Future income tax assets
Loss carrying forwards $ 368,000 $ 65,000
Capital assets 33,000 -
-------------------------------
401,000 65,000
-------------------------------
Future income tax liabilities
Capital assets (445,000) -
Non-compete agreement (98,000) -
-------------------------------
(543,000) -
-------------------------------
Valuation allowance (388,000) (65,000)
-------------------------------
$ (530,000) $ -
===============================
81
================================================================================
API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
May 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------
8. Income Taxes - (continued)
A reconciliation between income taxes provided at actual rates and at the
basic rate of 40.29% (2001 - 28%, 2000 - 28%) for federal and provincial
taxes is as follows:
2002 2001 2000
-----------------------------------
Net loss $ (841,001) $ 102,393 $ (305,810)
===================================
Recovery of income tax at statutory
rates $ (339,000) $ 29,000 $ (86,000)
Increase in taxes resulting from:
Non-deductible items and other 16,000 - -
Tax reassessments 16,642 292 -
Change in valuation allowance 323,000 (29,000) 86,000
-----------------------------------
Provision for income taxes $ 16,642 $ 292 $ -
===================================
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.
9. Convertible Promissory Note
On 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.
For the year ended May 31, 2001, the Company paid interest on the
shareholder's loan at 9% for the period from June 1, 2000 to September 20,
2000 in the amount of $38,673. On September 20, 2000 API Electronics
signed a demand promissory note payable to 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.
On April 1, 2001 API Electronics issued a convertible note in exchange for
the demand promissory 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 shares 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.
82
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API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
May 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------
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 May 31, 1999 to 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
-------------------------
14,903,814 $ 4,642,007
=========================
83
================================================================================
API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
May 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------
10. Share Capital - (continued)
(c) Warrants
Common shares purchase warrants ("Warrants")
As at May 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 Series A 1 for 1 0.45 February 28, 2003
1,649,579 Series B 1 for 1 0.75 August 30, 2003
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
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, May 31, 2002 3,525,825
===========
(d) Stock Options
As at May 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
84
================================================================================
API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
May 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------
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, May 31, 2002 325,000 $ 0.73
========================
11. Cash Flow Information
(a) Changes in non-cash working capital are as follows:
2002 2001 2000
--------------------------------------
Accounts receivable $ 9,726 $ (74,096) $ (36,449)
Inventory (107,685) (304,473) (206,468)
Prepaid expenses 86,370 (5,215) 49,979
Accounts payable (91,954) 66,143 138,835
$ (103,543) $ (317,641) $ (54,103)
(b) Supplemental Cash Flow Information
2002 2001 2000
--------------------------------------
(i) Non-cash transaction
Convertible promissory
note converted into
common stock $ 902,422 $ - $ -
Disposal of capital assets
in settlement of
equipment loan 120,000 - -
Finders fee paid through
issue of common shares 270,000 - -
Shares issued on business
acquisition (Note 1(a)) 1,173,273 - -
(ii) Cash paid for interest $ 37,467 $ 86,342 $ 27,457
85
================================================================================
API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
May 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------
12. Related party Transactions
(a) Included in capital assets are web site development costs in the
amount of $30,826 (2001 - $Nil) paid to a company of which a
shareholder of the company is a director.
(b) Included in consulting expenses are fees of $27,522 (2001 - $Nil, 2000
- $Nil) paid to an individual who is a director and officer of the
Company.
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. Segmented Information
(a) The Company's operations are conducted in two reportable segments
which are distinguished by geographic location in Canada and United
States. Both segments design and manufacture electronic components.
Since the Canada segment was acquired May 31, 2002 all revenues are
derived from the United States segment.
2002 2001
--------------------------
Total Assets
Property and equipment
United States $ 1,209,281 $ 881,700
Canada 1,658,101 -
Goodwill
United States - 10,552
Canada 962,529 -
Other assets
United States 2,104,140 1,672,029
Canada 2,601,108 -
--------------------------
$ 8,535,159 $ 2,564,281
==========================
(b) Major Customer
2002 2001 2000
--------------------------
Revenue
U.S. Department of Defence 20% 22% 25%
U.S. Department of Defence subcontractors 50% 44% 30%
86
================================================================================
API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
May 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------
14. Per Share Data
The weighted average number of shares issued and outstanding for the year
ended May 31, 2002 was 10,742,248. 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 May 31, 2001 and 2000 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).
15. Financial Instruments
As at May 31, 2002 and 2001 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.
Accounts receivable consist principally of amounts due from the US
Department of Defence, US Department of Defence subcontractors, and
commercial/industrial users.
Although, the U.S. Department of Defence (directly and through
subcontractors) accounts for a significant portion of the Company's revenue
(Note 13), management has determined that the Company is not economically
dependent on this business as, if necessary, it could re-deploy resources
to further service the commercial/industrial user.
16. 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.
2003 $ 30,822
2004 22,243
2005 9,889
87
================================================================================
API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
May 31, 2002 and 2001
- --------------------------------------------------------------------------------
16. Commitments and Contingencies - (Continued)
(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 year ended May 31, 2002, the Company incurred
$30,157 (2001 - $17,425, 2000 - $15,341) as its obligation under the
terms of the plan. Of this amount $30,157 (2001 - $17,425, 2000 -
$15,341) has been charged to general and administrative expenses.
17. Comparative Figures
Comparative figures have been reclassified to conform with current year
presentation.
18. Subsequent Events
On June 19, 2002, the Company completed a $1,175,000 private placement
offering of 500,000 units at a price of $2.35 per unit. Each unit consists
of one common share and one warrant. The warrants expire on June 30, 2004
and entitles the holders to purchase one additional common share at a price
of $3.00 per share. Proceeds from the private placement will be used for
general working capital purposes and to fund ongoing acquisition
activities.
