FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities and Exchange Act of 1934
For the month of September, 2003
API ELECTRONICS GROUP INC. (Formerly: Investorlinks.com Inc.)
(Translation of registrant's name into English)
505 University Ave., Suite 1400, Toronto, Ontario M5G 1X3
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover form 20-F or Form 40-F:
Form 20-F [X] Form 40-F [ ]
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2b under the Securities Exchange Act of 1934:
Yes:[ ] No:[X]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82-
--------------------
Relevant Event dated September 2, 2003.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
API ELECTRONICS GROUP INC.
(Formerly Investorlinks.com Inc.)
Date: September 2, 2003 By: /s/ Jason DeZwirek
-----------------------------------
Jason DeZwirek, Chairman of the Board,
Executive V.P., Secretary and Director
[LOGO] api
electronics group
A one-of-a-kind manufacturer of electronic components.
API ELECTRONICS REPORTS 2003 FISCAL RESULTS
Announces record revenues with sales near triple previous year
NEW YORK - September 2, 2003 - API Electronics Group, Inc. (OTCBB: APIEF) today
announced financial results for its 2003 fiscal year, ended May 31, 2003.
The company continued to record exceptional growth in sales. Revenues increased
by 184.3% to $8,253,541, up from $2,903,120 in the previous fiscal year. Growth
during the period was attributed to sales revenue from Filtran Group and TM
Systems in the amount of $4,647,361 and $918,117 respectively. This is the first
time that fiscal results have reflected the combined full-year operations of API
and Filtran Group. Results from TM Systems, the company's most recent
acquisition, are also included effective February 6, 2003.
"We are extremely pleased with our overall 2003 fiscal year results, which
include record revenues that were almost three times higher than our 2002
results," said Tom Mills, President and COO of API Electronics. "In the midst of
an unsettling global economy, API has remained focused as an organization and
has placed continued emphasis on uncompromising quality control. In addition,
API is benefiting from ongoing operational efficiencies, the implementation of
competitive strategies and the recent acquisitions of Filtran Group and TM
Systems. We are confident that all of the elements are in place for a
tremendously successfully 2004 fiscal year."
API achieved several important milestones and announced numerous key contracts
during the fiscal 2003 year. Highlights include:
.. A contract for $1.2 million to supply four Visual Landing Aid (VLA) Lighting
Systems to Northrop Grumman Ship Systems. The VLA Lighting Systems are destined
for U.S. Navy Ships of the amphibious transport dock class, which are used for
transporting and landing marines, equipment and supplies by embarked landing
craft or amphibious vehicles augmented by helicopters in amphibious assault.
Northrop Grumman has an option to purchase eight additional VLA Lighting
Systems, which would bring the total value of the contract to $2.8 million.
.. Multiple orders, valued at $2 million, for tactical military radio components
from an undisclosed global defense contractor.
.. A contract valued at $2.1 million from National Steel and Shipbuilding Company
(NASSCO), one of the largest new construction shipyards in the United States and
a wholly owned subsidiary of General Dynamics (NYSE: GD). Under the terms of the
agreement, NASSCO will receive two Stabilized Glide Slope Indicator systems.
These critical systems allow Navy helicopters to land safely on ships at sea.
.. An upgrade from International Organization for Standardization (ISO) 9001:1994
to ISO 9001:2000 at API's Filtran subsidiary as well as ISO 9001:2000
certification at API Electronics Inc.
Gross margins for 2003 increased to 23.4% from 22.3% in fiscal year 2002.
Accordingly, the cost of goods sold as a percentage of sales decreased slightly
during the 2003 period compared to 2002, from 77.7% in 2002 to 76.6% in 2003.
API was able to increase its gross margin, despite competitive pressures in the
market, through ongoing strategic cost reduction initiatives.
2
The combined total of cash reserves and marketable securities held by API at the
end of its 2003 fiscal year was $1,992,367. At May 31, 2003, API had cash
reserves of $1,561,199 compared to $1,408,637 as at May 31, 2002. In addition,
at May 31, 2003, API had marketable securities of $431,168 compared to $2,429 at
the end of the comparable 2002 period. API's portfolio of securities consists
principally of company paper and bonds with maturities of less than one year
valued at $242,397, and income trust units valued at $186,632.
API's net loss per share decreased substantially in 2003 to three cents ($0.03)
per share, compared to a net loss of 12 cents ($0.12) per share for fiscal 2002.
The net loss for the 2003 year was $549,015, compared to $847,643 for the prior
period. The entire loss for fiscal 2003 was attributed to non-recurring costs
associated with the company's acquisition activities and non-cash charges
related to the writedown of inventory. API is on target to report positive
earnings for fiscal 2004, ending May 31, 2004.
ABOUT API ELECTRONICS:
API Electronics Group Inc., through its wholly owned subsidiaries API
Electronics Inc., Filtran Group and TM Systems, is engaged in the manufacture of
electronic components and systems for the defense and communications industries.
API and its subsidiaries have been providing top of the line parts to numerous
global producers of military hardware, telecommunications equipment, computer
peripherals, process control equipment and instrumentation for a combined total
of over 50 years. API's TM Systems subsidiary has been in business for over 30
years and provides critical systems to various U.S. government departments,
including the United States Navy, as well as numerous domestic and foreign
commercial corporations. With a growing list of blue chip customers, including
Honeywell/Allied Signal, General Dynamics, Lockheed Martin and numerous other
top technology-based firms around the world, API regularly ships off-the-shelf
and custom designed products to clients in more than 34 countries. API owns
state-of-the-art manufacturing and technology centers in New York State,
Connecticut and Ontario, Canada totaling 51,000 square feet. The company also
has manufacturing capabilities in China and a distribution center in Britain.
Filtran and API Electronics are ISO 9001 registered companies. API Electronics
trades on the OTC Bulletin Board under the symbol APIEF. For further information
about Filtran Group and API Electronics, please visit the company websites at
www.filtran.com and www.apielectronics.com.
FOR FURTHER INFORMATION:
API Electronics Group
Tel: 1-877-274-0274
api@primorisgroup.com
This press release may contain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. All forward-looking
statements are subject to certain risks, uncertainties and assumptions. These
risks and uncertainties, which are more fully described in API's Annual and
Quarterly Reports filed with the Securities and Exchange Commission, include
changes in market conditions in the industries in which the Company operates.
Should one or more of these risks or uncertainties materialize, or should the
assumptions prove incorrect, actual results may vary in material aspects from
those currently anticipated.
3
[LOGO] api
electronics group
A one-of-a-kind manufacturer of electronic components.
Dear Shareholder:
Fiscal year 2003 was a stellar year for our company, API Electronics Group, Inc.
Even as the world witnessed one of the worst global economies in recent decades,
we were resolute in staying the course and growing our business. Acquisitions
have played an important role in our corporate expansion and, in turn, have
strengthened our product portfolio and strategic sales initiatives. To that end,
API's corporate growth was strong in FY03 with the addition of the assets of TM
Systems, a company that has been supplying critical systems to the U.S. Navy and
other defense sector clients for more than 30 years. This acquisition, coupled
with the addition of Filtran Group on May 31, 2002, has helped API increase its
revenues by a record 184.3% over fiscal year 2002. Furthermore, API's sales to
the U.S. Department of Defense and its subcontractors remain solid and we expect
demand for our parts and systems to continue to increase as government policies
evolve and defense spending continues to rise.
Looking ahead, we are pleased to announce that API is preparing to apply for a
listing on the NASDAQ, one of the world's most respected and recognized stock
exchanges. Graduating from our current Bulletin Board listing to a NASDAQ
listing would be a significant achievement for API. It would enable us to
greatly enhance API's acquisition initiatives, gain access to a broader
institutional investor market, increase liquidity for shareholders and improve
overall awareness about our company within the investment community.
In order to ensure that API meets or exceeds all quantitative and qualitative
NASDAQ listing criteria, we are proposing a consolidation of our common stock.
This is necessary in order to meet the minimum required share price for initial
NASDAQ listings. We would like to request that you vote in favor of this
resolution at API's upcoming annual general meeting. If you are unable to attend
the meeting in person we would appreciate your support by proxy.
Highlights from our fiscal 2003 year include:
. A contract worth $1.2 million from Northrop Grumman Ship Systems.
Under the terms of the agreement, API is supplying four Visual Landing
Aid (VLA) Lighting Systems for use on U.S. Navy Ships. Northrop
Grumman has an option to purchase eight additional VLA Lighting
Systems, which would bring the total value of the contract to $2.8
million.
. Multiple orders, totaling $2 million, for tactical military radio
components from a billion-dollar global communications equipment
company.
. A contract valued at $2.1 million from National Steel and Shipbuilding
Company, one of the largest new construction shipyards in the United
States and a wholly owned subsidiary of General Dynamics.
. An upgrade from International Organization for Standardization (ISO)
9001:1994 to ISO 9001:2000 at API's Filtran subsidiary as well as ISO
9001:2000 certification at API Electronics Inc.
Our net loss per share decreased substantially in 2003 to three cents ($0.03)
per share, compared to a loss of 12 cents ($0.12) per share for fiscal 2002.
API's net loss for the 2003 year was $549,015, compared to $847,643 for the
comparable 2002 period. The entire loss for fiscal 2003 was attributed to
non-recurring costs associated with the company's acquisition activities and
non-cash charges related to the writedown of inventory. API is on target to
report positive earnings for fiscal 2004, ending May 31, 2004.
I am pleased to enclose API's Information Circular and year-end financials for
your review. I have also enclosed a press release pertaining to our fiscal 2003
results.
If you have any questions, or if you require additional information, please do
not hesitate to contact our toll-free Investor Hotline at (877) 274-0274. Also,
you may reach us by email at: API@PrimorisGroup.com. As always, we value your
interest and your confidence and hope you will participate in the continued
success of API Electronics Group, Inc.
Sincerely,
"Jason DeZwirek"
Jason DeZwirek
Chairman and CEO
API Electronics Group Inc.
4
API ELECTRONICS GROUP INC.
505 UNIVERSITY AVENUE, SUITE 1400
TORONTO, ONTARIO, CANADA
M5G 1X3
================================================================================
August 27, 2003
Those shareholders who wish to be added to the Supplemental Mailing List of API
Electronics Group Inc. (the "Corporation") in order to receive the Corporation's
unaudited interim financial statements, please complete the following and
forward it to the offices of EQUITY TRANSFER SERVICES INC. at Suite 420, 120
Adelaide Street West, Toronto, Ontario, Canada M5H 4C3.
* * * * * * *
I HEREBY CERTIFY that I am a shareholder of the Company and, as such, request
that you add me to your Supplemental Mailing List.
(Please PRINT your name and address)
- --------------------------------------------------------------------------------
(FIRST NAME) (LAST NAME)
- --------------------------------------------------------------------------------
(APT. NO.) (STREET NUMBER) (STREET)
- --------------------------------------------------------------------------------
(CITY) (PROVINCE/ STATE)
- --------------------------------------------------------------------------------
(POSTAL / ZIP CODE) (COUNTRY)
SIGNED:
--------------------------------------
(Signature of Shareholder)
5
[LOGO] api
electronics group
A one-of-a-kind manufacturer of electronic components.
API ELECTRONICS GROUP INC.
