-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OKEBlrpWBrqEUtcVyya1ASGk0G1m3MT/p+gYFzW7YGeOdpqXcqT8ckZd895hXy/B fmck8UxQlQcoR0+ixwjojA== 0000950131-03-000322.txt : 20030131 0000950131-03-000322.hdr.sgml : 20030131 20030131141435 ACCESSION NUMBER: 0000950131-03-000322 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030130 FILED AS OF DATE: 20030131 FILER: COMPANY DATA: COMPANY CONFORMED NAME: API ELECTRONICS GROUP INC CENTRAL INDEX KEY: 0001022282 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 000000000 FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-29142 FILM NUMBER: 03534192 BUSINESS ADDRESS: STREET 1: 505 UNIVERSITY AVE. STREET 2: STE 1400 TORONTO CITY: ONTARIO M5G 1X3 STATE: A6 BUSINESS PHONE: 8006062326 MAIL ADDRESS: STREET 1: 505 UNIVERSITY AVE. STREET 2: STE. 1400 TORONTO CITY: ONTARIO M5G 1X3 FORMER COMPANY: FORMER CONFORMED NAME: OPUS MINERALS INC DATE OF NAME CHANGE: 19991102 FORMER COMPANY: FORMER CONFORMED NAME: TNK RESOURCES INC DATE OF NAME CHANGE: 19960905 FORMER COMPANY: FORMER CONFORMED NAME: INVESTORLINKS COM INC DATE OF NAME CHANGE: 20000911 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 January, 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 January 29, 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: January 30, 2003 By: /s/ Jason DeZwirek ---------------- ----------------------------------- Jason DeZwirek, Chairman of the Board, Executive V.P., Secretary and Director QUARTERLY AND YEAR END REPORT [LOGO] British Columbia Securities Commission BC FORM 51-901 BCSC (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 FOR QUARTER YY MM DD NAME OF ISSUER ENDED 2003 01 29 API ELECTRONICS GROUP INC. 2002/11/30 - -------------------------------------------------------------------------------------------- ISSUER ADDRESS 505 UNIVERSITY AVENUE, SUITE 1400 - -------------------------------------------------------------------------------------------- CITY PROVINCE POSTAL ISSUER FAX NO. ISSUER TELEPHONE TORONTO ON CODE 416-593-4658 NO. M5G 1X3 416-593-3000 - -------------------------------------------------------------------------------------------- CONTACT NAME CONTACT POSITION CONTACT JASON DEZWIREK CHAIRMAN TELEPHONE NO. 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. - -------------------------------------------------------------------------------------------- DIRECTOR'S SIGNATURE PRINT FULL NAME DATE SIGNED . "JASON DEZWIREK" JASON DEZWIREK YY MM DD 2003 01 29 - -------------------------------------------------------------------------------------------- DIRECTOR'S SIGNATURE PRINT FULL NAME DATE SIGNED . "PHILLIP DEZWIREK" PHILLIP DEZWIREK YY MM DD 2003 01 29 - --------------------------------------------------------------------------------------------
SCHEDULE "A" FINANCIAL INFORMATION See attached unaudited consolidated financial statements of API Electronics Group Inc. (the "Company") for the six months ended November 30, 2002. Schedule "B" See attached unaudited consolidated financial statements of the Company for the six months ended November 30, 2002. SCHEDULE "C" MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview API Electronics Group Inc. ("API" or "Company") is a leading manufacturer of electronic components and microelectronic circuits with precisely defined functional capabilities for advanced military, industrial, commercial, automotive and medical applications. The Company is a leading supplier of defence electronic components to the U.S. Department of Defence and its subcontractors as well as having a strong commercial user base. API's business strategy has been to strengthen its leadership position for its components through continued emphasis on technological advances, operational efficiencies, cost reductions, competitiveness and acquisitions. To this end, on May 31, 2002, API acquired all the outstanding shares of the privately-held "Filtran Group" (Filtran Inc. of Ogdensburg, New York; Filtran Limited, Canadian Dataplex Limited and Tactron Communications (Canada) Limited all of Nepean, Ontario, Canada). Filtran Group is a leading global supplier of superior quality electronic components to major producers of communications equipment, military hardware, computer peripherals, process control equipment and instrumentation. In business since 1969, Filtran Group is ISO 9001 registered and offers off-the-shelf and custom designed products and regularly ships components to clients in more than 34 countries. The acquisition broadens API's product offerings