19. Generally Accepted Accounting Principles in Canada and the United States
The Company's accounting policies do not differ materially from accounting
principles generally accepted in the United States ("US GAAP") except as
follows:
(a) Portfolio Investments
Under accounting principles generally accepted in Canada ("Canadian
GAAP"), gains (losses) in shares of public companies are not
recognized until investments are sold unless there is deemed to be an
impairment in value which is other than temporary. Under US GAAP, such
investments that are not held for trading purposes are recorded at
market value and the unrealized gains and losses other than those
arising from permanent impairment are recognized as a separate item in
the shareholder's equity section of the balance sheet. Investments of
$1,903 (2001 - $Nil) are included in prepaid expenses.
88
================================================================================
API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
May 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------
19. Generally Accepted Accounting Principles in Canada and the United States -
(continued)
(b) Stock Options
Under US GAAP (FAS 123), stock options granted to non-employees are
recognized as an expense based on their fair value at the date of
grant. Under Canadian GAAP the options are disclosed and no
compensation expense is recorded. The Company had no consultant
options issued or outstanding.
The Company follows APB 25 for options granted to employees. For
employees, compensation expense is recognized under the intrinsic
value method. Under this method, compensation cost is the excess, if
any, of the quoted market price at grant date over the exercise price.
Such expense is reflected over the service period; if for prior
services, expensed at date of grant; if for future services, expensed
over vesting period. The exercise price of 300,000 stock options
outstanding to directors is less than the market value of the shares
at the date granted, therefore, a compensation expense of $54,000 has
been recognized for US GAAP purposes.
(c) Forgiveness of Interest on Shareholder Loan
For the fiscal year ended May 31, 2000, the shareholder waived
interest of $61,652 on his shareholder loan. Under US GAAP,
forgiveness of interest is accounted for as a charge to income and a
credit to paid up capital.
(d) Other Paid in Capital
Under Canadian GAAP, convertible debentures have been segregated into
a debt and equity component. Under US GAAP the convertible debentures
would be shown as debt only and therefore would not include an equity
component. As a result of the conversion of the convertible debt,
there is no equity component.
(e) Recently Issued United States Accounting Standards
In June 2001, the FASB issued FASB Statement No. 141, "Business
Combinations" (SFAS 141), and No. 142, "Goodwill and Other Intangible
Assets" (SFAS 142). SFAS 141 requires the use of the purchase method
of accounting and prohibits the use of the pooling-of-interests method
of accounting for business combinations initiated after June 30, 2001.
SFAS 141 also requires that the Company recognize acquired intangible
assets apart from goodwill if the acquired intangible assets meet
certain criteria. SFAS 141 applies to all business combinations
initiated after June 30, 2001 and for purchase business combinations
completed on or after July 1, 2001. It also requires, upon adoption of
SFAS 142, that the Company reclassifies the carrying amounts of
intangible assets and goodwill based on the criteria in SFAS 141.
Management believes the adoption of this statement will not have a
material effect on the financial position and results of operations.
89
================================================================================
API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
May 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------
19. Generally Accepted Accounting Principles in Canada and the United States -
(continued)
(e) Recently Issued United States Accounting Standards - (continued)
SFAS 142 requires, among other things, that companies no longer
amortize goodwill, but instead test goodwill impairment at least
annually. In addition, SFAS 142 requires that the Company identify
reporting units for the purposes of assessing potential future
impairments of goodwill, reassess the useful lives of other existing
recognized intangible assets, and cease amortization of intangible
assets with an indefinite useful life. An intangible asset with an
indefinite useful life should be tested for impairment in accordance
with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 31, 2001 to all goodwill and
other intangible assets recognized at that date, regardless of when
those assets were initially recognized. SFAS 142 requires that the
Company complete a transitional goodwill impairment test six months
from the date of adoption. The Company is also required to reassess
the useful lives of other intangible assets within the first interim
quarter after adoption of SFAS 142. Management believes the adoption
of this statement will not have a material effect on the financial
position and results of operations.
In August 2001, the FASB issued SFAS No. 143 "Accounting for Asset
Retirement Obligations". SFAS No. 143 requires the fair value of a
liability for an asset retirement obligation to be recognized in the
period in which it is incurred if a reasonable estimate of fair value
can be made. The associated retirement costs are capitalized as part
of the carrying amount of the long-lived asset. SFAS No. 143 is
effective for the fiscal year ending June 30, 2003. Currently, the
Company is assessing, but, has not yet determined how the adoption of
SFAS No. 143 will impact its financial position and results of
operation.
In August 2001, the FASB issued Statement of Financing Accounting
Standards No. 144 "Accounting Impairment or Disposal of Long-Lived
Assets." This statement supersedes SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets to be Disposed Of". This statement
clarifies accounting and reporting for assets held for sale, scheduled
for abandonment or other disposal, and recognition of impairment loss
related to the carrying value of long-lived assets. This statement is
effective for fiscal years beginning after December 15, 2001. The
adoption of this statement is not expected to have a material impact
on the Company's financial position or results of operations.
In April 2002, the FASB issued SFAS No. 145, "Recission of FASB
Statements No. 4, 44 and 46, Amendment of FASB Statement No. 13, and
Technical Corrections". This statement eliminates the current
requirement that gains and losses on extinguishment of debt must be
classified as extraordinary items in the statement of operations.
Instead, the statement requires that gains and losses on
extinguishment of debt be evaluated against the criteria in APB 30 to
determine whether or not it should be classified as an extraordinary
item. Additionally the statement contains other corrections to
authoritative accounting literature in SFAS No. 4, 44 and 46. The
changes in SFAS No. 145 related to debt extinguishment become
effective for fiscal years beginning after May 15, 2002, and the other
changes were effective for all financial statements issued on or after
May 15, 2002. Management believes the adoption of this statement will
not have a material effect on the financial position and results of
operations.
