~~August~~FORM 31 May 31 2003 2003 -------------------------------------------------------------------------------------- (unaudited) (audited) Assets Current Cash and cash equivalents $ 2,976,402 $ 1,561,199 Marketable securities (Note 2) 280,342 431,168 Accounts receivable 1,407,421 1,619,487 Unbilled revenue 80,699 324,078 Inventories (Note 3) 3,152,036 2,931,924 Prepaid expenses 89,300 61,988 ---------------------------- 7,986,200 6~~,929,844 Capital assets (Note 4) 3,120,468 3,275,979 Goodwill 918,529 918,529 Intangible assets (Note 5) 2,242,144 2,370,869~~ -~~---------------------------~~K $ 14,267,341 $ 13,495,221 ====================================================================================== Liabilities and Shareholders' Equity Current Bank indebtedness (Note 6) $ 75,000 $ - Accounts payable 1,182,467 1,265,458 Deferred revenue 1,259,552 661,406 Future income tax liability (Note 8) 108,000 108,000 Current portion of long-term debt (Note 7) 2,601,938 2,699,458 ---------------------------- 5,226,957 4,734,322 Future income tax liability (Note 8) 248,186 248,000 Long term debt (Note 7) 215,004 232,229 ---------------------------- 5,690,147 5,214,551 ---------------------------- Shareholders' equity Share capital (Note 9) 9,179,507 8,744,507 Paid in capital 770,790 770,790 Cumulative foreign exchange translation adjustment 235,167 252,614 Deficit (1,608,270) (1,487,241) ---------------------------- 8,577,194 8,280,670 ---------------------------- $ 14,267,341 $ 13,495,221 ======================================================================================

~~August~~SECURITIES 31AND ~~August~~EXCHANGE 31COMMISSION Three months ended 2003 2002 --------------------------------------------------------------------------------------- Cash was provided by (used in) Operating activities Net loss for the period $ (121,029) $ (91,849) Adjustments to reconcile net loss to net cash provided by operating activities: Amortization 220,371 92,519 Gain on sale of marketable securities (41,868) - Loss on sale of land and building 16,243 - Changes in non-cash working capital balances (Note 10(a)) 708,322 17,463 ---------------------------- 782,039 18,133 ---------------------------- Investing activities Purchase of capital assets (63,192) (177,870) Proceeds on sale of land and building 108,186 - Proceeds on sale of marketable securities 192,694 - Purchase of marketable securities - (62,997) ---------------------------- 237,688 (240,867) ---------------------------- Financing activities Issue of share capital 435,000 1,175,000 Bank indebtedness advances (repayments) 75,000 (42,342) Repayment of long-term debt (114,102) (53,562) ---------------------------- 395,898 1,079,096 ---------------------------- Foreign exchange loss on cash held in foreign currency (422) - ---------------------------- Net increase (decrease) in cash for the period 1,415,203 856,362 Cash and cash equivalents, beginning of period 1,561,199 1,408,637 ---------------------------- Cash and cash equivalents, end of period $ 2,976,402 $ 2,264,999 =======================================================================================

~~August 31~~Washington, ~~2003~~D.C. ~~--------------------------------------------~~20549 Cost Accumulated Net Amortization Book Value Land $ 410,067 $ - $ 410,067 Buildings 2,164,438 320,523 1,843,915 Computer equipment 79,257 35,379 43,878 Computer software 116,648 51,141 65,507 Furniture and fixtures 72,770 20,969 51,801 Machinery and equipment 1,789,672 1,115,497 674,175 Vehicles 23,655 5,373 18,282 Web site development costs 30,826 17,983 12,843 -------------------------------------------- $ 4,687,333 $ 1,566,865 $ 3,120,468 ============================================

~~May~~Report ~~31,~~of ~~2003~~Foreign ~~--------------------------------------------~~Private ~~Cost~~Issuer Accumulated Net 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 ============================================