for current and potential customers as well as providing synergies in the areas of engineering and technological capabilities. Consolidated Results of Operations Six months ended November 30, 2002 compared to November 30, 2001 Sales Revenue The Company continued to record strong sales growth during the six months ended November 30, 2002. Revenues increased by 110.0% to $3,444,311 from $1,639,853 posted in the six months ended November 30, 2001. The growth during the period was attributed to the Filtran Group's sales revenue in the amount of $2,072,894 reflected in API's operations for the first time. Cost of Goods Sold and Gross Margin The cost of goods sold was 74.2% of sales in 2002 compared to 72.8% of sales in 2001. Accordingly, the gross margin for 2002 period of 25.8% was in line with the 27.2% gross margin in the 2001 period. The Company was able to maintain its gross margin percentage during the 2002 period, despite competitive pressures, through ongoing cost reduction initiatives. Selling Expenses Selling expenses increased from $167,924 for the six months ended November 30, 2001 to $291,159 for the six months ended November 30, 2002. As a percentage of sales the 2002 selling expenses came in at 8.5% an improvement over the 10.2% posted in 2001. The 74% increase in selling expenses is consistent with the 110% increase in sales revenue. General and Administrative Expenses General and administrative expenses increased substantially from $369,372 for the 2001 period to $718,969 incurred during the 2002 period. As a percentage of sales, the 2002 general and administration expenses were 20.8% compared to 22.5% in 2001. 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 $133,057 (2001 - $29,423), public relations of $4,572 (2001 - $NIL), and shareholder information of $19,103 (2001 - $470) 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 (note 1b in the notes to the consolidated financial statements) resulted in increased general and administrative expenses for API. Several components saw increases as follows: Office salaries - $123,334 (2001 - $33,500), consulting - $43,191 (2001 - - $14,486), rent - $19,071 (2001 - $1,268), telephone - $22,450 (2001 - $15,311). In addition, depreciation and amortization rose to $113,628 (2001 - $15,014) as a result of the overall increase in the Capital and Intangible Asset base arising from the acquisition of the Filtran Group. Business development and investor relations saw a large decrease from $154,002 in the six months ended November 30, 2001 to $54,697 in the six months ended November 30, 2002. The 2001 period saw major one-time expenses (business plan, investor marketing and awareness) of approximately $105,000 when API first became a public company). Management continues to emphasize efficiencies and control of overheads. Other Income and Expense Other income increased from $59,128 for the period ended November 30, 2001 to $69,278 for the period ended November 30, 2002. Included in 2002 is a $40,025 gain earned through the early repayment of an amount owing on the promissory note issued in connection with the Filtran Group acquisition. Other expense relates to interest on long-term debt and the Company saw a substantial increase from $18,825 in 2001 to $59,949 in 2002. The increase is attributed to the addition of debt in the form of the promissory note that added $48,158 of interest expense. Consolidated Results of Operations Six months ended November 30, 2002 compared to November 30, 2001 Net Income / Loss The Company incurred a net loss for the six months ended November 30, 2002 year of $112,347($0.007/share) compared to a net loss of $81,498($0.01/share) for the six months ended November 30, 2001. Liquidity and Capital Resources Summary At November 30, 2002, the Company had cash reserves of $593,943 compared to $1,408,637 as at May 31, 2002. At November 30, 2002 working capital, the excess of current assets over current liabilities totalled $2,973,936 compared to $2,148,073 at May 31, 2002. The current ratio at November 30, 2002 was 3.6:1 compared to 2.0:1 at May 31, 2002. The quick ratio (which excludes inventory and prepaid expenses from current assets) is 1.7:1 at November 30, 2002 compared with 1.1:1 as at May 31, 2002. The increase in the current and quick ratio is attributed primarily to the increased sales level and cash received from a private placement. Inventory rose 12.5% from $1,852,483 as at May 31, 2002 to $2,084,211 as at November 30, 2002. Accounts receivable increased 9.2% from $1,073,058 as at May 31, 2002 to $1,172,341 as at November 30, 2002. Accounts payable rose 18.9% from $874,269 at May 31, 2002 to $1,039,711 as at November 30, 2002. 