90
================================================================================
API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
May 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------
19. Generally Accepted Accounting Principles in Canada and the United States -
(continued)
(e) Recently Issued United States Accounting Standards - (continued)
In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 requires
that a liability for a cost associated with an exit or disposal
activity be recognized at the date the liability is incurred and is
measured and recorded at fair value. This is effective for exists or
disposal activities initiated after December 31, 2002. Management is
of the opinion that the adoption of SFAS No. 146 will not impact its
financial position and results of operation.
(f) The impact of the foregoing on the financial statements is as follows:
2002 2001
----------------------------
Total assets Canadian GAAP $ 8,535,159 $ 2,564,281
Unrealized gain on investments 3,192 -
----------------------------
Total assets US GAAP $ 8,538,351 $ 2,564,281
============================
Total liabilities Canadian GAAP $ 4,060,588 $ 1,873,974
Debt discount - 363,070
----------------------------
Total liabilities per US GAAP 4,060,588 2,237,044
----------------------------
Shareholders' equity Canadian GAAP 4,474,571 690,307
Unrealized gain on investments in US GAAP 3,192 -
(Increase) in accumulated deficit US GAAP (115,652) (61,652)
Increase (decrease) in other paid in capital US GAAP 115,652 (301,418)
----------------------------
Shareholders' equity US GAAP 4,477,763 327,237
----------------------------
Total liabilities and shareholders' equity US GAAP $ 8,538,351 $ 2,564,281
============================
2002 2001 2000
---------------------------------------------
Net income (loss) per Canadian GAAP $ (857,643) $ 102,101 $ (305,810)
Compensation expense (54,000) - -
Interest on shareholder loan - - (61,652)
---------------------------------------------
Net income (loss) US GAAP (911,643) 102,101 (367,462)
Unrealized gain on investments 3,192 - -
---------------------------------------------
Comprehensive net income (loss)
US GAAP $ (908,451) $ 102,101 $ (367,462)
=============================================
Basic and diluted net income (loss)
per share US GAAP $ (0.09) $ 0.03 $ (0.11)
=============================================
Shares used in the computation of
basic earnings (loss) per share 10,475,539 3,299,492 3,299,492
=============================================
Shares used in the computation of
diluted earnings (loss) per share 10,475,539 3,832,910 3,299,492
=============================================
91
ITEM 18. FINANCIAL STATEMENTS
Not applicable.
ITEM 19. EXHIBITS
1. Articles of incorporation and bylaws as currently in effect:
1.1 Articles of Amalgamation, effective May 1, 1993, amalgamating
1024680 Ontario Ltd., Shepherd Ventures Inc., Dally Development
Corp. and TNK Resources Inc. into an amalgamated corporation
under the name TNK Resources Inc. under the articles of
incorporation of Dally Development Corp./(1)/
1.2 By-law Number A of Shediac Bay Resources, Inc. (the Company's
predecessor) dated May 14, 1985/(1)/
1.3 Special By-law Number 1 of A of Shediac Bay Resources, Inc. (the
Company's predecessor) dated May 14, 1985/(1)/
1.4 Articles of Amendment filed May 18, 1999 reflecting Name Change
from TNK Resources Inc. to Opus Minerals Inc./(3)/
1.5 Articles of Amendment filed July 25, 2000 reflecting Name Change
from Opus Minerals Inc. to InvestorLinks.com Inc./(4)/
1.6 Articles of Amendment filed September 6, 2001, effective
September 10, 2001, reflecting Name Change from
InvestorLinks.com Inc. to API Electronics Group Inc./(5)/
2. Instruments defining rights of holders of equity or debt securities
being registered:
2.1 See Articles of Amalgamation described above in item 1.1./(1)/
2.2 Specimen Common Share certificate/(1)/
2.3 1995 Stock Option Plan and Board resolution defining rights of
holders of Management Stock Options granted thereunder/(1)/
2.4 Form of Share Purchase Warrant/(1)/
2.5 Form of Agent's Compensation Warrant/(1)/
2.6 See Consulting Agreement described below in item 3.21 for
description of Consultant's Options/(1)/
3. Any voting trust agreements and any amendments to those agreements.
92
4. Material contracts:
4.1 Republic of Botswana Prospecting License No. 142/93, dated
September 8, 1993, in favor of TNK Resources Incorporated/(1)/
4.2 Republic of Botswana Renewal Prospecting License No. 142/93,
dated October 22, 1996, in favor of TNK Resources
Incorporated/(1)/
4.3 Republic of Botswana Prospecting License No. 143/93, dated
September 8, 1993, in favor of TNK Resources Incorporated/(1)/
4.4 Republic of Botswana Renewal Prospecting License No. 143/93,
dated October 22, 1996, in favor of TNK Resources
Incorporated/(1)/
4.5 Republic of Botswana Prospecting License No. 144/93, dated
September 8, 1993, in favor of TNK Resources Incorporated/(1)/
4.6 Republic of Botswana Renewal Prospecting License No. 144/93,
dated October 22, 1996, in favor of TNK Resources
Incorporated/(1)/
4.7 Republic of Botswana Prospecting License No. 145/93, dated
September 8, 1993, in favor of TNK Resources Incorporated/(1)/
4.8 Republic of Botswana Renewal Prospecting License No. 145/93,
dated October 22, 1996, in favor of TNK Resources
Incorporated/(1)/
4.9 Republic of Botswana Prospecting License No. 146/93, dated
September 8, 1993, in favor of TNK Resources Incorporated/(1)/
4.10 Republic of Botswana Renewal Prospecting License No. 146/93,
dated October 22, 1996, in favor of TNK Resources
Incorporated/(1)/
4.11 Republic of Botswana Prospecting License No. 147/93, dated
September 8, 1993, in favor of TNK Resources Incorporated/(1)/
4.12 Republic of Botswana Renewal Prospecting License No. 147/93,
dated October 22, 1996, in favor of TNK Resources
Incorporated/(1)/
4.13 Republic of Botswana Prospecting License No. 148/93, dated
September 8, 1993, in favor of TNK Resources Incorporated/(1)/
4.14 Republic of Botswana Renewal Prospecting License No. 148/93,
dated October 22, 1996, in favor of TNK Resources
Incorporated/(1)/
4.15 Republic of Botswana Prospecting License No. 149/93, dated
September 8, 1993, in favor of TNK Resources Incorporated(1)
