6-K 1 d6k.txt FORM 6-K FORM 6-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Report of Foreign Private Issuer Pursuant to Rule 13a-16 or 15d-16 of the Securities and Exchange Act of 1934 For the month of April, 2002 API ELECTRONICS GROUP INC. (Formerly: Investorlinks.com Inc.) ------------------------------------------------------------- (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- ------------------------ SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. API ELECTRONICS GROUP INC. (Formerly Investorlinks.com Inc.) Date: April 29, 2002 By: /s/ Jason DeZwirek -------------- ----------------------- Jason DeZwirek, Chairman of the Board, Executive V.P., Secretary and Director API Electronics Group Inc. Consolidated Interim Financial Statements Third Quarter For the period ended February 28, 2002 (Unaudited) Expressed in US$ 2 -------------------------------------------------------------------------------- API Electronics Group Inc. Consolidated Interim Balance Sheet (Expressed in US$) February 28, May 31, 2002 2001 ------------ ------- (Unaudited) (Audited) Assets Current Cash $ 309,052 $ 41,073 Accounts receivable 541,870 340,383 Inventory 1,299,660 1,277,399 Prepaid expenses 13,744 13,174 ---------- ---------- 2,164,326 1,672,029 Investments 1,848 - Capital assets 854,373 881,700 Goodwill 2,638 10,552 ---------- ---------- $3,023,185 $2,564,281 Liabilities and Shareholders' Equity Current Bank indebtedness $ 254,350 $ 354,346 Accounts payable 591,107 341,216 Equipment loan payable - current portion 12,000 36,000 Current maturities of capital lease obligations 7,648 10,440 ---------- ---------- 865,105 742,002 Bank indebtedness 34,562 43,717 Equipment loan payable 27,000 138,000 Due to shareholders - 43,575 Capital lease obligations - 4,258 Convertible promissory note - 1,265,492 ---------- ---------- 926,667 2,237,044 Shareholders' equity Share capital (Note 2) 2,778,110 407,820 Deficit (681,592) (80,583) ---------- ---------- 2,096,518 327,237 ========== ========== $3,023,185 $2,564,281 ========== ========== The accompanying summary of significant accounting policies and notes are an integral part of these financial statements. 3 -------------------------------------------------------------------------------- API Electronics Group Inc. Consolidated Interim Statement of Operations and Retained Earnings (Deficit) (Unaudited) (Expressed in US$) Nine Months Ended Three Months Ended February 28 February 28 ----------------- ------------------ 2002 2001 2002 2001 ---------- ---------- --------- --------- Sales $2,321,625 $1,952,669 $ 681,772 $ 631,862 Cost of sales 1,765,486 1,544,446 571,128 522,489 ---------- ---------- --------- --------- Gross profit 556,139 408,223 110,644 109,373 Expenses Selling expenses 231,034 167,558 63,110 61,697 General and administrative 949,513 202,365 580,141 68,683 ---------- ---------- --------- --------- 1,180,547 369,923 643,251 130,380 ---------- ---------- --------- --------- Operating Income (624,408) 38,300 (532,607) (21,007) ---------- ---------- --------- --------- Other (Income) Expenses Other income (68,544) (819) (9,416) - Interest expense 23,891 35,417 5,066 13,605 ---------- ---------- --------- --------- (44,653) 34,598 (4,350) 13,605 ---------- ---------- --------- --------- Income (loss) before income taxes (579,755) 3,702 (528,257) (34,612) Income taxes 21,254 292 (8,746) 225 ---------- ---------- --------- --------- Net income (loss) (601,009) 3,410 (519,511) (34,837) Retained earnings (deficit), beginning of period (80,583) (182,684) (162,081) (144,437) ---------- ---------- --------- --------- Deficit, end of period $ (681,592) $ (179,274) $(681,592) $(179,274) ========== ========== ========= ========= Earning (loss) per share - basic $ (0.05) $ 0.001 $ (0.05) $ (0.01) ========== ========== ========= ========= The accompanying summary of significant accounting policies and notes are an integral part of these financial statements. 4 -------------------------------------------------------------------------------- API Electronics Group Inc. Consolidated Statements of Cash Flows (Unaudited) (Expressed in US$)
Nine Months Ended Three Months Ended February 28 February 28 ------------------- ------------------- 2002 2001 2002 2001 ---------- --------- --------- --------- Cash provided by (used in) operating activities Net income (loss) for the period $ (601,009) $ 3,410 $(519,511) $(34,837) Adjustments to reconcile net loss to net cash provided by operating activities: Amortization 106,154 81,192 31,086 27,064 Net change in non-cash working capital balances (Note 3) (249,313) (121,994) 7,214 (26,909) ---------- --------- --------- -------- (744,168) (37,392) (481,211) (34,682) ---------- --------- --------- -------- Investing activities Capital assets (187,353) (5,555) (70,703) - ---------- --------- --------- -------- Financing activities Cash acquired through reverse take-over, net of cost of acquisition 1,178,375 - - - Issue of share capital 204,127 - 198,420 - Share issue costs (8,226) - (8,226) - Bank indebtedness (109,151) - (3,051) - Capital leases obligations (7,050) (6,796) (2,613) (2,554) Equipment loan (15,000) - - - Due to shareholders (43,575) 42,000 - 42,000 ---------- --------- --------- -------- 1,199,500 35,204 184,530 39,446 ---------- --------- --------- -------- Net increase (decrease) in cash 267,979 (7,743) (367,384) 4,764 Cash, beginning of period 41,073 81,163 676,436 68,656 ---------- --------- --------- -------- Cash, end of period $ 309,052 $ 73,420 $ 309,052 $ 73,420 ========== ========= ========= ========