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) decreased substantially from $2,371,831 at May 31, 2002 to $1,303,325 at November 30, 2002. This decrease resulted primarily from the repayment of the promissory note in the amount of $995,926. The debt to equity ratio improved to 0.24 as at November 30, 2002 compared to 0.53 as at May 31, 2002. Cash Flow Cash generated (used) in operating activities increased from ($262,957) for the six months ended November 30, 2001 to ($330,543) for six months ended November 30, 2002. The major source of cash in 2002 was provided by the issue of 500,000 units of share capital that provided $1,175,000 in cash. The major use of cash during 2002 was the purchase of capital assets in the amount of $285,715 and the repayments of bank indebtedness $284,488 and long-term debt repayments of $1,068,506. Financings On June 19, 2002, the Company completed a $1,175,000 private placement offering of 500,000 units at a price of $2.35 per unit. Each unit consists of one common share and one warrant. The warrants expire on June 30, 2004 and entitles the holders to purchase one additional common share at a price of $3.00 per share. Proceeds from the private placement will be used for general working capital purposes and to fund ongoing acquisition activities. Subsequent Events On December 17, 2002, the Company signed a letter of intent to acquire TM Systems Inc. of Albertson, New York. The acquisition is pending the completion of due diligence by the Company and the signing of a definitive purchase agreement. It is anticipated that the purchase will be an all cash acquisition in the amount of $3,000,000 with adjustments if certain sales revenues are not met. Although the acquisition is expected to close in early 2003, there can be no assurance that the purchase will be consummated. The acquisition is also contingent upon a minimum private placement financing of $2.4 million which was announced December 19, 2002. Under the terms of the financing, a minimum of 6 million units (and up to 8 million) will be offered 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 $0.60 for a period of two years following closing. Risks The Company is exposed to a variety of risks in its operations. These include operational, currency, foreign operations, credit, and interest rate. Steps have been taken in all areas to mitigate these risks. API Electronics Group Inc. Consolidated Interim Financial Statements Second Quarter For the six month period ended November 30, 2002 (Unaudited) Expressed in US$ API Electronics Group Inc. Balance Sheets (Unaudited) (Expressed in US$)
November 30 May 31 2002 2002 - ------------------------------------------------------------------------------- Assets Current Cash $ 593,943 $ 1,408,637 Accounts receivable 1,172,341 1,073,058 Inventories (Note 2) 2,084,211 1,852,483 Marketable securities 251,727 - Prepaid expenses 33,069 45,358 -------------------------- 4,135,291 4,379,536 Capital assets (Note 3) 2,998,856 2,867,382 Goodwill (Note 4) 962,529 962,529 Intangible assets (Note 5) 293,142 325,712 -------------------------- $ 8,389,818 $ 8,535,159 =============================================================================== Liabilities and Shareholders' Equity Current Bank indebtedness (Note 6) $ - $ 284,488 Accounts payable 1,039,711 874,269 Current portion of long-term debt (Note 7) 121,644 1,072,706 -------------------------- 1,161,355 2,231,463 Future income tax liability (Note 8) 537,190 530,000 Long term debt (Note 7) 1,181,681 1,299,125 -------------------------- 2,880,226 4,060,588 -------------------------- Shareholders' equity Share capital (Note 9) 5,817,007 4,642,007 Paid in capital 770,790 770,790 Cumulative foreign exchange translation (27,632) - Deficit (1,050,573) (938,226) -------------------------- 5,509,592 4,474,571 -------------------------- $ 8,389,818 $ 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. 2 API Electronics Group Inc. Consolidated Interim Statement of Operations and Retained Earnings (Deficit) (Unaudited) (Expressed in US$)