~~August~~Pursuant 31to ~~May~~Rule ~~31 2003 2003~~ 13a-~~---------------------------~~16 ~~Non-compete~~or ~~agreements $ 858,712 $ 858,712 Less: Accumulated amortization (139,328) (96,392) Customer contracts (Note 1(c)) 1,715,784 1,715,784 Less: Accumulated amortization (193,024) (107,235)~~ 15d-~~---------------------------~~16 $of ~~2,242,144~~the ~~$ 2,370,869 ============================~~

~~August~~Securities ~~31 May 31 2003 2003 ------------------------------ Promissory note payable to former shareholders of the Filtran Group, secured by a collateral mortgage on real property registered in Ontario~~ and ~~the~~Exchange ~~issued~~Act ~~and outstanding shares~~ of ~~the~~1934 Filtran Group, repayable May 31, 2004 plus interest at 5% per annum $ 1,045,799 $ 1,098,418 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 1,475,652 Bank term loan, secured by machinery and equipment, repayable in monthly instalments of $1,565 plus interest at prime plus 2% 42,060 47,400 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% 89,136 138,489 Various equipment capital leases, with monthly lease payments of $3,545 including interest at approximately 9%, secured by the leased assets 124,681 132,112 Due to shareholder, non-interest bearing with no specific terms of repayment 614 616 ------------------------------ 2,816,942 2,931,687 Less: Current portion 2,601,938 2,699,458 ------------------------------ $ 215,004 $ 232,229 ==============================

~~Number~~For ~~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~~month 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~~2004 Shares issued upon exercise of warrants 62,500 37,500 ----------------------------- Balance at May 31, 2003 22,591,314 8,744,507 Shares issued upon exercise of warrants 725,000 435,000 ----------------------------- Balance at August 31, 2003 23,316,314 $ 9,179,507 =============================

~~Number~~API ~~Share~~ELECTRONICS ~~for~~GROUP ~~Exercise Expiry Outstanding Warrants Price Date --------------------------------------------------------------------- 1,649,579 1 for 1 0~~INC.45 ~~March 30, 2004 1,649,579 1 for 1 0.75 September 30, 2004 500,000 1 for 1 3.00 June 30, 2004 2,675,000 1 for 1 0.60 February 28, 2005~~

~~Number~~(Formerly: ~~Exercise Expiry Issued to Outstanding Price Date --------------------------------------------------------------------------- Directors 50,000 $0~~Investorlinks.45com ~~August 31, 2006 Directors 50,000 0~~Inc.75) ~~August 31, 2006~~

~~The~~(Translation ~~continuity~~ of ~~stock~~registrant’s ~~options~~name isinto ~~as follows: Weighted Number of Average Options Price ----------------------------- Options outstanding, April 30, 2001 123,667 $ 7.08 Cancelled (113,667~~English) 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, August 31, 2003 and May 31, 2003 100,000 $ 0.60 =============================

~~August~~505 31University ~~August 31 2003 2002 ----------------------------- Accounts receivable $ 205~~Ave.,~~762~~ 8Suite 1400,~~632~~ ~~Inventory (234~~Toronto,~~550)~~ ~~(52,902)~~Ontario ~~Unbilled~~M5G ~~revenue~~1X3 ~~243,379 - Prepaid expenses (27,583) (10,957) Accounts payable (76,832) 72,690 Deferred revenue 598,146 - ----------------------------- $ 708,322 $ 17,463 =============================~~

~~August~~(Address 31of ~~August~~principal 31executive ~~2003~~offices) ~~2002 ----------------------------- Cash paid for interest $ 23,651 $ 30,983~~

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 27, 2004.

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: February 18, 2004	By:	/s/ Jason DeZwirek
		Jason DeZwirek, Chairman of the Board,
		Executive V.P., Secretary and Director

API ELECTRONICS REPORTS SECOND QUARTER PROFIT

NEW YORK – January 27, 2004 – API Electronics Group, Inc. (OTCBB: APIEF) today announced financial results for its fiscal second quarter and first half, ending November 30, 2003. The company reported a profit for Q2 and revenue growth of 54.5% for the first half of fiscal year 2004.