4.16 Republic of Botswana Renewal Prospecting License No. 149/93,
dated October 22, 1996, in favor of TNK Resources
Incorporated/(1)/
93
4.17 Republic of Botswana Prospecting License No. 156/93, dated
October 25, 1993, in favor of TNK Resources Incorporated/(1)/
4.18 Republic of Botswana Prospecting License No. 157/93, dated
October 25, 1993, in favor of TNK Resources Incorporated/(1)/
4.19 Republic of Botswana Renewal Prospecting License No. 157/93,
dated October 22, 1996, in favor of Midswana Diamond Exploration
Corporation/(1)/
4.20 Republic of Botswana Prospecting License No. 158/93, dated
October 25, 1993, in favor of TNK Resources Incorporated/(1)/
4.21 Republic of Botswana Renewal Prospecting License No. 158/93,
dated October 22, 1996, in favor of Midswana Diamond Exploration
Corporation/(1)/
4.22 Contract of Work dated December 21, 1987 between the Government
of the Republic of Indonesia and P.T. Marunda Wahau Mining/(1)/
4.23 Contract of Work dated December 2, 1986 between the Government
of the Republic of Indonesia and P.T. Alahan Panjang
Minerals/(1)/
4.24 Contract of Work dated December 2, 1986 between the Government
of the Republic of Indonesia and P.T. Sungai Tembese
Minerals/(1)/
4.25 Contract of Work dated December 21, 1987 between the Government
of the Republic of Indonesia and P.T. Buntok Maju Minerals/(1)/
4.26 Contract of Work dated October 24, 1987 between the Government
of the Republic of Indonesia and P.T. Tumbang Kuling
Minerals/(1)/
4.27 Assignment Agreement, dated September 16, 1994, between TNK
Resources Inc. and 1096883 Ontario Limited/(1)/
4.28 Agreement, dated September 26, 1994, between the persons shown
as the 1096883 Ontario Limited Shareholders and Sommerset
Industries Inc. and 1096883 Ontario Limited/(1)/
4.29 Memorandum of Agreement, dated February 14, 1996, between P.T.
Hutan Nauli and TNK Resources Inc./(1)/
4.30 Memorandum of Agreement, dated March 26, 1996, between TNK
Resources Inc. and 867323 Ontario Limited/(1)/
4.31 Agreement, dated April 8, 1996, between P.T. Hutan Nauli and TNK
Resources Inc./(1)/
4.32 Letter agreement, dated April 15, 1996, between TNK Resources
Inc. and Oil
94
Springs Energy Corp./(1)/
4.33 Employment Agreement, dated May 1, 1996, between TNK Resources Inc.
and Elizabeth J. Kirkwood/(1)/
4.34 Employment Agreement, dated May 1, 1996, between Midswana Diamond
Exploration Corp. and Elizabeth J. Kirkwood/(1)/
4.35 Letter agreement dated May 24, 1996, between TNK Resources Inc. and
P.T. Hutan Nauli/(1)/
4.36 Consulting Agreement, dated August 1, 1996, between TNK Resources Inc.
and 1165953 Ontario Inc./(1)/
4.37 Memorandum of Agreement, dated November 15, 1996, between P.T. Hutan
Nauli and TNK Resources Inc./(1)/
4.38 Prospecting Agreement (Area Agreement #1), dated February 20, 1998
between DeBeers Prospecting Botswana (Proprietary) Limited and TNK
Resources Inc./(2)/
4.39 Prospecting Agreement (Area Agreement #2), dated February 20, 1998
between DeBeers Prospecting Botswana (Proprietary) Limited and TNK
Resources Inc./(2)/
4.40 Prospecting Agreement (Area Agreement #3), dated February 20, 1998
between DeBeers Prospecting Botswana (Proprietary) Limited and TNK
Resources Inc./(2)/
4.41 Subscription Agreement, dated March 12, 1998 between TNK Resources
Inc. and Monopros Limited/(2)/
4.42 Memorandum and Articles of Association of TNK Area 1 (Proprietary)
Limited, dated February 11, 1998/(2)/
4.43 Memorandum and Articles of Association of TNK Area 2 (Proprietary)
Limited, dated February 11, 1998/(2)/
4.44 Memorandum and Articles of Association of TNK Area 3 (Proprietary)
Limited, dated February 11, 1998/(2)/
4.45 Assignment Agreement, dated March 31, 1998 between TNK Resources Inc.
and TNK Resources Area 1 (Proprietary) Limited/(2)/
4.46 Assignment Agreement, dated March 31, 1998 between TNK Resources Inc.
and TNK Resources Area 2 (Proprietary) Limited/(2)/
4.47 Assignment Agreement, dated March 31, 1998 between TNK Resources Inc.
and TNK Resources Area 3 (Proprietary) Limited/(2)/
95
4.48 Republic of Botswana Prospecting License No. 67/97, dated May 28,
1997, in favor of TNK Resources Incorporated, in favor of TNK
Resources Incorporated/(2)/
4.49 TNK Resources Inc. Application for the Renewal of Prospecting Licence
Nos. 142-149/93, Ghanzi District, dated August 12, 1998/(2)/
4.50 Republic of Botswana Prospecting License No. 93/98, dated September
29, 1998, in favor of TNK Resources Inc./(2)/
4.51 Agency Agreement, dated October 12, 1999, between Taurus Capital
Markets Ltd. and Opus Minerals Inc./(3)/
4.52 Form of Common Share Purchase Warrant dated as of October 12, 1999
/(3)/
4.53 Letter Agreement, dated July 13, 1998, between Mountain Province
Mining Inc. and Opus Minerals Inc./(3)/
4.54 Asset Sale Agreement, dated October 1998, between International Capri
Resources Ltd. And TNK Resources Inc./(3)/
4.55 Letter Agreement, dated November 27, 1998, regarding Baffin Island
Permit Applications./(3)/
4.56 Letter Agreement, dated December 1, 1998, regarding Services for
Baffin Island Exploration and Development./(3)/
4.57 Letter Agreement, dated August 3, 1999, regarding Borden Peninsula,
Baffin Island./(3)/
4.58 Letter Agreement, dated August 26, 1999, between Mountain Province
Mining Inc. and Opus Minerals Inc./(3)/
4.59 Agency Agreement, dated January 26, 1999, between Taurus Capital
Markets Ltd. and Opus Minerals Inc. and Termination./(3)/
4.60 Warrant to Purchase Common Shares of Stroud Resources Inc./(3)/
4.61 Wolf Lake Property Option Agreement, dated April 14, 1999 between
International Capri Resources Ltd. and Opus Minerals Inc./(3)/
4.62 Letter Agreement, dated February 13, 1999 between International Capri
Resources Ltd. And Opus Minerals Inc./(3)/
4.63 Consulting agreement dated November 15, 1999 as amended by agreement
dated June 26, 2000 between the Company and Investor Relations Group
(Ontario) Inc. ("IRG") pursuant to which IRG will provide ongoing
investor relations activities to the Company. Agreement was mutually
terminated effective February 28, 2001, and the related options lapsed
effective March 30, 2001./(4)/
96
4.64 Stock option agreement dated November 15, 1999 whereunder the Company
granted IRG options to acquire up to 300,000 common shares of the
Company at the price of $0.90 per share expiring November 15, 2001.
Agreement was mutually terminated effective February 28, 2001, and the
related options lapsed effective March 30, 2001./(4)/
4.65 Acquisition Agreement dated January 17, 2000 between the Company and
Vertex Ventures Inc. (now First Strike Diamonds Inc.) whereby the
Company transferred and assigned all of its interest in the mining
properties located in Botswana, Africa and Baffin Island, Nunavut, to
First Strike in consideration for the allotment and issuance of
6,266,667 common shares of First Strike./(4)/
4.66 Securities Exchange Agreement made as of the 6th day of June, 2000
among the Company, IL Data Canada, Inc., all of the shareholders of IL
Data Canada, Inc., as vendors and Frank J. Kollar and Romaine
Gilliland as Principals whereunder the Company acquired all of the
issued and outstanding common shares of IL Data Canada, Inc. which
owns the business known as InvestorLinks.com in consideration for the
allotment of issuance of 6,800,000 Common Shares of the Company./(4)/
4.67 Stock option agreement dated June 26, 2000 whereunder the company
granted IRG options to acquire up to 150,000 common shares of the
Company at the price of $2.55 US per share expiring June 30, 2002.
/(4)/
4.68 Stock option agreements dated June 26, 2000 with officers, directors,
and employees of the Company./(4)/
4.69 Consulting and Advisory Board Agreements dated June 26, 2000 with
Messrs. Joseph Carusone, Christos Livadas, Ben Johnson and Ms. Suzanne
Wood. Mr. Livadas' agreement and stock option and grant were cancelled
and forfeited by Release, dated March 1, 2001, between the parties.