Six Months Ended Three Months Ended November 30 November 30 ------------------- ------------------- 2002 2001 2002 2001 - ---------------------------------------------------------------------------------------------- Sales $ 3,444,311 $ 1,639,853 $ 1,802,716 $ 714,837 Cost of sales 2,554,859 1,194,358 1,339,571 597,871 ------------------------------------------------------- Gross profit 889,452 445,495 463,145 116,966 Expenses Selling expenses 292,159 167,924 152,530 92,051 General and administrative 718,969 369,372 357,918 279,416 ------------------------------------------------------- 1,011,128 537,296 510,448 371,467 ------------------------------------------------------ Operating Income (121,676) (91,801) (47,303) (254,501) ------------------------------------------------------ Other (Income) Expenses Other income (69,278) (59,128) (55,771) (2,207) Interest expense 59,949 18,825 28,966 7,295 ------------------------------------------------------ (9,329) (40,303) (26,805) 5,088 ------------------------------------------------------ Income (loss) before income taxes (112,347) (51,498) (20,498) (259,589) Income taxes - 30,000 - 30,000 ------------------------------------------------------ Net income (loss) (112,347) (81,498) (20,498) (289,589) Retained earnings (deficit), beginning of period (938,226) (80,583) (1,030,075) 127,508 ------------------------------------------------------ Deficit, end of period $ (1,050,573) $ (162,081) $ (1,050,573) $ (162,081) ============================================================================================== ============================================================================================== Earning (loss) per share - basic $ (0.007) $ (0.01) $ (0.001) $ (0.03)
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 Cash Flows (Unaudited) (Expressed in US$)
Six Months Ended Three Months Ended November 30 November 30 ------------------- ------------------- 2002 2001 2002 2001 - --------------------------------------------------------------------------------------------------------- Cash provided by (used in) Operating activities Net income (loss) for the period $ (112,347) $ (81,498) $ (20,498) $ (289,589) Adjustments to reconcile net loss to net cash provided by operating activities: Amortization 186,811 75,068 94,292 37,534 Net change in non-cash working capital balances (Note 10) (405,007) (256,527) (359,473) (101,768) ----------------------------------------------------- (330,543) (262,957) (285,679) (353,823) ----------------------------------------------------- Investing activities Capital assets (285,715) (116,650) (117,273) (105,972) ----------------------------------------------------- Financing activities Cash acquired through reverse take-over, net of cost of acquisition - 1,178,375 - 1,178,375 Issue of share capital 1,175,000 5,707 5,707 Decrease in cumulative foreign translation (27,632) - (11,454) - Bank indebtedness repayments (284,488) (106,100) (242,146) (53,049) Long-term debt repayments (1,068,506) (63,012) (1,014,944) (104,269) Increase in future income tax liability 7,190 - 440 - ----------------------------------------------------- (198,436) 1,014,970 (1,268,104) 1,026,764 ----------------------------------------------------- Net increase (decrease) in cash (814,694) 635,363 (1,671,056) 566,969 Cash, beginning of period 1,408,637 41,073 2,264,999 109,467 ----------------------------------------------------- Cash, end of period $ 593,943 $ 676,436 $ 593,943 $ 676,436 =========================================================================================================
The accompanying summary of significant accounting policies and notes are an integral part of these financial statements. 4 API Electronics Group Inc. Summary of Significant Accounting Policies (Unaudited)(Expressed in US Dollars) November 30, 2002 and 2001 Nature of Business API Electronics Group Inc.'s ("the Company") business focus is the manufacture and design of high reliability semiconductor and microelectronics circuits for military, aerospace and commercial applications. Through recent acquisitions, the Company has expanded its manufacturing and design of electronic components to include filters, transformers, inductors, and custom power supplies for land and amphibious combat systems, mission critical information systems and technologies, shipbuilding and marine systems, and business aviation. Business Acquisition and Name Change On August 31, 2001, Investorlinks.com Inc., a public company incorporated under the laws of the Province of Ontario, and API Electronics Inc. ("API Electronics"), a private company incorporated under the laws of the State of New York, completed the business combination referred to in Note 1(a) to the financial statements. Pursuant