505 University Avenue
Suite 1400
Toronto, Ontario
M5G 1X3
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN THAT an annual and special meeting (the
"Meeting") of shareholders of API ELECTRONICS GROUP INC. (the "Corporation")
will be held at the offices of WeirFoulds LLP, Suite 1600, The Exchange Tower,
130 King Street West, Toronto, Ontario on Wednesday, October 8, 2003 at the hour
of 11:00 o'clock in the forenoon (Toronto time), for the following purposes:
1. to receive the audited consolidated financial statements of the
Corporation for the years ended May 31, 2003 and 2002, together with
the auditors' report thereon;
2. to elect three directors of the Corporation;
3. to reappoint the auditors of the Corporation and to fix their
remuneration;
4. to authorize management and the board of directors of the Corporation
to seek, in their own discretion and as they see fit, the continuance
of the Corporation into the State of Delaware and to change the
registered address of the Corporation thereupon;
5. to authorize an amendment to the articles of the Corporation to
consolidate the issued and outstanding common shares of the
Corporation on anywhere from up to a one (1) for three (3) basis, to
up to a one (1) for ten (10) basis;
6. to authorize an amendment to the articles of the Corporation to change
the name of the Corporation to any such name as may be approved by the
board of directors of the Corporation and any applicable regulatory
authorities in the event that the proposed consolidation of the common
shares is implemented;
7. to authorize the Corporation's 2003 stock option plan approved by the
directors of the Corporation as of August 1, 2003; and
8. to transact such other business as properly may be brought before the
Meeting.
The specific details of the matters to be put before the Meeting as
identified above are set forth in a management information circular (the
"Circular") of the Corporation accompanying and forming part of this Notice.
6
This Notice, accompanying Circular, proxy and the audited consolidated
financial statements for the years ended May 31, 2003 and 2002 have been sent to
each director of the Corporation, each shareholder of the Corporation entitled
to notice of the Meeting and the auditors of the Corporation.
Shareholders who are unable to attend the Meeting in person are
requested to sign and return the enclosed form of proxy to the Corporation c/o
Equity Transfer Services Inc., Richmond Adelaide Centre, Suite 420, 120 Adelaide
Street West, Toronto, Ontario M5H 4C3.
DATED at Toronto, Ontario as of August 27, 2003.
BY ORDER OF THE BOARD
---------------------
JASON DEZWIREK
Chairman
NOTE: The directors have fixed the hour of 4:00 p.m. (Toronto time) on
October 7, 2003 before which time the instrument of proxy to be used
at the Meeting must be deposited with the Corporation c/o Equity
Transfer Services Inc., Richmond Adelaide Centre, Suite 420, 120
Adelaide Street West, Toronto, Ontario M5H 4C3, provided that a proxy
may be delivered to the Chairman of the Meeting on the day of the
Meeting or any adjournment thereof prior to the time for voting.
7
API ELECTRONICS GROUP INC.
("Corporation")
505 University Avenue, Suite 1400
Toronto, Ontario M5G 1X3
PROXY SOLICITED BY MANAGEMENT FOR USE AT AN ANNUAL AND SPECIAL
MEETING OF SHAREHOLDERS TO BE HELD ON OCTOBER 8, 2003.
The undersigned shareholder(s) of the Corporation hereby appoint(s) in
respect of all of his or her shares of the Corporation Jason DeZwirek, a
director of the Corporation, or failing him, Phillip DeZwirek, a director of the
Corporation, or in lieu of the foregoing as nominee of
-----------------------
the undersigned, with power of substitution, to attend, act and vote for the
undersigned at an annual and special meeting ("Meeting") of shareholders of the
Corporation to be held on October 8, 2003, and any adjournment or adjournments
thereof, and direct(s) the nominee to vote the shares of the undersigned in the
manner indicated:
9. TO VOTE FOR ( ) OR WITHHOLD FROM VOTING ( ) in the election of
directors.
10. TO VOTE FOR ( ) OR WITHHOLD FROM VOTING ( ) to reappoint BDO Dunwoody
LLP, Chartered Accountants as auditors of the Corporation and to fix
their remuneration.
11. TO VOTE FOR ( ) OR AGAINST ( ) the authorization of management and the
board of directors of the Corporation to seek, in their own discretion
and as they see fit, the continuance of the Corporation into the State
of Delaware and to change the registered address of the Corporation
thereupon.
12. TO VOTE FOR ( ) OR AGAINST ( ) an amendment to the articles of the
Corporation to consolidate the issued and outstanding common shares of
the Corporation on anywhere from up to a one (1) for three (3) basis,
to up to a one (1) for ten (10) basis.
13. TO VOTE FOR ( ) OR AGAINST ( ) an amendment to the articles of the
Corporation to change the name of the Corporation to any such name as
may be approved in the event that the proposed consolidation of the
common shares is implemented.
14. TO VOTE FOR ( ) OR AGAINST ( ) the Corporation's 2003 stock option
plan approved by the directors of the Corporation as of August 1,
2003.
If any amendments or variations to matters identified in the Notice of
the Meeting are proposed at the Meeting or if any other matters
properly come before the Meeting, this proxy confers discretionary
authority to vote on such amendments or variations or such other
matters according to the best judgment of the person voting the proxy
at the Meeting.
DATED , 2003.
----------------------
---------------------------------
Signature of Shareholder(s)
---------------------------------
Print Name
(see notes on back of this page)
8
NOTES:
(1) This form of proxy must be dated and signed by the appointor or his attorney
authorized in writing or, if the appointer is a body corporate, this form of
proxy must be executed by an officer or attorney thereof duly authorized. If the
proxy is not dated, it will be deemed to bear the date on which it was mailed.
(2) The shares represented by this proxy will be voted or withheld from voting
in accordance with the instructions of the shareholder on any ballot that may be
called for.
(3) A SHAREHOLDER HAS THE RIGHT TO APPOINT A PERSON (WHO NEED NOT BE A
SHAREHOLDER) TO ATTEND AND ACT FOR HIM OR HER ON HIS OR HER BEHALF AT THE
MEETING OTHER THAN THE PERSONS DESIGNATED IN THE ENCLOSED FORM OF PROXY. SUCH
RIGHT MAY BE EXERCISED BY STRIKING OUT THE NAMES OF THE PERSONS DESIGNATED IN
THIS FORM OF PROXY AND BY INSERTING IN THE BLANK SPACE PROVIDED FOR THAT PURPOSE
THE NAME OF THE DESIRED PERSON OR BY COMPLETING ANOTHER FORM OF PROXY AND, IN
EITHER CASE, DELIVERING THE COMPLETED AND EXECUTED PROXY TO THE CORPORATION C/O
EQUITY TRANSFER SERVICES INC., RICHMOND ADELAIDE CENTRE, SUITE 420, 120 ADELAIDE
STREET WEST, TORONTO, ONTARIO M5H 4C3, AT ANY TIME PRIOR TO 4:00 P.M. (TORONTO
TIME) ON OCTOBER 7, 2003.
(4) IN THE ABSENCE OF INSTRUCTIONS TO THE CONTRARY, THE PERSONS NAMED IN THIS
FORM OF PROXY WILL VOTE FOR EACH OF THE MATTERS IDENTIFIED IN THIS PROXY.
(5) This proxy ceases to be valid one year from its date.
(6) If your address as shown is incorrect, please give your correct address when
returning this proxy.
9
API ELECTRONICS GROUP INC.
("Corporation")
MANAGEMENT INFORMATION CIRCULAR
SOLICITATION OF PROXIES
This management information circular ("Circular") is furnished in connection
with the solicitation of proxies by the management of the Corporation for use at
an annual and special meeting ("Meeting") of shareholders ("Shareholder") of the
Corporation to be held at the time and place and for the purposes set forth in
the attached notice ("Notice") of the Meeting. It is expected that the
solicitation will be by mail primarily, but proxies may also be solicited
personally by management of the Corporation. The cost of such solicitation will
be borne by the Corporation.
Unless otherwise specified, information contained in this Circular is given as
of Wednesday, August 27, 2003 ("Record Date") and, unless otherwise specified,
all amounts shown represent Canadian dollars.
Appointment, Revocation and Deposit of Proxies
The persons named in the enclosed form of proxy are directors and officers of
the Corporation.
A SHAREHOLDER HAS THE RIGHT TO APPOINT A PERSON (WHO NEED NOT BE A SHAREHOLDER)
TO ATTEND AND ACT FOR HIM OR HER AND ON HIS OR HER BEHALF AT THE MEETING OTHER
THAN THE PERSONS DESIGNATED IN THE ENCLOSED FORM OF PROXY. SUCH RIGHT MAY BE
EXERCISED BY STRIKING OUT THE NAMES OF THE PERSONS DESIGNATED IN THE FORM OF
PROXY AND BY INSERTING IN THE BLANK SPACE PROVIDED FOR THAT PURPOSE THE NAME OF
THE DESIRED PERSON OR BY COMPLETING ANOTHER PROPER FORM OF PROXY AND, IN EITHER
CASE, DELIVERING THE COMPLETED AND EXECUTED PROXY TO THE CORPORATION C/O EQUITY
TRANSFER SERVICES INC., RICHMOND ADELAIDE CENTRE, SUITE 420, 120 ADELAIDE STREET
WEST, TORONTO, ONTARIO M5H 4C3, AT ANY TIME PRIOR TO 4:00 P.M. (TORONTO TIME) ON
OCTOBER 7, 2003.
A Shareholder forwarding the enclosed form of proxy may indicate the manner in
which the appointee is to vote with respect to any specific item by checking the
appropriate space. If the Shareholder giving the proxy wishes to confer a
discretionary authority with respect to any item of business, then the space
opposite the item is to be left blank. The shares represented by the proxy
submitted by a Shareholder will be voted in accordance with the directions given
in the proxy.
A Shareholder who has given a proxy may revoke it at any time in so far as it
has not been exercised. A proxy may be revoked, as to any matter on which a vote
shall not already have been cast pursuant to the authority conferred by such
proxy, by instrument in writing executed by the Shareholder or by his or her
attorney authorized in writing or, if the Shareholder is a body corporate,
10
by an officer or attorney thereof duly authorized, and deposited at the
registered office of the Corporation at any time prior to 4:00 p.m., October 7,
2003, being the last business day preceding the day of the Meeting, or any
adjournment thereof, or with the Chairman of the Meeting on the day of the
Meeting or any adjournment thereof, and upon either of such deposits the proxy
is revoked. A proxy may also be revoked in any other manner permitted by law.
The Corporation's registered office is located at Suite 1400, 505 University
Avenue, Toronto, Ontario M5G 1X3.
Manner of Voting and Exercise of Discretion by Proxies
The persons named in the enclosed form of proxy will vote or withhold from
voting common shares ("Common Shares") in the capital of the Corporation in
respect of which they are appointed in accordance with the direction of the
Shareholders appointing them. In the absence of such direction, such Common
Shares will be voted FOR each of the matters identified in the Notice and
described in this Circular.
The enclosed form of proxy confers discretionary authority upon the persons
named therein with respect to amendments or variations to matters identified in
the Notice, and with respect to other matters which may properly come before the
Meeting. At the time of the printing of this Circular, management of the
Corporation knows of no such amendments, variations or other matters to come
before the Meeting other than the matters referred to in the Notice.
Voting Securities and Principle Holders Thereof
The authorized share capital of the Corporation consists of an unlimited number
of Common Shares and an unlimited number of special shares. As of the date of
this Circular, an aggregate of 23,316,314 Common Shares and no special shares of
the Corporation are issued and outstanding. Each Common Share entitles the
holder thereof to one vote at all meetings of Shareholders of the Corporation.