The accompanying summary of significant accounting policies and notes are an integral part of these financial statements. 5 -------------------------------------------------------------------------------- API Electronics Group Inc. Summary of Significant Accounting Policies (Unaudited) February 28, 2002 and 2001 -------------------------------------------------------------------------------- Business Acquisition and Nature of Business API Electronics Group Inc. (the "API" or "Company"), formerly Investorlinks.Com Inc., and API Electronics Inc. ("API Electronics"), a private company incorporated under the laws of the State of New York, completed the business combination referred to in Note 1 to the consolidated interim financial statements. As stated in Note 1, the business combination has been accounted for as a reverse take-over of the Company by API Electronics. The Company's business focus is the manufacture and supply of high reliability semiconductors and microelectronics circuits for military, aerospace and commercial applications. Principles of Consolidation The consolidated financial statements include the accounts of the API, the legal parent, together with its wholly owned subsidiary, API Electronics. Basis of Presentation These consolidated interim financial statements have been prepared in accordance with Canadian generally accepted accounting principles. All amounts are disclosed in US dollars unless otherwise indicated. Capital Assets Capital assets are amortized using the straight-line basis over the following years: Building - 20 years Machinery and equipment - ranging from 5 to 10 years Website - 3 years
Goodwill Goodwill is being amortized over 5 years. Foreign Currency Translation The accompanying consolidated financial statements are stated in United States dollars, "the reporting currency". The transactions of the Company have been recorded during the period in Canadian dollars. The translation of Canadian dollars into United States dollars have been made at the period end exchange rate for balance sheet items and the average exchange rate for the period for revenues, expenses, gains and losses. 6 Accounting The preparation of financial statements in Estimates conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimated. -------------------------------------------------------------------------------- API Electronics Group Inc. Notes to Interim Consolidated Financial Statements (Unaudited) (Expressed in US$) For the nine months ended February 28, 2002 and 2001 -------------------------------------------------------------------------------- 1. Business Acquisition On August 31, 2001, the Company acquired all of the 197 issued and outstanding shares of API Electronics for US $2,600,000. The purchase price was satisfied by the issuer of 6,500,000 units of the Company at US $0.40 per unit. Each unit consists of one common share and 1/2 of one Series A common share purchase warrants exercisable at US $0.45 per share expiring February 28, 2003 and 1/2 of one Series B common share purchased warrant exercisable at US $0.75 expiring August 30, 2003. As a result of the transaction, the original shareholders of API Electronics owned 60% of the issued shares of the Company. The business acquisition resulted in a change in business focus and an introduction of new management for the Company. Accordingly, the acquisition has been accounted for as a reverse take-over of the Company by API Electronics. Application of reverse take-over accounting results in the following: i) API Electronics is deemed to be the acquirer for accounting purposes and its assets and liabilities are included in the consolidated balance sheet at their carrying valves. The comparative figures are those of API Electronics. ii) The consolidated balance sheet combines the assets and liabilities of the Company as an acquisition under the purchase method of accounting for business combinations. The net capital assets of the Company acquired, at fair value, as at August 31, 2001 are as follows: Cash and cash equivalents $1,213,248 Marketable securities 1,848 Other current assets 122,305 Capital assets 3,559 Current liabilities (397,191) ---------- Net assets acquired 943,769 Less: Cost of acquisition 34,872 ---------- Consideration attributed to share capital of shares issued $ 908,897 ========== 7 -------------------------------------------------------------------------------- API Electronics Group Inc. Notes to Interim Consolidated Financial Statements (Unaudited) (Expressed in US$) For the nine months ended February 28, 2002 and 2001 -------------------------------------------------------------------------------- 2. Share Capital (a) Authorized Unlimited special shares Unlimited common shares (b) Issued Common Shares