to Articles of Amendment dated September 10, 2001, the Company changed its name from Investorlinks.com Inc. to API Electronics Group Inc. As stated in Note 1(a), the business combination has been accounted for as a reverse take-over of the Company by API Electronics. On May 31, 2002 the Company completed the acquisition of all the outstanding common shares of Filtran Inc. ("Filtran USA"), a private company incorporated under the laws of the State of New York; Filtran Limited ("Filtran Canada"), a private company incorporated under the laws of Ontario; Canadian Dataplex Limited ("CDL"), a private company incorporated under the laws of Canada, Tactron Communications (Canada) Limited ("TCCL"), a private company incorporated under the laws of Ontario. Filtran USA, Filtran Canada, CDL, TCCL are known collectively as the "Filtran Group". The Filtran Group's business focus is similar to that of the Company. The business combination, which has been accounted for using the purchase method, is described in Note 1 (b) to the financial statements. Principles of Consolidation The consolidated financial statements include the accounts of the Company (the legal parent), together with its wholly owned subsidiaries, API Electronics and the Filtran Group. Basis of Presentation These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles. All amounts are disclosed in US dollars unless otherwise indicated. 5 API Electronics Group Inc. Summary of Significant Accounting Policies (Unaudited)(Expressed in US Dollars) November 30, 2002 and 2001 Revenue Recognition Revenue is recognized when risk and title passes to the customer, which is generally upon shipment of the product. Revenues from contracts are recognized on the percentage of completion basis, measured by the percentage of contract costs incurred to date compared to estimated total contract costs for each contract. Inventory Raw materials are recorded at the lower of cost and net realizable value. Finished goods and work in process are stated at the lower of cost, which includes material, labour and overhead, and net realizable value. Cost is generally determined on a first-in, first-out basis. Capital Assets Capital assets are recorded at cost less accumulated amortization and are amortized using the straight-line basis over the following years: Buildings 20 years Computer equipment 3 years Computer software 3 years Furniture and fixtures 5 years Machinery and equipment Ranging from 5 to 10 years Website development 3 years Goodwill Effective January 2002, the Canadian Institute of Chartered Accountants issued new accounting standards relating to accounting for goodwill and other intangible assets acquired in business combinations. Goodwill will no longer be required to be amortized, but is now subject to an annual test for impairment. Any impairment in the value of the goodwill is written off against earnings. Prior to 2002, goodwill was amortized on a straight-line basis over 5 years. Intangible Assets Intangible assets that have a finite life are amortized over their estimated useful lives. The non-compete agreement is amortized using the straight-line basis over 5 years. Income taxes The Company accounts for income taxes under the asset and liability method. Under this method, future income tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial reporting and tax bases of assets and liabilities and available loss carryforwards. A valuation allowance is established to reduce tax assets if it is more likely than not that all or some portions of such tax assets will not be realized. 6 API Electronics Group Inc. Summary of Significant Accounting Policies (Unaudited)(Expressed in US Dollars) November 30, 2002 and 2001 Foreign Currency Translation The consolidated financial statements are stated in United States dollars, "the reporting currency". The transactions of the Company have been recorded during the period in Canadian dollars. The translation of Canadian dollars into United States dollars have been made at the year end exchange rate for monetary balance sheet items, the historical rate for non-monetary balance sheet items, and the average exchange rate for the year for revenues, expenses, gains and losses. The gains or losses on translation are included in net income (loss) for the year. The Filtran Group is a self-sustaining group that is translated at current rates of exchange. All exchange gains and losses are accumulated in the foreign exchange translation account on the balance