All Shareholders of record at the close of business on the Record Date will be
entitled either to attend and vote at the Meeting in person Common Shares held
by them or, provided a completed and executed proxy shall have been delivered to
the Corporation as described above, to attend and vote thereat by proxy the
shares held by them. However, if a holder of Common Shares has transferred any
Common Shares after the Record Date and the transferee of such shares
establishes ownership thereof and makes a written demand, not later than ten
days before the Meeting, to be included in the list of Shareholders entitled to
vote at the Meeting, the transferee will be entitled to vote such Common Shares.
11
As of the date of this Circular, the only person or company who, to the
knowledge of the directors and senior officers of the Corporation, beneficially
owns, directly or indirectly, or exercises control or direction over more than
10% of the issued and outstanding Common Shares is as follows:
Percentage of Outstanding
Name Number of Common Shares Common Shares
- ---------------------------- ----------------------- -------------------------
Can-Med Technology Inc./(1)/ 2,818,878 12.09%
- ----------
Note:
/(1)/ Of all the issued and outstanding shares of Can-Med Technology Inc., 50.1%
are owned by Icarus Investment Corp. Icarus Investment Corp. is in turn
owned 50% by Phillip DeZwirek and 50% by Jason DeZwirek, both directors of
the Corporation.
PARTICULARS OF MATTER TO BE ACTED UPON
Election Of Directors
The number of directors on the board of directors of the Corporation must
consist of not more than ten directors and not less than three directors to be
elected annually. The board of directors of the Corporation is currently
comprised of three directors and the number of directors to be elected at the
Meeting is three. Unless otherwise specified, the persons named in the enclosed
form of proxy will vote FOR the election of the nominees whose names are set
forth below. Management of the Corporation does not contemplate that any of the
nominees will be unable to serve as a director, but if that should occur for any
reason prior to the Meeting, the persons named in the enclosed form of proxy
reserve the right to vote for another nominee in their discretion. Each director
elected will hold office until the close of the first annual meeting of
Shareholders of the Corporation following his or her election unless his or her
office is earlier vacated in accordance with the by-laws of the Corporation.
The following table and the notes thereto set out the name and municipality of
residence of each person proposed to be nominated for election as a director,
his or her current position and office with the Corporation, his or her present
principal occupation or employment, the date on which he or she was first
elected or appointed a director of the Corporation, and the approximate number
of Common Shares beneficially owned, directly or indirectly, or over which he or
she exercises control or direction as at the date of this Circular:
12
Name, Municipality Number of
of Residence and Corporation
Position(s) held with Principal Occupations During Director Shares
the Corporation the Past Five Years Since Controlled
- --------------------------- ---------------------------------------- ------------ ---------------
Thomas W. Mills President and Chief Operating Officer of August, 2001 328,250
Long Island, N.Y. API Electronics Inc. since 1981.
USA
President and Director/(1)/
Phillip DeZwirek Chairman and Chief Executive Officer of August, 2001 2,983,853/(2)/
Toronto, Ontario API Electronics Inc. since 1978;
Canada Chairman, Chief Executive Officer and
Vice-Chairman, Director of CECO Environmental
Treasurer and Corp. since August 1979; Director of
Director/(1)/ Kirk & Blum and kbd/Technic since 1999;
President of Can-Med Technology, Inc.
d/b/a Green Diamond Corp. since 1990.
Member of the Corporation's Audit
Committee.
Jason DeZwirek Vice President and Director of CECO August, 2001 2,818,878/(3)/
Toronto, Ontario Environmental Corp. since February, 1994
Canada and Secretary of CECO Environmental
Chairman, Chief Corp. since February 20, 1998. Since
Executive Officer, October 1999 has been as Founder and
Secretary and Director/(1)/ President of Kaboose Inc., a company
engaged in the development of
interactive educational content. Member
of the Corporation's Audit Committee.
- ----------
Notes:
/(1)/ The information as to country of residence, principal occupation and
number of Common Shares beneficially owned by the nominees (directly or
indirectly or over which control or discretion is exercised) is not within
the knowledge of management of the Corporation and has been furnished by
the respective nominee.
/(2)/ Can-Med Technology Inc. owns a total of 2,818,878 Common Shares. Of all
the issued and outstanding shares of Can-Med Technology Inc., 50.1% are
owned by Icarus Investment Corp. Icarus Investment Corp. is in turn owned
50% by Phillip DeZwirek. Additionally, Phillip DeZwirek controls
Technapower Industries Corporation, which itself holds 164,975 Common
Shares.
/(3)/ Can-Med Technology Inc. owns a total of 2,818,878 Common Shares. Of all
the issued and outstanding shares of Can-Med Technology Inc., 50.1% are
owned by Icarus Investment Corp. Icarus Investment Corp. is in turn owned
50% by Jason DeZwirek.
Appointment Of Auditors
BDO Dunwoody LLP, Chartered Accountants, are the current auditors of the
Corporation and were first appointed auditors of the Corporation on June 5,
1997. Shareholders of the Corporation will be asked at the Meeting to reappoint
BDO Dunwoody LLP as the Corporation's auditors to hold office until the close of
the next annual meeting of Shareholders of the Corporation, and to authorize the
directors of the Corporation to fix the auditors' remuneration. Unless otherwise
specified, the persons named in the enclosed form of proxy will vote FOR the
said reappointment of BDO
13
Dunwoody LLP as the auditors of the Corporation and FOR authorizing the
directors to fix the remuneration of the auditors.
Statement Of Executive Compensation
Ontario securities law requires that a "Statement of Executive Compensation" in
accordance with the Securities Act (Ontario) (the "Securities Act") be included
in this Circular. The Corporation is required to disclose information about the
compensation paid to, or earned by the Corporation's President or Chief
Executive Officer and each of the other four most highly compensated executive
officers of the Corporation earning more than $100,000 in total salary and bonus
for the three most recent fiscal years. The following addresses the applicable
items identified.
Summary of Compensation
The following table is a summary of compensation paid to the Named Executive
Officers for each of the Company's three most-recently completed fiscal years:
==================================================================================================================
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)/ 2003 Nil Nil US$47,196/(2)/ Nil Nil
Chairman, Chief 2002 $ 42,000 Nil Nil 100,000/(3)/ Nil
Executive Officer, 2001 N/A N/A N/A N/A N/A
Secretary
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Phillip DeZwirek/(4)/ 2003 Nil Nil Nil Nil Nil
Vice-Chairman, 2002 Nil Nil Nil 100,000/(3)/ Nil
Treasurer 2001 N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Thomas W. Mills/(5)/ 2003 US$111,800 Nil Nil Nil US$6,588/(6)/
President 2002 US$ 91,000 Nil Nil 100,000/(3)/ US$6,588/(7)/
2001 N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Jerome Rabinowitz/(8)/ 2003 US$130,000 Nil Nil Nil Nil
Vice President - Sales 2002 US$104,400 US$5,000 Nil Nil Nil
2001 N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Romaine Gilliland/(9)/ 2003 Nil Nil Nil Nil Nil
2002 Nil Nil Nil Nil Nil
2001 $104,246 Nil $18,421/(10)/ 110,000/110,000/(11)/ Nil
==================================================================================================================
- ----------
Notes:
/(1)/ Jason DeZwirek was elected a Director and appointed Secretary on August
31, 2001. He continued as Secretary and additionally assumed the positions
of Chairman and Chief Executive Officer on June 11, 2002.
/(2)/ Jason DeZwirek was paid US$47,196 in consulting fees by the Corporation in
fiscal 2003.
/(3)/ Of the 100,000 options granted to each director of the Corporation in
fiscal 2002; 50,000 are exercisable at US$0.45 and 50,000 are exercisable
at US$0.75, all expiring August 31, 2006 and all convertible on a
one-for-one basis upon exercise.
/(4)/ Phillip DeZwirek was elected a Director and appointed Treasurer and
Chairman on August 31, 2001. He continued as a Director and currently holds
the positions of Vice-Chairman and Treasurer as of June 11, 2002.
/(5)/ Thomas Mills was elected a Director and appointed President on August 31,
2001.
14
/(6)/ In fiscal 2003, Thomas Mills received the use of a company car, resulting
in expenses of US$6,588 to the Corporation.
/(7)/ In fiscal 2002, Thomas Mills received the use of a company car, resulting
in expenses of US$6,588 to the Corporation
/(8)/ Jerome Rabinowitz was appointed Vice President-Sales on August 31, 2001.
/(9)/ Romaine Gilliland was appointed President and Chief Executive Officer on
June 6, 2000 and resigned on April 6, 2001. Romaine Gilliland currently has
no affiliation with the Corporation.
/(10)/ During the year-ended April 30, 2001 the Corporation's subsidiary paid
$8,795 in accounting fees, $8,370 in automobile benefits and $1,256 in
professional duties.
/(11)/ On June 26, 2000 the Corporation granted 110,000 options exercisable at
US$2.55. These options expired unexercised on July 10, 2001.
Long-Term Incentive Plan Awards
The Corporation did not have a long-term incentive plan (the definition of
"long-term incentive plan" contained in the Securities Act expressly excludes a
stock option plan as referred to below) during the financial year, ended May 31,
2003.
Stock Options/SAR Grants
On August 1, 2003, the board of directors of the Corporation authorized a new
stock option plan ("2003 Option Plan") for directors, officers, employees and
consultants of the Corporation which reserves an aggregate of 4,603,262 Common
Shares for issuance on the exercise of such options. The 2003 Option Plan
supplants and replaces the then existing Corporation's 1995 stock option plan
("Former Plan"). The terms of the 2003 Option Plan restricts options granted, at
any one point in time, to a maximum of 20% of the outstanding Common Shares.
Also, no optionee can be granted options of more than 5% of the outstanding
Common Shares at any one point in time. The maximum term of any option granted
is five years.
During the financial year-ended May 31, 2002, and under the terms of the Former
Plan, the Corporation granted to Phillip DeZwirek, Jason DeZwirek and Thomas
Mills 100,000 options each; 50,000 exercisable at USD$0.45 and 50,000
exercisable at USD$0.75, all expiring August 31, 2006 and convertible one a
one-for-one basis upon exercise (collectively, "Existing Options"). Pursuant to
the terms of the 2003 Option Plan, the Existing Options granted under the Former
Plan are deemed to be re-granted under the 2003 Option Plan. Additionally, none
of the terms and conditions of the Existing Options will be altered by their
inclusion under the 2003 Option Plan and the Existing Options are also to be
exercisable by the holders thereof without further shareholder or regulatory
approval.
15
Aggregated Option/SAR Exercises and Financial Year-End Option/SAR Values
The following table discloses the number and value of exercised and unexercised
options held by Jason DeZwirek, Phillip DeZwirek and Thomas Mills during the
last completed financial year:
- -------------------------------------------------------------------------------------------------
Securities Aggregate Unexercised Value of Unexercised in-the-Money
Acquired Value Options/SARs at Options/SARs at May 31, 2003/(2)/
Name on Exercise Realized May 31, 2003 Exercisable/Unexercisable
- -------------------------------------------------------------------------------------------------
Jason DeZwirek Nil N/A 100,000/(1)//0 US$30,000/US$15,000
- -------------------------------------------------------------------------------------------------
Phillip DeZwirek Nil N/A 100,000/(1)//0 US$30,000/US$15,000
- -------------------------------------------------------------------------------------------------
Thomas Mills Nil N/A 100,000/(1)//0 US$30,000/US$15,000
- -------------------------------------------------------------------------------------------------
- ----------
Notes:
/(1)/ Of the 100,000 options held by each director, 50,000 are exercisable at
US$0.45 and 50,000 are exercisable at US$0.75, all expiring August 31, 2006
and convertible on a one-for-one basis upon exercise.