Number of Shares Consideration ----------- ------------- Pre-business combination for API Electronics Balance at June 1, 2000 and May 31, 2001 100 $ 407,820 Issued upon the capitalization of the promissory note 97 1,265,492 ---------- ---------- Balance at August 31, 2001 197 $1,673,312 ========== ========== Pre-business combination for the Company Balance at April 30, 2001 13,179,020 $2,985,416 Share consolidation (1) (8,786,048) - ---------- ---------- Balance at August 31, 2001 4,392,972 $2,985,416 ---------- ---------- (1) Pursuant to Articles of Amendment, the Company consolidated the issued and outstanding common shares on the basis of one common share for every three issued and outstanding common share in the capital of the Company. Issued from date of reverse take-over Share capital is comprised of the number of issued and outstanding shares of the Company and the stated capital of API Electronics 4,392,972 $1,673,312 Shares issued upon the reverse take-over (Note 1) 6,500,000 908,897 Share issued upon exercise of stock options 10,000 5,707 Shares issued upon exercise of warrants 440,933 198,420 Share issue costs (8,226) ---------- ---------- 11,343,905 $2,778,110 ========== ==========
8 (c) Warrants Warrants outstanding, April 30, 2001 226,667 Issued pursuant to advisory services 250,000 Issued pursuant to business acquisition (Note 1) - Series A 3,250,000 - Series B 3,250,000 Exercised - Series A warrants (440,933) ---------- Warrants outstanding, February 28, 2002 6,535,734 ==========
9 -------------------------------------------------------------------------------- API Electronics Group Inc. Notes to Interim Consolidated Financial Statements (Unaudited) (Expressed in US$) For the nine months ended February 28, 2002 and 2001 -------------------------------------------------------------------------------- 2. Share Capital - continued As at February 28, 2002 the following warrants are outstanding and exercisable: Number Share for Exercise Expiry Outstanding Warrants Price Date ----------- --------- -------- ----------------- 222,667 1 for 1 $9.00 August 8, 2002 250,000 1 for 1 $0.40 August 31, 2003 2,809,067 1 for 1 $0.45 February 28, 2002 3,250,000 1 for 1 $0.75 August 30, 2003 (d) Stock Options Weighted Number of Average Options Special Price --------- ------------- Options outstanding, April 30, 2001 123,667 $7.80 Cancelled (113,667) 8.51 Granted 500,000 0.60 Exercised (10,000) Cdn. 0.90 -------- --------- Options outstanding, February 28, 2002 500,000 $0.60 ======== ========= As at February 28, 2002 the following options are outstanding: Number Exercise Expiry Issued to Outstanding Price Date --------- ----------- -------- ---------------- Directors 100,000 0.45 July 31, 2006 Directors 150,000 0.45 August 31, 2006 Directors 100,000 0.75 July 31, 2006 Directors 150,000 0.75 August 31, 2006 10 -------------------------------------------------------------------------------- API Electronics Group Inc. Notes to Interim Consolidated Financial Statements (Unaudited) (Expressed in US$) For the nine months ended February 28, 2002 and 2001 -------------------------------------------------------------------------------- 3. Changes in Non-Cash Working Capital Balances Non-cash working capital changes are as follows:
Nine Months Ended Three Months Ended February 28 February 28 ------------------------ ----------------------- 2002 2001 2002 2001 --------- --------- --------- -------- Accounts receivable $(176,281) $(120,111) $ 9,871 $(13,973) Inventory (22,261) (41,987) 18,740 (8,913) Prepaid expenses 96,529 2,160 59,994 742 Accounts payable (147,300) 37,944 (81,391) (4,765) --------- --------- --------- -------- $(249,313) $(121,994) $ 7,214 $(26,909) ========= ========= ========= ======== Supplemented cash flow information Cash paid for interest $ 23,891 $ 35,417 $ 5,066 $ 13,605 Cash paid for taxes - 67 - - Non-Cash Transaction Convertible promissory note converted into common stock $1,265,492 $ - $ - $ - Disposal of capital assets in settlement of equipment loan $ 120,000 $ - $ - $ -
11 QUARTERLY AND YEAR END REPORT [GRAPHIC British Columbia BC FORM 51-901 REMOVED] Securities Commission (previously Form 61) -------------------------------------------------------------------------------- Freedom of Information and Protection of Privacy Act: The personal information requested on this form is collected under the authority of and used for the purpose of administering the Securities Act. Questions about the collection or use of this information can be directed to the Supervisor, Financial Reporting (604-899-6729), PO Box 10142, Pacific Centre, 701 West Georgia Street, Vancouver BC V7Y 1L2. Toll Free in British Columbia 1-800-373-6393 -------------------------------------------------------------------------------- INSTRUCTIONS This report must be filed by Exchange Issuers within 60 days of the end of their