sheet. The foreign exchange translation amount at November 30, 2002 was ($27,632). Accounting Estimates The preparation of these consolidated financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting periods. By their nature, these estimates are subject to uncertainty and the effect on the consolidated financial statements of changes in such estimates in future periods could be material. Advertising Costs The Company's policy is to expense advertising costs as they are incurred. Advertising expenses included in selling expenses is $1,803 (2001 - $14,535). Stock-Based Compensation Plans The Company has a stock-based compensation plan that is described in Note 9(d). No compensation expense is recognized for these plans when stock or stock options are issued to employees. Any consideration paid on the exercise of options or purchase of stock is credited to share capital. 7 API Electronics Group Inc. Notes to Consolidated Financial Statements (Unaudited)(Expressed in US Dollars) November 30, 2002 and 2001 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. 8 (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. 9 API Electronics Group Inc. Notes to Consolidated Financial Statements (Unaudited)(Expressed in US Dollars) November 30, 2002 and 2001 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 ============
2. Inventories
November 30 May 31 2002 2002 Inventory as at November 30, 2002 was estimated based upon gross margin percentage $ 2,084,211 $ 1,852,483
3. Capital Assets
November 30, 2002 Cost Accumulated Net Amortization Book Value Land $ 392,764 $ - $ 392,764 Buildings 2,004,936 203,188 1,801,748 Computer equipment 37,469 1,986 35,483 Computer software 48,660 7,393 41,267 Furniture and fixtures 42,103 7,326 34,777 Machinery and equipment 1,520,780 865,505 655,275 Vehicles 18,956 2,110 16,846 Web site development costs 30,826 10,130 20,696 -------------------------------------------- $ 4,096,494 $ 1,097,638 $ 2,998,856 ============================================
10 API Electronics Group Inc. Notes to Consolidated Financial Statements (Unaudited)(Expressed in US Dollars) November 30, 2002 and 2001 3. Capital Assets (continued)
May 31, 2002 Cost Accumulated Net 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 $133,362 (2001 - $42,001) of property that are held under capital leases. Depreciation and amortization expense amounted to $186,811 (2001 - $75,068). Of this amount $73,183 (2001 - $60,054) was included in cost of sales. 4. Goodwill
November 30 May 31 2002 2002 Goodwill $ 1,015,289 $ 1,015,289 Less: Accumulated amortization (52,760) (52,760) -------------------------------- $ 962,529 $ 962,529
5. Intangible Assets
November 30 May 31 2002 2002 Non-compete agreement (Note 1(b)) $ 325,713 $ 325,712 Less: Accumulated amortization (32,571) - ------------------------------- $ 293,142 $ 325,712
6. Bank Indebtedness API Electronics's bank indebtedness is secured by all of its assets pursuant to a general security agreement and in addition is guaranteed by two of its former major shareholders. The bank indebtedness is due on demand and bears interest at prime plus 1/2%. During the period ending November 30, 2002, the full amount of the bank indebtedness was repaid. The Company's wholly owned subsidiary, Filtran Canada has a line of credit of Cdn $1,000,000 with the Bank of Nova Scotia. As at November 30, 2002 the Company has borrowed $Nil (May 31, 2002-$42,343) against this line of credit. The line of credit bears interest at prime plus 1/2 percent and is secured by a special assignment of inventory, accounts receivable and unlimited guarantee from TCCL and a guarantee of Cdn $500,000 from CDL. 11 API Electronics Group Inc. Notes to Consolidated Financial Statements (Unaudited)(Expressed in US Dollars) November 30, 2002 and 2001 7. Long-term Debt
November 30 May 31 2002 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 on May 31, 2004 plus interest at 5% per annum $ 958,344 $ 1,954,270 Bank term loans, secured by machinery and equipment, repayable in monthly instalments of $1,582 plus interest at a rate of approximately 8% 49,499 95,145 Loan payable, unsecured and non-interest bearing, repayable in monthly instalments of $1,000 (i) 39,000 39,000 Mortgage payable, secured by real estate, repayable in blended monthly instalments of $3,737 at interest rates of 6.75% and 8.75% 149,468 166,262 Various equipment capital leases, with annual lease payments of $26,949 including interest at approximately 9% 92,294 102,089 Due to shareholder, non-interest bearing with no specific terms of repayment 14,720 15,065 ---------------------------- Less: Current portion 1,303,325 2,371,831 121,644 1,072,706 ---------------------------- $ 1,181,681 $ 1,299,125 ============================