API continued to record strong revenue growth during the six month period. Sales for Q2 were US$2,886,715 compared to $1,802,716 for the comparable fiscal 2003 period. Revenues for the six month period increased by 54.5% to $5,320,795, up from $3,444,311 in the first half of fiscal 2003. Growth during the period was attributed primarily to $1,495,994 in sales revenue from TM Systems, which was acquired by API in February 2003.

API’s backlog, which values unfilled orders placed with the company for the current fiscal year, is $4,430,365 as of November 30, 2003.

API recorded a profit of $26,703, equalling $0.001 per share, for its fiscal second quarter. This compares to a loss of $20,498, or
(-$0.001) per share, in the comparable period of FY03. For the six months ended November 30, 2003, API showed a loss of $94,326 or (-$0.004) per share. The company had recorded a loss of $112,347 or (-$0.01) per share for the comparable fiscal 2003 period.

API’s gross margin for the six months ended November 30, 2003 was 27.3%, an improvement over the 25.8% recorded for the FY03 period. The cost of goods sold as a percentage of sales decreased to 72.7% from 74.2% for the comparable FY03 period.

The combined total of cash reserves and marketable securities held by API at the end of its second quarter was $3,374,620.

“We are very pleased to report positive earnings per share for Q2,” said Tom Mills, President and COO of API Electronics. “There is strong momentum in all areas of our business, as evidenced by our 54.5 percent increase in revenues. Our investments in acquiring Filtran Group and TM Systems are paying off and helping us deliver consistently higher results. We expect a strong second half, which will keep API on track to deliver record performance in fiscal year 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.

QUARTERLY AND YEAR END REPORT

British Columbia Securities

Commission

BC FORM 51-901

(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.	2003/11/30	2004/01/27

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.


•	DIRECTOR’S SIGNATURE	PRINT FULL NAME	DATE SIGNED YY MM DD

	“JASON DEZWIREK”	JASON DEZWIREK	2004 01 27

•	DIRECTOR’S SIGNATURE	PRINT FULL NAME	DATE SIGNED YY MM DD

	“PHILLIP DEZWIREK”	PHILLIP DEZWIREK	2004 01 27

SCHEDULE “A”

FINANCIAL INFORMATION

See attached unaudited consolidated financial statements of API Electronics Group Inc. (the “Company”) for the six months ended November 30, 2003.

SCHEDULE “B”

See attached unaudited consolidated financial statements of the Company for the six months ended November 30, 2003.

SCHEDULE “C”

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

Six Months ended November 30, 2003 compared to November 30, 2002

Sales Revenue

The Company continued to record strong sales growth in six months ended November 30, 2003. Revenues increased by 54.5% to $5,320,795 from the $3,444,311 posted in the six months ended November 30, 2002. The growth during the period was attributed primarily to the February 2003-acquired TM with sales revenue in the amount of $1,495,994.

Cost of Goods Sold and Gross Margin

The cost of goods sold was 72.7% of sales in 2003 and an improvement over the 74.2% of sales posted in 2002. Accordingly, the gross margin for 2003 period was 27.3% and 25.8% for the 2002 period.

Selling Expenses

Selling expenses increased to $407,575 for the six months ended November 30, 2003 from $291,159 for the six months ended November 30, 2002. As a percentage of sales the 2003 selling expenses came in at 7.7% a slight improvement over the 8.5% posted in 2002.

General and Administrative Expenses

General and administrative expenses increased to $1,184,545 for 2003 from $718,969 incurred during 2002. As a percentage of sales, the 2003 general and administration expenses were 22.2% and this was consistent with the 20.9% posted in 2002.

Several components of general and administrative expenses saw increases as a result of the February 6, 2003 acquisition of TM and the overall increase in sales revenue. The components that saw larger increases are as follows: Officers salaries - $162,978 (2002 - $72,280), rent and management fees - $95,048 (2002 - $19,071), office supplies and expense - $38,365 (2002 -$20,626) and professional fees - $178,221 (2002 - $133,057).