first, second and third fiscal quarters and within 140 days of their year end. "Exchange Issuer" means an issuer whose securities are listed and posted for trading on the Canadian Venture Exchange and are not listed and posted on any other exchange or quoted on a trading or quotation system in Canada. Three schedules must be attached to this report as follows: SCHEDULE A: FINANCIAL STATEMENTS Financial statements prepared in accordance with generally accepted accounting principles are required as follows: For the first, second and third financial quarters: Interim financial statements prepared in accordance with section 1751 of the CICA Handbook, including the following: balance sheet, income statement, statement of retained earnings, cash flow statement, and notes to the financial statements. The periods required to be presented, consistent with CICA Handbook section 1751, are as follows: o a balance sheet as of the end of the current interim period and a comparative balance sheet as of the end of the immediately preceding fiscal year; o a statement of retained earnings cumulatively for the current fiscal year-to-date, with a comparative statement for the comparable year to-date period of the immediately preceding fiscal year; and o income statements and cash flow statements for the current interim period and cumulatively for the current fiscal year-to-date, with comparative statements for the comparable interim periods (current and year-to-date) of the immediately preceding fiscal year. For the financial year end: Annual audited financial statements prepared on a comparative basis. Exchange Issuers with a fiscal year of less than or greater than 12 months should refer to National Policy No. 51 Changes in the Ending Date of a Financial Year and in Reporting Status for guidance. Issuers in the development stage are directed to the guidance provided in CICA Accounting Guideline AcG-11 Enterprises in the Development Stage that states "enterprises in the development stage are encouraged to disclose in the income statement and in the cash flow statement cumulative balances from the inception of the development stage." Issuers that have been involved in a reverse take-over should refer to the guidance found in BCIN #52-701 (previously NIN #91/21) with respect to such transactions including the requirement or disclosure of supplementary information regarding the legal parent's prior financial operations. SCHEDULE B: SUPPLEMENTARY INFORMATION The supplementary information set out below must be provided when not included in Schedule A. 1. Analysis of expenses and deferred costs Provide a breakdown of amounts presented in the financial statements for the following: deferred or expensed exploration, expensed research, deferred or expensed development, cost of sales, marketing expenses, general and administrative expenses, and any other material expenses reported in the income statement and any other material deferred costs presented in the balance sheet. The breakdown should separately present, at a minimum, each component that comprises 20% or more of the total amount for a material classification presented on the face of the financial statements. All other components of a material classification may be grouped together under the heading "miscellaneous" or "other" in the cost breakdown; the total for "miscellaneous" should not exceed 30% of the total for a material classification. Breakdowns are required for the year-to-date period only. Breakdowns are not required for comparative periods. Issuers in the development stage are reminded that Section 3(9)(b) of the BC Securities Commission's Rules requires a schedule or note to the financial statements containing an analysis of each of exploration, research, development and administration costs, whether expensed or deferred and if the issuer is a natural resource issuer, that analysis for each material property. Because the analysis required by Rule 3(9)(b) must be included in the financial statements, the information does not have to be repeated in Schedule B. Consistent with CICA Accounting Guidelines AcG-11, staff considers an issuer to be in the development stage when it is devoting substantially all of its efforts to establishing a new 12 business and planned principal operations have not commenced. Further, in staff's view, the lack of significant revenues for the past two years normally indicates that an issuer is in the development stage. 2. Related party transactions Provide disclosure of all related party transactions as specified in Section 3840 of the CICA Handbook. 