(i) On March 16, 2001, the Company entered into a joint venture agreement with a Massachusetts Corporation for the use and sale of semi-conductor equipment. The agreement took effect on April 1, 2001. During the year, the venture partners agreed to mutually end the agreement. The Company returned equipment valued at $120,000 and the Company's indebtedness was reduced by the same amount. As at November 30, 2002 the Company's indebtedness amounted to $39,000. The long-term debt repayable over the next five fiscal years is as follows: 2003(6 months) $ 56,913 2004 1,090,294 2005 72,015 2006 65,254 2007 18,849 Generally accepted accounting principles require disclosure of fair value of financial instruments. Fair value is the amount at which the instrument could be exchanged in a current transaction. Management has determined that there is no significant difference between the fair value and the carrying value of the long-term debt. 12 API Electronics Group Inc. Notes to Consolidated Financial Statements (Unaudited)(Expressed in US Dollars) November 30, 2002 and 2001 8. Income Taxes As at May 31, 2002 the significant components of future income tax assets consists of the following: Future income tax assets Loss carrying forwards $ 368,000 Capital assets 33,000 ------------- 401,000 ------------- Future income tax liabilities Capital assets (445,000) Non-compete agreement (98,000) ------------- (543,000) ------------- Valuation allowance (388,000) ------------- $ (530,000) ============= A reconciliation between income taxes provided at actual rates and at the basic rate of 40.29% for federal and provincial taxes is as follows: Net loss $ (841,001) ============= Recovery of income tax at statutory rates $ (339,000) Increase in taxes resulting from: Non-deductible items and other 16,000 Tax reassessment 1998 16,642 Change in valuation allowance 323,000 ------------- Provision for income taxes $ 16,642 The Company has non-capital losses of approximately $914,000 to apply against future taxable income. These losses will expire as follows: $114,000 in 2006 and $800,000 in 2009. 13 API Electronics Group Inc. Notes to Consolidated Financial Statements (Unaudited)(Expressed in US Dollars) November 30, 2002 and 2001 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 Shares issued upon private placement 500,000 1,175,000 --------------------------- Balance as at November 30, 2002 15,403,814 $ 5,817,007 ---------------------------
14 API Electronics Group Inc. Notes to Consolidated Financial Statements (Unaudited)(Expressed in US Dollars) November 30, 2002 and 2001 9. Share Capital (continued) (c) Warrants Common shares purchase warrants ("Warrants") As at November 30, 2002 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, 2003 1,649,579 1 for 1 0.75 August 30, 2003 500,000 1 for 1 3.00 June 30, 2003
The continuity of common share purchase warrants is as follows: Warrants outstanding, April 30, 2001 226,667 Issued - pursuant to advisory services 250,000 - pursuant to business acquisition (Note 1a) - Series A 3,250,000 - Series B 3,250,000 - Series A - broker warrants 125,000 - Series B - broker warrants 125,000 - Private placement 500,000 Expired during the period (226,667) 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, November 30, 2002 3,799,158 ===========
(d) Stock Options As at November 30, 2002 the following options are exercisable, except as indicated, and outstanding:
Number Exercise Expiry Issued to Outstanding Price Date --------------------------------------------------------------- Directors 150,000 $0.45 August 31, 2006 Directors 150,000 0.75 August 31, 2006 Directors 25,000 (i) 2.35 April 1, 2007
(i) 5,000 vest July 2002 and 5,000 vest each year thereafter. 15 API Electronics Group Inc. Notes to Consolidated Financial Statements (Unaudited)(Expressed in US Dollars) November 30, 2002 and 2001 9. Share Capital (continued) (d) Stock Options (continued)
The continuity of stock options is as follows: Weighted Number of Average Options Price --------------------- Options outstanding, April 30, 2001 123,667 $ 7.08 Cancelled (113,667) 7.65 Granted- August 2001 500,000 0.60 - April, 2002 25,000 2.35 Exercised (210,000) 0.60 --------------------- Options outstanding, November 30, 2002 325,000 $ 0.73 =====================