/(2)/ The closing price of the Common Shares on May 30, 2003, being that last
trading day prior to year-end, was US$1.05.
Employment Contracts
There are no employment contracts between or among the Corporation, any of its
subsidiaries or any officers and directors thereof.
Compensation of Directors
No directors of the Corporation were compensated by the Corporation or any of
its subsidiaries during the financial year-ended May 31, 2003 for their services
in their capacity as directors.
Administrative Costs
Administrative costs for the fiscal year-ended May 31, 2003 are disclosed in the
audited consolidated annual financial statements for the years ended May 31,
2003 and 2002.
Indebtedness Of Directors And Officers
No director or officer of the Corporation or associate of any director or
officer of the Corporation is, or at any time since the beginning of the
Corporation's financial year-ended May 31, 2003, has been, indebted to the
Corporation or any of its subsidiaries.
16
Financial Statements
A copy of the audited consolidated annual financial statements for the years
ended May 31, 2003 and 2002, together with the auditors' report thereon,
accompany this Circular. The directors will place before the Meeting the said
financial statements and auditors' report.
Interest of Insiders in Material Transactions
No "insider"/(1)/ of the Corporation, as defined in the Securities Act, or
associate or affiliate thereof, has any material interest in any transaction
completed since the commencement of the Corporation's financial year-ended May
31, 2003 or in any proposed transaction which has materially affected or will
materially affect the Corporation or any of its subsidiaries except as disclosed
elsewhere in this Circular.
- ----------
Note:
/(1)/ The definition of "insider" contained in the Securities Act includes every
director or senior officer of a corporation, every director or senior
officer of a corporation that is itself an insider or subsidiary of a
corporation and any person or corporation/company who beneficially owns,
directly or indirectly, or who exercises control or direction over, more
than 10% of the outstanding common shares of a corporation.
SPECIAL BUSINESS
A. CONTINUANCE INTO THE STATE OF DELAWARE AND TO THE JURISDICTION OF THE
DELAWARE LIMITED LIABILITY COMPANY ACT AND CHANGE OF REGISTERED ADDRESS
The Corporation was incorporated by registration of its articles and by-laws
under the Business Corporations Act (Ontario) ("OBCA") on May 1, 1993, and has
subsequently undergone several name changes and reorganisations. During fiscal
2003 the Corporation acquired all the assets, including contracts, leases and
certain accounts receivables, of TM Systems, Inc., a Delaware limited liability
company, as well as a number of other going concerns in the United States. As
management of the Corporation intends to focus its business on the United
States, management believes it prudent to submit for shareholder approval by
special resolution (requiring a two-thirds (2/3) majority) the continuance of
the Corporation from Ontario to Delaware. The effect of this will be to further
change the domicile of the Corporation from Ontario to Delaware. The Corporation
has selected Delaware as its ultimate domicile in the United States because of
its prominence in the field of corporation law. The Delaware courts have handed
down numerous opinions interpreting virtually every provision of Delaware's
corporate law statutes. Over 50% of the major corporations in the United States
have chosen to incorporate in Delaware.
17
PROXIES RECEIVED IN FAVOUR OF MANAGEMENT WILL BE VOTED FOR THE APPROVAL OF A
PROPOSED SPECIAL RESOLUTION FOR THE CONTINUANCE OF THE CORPORATION INTO THE
STATE OF DELAWARE AND A CHANGE IN REGISTERED ADDRESS, UNLESS A SHAREHOLDER HAS
SPECIFIED IN THE PROXY THAT SUCH SHARES ARE TO BE VOTED AGAINST SUCH SPECIAL
RESOLUTION. The continuance of the Corporation into Delaware and change of its
registered address requires approval by a special resolution ("Continuance
Resolution") which is defined as a resolution of the Shareholders confirmed by
at least two-thirds (2/3) of the votes cast at a special meeting called for such
purpose. An affirmative vote of at least two-thirds (2/3) of the votes cast at
the Meeting will accordingly be required to approve the Continuance Resolution.
A copy of the proposed Continuance Resolution approving the continuance into
Delaware and change of registered address is annexed to this Circular as Exhibit
1.
Notwithstanding approval of the Continuance Resolution concerning the
continuance of the Corporation into Delaware, management of the Corporation may
determine that it is not in the best interests of the Corporation to file
Articles of Continuance in respect thereof.
Pursuant to the OBCA, a holder of Common Shares is entitled to dissent or be
paid the fair value of such Common Shares if the Shareholder objects to a
special resolution. A management summary of the Shareholders' dissent rights is
set forth below under "Dissent Rights".
B. COMMON SHARE CONSOLIDATION
The board of directors of the Corporation has determined that having regard to
the number of Common Shares outstanding and the prices at which such Common
Shares have traded recently, it is in the best interests of the Corporation for
the Corporation to seek approval of the Shareholders to consolidate all of the
issued and outstanding Common Shares on anywhere from up to a one (1) for three
(3) basis, to up to a one (1) for ten (10) basis ("Consolidation"). The
directors plan to implement the Consolidation only if required in conjunction
with the Corporation's intended listing application to the NASDAQ National
Market ("Nasdaq") and to comply with Nasdaq's listing requirements in respect of
minimum share price.
To consolidate the Common Shares, Articles of Amendment must be filed by the
Corporation. Such an amendment must be authorized by a special resolution of
Shareholders. Shareholders of the Corporation will therefore be asked at the
Meeting to consider and, if thought advisable, to authorize by means of a
special resolution, an amendment to the articles of the Corporation to effect
the Consolidation. No fractional Common Shares will be issued in connection with
the Consolidation and, in the event that a Shareholder would otherwise be
entitled to receive a fractional Common Share upon such Consolidation, the
number of Common Shares of the Corporation to be received by such Shareholder
shall be rounded up to the nearest whole number of Common Shares.
PROXIES RECEIVED IN FAVOUR OF MANAGEMENT WILL BE VOTED FOR THE APPROVAL OF A
PROPOSED SPECIAL RESOLUTION FOR THE CONSOLIDATION OF COMMON SHARES, UNLESS A
SHAREHOLDER HAS SPECIFIED IN THE PROXY
18
THAT SUCH SHARES ARE TO BE VOTED AGAINST SUCH SPECIAL RESOLUTION. The
Consolidation requires approval by a special resolution ("Consolidation
Resolution") which is defined as a resolution of the Shareholders confirmed by
at least two-thirds (2/3) of the votes cast at a special meeting called for such
purpose. An affirmative vote of at least two-thirds (2/3) of the votes cast at
the Meeting will accordingly be required to approve the Consolidation
Resolution. A copy of the proposed Consolidation Resolution approving the
Consolidation is annexed to this Circular as Exhibit 2.
Notwithstanding approval of the Consolidation Resolution, management of the
Corporation may determine that it is not in the best interests of the
Corporation to file Articles of Amendment in respect thereof.
Pursuant to the OBCA, a holder of Common Shares is entitled to dissent or be
paid the fair value of such Common Shares if the Shareholder objects to a
special resolution. A management summary of the Shareholders' dissent rights is
set forth below under "Dissent Rights".
C. CHANGE OF NAME OF THE CORPORATION
The name of a corporation must be changed to a name different from its previous
name upon any consolidation of securities of a corporation. The change in the
name of a corporation will permit the pre-consolidated and post-consolidated
common shares of a corporation to be readily differentiated. If the
Consolidation is approved and implemented, a new name will be proposed for the
Corporation. The name will be such name as may be approved by the board of
directors of the Corporation and applicable regulatory and exchange authorities.
To change the name of a corporation, Articles of Amendment must be filed by a
corporation. Such an amendment must be authorized by a special resolution of
shareholders. Shareholders of the Corporation will therefore be asked at the
Meeting to consider and, if thought advisable, to authorize by means of a
special resolution ("Name Change Resolution"), an amendment to the articles of
the Corporation to permit the change of the name of the Corporation to such name
as may be approved by the board of directors of the Corporation and applicable
regulatory authorities. The name change would only be implemented with a
Consolidation.
PROXIES RECEIVED IN FAVOUR OF MANAGEMENT WILL BE VOTED FOR THE APPROVAL OF A
PROPOSED SPECIAL RESOLUTION FOR A NAME CHANGE, IF REQUIRED, UNLESS A SHAREHOLDER
HAS SPECIFIED IN THE PROXY THAT SUCH SHARES ARE TO BE VOTED AGAINST SUCH SPECIAL
RESOLUTION. The Name Change Resolution requires approval by special resolution
which is defined as a resolution of the Shareholders confirmed by at least
two-thirds (2/3) of the votes cast at a special meeting called for such purpose.
An affirmative vote of at least two-thirds (2/3) of the votes cast at the
Meeting will accordingly be required to approve the Name Change Resolution. A
copy of the proposed Name Change Resolution is annexed to this Circular as
Exhibit 3.
19
Notwithstanding approval of the Name Change Resolution, management of the
Corporation may determine that it is not in the best interests of the
Corporation to file Articles of Amendment in respect thereof.
Pursuant to the OBCA, a holder of Common Shares is entitled to dissent or be
paid the fair value of such Common Shares if the Shareholder objects to a
special resolution. A management summary of the Shareholders' dissent rights is
set forth below under "Dissent Rights".
D. SHAREHOLDER APPROVAL OF CORPORATION'S NEW 2003 STOCK OPTION PLAN
On August 1, 2003, the board of directors of the Corporation authorized the 2003
Option Plan for directors, officers and employees of the Corporation which
reserves an aggregate of 4,603,262 Common Shares for issuance on the exercise of
such options. The 2003 Option Plan supplants and replaces the Former Plan
approved by shareholders in 1995. The terms of the 2003 Option Plan restricts
options granted, at any one point in time, to a maximum of 20% of the
outstanding Common Shares. Also, no optionee can be granted options of more than
5% of the outstanding Common Shares at any one point in time. The maximum term
of any option granted is five years.
As a result, Shareholders disinterested in the 2003 Option Plan will be asked at
the Meeting to consider and, if thought advisable, to authorize and approve by
means of an ordinary resolution of disinterested Shareholders the 2003 Option
Plan subject to compliance with all relevant and applicable policies and
restrictions as may be imposed by any regulatory or administrative bodies with
jurisdiction over the Corporation and the Common Shares.
PROXIES RECEIVED IN FAVOUR OF MANAGEMENT WILL BE VOTED FOR THE APPROVAL OF A
PROPOSED ORDINARY RESOLUTION FOR APPROVAL OF THE 2003 OPTION PLAN, UNLESS A
SHAREHOLDER HAS SPECIFIED IN THE PROXY THAT SUCH SHARES ARE TO BE VOTED AGAINST
SUCH ORDINARY RESOLUTION. The ordinary resolution ("Option Resolution") requires
approval by the Shareholders confirmed by at least one-half (1/2) of the votes
cast at a special meeting called for such purpose. An affirmative vote of at
least one-half (1/2) of the votes cast at the Meeting will accordingly be
required to approve the Option Resolution. A copy of the proposed Option
Resolution is attached to this Circular as Exhibit 4.
Dissent Rights
Pursuant to the OBCA, a holder of Common Shares of the Corporation who objects
to a special resolution is entitled to dissent and be paid the fair value of his
or her Common Shares. A Shareholder may dissent only with respect to all of the
Common Shares held by the Shareholder on behalf of any one beneficial owner and
registered in the Shareholder's name. Accordingly, a Shareholder is not entitled
to dissent with respect to any Common Shares of one class beneficially owned by
one owner if the Shareholder votes any of such shares in favour of a special
resolution.