3. Summary of securities issued and options granted during the period Provide the following information for the year-to-date period: (a) summary of securities issued during the period, including date of issue, type of security (common shares, convertible debentures, etc.), type of issue (private placement, public offering, exercise of warrants, etc.) number, price, total proceeds, type of consideration (cash, property, etc.) and commission paid, and (b) summary of options granted during the period, including date, number, name of optionee for those options granted to insiders, generic description of other optionees (e.g. "employees",) exercise price and expiry date. 4. Summary of securities as at the end of the reporting period Provide the following information as at the end of the reporting period: (a) description of authorized share capital including number of shares for each class, dividend rates on preferred shares and whether or not cumulative, redemption and conversion provisions, (b) number and recorded value for shares issued and outstanding, (c) description of options, warrants and convertible securities outstanding, including number or amount, exercise or conversion price and expiry date, and any recorded value, and (d) number of shares in each class of shares subject to escrow or pooling agreements. 5. List the names of the directors and officers as at the date this report is signed and filed. SCHEDULE C: MANAGEMENT DISCUSSION AND ANALYSIS 1. General Instructions (a) Management discussion and analysis provides management with the opportunity to discuss an issuer's business, current financial results, position and future prospects. (b) Focus the discussion on material information, including liquidity, capital resources, known trends, commitments, events, risks or uncertainties, that is reasonably expected to have a material effect on the issuer. (c) For an issuer with active ongoing operations the discussion should be substantive (e.g. generally two to four pages in length); for an issuer with limited operations the discussion may not be as extensive (e.g. one page). (d) The discussion must be factual, balanced and non-promotional. (e) Where the discussion relates to a mineral project, as defined in National Instrument 43-101 "Standards of Disclosure for Mineral Projects," the disclosure must comply with NI 43-101. 2. Description of Business Provide a brief description of the issuer's business. Where an issuer is inactive and has no business, disclose these facts together with a description of any plans to reactivate and the business the issuer intends to pursue. 3. Discussion of Operations and Financial Condition Provide a meaningful discussion and analysis of the issuer's operations for the current year-to-date period presented in the financial statements. Discuss the issuer's financial condition as at the date of the most recent balance sheet presented in the financial statements. The following is a list of items that should be addressed in management's discussion and analysis of the issuer's operations and financial condition. This is not intended to be an exhaustive list of the relevant items. (a) expenditures included in the analysis of expenses and deferred costs required under Securities Rule 3(9)(b) and Schedule B; (b) acquisition or abandonment of resource properties material to the issuer including material terms of any acquisition or disposition; (c) acquisition or disposition of other material capital assets including material terms of the acquisition, or disposition; (d) material write-off or write-down of assets; (e) transactions with related parties, disclosed in Schedule B or the notes to the financial statements; (f) material contracts or commitments; (g) material variances between the issuer's financial results and information previously disclosed by the issuer, (for example if the issuer does not achieve revenue and profit estimates previous released, discuss this fact and the reasons for the variance); (h) material terms of any existing third party investor relations arrangements or contracts including: i. the name of the person; ii. the amount paid during the reporting period; and iii. the services provided during the reporting period; (i) legal proceedings; (j) contingent liabilities; (k) default under debt or other contractual obligations; (l) a breach of corporate, securities or other laws, or of an issuer's listing agreement with the Canadian Venture Exchange including the nature of the breach, potential ramifications and what is being done to remedy it; (m) regulatory approval requirements for a significant transaction including whether the issuer has obtained the required approval or has applied for the approval; (n) management changes; or 13 (o) special resolutions passed by shareholders. 4. Subsequent Events Discuss any significant events and transactions that occurred during the time from the date of the financial statements up to the date that this report is certified by the issuer. 5. Financings, Principal Purposes and Milestones (a) In a tabular format, compare any previously disclosed principal purposes from a financing to actual expenditures made during the reporting period. (b) Explain any material variances and the impact, if any, on the issuer's ability to achieve previously disclosed objectives and milestones. 