10. Cash Flow Information (a) Changes in non-cash working capital are as follows:
Six Months Ended Three Months Ended November 30 November 30 2002 2001 2002 2001 ------------------------------------------------------ Accounts receivable $ (99,283) $ (186,152) $ (107,915) $ 75,246 Inventory (231,728) (41,001) (178,826) (54,000) Marketable securities (251,727) - (188,730) - Prepaid expenses 12,289 36,535 23,246 28,789 Accounts payable 165,442 (65,909) 92,752 (151,803) ------------------------------------------------------ $ (405,007) $ (256,527) $ (359,473) $ (101,768) ------------------------------------------------------
(b) Supplemental Cash Flow Information
Six Months Ended Three Months Ended November 30 November 30 2002 2001 2002 2001 Cash paid for interest $ 59,949 $ 18,825 $ 28,966 $ 7,295 -----------------------------------------------------
16 API Electronics Group Inc. Notes to Consolidated Financial Statements (Unaudited)(Expressed in US Dollars) November 30, 2002 and 2001 11. Related party Transactions (a) Included in capital assets are web site development costs in the amount of $30,826 (May 31, 2002 - $30,826) paid to a company of which a shareholder of the company is a director. (b) Included in consulting expenses are fees of $19,317 (2001 - $4,756) paid to an individual who is a director and officer of the Company. (c) On July 1, 2001 the convertible promissory note held by a principal shareholder of API Electronics was converted into common shares of API Electronics (Note 9) These related party transactions were in the normal course of operations and are recorded at the exchange amount agreed to by the related parties. 12. Per Share Data The weighted average number of shares issued and outstanding for the period ended November 30, 2002 was 15,362,147. The number of shares outstanding for the period from the beginning of the fiscal year to the date of the reverse takeover is deemed to be the number of shares issued by the legal parent to the shareholders of the legal subsidiary as described in note 1(a). For the period from the date of the reverse takeover to the end of the fiscal year, the actual weighted average of shares issued during the period is used. The effect of the exercise of outstanding options and warrants would be anti-dilutive. 17 API Electronics Group Inc. Notes to Consolidated Financial Statements (Unaudited)(Expressed in US Dollars) November 30, 2002 and 2001 13. Financial Instruments As at November 30, 2002 there were no significant differences between the carrying amounts and the fair values of these instruments. It is management's opinion that the Company is not exposed to significant interest rate, currency, or credit risk. 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, 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. 14. 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 November 30, 2002. 2003 (6 months) $ 13,476 2004 22,243 2005 9,889 (b) 401(k) Plan During 1998, the Company adopted a 401(k) deferred compensation arrangement. Under the provision of the plan, the Company is required to match 50% of employee contributions up to a maximum of 3% of the employee's eligible compensation. Employees may contribute up to a maximum of 15% of eligible compensation. The Company may also make discretionary contributions up to a total of 15% of eligible compensation. 18 API Electronics Group Inc. Notes to Consolidated Financial Statements (Unaudited)(Expressed in US Dollars) November 30, 2002 and 2001 15. Comparative Figures Comparative figures have been reclassified to conform to the current year presentation. 16. Subsequent Events On December 17, 2002, the Company signed a letter of intent to acquire TM Systems Inc. of Albertson, New York. The acquisition is pending the completion of due diligence by the Company and the signing of a definitive purchase agreement. It is anticipated that the purchase will be an all cash acquisition in the amount of $3,000,000 with adjustments if certain sales revenues are not met. Although the acquisition is expected to close in early 2003, there can be no assurance that the purchase will be consummated. The acquisition is also contingent upon a minimum private placement financing of $2.4 million which was announced December 19, 2002. Under the terms of the financing, a minimum of 6 million units (and up to 8 million) will be offered 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. 19 -----END PRIVACY-ENHANCED MESSAGE-----