20
In order to dissent, the "Dissenting Shareholder" must give notice of dissent by
sending to the Corporation at or before the Meeting a written objection to the
special resolution. A vote against the special resolution or an abstention does
not constitute such a written objection, but the Shareholder need not vote his
or her Common Shares against the special resolution in order to object. If and
when the special resolution is passed, the Corporation will propose to act on
the authority of the special resolution and must first give to the Dissenting
Shareholder notice of the intention to act and advise the Dissenting Shareholder
of the rights of Dissenting Shareholders under the OBCA.
On receiving a notice of intention to act, a Dissenting Shareholder is entitled
to require the Corporation to purchase all of the Dissenting Shareholder's
Common Shares in respect of which the notice of dissent was given. The
Dissenting Shareholder must exercise the right given by statute by delivering to
the registered office of the Corporation, within 20-days after the Corporation
gives the notice of intention to act, a notice that the Dissenting Shareholder
requires the Corporation to purchase all of his or her Common Shares as well as
the share certificates representing all of those Common Shares no later than
13-days following their exercise of their dissent rights pursuant to Section 185
of the OBCA. On delivery of such notice and those Common Share certificates, the
Dissenting Shareholder is bound to sell those Common Shares to the Corporation
and the Corporation is bound to purchase them.
The price that must be paid to a Dissenting Shareholder for his or her Common
Shares is their fair market value as of the day before the date of the special
resolution and every Dissenting Shareholder who has complied with the above must
be paid the same price.
Every Dissenting Shareholder that has complied with the above may not vote,
exercise or assert any rights of a Shareholder in respect of their Common
Shares, may not withdraw the requirement to purchase the Common Shares, unless
the Corporation consents and until the Dissenting Shareholder is paid in full,
may exercise and assert all the rights of a creditor of the Corporation.
21
DIRECTORS' APPROVAL
The contents and the sending of this Circular to the Shareholders of the
Corporation have been approved by the board of directors of the Corporation.
DATED at Toronto, Ontario as of August 27, 2003.
BY ORDER OF THE BOARD OF:
API ELECTRONICS GROUP INC.
------------------------------------
JASON DEZWIREK
Chairman
22
EXHIBIT I
API ELECTRONICS GROUP INC.
(the "Corporation")
SPECIAL RESOLUTION RE: CONTINUANCE INTO THE STATE OF DELAWARE AND TO
THE JURISDICTION OF THE DELAWARE LIMITED LIABILITY COMPANY ACT AND
CHANGE OF REGISTERED ADDRESS
BE IT RESOLVED THAT:
1. Pursuant to the Business Corporation's Act (Ontario) and the Delaware Limited
Liability Company Act, as appropriate, any one director or officer of the
Corporation be and is hereby authorized to prepare and execute any and all
documents, and any such other instruments, to effect the discontinuance of the
Corporation from Ontario and continuance into Delaware.
2. The articles of the Corporation be amended by substituting for all the
provisions thereof the provisions set out by the directors to effect the
discontinuance of the Corporation from Ontario and continuance into Delaware and
to change the registered and records office of the Corporation from 1600 - 130
King Street West, Toronto, Ontario M5X 1J5 to an address to be determined by the
directors at a later date.
3. Any one director of the Corporation be and is hereby authorized and directed
to sign, and execute the all documents, and any such other instruments, and to
do all such other things, as may be necessary or desirable in his or her opinion
in order to carry out the intent of these resolutions.
4. The directors of the Corporation are hereby authorized to revoke this special
resolution or any portion thereof before it is acted upon without further
approval or authorization of the shareholders of the Corporation.
23
EXHIBIT 2
API ELECTRONICS GROUP INC.
(the "Corporation")
SPECIAL RESOLUTION RE: SHARE CONSOLIDATION
BE IT RESOLVED THAT:
1. The articles of the Corporation be amended to consolidate the issued and
outstanding common shares of the Corporation on anywhere from up to a one (1)
for three (3) basis, to up to a one (1) for ten (10) basis ("Consolidation").
2. No fractional common shares of the Corporation shall be issued in connection
with the Consolidation and, in the event that a shareholder would otherwise be
entitled to receive a fractional share upon such Consolidation, the number of
common shares of the Corporation to be received by such shareholder shall be
rounded up to the nearest whole number of common shares.
3. Any one director or officer of the Corporation be and is hereby authorized,
for and on behalf of the Corporation, to execute and deliver, or cause to be
delivered, articles of amendment of the Corporation, as required pursuant to the
Business Corporations Act (Ontario), and to do all such other acts or things
necessary or desirable to implement, carry out and give effect to the aforesaid
amendment to the articles of the Corporation.
4. The directors of the Corporation are hereby authorized, in their discretion,
to amend this resolution so that the consolidation shall be less than one common
share consolidated into one-fourth of a common share, or to revoke this special
resolution or any portion thereof before it is acted upon without further
approval or authorization of the shareholders of the Corporation.
24
EXHIBIT 3
API ELECTRONICS GROUP INC.
(the "Corporation")
SPECIAL RESOLUTION RE: NAME CHANGE
BE IT RESOLVED THAT:
1. The articles of the Corporation be amended to change the name of the
Corporation from "API ELECTRONICS GROUP INC." to such other name as may be
approved by the board of directors of the Corporation and applicable regulatory
authorities.
2. The name change will only be implemented in conjunction with a consolidation
of the issued and outstanding common shares of the Corporation.
3. Any one director or officer of the Corporation be and is hereby authorized,
for and on behalf of the Corporation, to execute and deliver, or cause to be
delivered, articles of amendment of the Corporation, as required pursuant to the
Business Corporations Act (Ontario), and to do all such other acts or things
necessary or desirable to implement, carry out and give effect to the said
change of name.
4. The directors of the Corporation are hereby authorized, in their discretion,
to revoke this special resolution or any portion thereof before it is acted upon
without further approval or authorization of the shareholders of the
Corporation.
25
EXHIBIT 4
API ELECTRONICS GROUP INC.
(the "Corporation")
ORDINARY RESOLUTION OF DISINTERESTED SHAREHOLDERS
RE: 2003 STOCK OPTION PLAN
WHEREAS:
A. As of August 1, 2003, the board of directors of the Corporation authorized a
new stock option plan ("2003 Option Plan") for directors, officers and employees
of the Corporation which reserves an aggregate of 4,603,262 Common Shares for
issuance on the exercise of such options.
B. The 2003 Option Plan supplants and replaces the Corporation's then existing
1995 stock option plan ("Former Plan").
BE IT RESOLVED THAT:
1. The 2003 Option Plan is hereby accepted, ratified and approved by the
disinterested shareholders of the Corporation.
2. All options granted pursuant to the terms of the Former Plan are continued,
on the same terms and conditions, under the 2003 Option Plan. Subject to the
foregoing, the Former Plan is hereby terminated and all future issuances under
the Former Plan are hereinafter prohibited.
3. Pursuant to the terms of the 2003 Option Plan, all existing options granted
under the Former Plan are deemed to be re-granted under the 2003 Option Plan.
4. None of the terms and conditions of any existing options will be altered by
their inclusion under the 2003 Option Plan and all existing options are also to
be exercisable by the holders thereof without further shareholder or regulatory
approval.
5. Any one director or officer of the Corporation be and is hereby authorized,
for and on behalf of the Corporation, to execute and deliver, or cause to be
delivered all documents and to do all such other acts or things necessary or
desirable to implement, carry out and give effect to these resolutions.
26
API Electronics Group Inc.
Consolidated Financial Statements
For the years ended May 31, 2003 and 2002
(Expressed in US Dollars)
API Electronics Group Inc.
Consolidated Financial Statements
For the years ended May 31, 2003 and 2002
(Expressed in US Dollars)
Contents
================================================================================
Auditors' Report 2
Consolidated Financial Statements
Balance Sheets 3
Statements of Operations and Deficit 4
Statements of Cash Flows 5
Summary of Significant Accounting Policies 6-9
Notes to Financial Statements 10-22
================================================================================
Auditors' Report
- --------------------------------------------------------------------------------
To the Shareholders of
API Electronics Group Inc.
We have audited the consolidated balance sheets of API Electronics Group Inc. as
at May 31, 2003 and 2002 and the consolidated statements of operations and
deficit and cash flows for the years 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 audits.
We conducted our audits in accordance with generally accepted auditing standards
applicable in Canada. 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, 2003 and 2002 and
the results of its operations and its cash flows for the years then ended in
accordance with generally accepted in Canada.
(signed) BDO Dunwoody LLP
Chartered Accountants
Toronto, Ontario
July 25, 2003
2
================================================================================
API Electronics Group Inc.
Consolidated Balance Sheets
(Expressed in US Dollars)
May 31 2003 2002
- --------------------------------------------------------------------------------
Assets
Current
Cash and cash equivalents $ 1,561,199 $1,408,637
Marketable securities (Note 2) 431,168 2,429
Accounts receivable 1,619,487 1,073,058
Unbilled revenue 324,078 --
Inventories (Note 3) 2,931,924 1,852,483
Prepaid expenses 61,988 42,929
----------- ----------
6,929,844 4,379,536
Capital assets (Note 4) 3,275,979 2,867,382
Goodwill 918,529 962,529
Intangible assets (Note 5) 2,370,869 325,712
----------- ----------
$13,495,221 $8,535,159
===============================================================================
Liabilities and Shareholders' Equity
Current
Bank indebtedness (Note 6) $ -- $ 284,488
Accounts payable 1,265,458 874,269
Deferred revenue 661,406 --
Future income tax liability (Note 8) 108,000 --
Current portion of long-term debt (Note 7) 2,699,458 1,072,706
----------- ----------
4,734,322 2,231,463
Future income tax liability (Note 8) 248,000 530,000
Long term debt (Note 7) 232,229 1,299,125
----------- ----------
5,214,551 4,060,588
----------- ----------
Shareholders' equity
Share capital (Note 9) 8,744,507 4,642,007
Paid in capital 770,790 770,790
Cumulative foreign exchange
translation adjustment 252,614 --
Deficit (1,487,241) (938,226)
----------- ----------
8,280,670 4,474,571
----------- ----------
$13,495,221 $8,535,159
===============================================================================
On behalf of the Board:
(signed) Jason DeZwirek Director
- ----------------------------------------------------
(signed) Phillip DeZwirek Director
- ----------------------------------------------------
The accompanying summary of significant accounting policies and notes are
an integral part of these financial statements.
3
================================================================================
API Electronics Group Inc.
Consolidated Statements of Operations and Deficit
(Expressed in US Dollars)
For the years ended May 31 2003 2002
- --------------------------------------------------------------------------------
Revenue $ 8,253,541 $2,903,120
Cost of sales 6,325,540 2,255,841
----------- ----------
Gross profit 1,928,001 647,279
----------- ----------
Expenses
Business development 355,042 501,583
Selling 666,138 339,048
General and administrative 1,478,776 685,747
----------- ----------
2,499,956 1,526,378
----------- ----------
Operating loss (571,955) (879,099)
Other (income) expenses
Other income (89,316) (75,565)
Interest on long term debt 107,789 37,467
----------- ----------
18,473 (38,098)
----------- ----------
Loss before income taxes (590,428) (841,001)
Income taxes (Note 8) (41,413) 16,642
----------- ----------
Net loss for the year (549,015) (857,643)
Deficit, beginning of year (938,226) (80,583)
----------- ----------
Deficit, end of year $(1,487,241) $ (938,226)
===============================================================================
Loss per share - basic (Note 13) $ (0.03) $ (0.12)
===============================================================================
The accompanying summary of significant accounting policies and notes are
an integral part of these financial statements.