6. Liquidity and Solvency Discuss the issuer's working capital position and its ability to meet its ongoing obligations as they become due. How to File Under National Instrument 13-101 - System for Electronic Document Analysis and Retrieval (SEDAR) BC Form 51-901 Quarterly and Year End Reports are filed under Category of Filing: Continuous Disclosure and Filing Type: Interim Financial Statements or Annual Financial Statements. Schedule A (Financial Statements) is filed under Document Type: Interim Financial Statements or Annual Financial Statements. Schedule B (Supplementary Information) and Schedule C (management Discussion) are filed under Document Type: BC Form 51-901 (previously Document Type Form 61(BC)). Meeting the Form Requirements BC Form 510-901 consists of three parts: Instructions to schedules A, B and C, issuer details and a certificate. To comply with National instrument 132-101 it is not necessary to reproduce the instructions that are set out in BC Form 51-901. A cover page to the schedules titled BC Form 51-901 that includes the issuer details and certificate is all that is required to meet the BC Form 51-901 requirements. The form of the certificate should be amended so as to refer to one or two of the three schedules required to complete the report. 14 -------------------------------------------------------------------------------- QUARTERLY AND YEAR END REPORT [GRAPHIC British Columbia BC FORM 51-901 REMOVED] Securities Commission (previously Form 61) -------------------------------------------------------------------------------- Freedom of Information and Protection of Privacy Act: The personal information requested on this form is collected under the authority of and used for the purpose of administering the Securities Act. Questions about the collection or use of this information can be directed to the Supervisor, Financial Reporting (604-899-6729), PO Box 10142, Pacific Centre, 701 West Georgia Street, Vancouver BC V7Y 1L2. Toll Free in British Columbia 1-800-373-5393 -------------------------------------------------------------------------------- ISSUER DETAILS DATE OF REPORT NAME OF ISSUER FOR QUARTER ENDED YY MM DD API ELECTRONICS GROUP INC. 2002/02/28 2002 04 29 ----------------------------------------------------------------------------------------------------- ISSUER ADDRESS 505 UNIVERSITY AVENUE, SUITE 1400 ----------------------------------------------------------------------------------------------------- CITY PROVINCE POSTAL CODE ISSUER FAX NO. ISSUER TELEPHONE NO. TORONTO ON M5G 1X3 416-593-4658 416-593-6543 ----------------------------------------------------------------------------------------------------- CONTACT NAME CONTACT POSITION CONTACT TELEPHONE NO. JASON DEZWIREK CHAIRMAN 416-593-6543 ----------------------------------------------------------------------------------------------------- CONTACT EMAIL ADDRESS WEB SITE ADDRESS jason@kaboose.com www.api-electronics.com -----------------------------------------------------------------------------------------------------
CERTIFICATE The three schedules required to complete this Report are attached and the disclosure contained therein has been approved by the Board of Directors. A copy of this Report will be provided to any shareholder who requests it. 15 -------------------------------------------------------------------------------- DIRECTOR'S SIGNATURE PRINT FULL NAME DATE SIGNED TM "JASON DEZWIREK" JASON DEZWIREK YY MM DD 2002 04 25 -------------------------------------------------------------------------------- DIRECTOR'S SIGNATURE PRINT FULL NAME DATE SIGNED TM "PHILIP DEZWIREK PHILIP DEZWIREK YY MM DD 2002 04 25 -------------------------------------------------------------------------------- 16 SCHEDULE "A" FINANCIAL INFORMATION See attached unaudited consolidated financial statements of API Electronics Group Inc. (the "Company") for the period ended February 28, 2002. 17 Schedule "B" See attached consolidated financial statements of the Company for the period ended February 28, 2002. 18 SCHEDULE "C" MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A) Results of Operations 1. Summary API Electronics Group Inc. is a leading manufacturer of electronic components. API designs and manufactures power transistors, small signal transistors, tuning diodes, hybrid circuits, resistor/capacitor networks, diodes and other critical elements for advanced military, industrial, commercial, automotive and medical applications. 2. Sales Revenue The nine months ending February 28, 2002 saw API generate revenues of $2,321,625. This revenue represented an increase of 18.9% compared to $1,952,669 for the nine month period ending February 28, 2001. The growth during the period was led by the performance of core product lines and accelerated by favourable market conditions for the Company's products in the military industry. 3. Cost of Goods Sold and Gross Margin The cost of products sold as a percentage of sales decreased favourably during the 2002 period as compared to the 2001 nine month period. The cost of goods sold was 76% of sales in 2002 compared to 79.1% of sales in 2001. Accordingly, the gross margin for 2002 period improved to 24.0% from the 20.9% gross margin in the 2001 period. The increase is attributed mainly to improve operating efficiencies and favourable markets. Future gross margins will continue to be impacted by competitive pricing pressures and new product introductions. 