See Item 3.83 below. All agreements expired as of June 26, 2001, and
the related options have lapsed./(4)/
4.70 Subscription Agreement dated August 2, 2000 with Stockhouse Media
Corp. ("Stockhouse") whereby Stockhouse subscribed for 1,500,000
Common Shares of the Company at the price of $2.25 per share in
consideration for Stockhouse providing to the Company Services (as
therein described) over a period of two years. See Note 4(b)(ii) of
the Financial Statements included in Item 17 of this Annual Report for
further detail regarding the termination of agreements with
Stockhouse./(4)/
4.71 Services Agreement dated August 2, 2000 with Stockhouse which sets out
the services and functions to be performed by Stockhouse to earn the
1,500,000 Common Shares of the Company referred to above. See Note
4(b)(ii) of the Financial Statements included in Item 17 of this
Annual Report for further detail regarding the termination of
agreements with Stockhouse./(4)/
4.72 Subscription Agreement effective August 8, 2000 between the Company
and
97
Ming Capital Enterprises Ltd./(4)/
4.73 Warrant certificate issued to Ming Capital Enterprises Ltd. to
purchase up to 680,000 common shares at the price of $3.00 on or
before August 8, 2002./(4)/
4.74 Stock Option Agreement dated June 26, 2000 granting Kathy Hobbs-Parent
options to purchase up to 9,000 Common Shares at $2.55 per share,
vesting at a rate of 1/3 per year for three years. Ms. Hobbs-Parent's
employment was terminated effective May 31, 2001. The options expired
August 29, 2001./(5)/
4.75 Stock Option Agreement dated June 26, 2000 granting Elizabeth J.
Kirkwood options to purchase up to 18,000 Common Shares at $2.55 per
share on or before June 30, 2005 (Released by letter, dated July 24,
2001, signed by Ms. Kirkwood - See Exhibit 3.92 below)./(5)/
4.76 Stock Option Agreement dated June 26, 2000 granting Sandra J. Hall
options to purchase up to 45,000 Common Shares at $2.55 per share on
or before June 30, 2005 (Released by letter, dated July 24, 2001,
signed by Ms. Hall - See Exhibit 3.93 below)./(5)/
4.77 Stock Option Agreement dated June 26, 2000 granting George Stubos
options to purchase up to 90,000 Common Shares at $2.55 per share on
or before June 30, 2005 (Cancelled by Release, dated March 1, 2001,
between the parties. See Exhibit 3.83 below)./(5)/
4.78 Stock Option Agreement dated June 26, 2000 granting Romaine Gilliland
options to purchase up to 110,000 Common Shares at $2.55 per share on
or before June 30, 2005. Mr. Gilliland resigned effective April 10,
2001. The options lapsed July 10, 2001./(5)/
4.79 Stock Option Agreement dated June 26, 2000 granting Frank Kollar
options to purchase up to 290,000 Common Shares at $2.55 per share on
or before June 30, 2005 (Cancelled by Release, dated March 1, 2001,
between the parties. See Exhibit 3.85 below)./(5)/
4.80 Stock Option Agreement dated June 26, 2000 granting Denise Gervin
options to purchase up to 15,000 Common Shares at $2.55 per share,
vesting at a rate of 1/3 per year for three years. Ms. Gervin's
employment was terminated effective February 9, 2001. The options
expired May 9, 2001./(5)/
4.81 Consulting and Stock Option Agreement dated June 26, 2000 with Chris
Papaioannou pursuant to which Mr. Papaioannou agrees to provide
consulting services to the Company for a three-year period commencing
June 26, 2000, and in consideration, the Company agrees to provide Mr.
Papaioannou (i) $2,166.67 per month, (ii) reimbursement for expenses
and (iii) options to purchase up to 9,000 Common Shares at $2.55 per
share for a period of five years, vesting at a rate of 1/3 per year
for three years. Mr. Papaioannou terminated the Consulting Agreement
effective December 2000, and the related stock options have lapsed.