4
================================================================================
API Electronics Group Inc.
Consolidated Statements of Cash Flows
(Expressed in US Dollars)
For the years ended May 31 2003 2002
- --------------------------------------------------------------------------------
Cash was provided by (used in)
Operating activities
Net loss for the year $ (549,015) $ (857,643)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Amortization 737,448 150,138
Future income tax (70,640) --
Changes in non-cash working capital
balances (Note 10(a)) (77,662) (103,543)
----------- -----------
40,131 (811,048)
----------- -----------
Investing activities
Purchase of capital assets (725,789) (257,217)
Business acquisition (2,997,610) (955,374)
Marketable securities (428,739) --
----------- -----------
(4,152,138) (1,212,591)
----------- -----------
Financing activities
Cash acquired through reverse take-over, net
of acquisition costs -- 1,178,376
Issue of share capital 4,102,500 2,296,212
Bank indebtedness repayments (284,488) (112,200)
Repayment of long term debt -- (58,575)
Increase in long term debt 429,258 87,390
----------- -----------
4,247,270 3,391,203
----------- -----------
Foreign exchange gain on cash held in
foreign currency 17,299 --
----------- -----------
Net increase (decrease) in cash for the year 152,562 1,367,564
Cash and cash equivalents, beginning of year 1,408,637 41,073
----------- -----------
Cash and cash equivalents, end of year $ 1,561,199 $ 1,408,637
===============================================================================
The accompanying summary of significant accounting policies and notes are
an integral part of these financial statements.
5
================================================================================
API Electronics Group Inc.
Summary of Significant Accounting Policies
(Expressed in US Dollars)
May 31, 2003 and 2002
- --------------------------------------------------------------------------------
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 Acquisitions and On August 31, 2001, Investorlinks.com Inc. a public
Name Changes company incorporated under the laws of the Province
of Ontario, and API Electronics Inc. ("API
Electronics"), a private company incorporated under
the laws of the State of New York, completed the
business combination referred to in Note 1(a) to the
financial statements. Pursuant to Articles of
Amendment dated September 10, 2001, the Company
changed its name from Investorlinks.com Inc. to API
Electronics Group Inc. As stated in Note 1(a), the
business combination has been accounted for as a
reverse take-over of the Company by API Electronics.
On May 31, 2002 the Company completed the
acquisition of all the outstanding common shares of
Filtran Inc. ("Filtran USA"), a private company
incorporated under the laws of the State of New
York; Filtran Limited ("Filtran Canada"), a private
company incorporated under the laws of Ontario;
Canadian Dataplex Limited ("CDL"), a private company
incorporated under the laws of Canada, Tactron
Communications (Canada) Limited ("TCCL"), a private
company incorporated under the laws of Ontario.
Filtran USA, Filtran Canada, CDL, TCCL are known
collectively as the "Filtran Group". The Filtran
Group's business focus is similar to that of the
Company. The business combination, which has been
accounted for using the purchase method, is
described in Note 1 (b) to the financial statements.
On May 23, 2002 the company incorporated an entity
named "5/23 Corp" under the laws of the State of
Delaware. On January 13, 2003 "5/23 Corp" changed
its name to TM Systems II, Inc. ("TM II"). On
February 6, 2003, TM II acquired certain assets of
TM Systems Inc. and carries on business as TM System
II, Inc. TM II'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(c) to the financial statements.
6
================================================================================
API Electronics Group Inc.
Summary of Significant Accounting Policies
(Expressed in US Dollars)
May 31, 2003 and 2002
- --------------------------------------------------------------------------------
Principles of The consolidated financial statements include the
Consolidation accounts of the Company (the legal parent),
together with its wholly owned subsidiaries, API
Electronics, TM II and the Filtran Group.
Basis of Presentation These consolidated financial statements have been
prepared in accordance with Canadian generally
accepted accounting principles. All amounts are
disclosed in US dollars unless otherwise indicated.
Contract Revenue Revenue from contracts is recognized using the
percentage of completion method. The degree of
completion is determined based on costs incurred,
excluding costs that are not representative of
progress to completion, as a percentage of total
costs anticipated for each contract. Provision is
made for losses on contracts in progress when such
losses first become known. Revisions in cost and
profit estimates, which can be significant, are
reflected in the accounting period in which the
relevant facts become known.
Provisions for warranty claims and other allowances
are made based on contract terms and prior
experience.
Non-Contract Revenue Non-contract revenue is recognized when risk and
title passes to the customer, which is generally
upon shipment of the product.
Marketable Securities Temporary investments are stated at the lower of
cost and market value.
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
Vehicles 3 years
Website development 3 years
7
================================================================================
API Electronics Group Inc.
Summary of Significant Accounting Policies
(Expressed in US Dollars)
May 31, 2003 and 2002
- --------------------------------------------------------------------------------
Goodwill Effective April 1, 2001, the Company adopted the
CICA handbook section 3062 "Goodwill and Other
Intangible Assets". Goodwill is subject to an
impairment test on at least an annual basis or
upon the occurrence of certain events or
circumstances. Goodwill impairment is assessed
based on a comparison of the fair value of a
reporting unit to the underlying carrying value of
the reporting unit's net assets, including
goodwill. When the carrying amount of the
reporting unit exceeds its fair value, the fair
value of the reporting unit's goodwill is compared
with its carrying amount to measure the amount of
impairment loss, if any. Management has determined
there is no impairment in goodwill as of May 31,
2003.
Intangible Assets Intangible assets which have a finite life are
amortized using the straight-line basis over the
following period:
Non-compete agreements 5 years
Customer contracts 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.
Foreign Currency The Company's functional currency is United States
Translation Dollars and the consolidated financial statements
are stated in United States dollars, "the
reporting currency". Integrated operations have
been translated from Canadian dollars into United
States dollars 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.
Self-sustaining operations are translated at
current rates of exchange. All exchange gains and
losses will be accumulated in the foreign exchange
translation account on the balance sheet.
8
================================================================================
API Electronics Group Inc.
Summary of Significant Accounting Policies
(Expressed in US Dollars)
May 31, 2003 and 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.
Stock-Based The Company has a stock-based compensation plan
Compensation Plans which is described in Note 9. No compensation
expense is recognized for these plans when stock
or stock options are issued to employees and
directors. Any consideration paid on the exercise
of options or purchase of stock is credited to
share capital.
Research and Research and development expenses are recorded
Development Expenses at net of applicable investment tax credits.
Financial Instruments The Company's financial instruments include
certain instruments with short term maturity and
long term debt. Unless otherwise noted, it is
management's opinion that the Company is not
exposed to significant interest rate, currency or
credit risks arising from its financial
instruments.
The Company carries out a portion of transactions
in foreign currencies. Included in the Company's
cash, marketable securities, accounts receivable
and payable are balances denominated in Cdn
dollars in the amounts of $1,288,634 (2002 -
$898,693), $361,209 (2002 - $1,903), $380,458 (2002
- $557,860) and $645,852 (2002 - $719,740)
respectively.
As at May 31, 2003 there were no significant
differences between the carrying amounts and the
fair values of the Company's financial instruments
unless otherwise noted.
Cash and Cash equivalents Cash and cash equivalents consist of cash on hand,
bank balances and investments in money market
instruments with maturities of three months or
less.
9
================================================================================
API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
May 31, 2003 and 2002
- --------------------------------------------------------------------------------
1. (a) Business Acquisition, Name Change and Share Consolidation
On August 31, 2001, the Company acquired all of the 197 issued and
outstanding shares of API Electronics for $2,600,000. The purchase
price was satisfied by the issue of 6,500,000 units of the Company at
$0.40 per unit. Each unit consists of one common share and 1/2 of one
Series A common share purchase warrants exercisable at $0.45 per share
expiring February 28, 2003 and 1/2 of one Series B common share
purchased warrant exercisable at $ 0.75 expiring August 30, 2003. As a
result of the transaction, the original shareholders of API
Electronics owned 60% of the issued shares of the Company. The
business acquisition resulted in a change in business focus and an
introduction of new management for the Company. Accordingly, the
Company has accounted for the acquisition as a reverse take-over by
API Electronics. Application of reverse take-over accounting results
in the following:
i) API Electronics is deemed to be the acquirer for accounting
purposes and its assets and liabilities are included in the
consolidated balance sheet at their carrying values. The
comparative figures are those of API Electronics.
ii) The consolidated balance sheet combines the assets and
liabilities of the Company as an acquisition under the
purchase method of accounting for business combinations.
The net assets of the Company acquired, at fair value, as at August
31, 2001 are as follows:
Cash and cash equivalents $1,213,248
Marketable securities 1,848
Other current assets 122,305
Capital assets 3,559
Current liabilities (132,815)
----------
Net assets acquired 1,208,145
Less: Cost of acquisition (34,872)
----------
Consideration attributed to share capital of
shares issued $1,173,273
==========
Pursuant to Articles of Amendment dated September 10, 2001, the
Company changed its name from Investorlinks.com.Inc. to API
Electronics Group Inc. and consolidated the issued and outstanding
common shares on the basis of one common share for every three issued
and outstanding common share of the Company.
(b) Business Acquisition
On May 31, 2002, the Company acquired all of the issued and
outstanding shares of the Filtran Group of companies for $2,996,547
(Cdn $4,100,000). The purchase price was satisfied through payment of
cash in the amount of $1,042,277 and a promissory note given in the
amount of $1,954,270 (Cdn $3,000,000). Also incurred were professional
fees in connection with the acquisition in the amount of $327,065
giving a total acquisition cost of $3,323,612.
The business combination was accounted for using the purchase method,
whereby the fair market values of the net assets of the Filtran Group
are reflected in the Company's balance sheet as at May 31, 2002.
10
================================================================================
API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
May 31, 2003 and 2002
- --------------------------------------------------------------------------------
1. (b) Business Acquisition (continued)
The net assets acquired at fair value, as at May 31, 2002 are as
follows:
Cash $ 101,623
Current assets 1,204,202
Capital assets 1,984,492
Current liabilities (507,256)
Long-term liabilities (217,690)
Future income tax liabilities (530,000)
----------
Fair value of tangible net assets 2,035,371
Non-compete agreement 325,712
Goodwill 962,529
----------
Total cost of acquisition $3,323,612
==========
(c) Incorporation and Asset Purchase
On May 23, 2002, the Company incorporated an entity named "5/23 Corp"
under the laws of the State of Delaware. On January 13, 2003, "5/23
Corp" changed its name to TM Systems II, Inc. ("TM II"). On February
6, 2003, TM II acquired certain assets of TM Systems Inc. and carries
on business as TM System II, Inc. The purchase price was satisfied
through payment of cash in the amount of $1,500,000 and a promissory
note given in the amount of $1,475,652 with interest of 1.65% per
annum and payable on or before February 2, 2004 Also incurred were
professional fees in connection with the acquisition in the amount of
$21,958 giving a total acquisition cost of $2,997,610.