4. Selling Expenses Selling expenses increased from $167,658 for the nine month period ending February 28, 2001 to $231,034 for the nine month period ending February 28, 2002. As a percentage of sales the 2002 selling expenses came in at 10% compared to 8.5% for the 2001 period. The increase was primarily attributed to the addition of one sales person to support increased product sales levels. 5. General and Administrative Expenses General and administrative expenses increased substantially from $202,365 for 2001 period to $949,513 incurred during the nine month period ending February 28, 2002. The increase is attributed primarily to significant expenditures for business development costs. The costs increased from $0 in the 2001 period to $527,703 in the 2002 period. These costs relate primarily to business plan development and investor relations to help create market awareness for products and investors and to help provide support for any future financing and acquisitions. The company believes aggressive spending in this area is critical to assist the company gain exposure in the competitive public company environment and ultimately to increase shareholder value. The other component of general and administrative expenses that increased substantially were professional fees which went from $9,078 in the 2001 period to $42,290 for the 2002 period. This increase is attributable to increased expenses that are inherent with public company compliance. The company became a public company following the business acquisition as 19 described in note 1 of these interim consolidated financial statements. 6. Other Income and Expense Other income increase from $819 in the nine month period ending February 28, 2001 to $68,544 for the nine month period ending February 28, 2002. The increase is attributed to rental income and an insurance claim. 7. Net Income / Loss The Company incurred a net loss for the nine month period ending February 28, 2002 of $601,009 compared to a net income of $3,410 generated for the nine month period ending February 28, 2001. B) Liquidity and Capital Resources 1. Summary At February 28, 2002, the Company had cash reserves of $309,052 compared to $41,073 as at May 31, 2001. At February 28, 2002 working capital, the excess of current assets over current liabilities totalled $1,299,221 compared to $930,027 at May 31, 2001. The current ratio at February 28, 2002 was 2.5:1 compared to 2.25:1 at May 31, 2001. The quick ratio (which excludes inventory and prepaid expenses from current assets) is .98:1 at February 28, 2002 compared with .51:1 as at May 31, 2001. The increase in the current and quick ratio is attributed primarily to the increased sales level. Specific working capital components saw increases consistent with the increases in sales volume and production activity. Accounts receivable rose 59% from $340,383 at May 31, 2001 to $541,870 at February 28, 2002. Accounts payable rose 73% from $341,216 at May 31, 2001 to $591,107 at February 28, 2002. Equipment loans decreased from $138,000 at May 31, 2001 to $27,000 at February 28, 2002 as a result of the Company disposing of assets in settlement of the equipment loan. 2. Cash Flow Cash provided by operating activities decreased from $(37,392) for the nine months ended February 28, 2001 to $(744,168) for the nine months ended February 28, 2002. The 2002 cash deficiency was financed primarily by the business acquisition as described in note 1 of these interim consolidated financial statements whereby $1,178,375 cash was acquired. Other major sources of cash were provided by the exercise of warrants and options. This exercise added cash totalling $204,127 during the nine months ended February 28, 2002. Other major uses of cash were the acquisition of capital assets in the amount of $187,353 for the 2002 period compared to $5,555 for the 2001 period. 3. Related Party Transactions Office rent paid to a company of which a shareholder of the company is a director (2002 - $6,034; 2001 - $0) Consulting fees paid to a director of the Company (2002 - $12,113; 2001 - $0) Web site development costs paid to a company of which a shareholder of the company is a director (2002 - $30,826; 2001 - $0) C) Financings For the nine months ended February 28, 2002, there were no financings. D) Subsequent Events 20 On April 3, 2002, the Company signed a letter of intent to acquire privately-held Filtran Group, a global supplier of electronic components. The all-cash acquisition would see the Company acquire Filtran Group and all of its subsidiaries, including: Filtran Inc. of Ogdensburg, New York; Filtran Ltd. Of Nepean, Ontario, Canada; and Canadian Dataplex Ltd., also of Nepean. The deal including purchase consideration is pending final due diligence by the Company and although it is expected to close prior to the Company's May 31, 2002 yearend, there can be no assurance that the purchase will be consummated. 21