In addition, depreciation and amortization included in general and administrative expenses rose to $342,735 in 2003 (2002 - $113,628) as a result of the overall increase in the Capital and Intangible Asset base arising from the acquisition of TM.

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 in fiscal 2004. This should provide savings in overhead and administrative costs.

Other Income and Expense

Other income during the quarter was $101,858 for the six months ended November 30, 2003 compared to $69,278 for the six months ended November 30, 2003. The increase was attributed to a gain on settlement of long-term debt in the amount of $39,000.

Other expense relates to interest on long-term debt and the Company saw a decrease from $59,949 in 2002 to $54,247 in 2003. The decrease is attributed to lower debt levels in 2003.

Net Income / Loss

The Company incurred a net loss for the six months ended November 30, 2003 of $94,326($0.004/share) compared to a net loss of $112,347($0.01/share) for the six months ended November 30, 2002.

Liquidity and Capital Resources

Summary

At November 30, 2003, the Company had cash reserves of $3,193,195 compared to $1,561,199 as at May 31, 2003. In addition, the Company had marketable securities of $181,425 at November 30, 2003(May 31, 2003 - $431,168). The portfolio of securities consists principally of company paper and bonds with maturities of less than one year ($145,041) and income trust units ($34,245)

At November 30, 2003 working capital (the excess of current assets over current liabilities) totalled $3,111,408 compared to $2,195,522 at May 31, 2003. The current ratio at November 30, 2003 increased slightly to 1.64:1 from the 1.46:1 ratio as at May 31, 2003. The quick ratio (which excludes inventory and prepaid expenses from current assets) was 0.95:1 at November 30, 2003 – a slight increase from the 0.83:1 posted at May 31, 2003.

As at November 30, 2003, the Company’s working capital was sufficient to meet the Company’s current requirements.

Inventory rose 11.1% from $2,931,924 as at May 31, 2003 to $3,256,205 as at November 30, 2003. Accounts receivable decreased 27.3% from $1,619,487 as at May 31, 2003 to $1,177,028 as at November 30, 2003. Accounts payable declined 5.6% from $1,265,458 at May 31, 2003 to $1,194,989 as at November 30, 2003.

Long-term debt (current and long-term portion) decreased from $2,931,687 at May 31, 2003 to $2,831,372 at November 30, 2003.

The debt to equity ratio (current & long-term debt to shareholder’s equity) improved to 0.32 as at November 30, 2003 compared to 0.35 as at May 31, 2003.

Total assets increased to $14,129,147 at November 30, 2003 from $13,495,221 as at May 31, 2003.

Cash Flow

Cash generated (used) in operating activities increased to $773,869 for the six months ended November 30, 2003 compared to $(94,181) for the six months ended November 30, 2002. This is attributed to higher cash and cash equivalents generated by operations and reduced investments in non-cash working capital.

The major source of cash in 2003 was provided through the issue of common shares upon the exercise of warrants in the amount of $570,000, proceeds on sale of land and building of $108,186, proceeds on sale of marketable securities in the amount of $291,611, and bank indebtedness advances of $75,000.

The major source of cash in 2002 was provided through the issue of common shares in the amount of $1,175,000 following a June 2002 private placement.

The major use of cash during 2003 was the purchase of capital assets in the amount of $129,512 and the repayment of long-term debt in the amount of $63,254.

The major use of cash in 2002 was the purchase of capital assets of $292,766, the purchase of marketable securities in the amount of $251,727, the repayment of long-term debt of $1,065,934, and the repayment of bank indebtedness in the amount of $284,488.

Financings

During the period, 950,000 warrants were exercised @ $0.60 per warrant for total proceeds of $570,000. There were no other financings during the six months ended November 30, 2003.

Subsequent Events

No significant subsequent events occurred after November 30, 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.

API Electronics Group Inc.

Consolidated Interim Financial Statements

Second Quarter

For the six month period ended November 30, 2003

(Expressed in US Dollars)

(Unaudited)

API Electronics Group Inc.