/(5)/
98
4.82 Release dated March 1, 2001 by George Mr. Stubos whereby Stubos agrees
to (i) fully and completely release and discharge any and all actions,
causes of actions, claims and demands arising out of any and all
relationships with the Company, (ii) allow the Company to purchase for
cancellation 500,000 Common Shares and (iii) cancel his option to buy
90,000 Common Shares, in exchange for a lump-sum payment by the
Company of $35,000./(5)/
4.83 Release dated March 1, 2001 by Christos Livadas whereby Mr. Livadas
agrees to (i) fully and completely release and discharge any and all
actions, causes of actions, claims and demands arising out of any and
all relationships with the Company, (ii) allow the Company to purchase
for cancellation 500,000 Common Shares and (iii) cancel his option to
buy 90,000 Common Shares, in exchange for a lump-sum payment by the
Company of $25,000./(5)/
4.84 Release and Consulting Agreement dated March 1, 2001 with Frank Kollar
and Sierra Holdings Limited whereby Mr. Kollar and Sierra Holdings
Limited agree to (i) fully and completely release and discharge any
and all actions, causes of actions, claims and demands arising out of
any and all relationships with the Company, (ii) allow the Company to
purchase for cancellation 3,890,000 Common Shares and (iii) cancel his
option to buy 290,000 Common Shares, in exchange for $209,000 to be
paid by the Company immediately at the time of the Release and $60,000
to be paid as set forth in the Consulting Agreement./(5)/
4.85 Letter of Agreement for Web-site Services dated May 11, 2001 with
Elizabeth J. Kirkwood and Crossbeam Limited doing business as
Crossbeam.com whereby Ms. Kirkwood and Crossbeam.com agree to provide
web-site set-up and maintenance services to the Company for a
six-month period from May 11, 2001 through November 30, 2001 in
exchange for payment by the Company of a one-time payment of $4,000
for the initial set-up and $2,000 per month for maintenance
thereafter. The Agreement is automatically renewed for additional
six-month terms absent notice of cancellation. Either party may cancel
on thirty days notice./(5)/
4.86 Web-site Publisher Agreement dated June 11, 2001 with Engage, Inc.
("Engage") granting Engage the right to sell advertising space on the
Company's web-site in exchange for Engage's agreement to pay the
Company a royalty of 50% on all Net Advertising Revenue./(5)/
4.87 Non-binding Letter of Intent regarding potential business combination
of the Company and API Electronics, Inc. ("API") dated June 19,
2001./(5)/
4.88 Letter Agreement dated June 26, 2001 with Taurus Capital Markets Ltd.
as the Company's exclusive financial advisor with respect to the
potential acquisition of API in exchange for (i) a work fee of
$15,000, (ii) reimbursement of certain out-of-pocket costs and (iii)
in the event of and upon completion of the purchase of API, 250,000
broker warrants for Units on the same terms as Units being issued to
purchase API./(5)/
4.89 Letter Agreement dated June 26, 2001 for settlement of lease, dated
July 3, 2000,
99
between Gilray, LLC and IL Data Corporation Inc., to commence August
1, 2000 and terminate July 31, 2003 whereby Gilray, LLC agrees to
execute a Certificate of Satisfaction fully releasing IL Data and/or
the Company from any further responsibility under the lease in
exchange for $18,000 and ownership of any and all furniture abandoned
by tenant on the premises./(5)/
4.90 Release dated July 24, 2001 by Elizabeth J. Kirkwood agreeing to
release 45,000 stock options previously granted by the Company./(5)/
4.91 Release dated July 24, 2001 by Sandra J. Hall agreeing to release
45,000 stock options previously granted by the Company./(5)/
4.92 Stock Option Agreement dated August 2, 2001 granting James C. Cassina
options to purchase up to 50,000 Common Shares at $0.45 per share, and
up to 50,000 Common Shares at Canadian $0.75 per share on or before
July 31, 2006. The number of shares and exercise prices associated
with the stock options set forth reflect post-consolidation numbers
and prices--see Note 11(b) to the financial statements contained in
Part III, Item 17 of this Annual Report./(5)/
4.93 Stock Option Agreement dated August 2, 2001 granting Sandra J. Hall
options to purchase up to 50,000 Common Shares at $0.45 per share, and
up to 50,000 Common Shares at $0.75 per share on or before July 31,
2006. The number of shares and exercise prices associated with the
stock options set forth reflect post-consolidation numbers and
prices--see Note 11(b) to the financial statements contained in Part
III, Item 17 of this Annual Report./(5)/
4.94 Agreement and Plan of Merger, dated July 27, 2001, between
InvestorLinks.com Inc. and API Electronics, Inc. et al., whereby the
Company acquired all of the issued and outstanding shares of API
Electronics, Inc., a Delaware corporation for consideration of
6,500,000 post-consolidation units at $.40 per unit. Each unit
consists of one Common Share,1/2 of one Series A Common Share purchase
warrant exercisable at $.45 for a period of 18 months from the date of
issuance, and 1/2 of one Series B Common Share purchase warrant
exercisable at $.75 for a period of two years from date of
issuance./(5)/
4.95 Agreement of Merger, dated August 31, 2001, between API Electronics,
Inc. and API Acquisition Corp., whereby API Electronics, Inc. merged
with and into API Acquisition Corp. with API Electronics, Inc. as the
surviving corporation. Each share of common stock of API Acquisition
Corp. outstanding on the effective date of the Agreement was cancelled
and no consideration was paid with respect to any such shares. Each
share of common stock of API Electronics, Inc., the surviving
corporation, outstanding on the effective date of the Agreement, was
(i) exchanged with InvestorLinks.com Inc., an Ontario Corporation and
the parent of API Acquisition Corp. ("IC"), for 33,163.27 shares of IC
Common Stock and A and B warrants to purchase an aggregate of
33,163.28 shares of IC Common Stock and (ii) cancelled immediately
thereafter. The surviving corporation issued a new certificate for 100
shares of common stock to IC, which represented all of the issued and
outstanding shares of the surviving corporation./(5)/
100
4.96 Stock Option Agreement dated August 31, 2001 granting Phillip DeZwirek
options to purchase up to 50,000 Common Shares at $0.45 per share, and
up to 50,000 Common Shares at $0.75 per share on or before August 31,
2006. The number of shares and exercise price associated with the
stock options set forth reflect post-consolidation numbers and prices
- See Note 11(b) to the financial statements contained in Part III,
Item 17 of this Annual Report./(5)/
4.97 Stock Option Agreement dated August 31, 2001 granting Thomas W. Mills
options to purchase up to 50,000 Common Shares at $0.45 per share, and
up to 50,000 Common Shares at $0.75 per share on or before August 31,
2006. The number of shares and exercise price associated with the
stock options set forth reflect post-consolidation numbers and prices
- See Note 11(b) to the financial statements contained in Part III,
Item 17 of this Annual Report./(5)/
4.98 Stock Option Agreement dated August 31, 2001 granting Jason DeZwirek
options to purchase up to 50,000 Common Shares at $0.45 per share, and
up to 50,000 Common Shares at $0.75 per share on or before August 31,
2006. The number of shares and exercise price associated with the
stock options set forth reflect post-consolidation numbers and prices
- See Note 11(b) to the financial statements contained in Part III,
Item 17 of this Annual Report./(5)/
4.99 Share Purchase Agreement dated May 31, 2002, by and among the Company
and Philip Walter White, Rose Mary White, Coranne Adele White, Jane
Murphy, Coreen White, Derek White, Gillian Pershaw, Brian Kenneth
White, Edna Grace Trepannier, Filtran Inc., Filtran Limited, Canadian
Dataplex Ltd., and Tactron Communications (Canada) Limited pursuant to
which the Company purchased the shares of Filtran Inc., Filtran
Limited, Canadian Dataplex Ltd., and Tactron Communications (Canada)
Limited from their shareholders./(6)/
4.100 Non-Competition and Confidentiality Agreement dated May 31, 2002 by
and between the Company and Philip Walter White pursuant to which Mr.
White in consideration of $500,000 agreed to non-competition and
non-solicitation restrictions for a term of five years and permanent
confidentiality restrictions./(6)/
4.101 Subscription Agreement dated June 11, 2002, between the Company and
Aton Ventures Fund Ltd, pursuant to which Aton Ventures Fund Ltd.
purchased from the Company in a private placement 100,000 units for
$2.35 per unit, each unit consisting of one share of common stock of
the Company and one warrant to purchase one share of common stock of
the Company, exercisable at $3.00 per share, for an aggregate purchase
price of $235,000./(6)/
4.102 Subscription Agreement dated June 14, 2002, between the Company and
Syrah Invest Corp., pursuant to which Syrah Invest Corp. purchased
from the Company in a private placement 300,000 units for $2.35 per
unit, each unit consisting of one share of common stock of the Company
and one warrant to purchase one share of common stock of the Company,
exercisable at $3.00 per share, for an aggregate purchase price of
$705,000./(6)/
4.103 Subscription Agreement dated June 11, 2002, between the Company and
Aton
101
Select Fund Ltd, pursuant to which Aton Select Fund Ltd.
purchased from the Company in a private placement 100,000 units
for $2.35 per unit, each unit consisting of one share of common
stock of the Company and one warrant to purchase one share of
common stock of the Company, exercisable at $3.00 per share,
for an aggregate purchase price of $235,000./(6)/
8. Miscellaneous:
8.1 List of Subsidiaries/(6)/
8.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002./(6)/
8.3 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002./(6)/
Footnotes to List of Exhibits:
(1) Incorporated by reference from the Company's Registration Statement on Form
20-F, File No. 0-29142, filed on February 3, 1997.