The assets acquired at fair value, as at February 6, 2003 are as
follows:
Capital assets $ 25,120
Inventory - parts and supplies 288,009
Inventory - work in progress 468,697
----------
Fair value of tangible net assets 781,826
Customer contracts 1,715,784
Non-compete agreement 500,000
----------
Net assets acquired $2,997,610
==========
If the aggregate of gross orders that TM II ships, invoices and any
advance payment that TM II receives, falls below $3,000,000 for the
period from February 6, 2003 to December 31, 2003, the promissory note
will be adjusted by a percentage reduction equal to the percentage
shortfall.
TM II is required to pay an additional 10% of gross revenue for
certain contracts specified in the asset purchase agreement.
11
================================================================================
API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
May 31, 2003 and 2002
- --------------------------------------------------------------------------------
2. Marketable Securities
Market
Value 2003 2002
-------- -------- ------
Shares in venture issues $ 10,940 $ 2,139 $2,429
Income trust units 229,400 186,632 --
Short term company paper and bonds
(maturity less than one year) 249,600 242,397 --
-------- -------- ------
$489,940 $431,168 $2,429
======== ======== ======
- --------------------------------------------------------------------------------
3. Inventories
2003 2002
---------- ----------
Finished goods $ 951,837 $1,232,246
Work-in-process 1,062,038 123,442
Raw materials 918,049 496,795
---------- ----------
$2,931,924 $1,852,483
========== ==========
12
================================================================================
API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollar)
May 31, 2003 and 2002
- --------------------------------------------------------------------------------
4. Capital Assets
2003
--------------------------------------
Accumulated Net
Cost Amortization Book Value
---------- ------------ ----------
Land $ 423,985 $ -- $ 423,985
Buildings 2,279,785 306,224 1,973,561
Computer equipment 77,255 34,009 43,246
Computer software 101,326 47,091 54,235
Furniture and fixtures 71,017 20,751 50,266
Machinery and equipment 1,779,892 1,083,418 696,474
Vehicles 24,259 5,679 18,580
Web site development costs 30,826 15,194 15,632
---------- ---------- ----------
$4,788,345 $1,512,366 $3,275,979
========== ========== ==========
2002
--------------------------------------
Accumulated Net
Cost Amortization Book 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
========== ======== ==========
Included in machinery and equipment is $158,774 (2002 - $133,362) of
property held under capital leases. Depreciation and amortization expense
amounted to $533,821 (2002 - $150,138). Of this amount $164,543 (2002 -
$115,979) was included in cost of sales.
13
================================================================================
API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
May 31, 2003 and 2002
- --------------------------------------------------------------------------------
5. Intangible Assets
2003 2002
---------- --------
Non-compete agreements $ 858,712 $325,712
Less: Accumulated amortization (96,392) --
Customer contracts (Note 1(c)) 1,715,784 --
Less: Accumulated amortization (107,235) --
---------- --------
$2,370,869 $325,712
========== ========
- --------------------------------------------------------------------------------
6. Bank Indebtedness
The Company's wholly owned subsidiary, API Electronics has a working
capital line of credit of $350,000 and a $100,000 equipment line of credit.
As at May 31, 2003 the API Electronics has borrowed $Nil (2002 - $242,146)
against these lines of credit. The credit is secured by all of its assets
pursuant to a general security agreement and in addition is guaranteed by
two of its former major shareholders. The bank indebtedness is due on
demand and bears interest at prime plus 1/2%.
The Company's wholly owned subsidiary, Filtran Canada has a line of credit
of Cdn $1,000,000 (2002 -Cdn $1,000,000). As at May 31, 2003, the Filtran
Canada has borrowed $Nil (2002 - $42,342 (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 a
guarantee of Cdn $1,310,000 from API Electronics Group Inc.
14
================================================================================
API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
May 31, 2003 and 2002
- --------------------------------------------------------------------------------
7. Long-term Debt
2003 2002
---------- ----------
Promissory note payable to former shareholders of the Filtran Group,
secured by a collateral mortgage on real property registered in Ontario
and the issued and outstanding shares of the Filtran Group,
repayable May 31, 2004 plus interest at 5% per annum $1,098,418 $1,954,270
Promissory note payable in connection with the acquisition of assets of TM
Systems, due February 6, 2004 with an interest rate of 1.65% per annum,
secured by the assets of TM Systems II Inc. 1,475,652 --
Bank term loan, secured by machinery and equipment, repayable in monthly
instalments of $1,565 plus interest at prime plus 2% 47,400 95,145
Loan payable, unsecured and non-interest bearing (i) 39,000 39,000
Mortgage payable, secured by real estate, repayable in blended monthly
instalments of $3,812 at interest rates of 7.00% and 8.75% 138,489 166,262
Various equipment capital leases, with monthly lease payments of $3,545
including interest at approximately 9%, secured by the leased assets 132,112 102,089
Due to shareholder, non-interest bearing with no specific terms of
repayment 616 15,065
---------- ----------
2,931,687 2,371,831
Less: Current portion 2,699,458 1,072,706
---------- ----------
$ 232,229 $1,299,125
========== ==========
(i) On March 16, 2001, the Company entered into a joint venture agreement
with a Massachusetts Corporation for the use and sale of
semi-conductor equipment. The agreement took effect on April 1, 2001.
In fiscal 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,
2003 a new agreement regarding repayment has not been reached,
accordingly the debt has been classified as current.
The long term debt repayable over the next five fiscal years is as follows:
2004 $2,699,458
2005 91,928
2006 86,577
2007 35,179
2008 18,545
15
================================================================================
API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
May 31, 2003 and 2002
- --------------------------------------------------------------------------------
8. Income Taxes
The significant components of future income tax assets consists of the
following:
2003 2002
--------- ---------
Future income tax assets
Loss carry forwards $ 624,000 $ 368,000
Other 15,000 --
Marketable securities 77,000 --
Capital assets 184,000 33,000
--------- ---------
900,000 401,000
--------- ---------
Future income tax liabilities
Capital assets (381,000) (445,000)
Non-compete agreement (47,000) (98,000)
Inventory (108,000) --
Unrealized foreign exchange gain (117,000) --
--------- ---------
(653,000) (543,000)
--------- ---------
Valuation allowance (603,000) (388,000)
--------- ---------
$(356,000) $(530,000)
========= =========
A reconciliation between income taxes provided at actual rates and at the
basic rate of 37.79% (2002 - 40.29%) for federal and provincial taxes is as
follows:
Net loss $(590,428) $(841,001)
========= =========
Recovery of income tax at statutory rates $(223,000) $(339,000)
Increase in taxes resulting from:
Non-deductible items and other (33,413) 16,000
Tax reassessment 1998 -- 16,642
Change in valuation allowance 215,000 323,000
--------- ---------
Provision for income taxes $ (41,413) $ 16,642
========= =========
The Company and its subsidiaries have non-capital losses of approximately
$1,971,000 to apply against future taxable income. These losses will expire
as follows: $599,000 in 2008 and $1,372,000 in 2010.
16
================================================================================
API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
May 31, 2003 and 2002
- --------------------------------------------------------------------------------
9. Share Capital
(a) Authorized
Unlimited special shares
Unlimited common shares
(b) Issued Common Shares
Number of
Shares Consideration
---------- -------------
(i) Pre-business combination for API Electronics
Balance at June 1, 2000 and May 31, 2001 100 $ 100
Issued upon the conversion of Note (Note 9) 97 902,422
---------- ----------
Balance at August 31, 2001 197 $ 902,522
========== ==========
(ii) Pre-business combination for the Company
Balance at April 30, 2001 13,179,020 $2,985,416
Share consolidation (Note 1(a)) (8,786,048) --
---------- ----------
Balance at August 31, 2001 4,392,972 $2,985,416
========== ==========
(iii) Issued from date of reverse take-over
Share capital is comprised of the number of
issued and outstanding shares of the Company
and the stated capital of API Electronics 4,392,972 $ 902,522
Shares issued upon the reverse take-over
(Note 1(a)) 6,500,000 1,173,273
Shares issued upon exercise of stock options 210,000 125,707
Shares issued upon exercise of warrants 3,200,842 1,920,505
Shares issued upon exercise of broker warrants 500,000 250,000
Shares issued as finders fee 100,000 270,000
---------- ----------
Balance at May 31, 2002 14,903,814 $4,642,007
Shares issued upon private placement - June
2002 500,000 1,175,000
Shares issued upon exercise of stock options 200,000 120,000
Shares issued upon private placement -
February 2003 6,925,000 2,770,000
Shares issued upon exercise of warrants 62,500 37,500
---------- ----------
Balance at May 31, 2003 22,591,314 $8,744,507
========== ==========
17
================================================================================
API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
May 31, 2003 and 2002
- --------------------------------------------------------------------------------
9. Share Capital (continued)
(c) Warrants
Common shares purchase warrants ("Warrants")
As at May 31, 2003 the following Warrants are outstanding and
exercisable:
Number Share for Exercise Expiry
Outstanding Warrants Price Date
----------- --------- -------- -----------------
1,649,579 1 for 1 0.45 February 28, 2004
1,649,579 1 for 1 0.75 August 30, 2003
500,000 1 for 1 3.00 June 30, 2004
3,400,000 1 for 1 0.60 February 28, 2005
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 Issued: 3,525,825
- Private Placement - June 2002 500,000
- Private Placement - February 2003 3,462,500
Exercised
- Re: Private Placement - February 2003 (62,500)
Expired
Re: Advisory services (226,667)
----------
Warrants outstanding, May 31, 2003 7,199,158
==========
18
================================================================================
API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
May 31, 2003 and 2002
- --------------------------------------------------------------------------------
9. Share Capital (continued)
(d) Stock Options
As at May 31, 2003 the following options are exercisable and
outstanding:
Number Exercise Expiry
Issued to Outstanding Price Date
--------- ----------- -------- ---------------
Directors 50,000 $0.45 August 31, 2006
Directors 50,000 0.75 August 31, 2006
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
Cancelled - February 2003 (25,000) (2.35)
- April 2003 (200,000) 0.60
-------- ------
Options outstanding, May 31, 2003 100,000 $ 0.60
======== ======
- --------------------------------------------------------------------------------
10. Cash Flow Information
(a) Changes in non-cash working capital are as follows:
2003 2002
--------- ---------
Accounts receivable $(507,471) 9,726
Inventory (229,959) (107,685)
Unbilled revenue (324,078) --
Prepaid expenses (15,906) 86,370
Accounts payable 338,346 (91,954)
Deferred revenue 661,406 --
--------- ---------
$ (77,662) $(103,543)
========= =========
19
================================================================================
API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
May 31, 2003 and 2002
- --------------------------------------------------------------------------------
10. Cash Flow Information (continued)
(b) Supplemental Cash Flow Information
2003 2002
-------- ----------
(i) Non-cash transaction
Convertible promissory note converted into
common stock $ -- $ 902,422
Disposal of capital assets in settlement
of equipment loan -- 120,000
Finder's 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 $107,789 $ 37,467
- --------------------------------------------------------------------------------
11. Related party Transactions
(a) Included in capital assets are web site development costs in the
amount of $nil (2002 - $30,826) paid to a company of which a
shareholder of the company is a director.
(b) Included in general and administrative expenses are consulting fees of
$47,196 (2002 - $27,522) 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.
- --------------------------------------------------------------------------------
12. 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.
2003 2002
---------- ----------
Revenue
United States $4,698,497 $2,903,120
Canada 3,555,044 --
---------- ----------
Total $8,253,541 $2,903,120
========== ==========
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================================================================================
API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
May 31, 2003 and 2002
- --------------------------------------------------------------------------------
12. Segmented Information (continued)
2003 2002
----------- ----------
Total Assets
Property and equipment
United States $ 1,801,069 $1,209,281
Canada 1,474,910 1,658,101
Goodwill
United States -- --
Canada 918,529 962,529
Other assets
United States 6,456,300 2,104,140
Canada 2,844,413 2,601,108
----------- ----------
$13,495,221 $8,535,159
=========== ==========
Segment profit (loss)
United States $ 608,220 $ 308,231
Canada 653,643 --
----------- ----------
Total 1,261,863 308,231
Business development 355,042 501,583
General and administrative 1,478,776 685,747
Other income (89,316) (75,565)
Interest expense 107,789 37,467
Income tax expense (41,413) 16,642
----------- ----------
Net profit (loss) $ (549,015) $ (857,643)
=========== ==========
(b) Major Customer
2003 2002
---- ----
Revenue
U.S. Department of Defence 3% 20%
U.S. Department of Defence subcontractors 50% 50%
- --------------------------------------------------------------------------------
13. Per Share Data
The weighted average number of shares issued and outstanding for the year
ended May 31, 2003 was 17,780,897 (2002 - 7,447,517).
The effect of the exercise of outstanding options and warrants would be
anti-dilutive.
21
================================================================================
API Electronics Group Inc.
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
May 31, 2003 and 2002
- --------------------------------------------------------------------------------
14. Economic Dependence
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 12), 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.
- --------------------------------------------------------------------------------
15. Commitments and Contingencies
(a) Rent
The following is a schedule by years of approximate future minimum
rental payments under operating leases that have remaining
non-cancelable lease terms in excess of one year as of May 31, 2003.
2004 $30,822
2005 22,243
2006 9,889
(b) 401(k) Plan
During 1998, the Company adopted a 401(k) deferred compensation
arrangement. Under the provision of the plan, the Company is required
to match 50% of employee contributions up to a maximum of 3% of the
employee's eligible compensation. Employees may contribute up to a
maximum of 15% of eligible compensation. The Company may also make
discretionary contributions up to a total of 15% of eligible
compensation. During the year ended May 31, 2003, the Company incurred
$9,714 (2002 - $30,157) as its obligation under the terms of the plan.
Of this amount $9,714 (2002 - $30,157) has been charged to general and
administrative expenses.
- --------------------------------------------------------------------------------
16. Comparative Figures
Comparative figures have been reclassified to conform with current year
presentation.
22
Management's Discussion and Analysis
Overview
API Electronics Group Inc. ("API" or "Company") is a North American based
company focused on the manufacture of specialized electronic components and
microelectronic circuits. API Electronics, Inc. ("Electronics") is a leading
designer and manufacturer of power transistors, small signal transistors, tuning
diodes, hybrid circuits, resistor/capacitor networks, diodes, and other critical
elements with precisely defined functional capabilities for advanced military,
industrial, commercial, automotive and medical applications. The Company is a
leading supplier of defence electronic components to the U.S. Department of
Defence and its subcontractors as well as having a strong commercial user base.
API's business strategy has been to strengthen its leadership position for its
components through continued emphasis on technological advances, operational
efficiencies, cost reductions, competitiveness and acquisitions. To this end, on
May 31, 2002, API acquired all the outstanding shares of the privately-held
"Filtran Group" (Filtran Inc. of Ogdensburg, New York; Filtran Limited, Canadian
Dataplex Limited and Tactron Communications *Canada** Limited all of Nepean,
Ontario, Canada). Filtran Group is a leading global supplier of superior quality
electronic components to major producers of communications equipment, military
hardware, computer peripherals, process control equipment and instrumentation.
In business since 1969, Filtran Group is ISO 9001 registered and offers
off-the-shelf and custom designed products and regularly ships components to
clients in more than 34 countries. The acquisition broadens API's product
offerings for current and potential customers as well as providing synergies in
the areas of engineering and technological capabilities. In February 2003, the
Company acquired certain assets (contracts in progress, inventory, machinery and
equipment and intangibles) of TM Systems Inc. and commenced business as TM
Systems II Inc. ("TM"). In business for over 30 years, TM supplies the defence
sector with naval landing and launching equipment, flight control and signalling
systems, radar systems alteration, data communication and test equipment as well
as aircraft ground support equipment. The acquisition expands API's
core-military and defence-related electronics business.
The Company's objectives are to seek long-term stable growth for all of its
operating segments (Electronics, Filtran Group, and TM) through continuous
capital investment, employing today's production methods and technologies, and
by demanding uncompromising quality control.
Consolidated Results of Operations
Year ended May 31, 2003 compared to May 31, 2002
Sales Revenue
The Company continued to record strong sales growth in fiscal 2003. Revenues
increased by 184.3% to $8,253,541 from $2,903,120 posted in 2002. The growth
during the period was attributed to the Filtran Group and TM's sales revenue in
the amount of $4,647,361 and $918,117 respectively. This was offset by a
decrease in the API Electronics' sales revenue from $2,903,120 to $2,688,063.
Fiscal 2003 is the
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initial year whereby the operations of the Filtran Group (a full year) and TM
(from February 6, 2003 to May 31, 2003) are reflected in the Company's
consolidated operations.
Cost of Goods Sold and Gross Margin
The cost of goods sold was 76.6% of sales in 2003 compared to 77.7% of sales in
2002. Accordingly, the gross margin for 2003 period of 23.4% was in line with
the 22.3% gross margin in the 2002 period.
The Company was able to improve its gross margin percentage during the 2003
period, despite competitive pressures, through ongoing cost reduction
initiatives.
Selling Expenses
Selling expenses increased to $666,138 for the year ended May 31, 2003 from
$339,048 for the year ended May 31, 2002. As a percentage of sales the 2003
selling expenses came in at 8.1% an improvement over the 11.7% posted in 2002.
The 96.5% increase in selling expenses is consistent with the 184.3% increase in
sales revenue.
General and Administrative Expenses
General and administrative expenses increased to $1,478,776 for 2003 from
$685,747 incurred during 2002. As a percentage of sales, the 2003 general and
administration expenses were 17.9% compared to 23.6% in 2002.
Several components of general and administrative expenses saw increases as a
direct result of API's new status as a public company. Professional fees of
$301,117 (2002 - $94,747), and press releases, shareholder information and
annual meeting of $56,104 (2002 - $9,070) all increased substantially and were
attributable to increased costs that are inherent with public company
compliance. In addition, the May 31, 2002 acquisition of the Filtran Group and
the fiscal 2003 acquisition of TM resulted in increased general and
administrative expenses for API. Several components saw increases as follows:
Office salaries - $252,369 (2002 - $121,634), officer salaries - $203,437 (2002
- - $91,000), consulting - $95,037 (2002 - $50,846), rent - $32,841 (2002 -
$11,488), telephone - $56,545 (2002 - $26,918), office supplies and expense -
$56,567 (2002 -$32,903) and travel $23,480 (2002 - $3,780).
In addition, administrative depreciation and amortization rose to $353,839 (2002
- - $34,134) as a result of the overall increase in the Capital and Intangible
Asset base arising from the acquisition of the Filtran Group and TM.
Consolidated Results of Operations(continued)
Year ended May 31, 2003 compared to May 31, 2002
Management continues to emphasize efficiencies and control of overheads. It is
anticipated that TM's operations will be fully integrated into Electronics'
state-of-the art facilities by fiscal 2004. This should provide savings in
overhead and administrative costs.
24
Business Development
Business development and investor relations saw a large decrease from $501,583
in 2002 to $355,042 in the year ended May 31, 2003. The 2002 period saw major
one-time expenses (business plan, investor marketing and awareness) of
approximately $105,000 when API first became a public company. Management has
determined such expenditures have benefited the Company to gain a market profile
and to support recent and future financings and acquisitions.
Other Income and Expense
Other income improved to $89,316 in 2003 from $75,565 in 2002. The increase is
attributed to $40,025 gain earned in 2003 (2002 - $Nil) through the early
repayment of an amount owing on a promissory note, higher investment income of
$41,300 (2002 - $10,068), and a capital tax recovery of $34,118 (2002 - $Nil).
These increases were offset by a decrease in foreign exchange from a gain in
2002 of $30,513 to a loss in 2003 of $65,580.
Other expense relates to interest on long-term debt and the Company saw a
substantial increase from $37,467 in 2002 to $107,789 in 2003. The increase is
attributed to the Filtran Group promissory note debt that added $69,771 of
interest expense in 2003.
Net Income / Loss
The Company incurred a net loss in 2003 of $549,015($0.03/share) compared to a
net loss of $847,643($0.12/share) for the 2002 year.
Liquidity and Capital Resources
Summary
At May 31, 2003, the Company had cash reserves of $1,561,199 compared to
$1,408,637 as at May 31, 2002. In addition, the Company had marketable
securities of $431,168 at May 31, 2003(2002 - $2,429). The portfolio of
securities consists principally of company paper and bonds with maturities of
less than one year ($242,397) and income trust units ($186,632)
At May 31, 2003 working capital (the excess of current assets over current
liabilities) totalled $2,195,522 compared to $2,148,073 at May 31, 2002. The
current ratio at May 31, 2003 decreased to 1.46:1 from the 2.0:1 ratio as at May
31, 2002. The quick ratio (which excludes inventory and prepaid expenses from
current assets) was 0.83:1 at May 31, 2003 - a decrease from the 1.1:1 posted at
May 31, 2002.
Inventory rose 58.3% from $1,852,483 as at May 31, 2002 to $2,931,924 as at May
31, 2003. Accounts receivable increased 50.9% from $1,073,058 as at May 31, 2002
to $1,619,487 as at May 31, 2003. Accounts payable rose 44.7% from $874,269 at
May 31, 2002 to $1,265,458 as at May 31, 2003. Inventory, accounts receivable
and accounts payable are the major working capital components and their increase
is consistent with higher sales and production levels.
Long-term debt (current and long-term portion) increased substantially from
$2,371,831 at May 31, 2002 to $2,931,687 at May 31, 2003. This increase resulted
primarily from the issue of the promissory
25
note in connection with the TM System acquisition in the amount of $1,475,652
and this was offset by the repayment of part of the Filtran Group promissory
note in the amount of $855,852.
The debt to equity ratio (current & long-term debt to shareholder's equity)
improved to 0.35 as at May 31, 2003 compared to 0.53 as at May 31. 2002.
Total assets increased to $13,495,221 in 2003 from $8,535,159 in 2002. This is
attributed to recent acquisitions and financings.
Cash Flow
Cash generated (used) in operating activities increased to $40,131 for year
ended May 31, 2003 compared to ($811,048) for year ended May 31, 2002.
The major source of cash in 2003 was provided through the issue of common shares
in the amount of $4,102,500 and the net long-term debt advances in the amount of
$429,258.
The major use of cash during 2003 was the purchase of capital assets in the
amount of $725,789, the investment in marketable securities of $428,739, the
business acquisition of TM Systems Inc. in the amount of $2,997,610, and the
repayment of bank indebtedness of $284,488.
Financings
In June 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.
In February 2003, the Company completed a private placement financing of
$2,770,000. Under the terms of the financing, 6,925,000 units were issued with
each unit consisting of one common share at $0.40 per share and a half-share
purchase warrant. Each full share purchase warrant will entitle the holder to
acquire one common share at a price of $0.60 for a period of two years following
closing.
Subsequent Events
No significant subsequent events occurred after May 31, 2003
Risks
The Company is exposed to a variety of risks in its business. These include
operational, currency, foreign operations, credit, and interest rate. Steps have
been taken in all areas to mitigate these risks.
26