(2) Incorporated by reference from the Company's Annual Report on Form 20-F,
File No. 0-29142, filed on October 31, 1998.
(3) Incorporated by reference from the Company's Annual Report on Form 20-F,
File No. 0-29142, filed on November 1, 1999.
(4) Incorporated by reference from the Company's Annual Report on Form 20-F,
File No. 0-29142, filed on November 14, 2000.
(5) Incorporated by reference from the Company's Annual Report on Form 20-F,
File No. 0-29142, filed on October 31, 2001.
(6) Filed herewith.
102
Signatures
Pursuant to the requirements of Section 12 of the Securities Act of 1934, the
Registrant certifies that it meets all of the requirements for filing on Form
20-F and has duly caused this Annual Report on Form 20-F to be signed on its
behalf by the undersigned, thereunto authorized.
Dated at Hauppauge, New York, United States of America, this 27th day of
November, 2002.
API ELECTRONICS GROUP INC.
By: /s/ Thomas W. Mills
--------------------------------
Thomas W. Mills, President
103
CERTIFICATIONS
I, Jason DeZwirek, certify that:
1. I have reviewed this Annual Report on Form 20-F of API Electronics
Group, Inc.;
2. Based on my knowledge, this Annual Report does not contain any untrue
statement of material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this Annual Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Annual Report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this Annual Report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
Annual Report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this Annual Report (the "Evaluation Date"); and
c) presented in this Annual Report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
Annual Report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 27, 2002 /s/ Jason DeZwirek
--------------------
Signature
Jason DeZwirek
Chairman and Chief Executive Officer
104
I, Phillip DeZwirek, certify that:
1. I have reviewed this Annual Report on Form 20-F of API Electronics Group,
Inc.;
2. Based on my knowledge, this Annual Report does not contain any untrue
statement of material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered
by this Annual Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Annual Report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
Annual Report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
Annual Report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this Annual Report (the "Evaluation Date"); and
c) presented in this Annual Report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
Annual Report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 27, 2002 /s/ Phillip DeZwirek
-----------------------
Signature
Phillip DeZwirek
Vice Chairman, Chief Financial Officer
and Treasurer
105
I, Thomas Mills, certify that:
1. I have reviewed this Annual Report on Form 20-F of API Electronics Group,
Inc.;
2. Based on my knowledge, this Annual Report does not contain any untrue
statement of material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this Annual Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Annual Report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this Annual Report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this Annual Report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
Annual Report (the "Evaluation Date"); and
c) presented in this Annual Report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
Annual Report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 27, 2002 /S/ THOMAS W. MILLS
--------------------
Signature
Thomas W. Mills
President
106
As filed with the Securities and Exchange Commission on November 27, 2002
Commission File No.: 0-29142
- -------------------------------------------------------------------------------
API ELECTRONICS GROUP INC.
ANNUAL REPORT
On
FORM 20-F
----------
EXHIBIT INDEX
----------
API ELECTRONICS GROUP INC.
ANNUAL REPORT ON FORM 20-F
FILED EXHIBIT INDEX
Exhibit
Number Description
- ------------- ------------------------------------------------------------
4.99 Share Purchase Agreement dated May 31, 2002, by and among
the Company and Philip Walter White, Rose Mary White,
Coranne Adele White, Jane Murphy, Coreen White, Derek White,
Gillian Pershaw, Brian Kenneth White, Edna Grace Trepannier,
Filtran Inc., Filtran Limited, Canadian Dataplex Ltd., and
Tactron Communications (Canada) Limited pursuant to which
the Company purchased the shares of Filtran Inc., Filtran
Limited, Canadian Dataplex Ltd., and Tactron Communications
(Canada) Limited from their shareholders.
4.100 Non-Competition and Confidentiality Agreement dated May 31,
2002 by and between the Company and Philip Walter White
pursuant to which Mr. White in consideration of Canadian
$500,000 agreed to non-competition and non-solicitation
restrictions for a term of five years and permanent
confidentiality restrictions.
4.101 Subscription Agreement dated June 11, 2002, between the
Company and Aton Ventures Fund Ltd, pursuant to which Aton
Ventures Fund Ltd. purchased from the Company in a private
placement 100,000 units for $2.35 per unit, each unit
consisting of one share of common stock of the Company and
one warrant to purchase one share of common stock of the
Company, exercisable at $3.00 per share, for an aggregate
purchase price of $235,000.
4.102 Subscription Agreement dated June 14, 2002, between the
Company and Syrah Invest Corp., pursuant to which Syrah
Invest Corp. purchased from the Company in a private
placement 300,000 units for $2.35 per unit, each unit
consisting of one share of common stock of the Company and
one warrant to purchase one share of common stock of the
Company, exercisable at $3.00 per share, for an aggregate
purchase price of $705,000.
4.103 Subscription Agreement dated June 11, 2002, between the
Company and Aton Select Fund Ltd, pursuant to which Aton
Select Fund Ltd. purchased from the Company in a private
placement 100,000 units for $2.35 per unit, each unit
consisting of one share of common stock of the Company and
one warrant to purchase one share of common stock of the
Company, exercisable at $3.00 per share, for an aggregate
purchase price of $235,000.
8.1 List of Subsidiaries.
8.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
8.3 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
1