Consolidated Balance Sheets

(Expressed in US Dollars)


	November 30 2003			May 31 2003
	(unaudited)			(audited)
Assets
Current
Cash and cash equivalents	$	3,193,195		$	1,561,199
Marketable securities (Note 2)		181,425			431,168
Accounts receivable		1,177,028			1,619,487
Unbilled revenue		98,318			324,078
Inventories (Note 3)		3,256,205			2,931,924
Prepaid expenses		81,852			61,988

		7,988,023			6,929,844
Capital assets (Note 4)		3,109,175			3,275,979
Goodwill		918,529			918,529
Intangible assets (Note 5)		2,113,420			2,370,869

	$	14,129,147		$	13,495,221

Liabilities and Shareholders’ Equity
Current
Bank indebtedness (Note 6)	$	75,000		$	—
Accounts payable		1,194,989			1,265,458
Deferred revenue		848,743			661,406
Future income tax liability (Note 8)		108,000			108,000
Current portion of long-term debt (Note 7)		2,649,883			2,699,458

		4,876,615			4,734,322
Future income tax liability (Note 8)		247,372			248,000
Long term debt (Note 7)		181,489			232,229

		5,305,476			5,214,551

Shareholders’ equity
Share capital (Note 9)		9,314,507			8,744,507
Paid in capital		770,790			770,790
Cumulative foreign exchange translation adjustment		319,941			252,614
Deficit		(1,581,567	)		(1,487,241	)

		8,823,671			8,280,670

	$	14,129,147		$	13,495,221

On behalf of the Board:

“JASON DEZWIREK”

“PHILLIP DEZWIREK”

The accompanying summary of significant accounting policies and notes are an integral part of these financial statements.

API Electronics Group Inc.

Consolidated Interim Statement of Operations

and Retained Earnings (Deficit)

(Unaudited)

(Expressed In US$)


	Six Months Ended November 30						Three Months Ended November 30
	2003			2002			2003			2002
Sales	$	5,320,795		$	3,444,311		$	2,886,715		$	1,802,716
Cost of sales		3,869,612			2,554,859			2,051,827			1,339,571

Gross profit		1,451,183			889,452			834,888			463,145
Expenses
Selling expenses		407,575			292,159			220,400			152,530
General and administrative		1,184,545			718,969			647,441			357,918

		1,592,120			1,011,128			867,841			510,448

Operating Income		(140,937	)		(121,676	)		(32,953	)		(47,303	)

Other (Income)
Expenses
Other income		(101,858	)		(69,278	)		(90,742	)		(55,771	)
Interest expense		54,247			59,949			30,596			28,966

		(47,611	)		(9,329	)		(60,146	)		(26,805	)

Income (loss) before income taxes		(93,326	)		(112,347	)		27,193			(20,498	)
Income taxes		1,000			—			490			—

Net income (loss)		(94,326	)		(112,347	)		26,703			(20,498	)
Retained earnings (deficit), beginning of period		(1,487,241	)		(938,226	)		(1,608,270	)		(1,030,075	)

Deficit, end of period	$	(1,581,567	)	$	(1,050,573	)	$	(1,581,567	)	$	(1,050,573	)

Earning (loss) per share – basic	$	(0.004	)	$	(0.01	)	$	0.001		$	(0.001	)

The accompanying summary of significant accounting policies and notes are an integral part of these financial statements.

API Electronics Group Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(Expressed in US$)


	Six Months Ended November 30						Three Months Ended November 30
	2003			2002			2003			2002
Cash provided by (used in)

Operating activities
Net income (loss) for the period	$	(94,326	)	$	(112,347	)	$	26,703		$	(20,498	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization		444,780			186,811			224,409			94,292
Gain on settlement of debt		(39,000	)		—			(39,000	)		—
Gain on sale of marketable securities		(41,868	)		—			—			—
Loss on sale of land and building		16,243			—			—			—
Net change in non-cash working capital balances (Note 10)		488,040			(168,645	)		(220,282	)		(174,005	)

		773,869			(94,181	)		(8,170	)		(100,211	)

Investing activities
Purchase of capital assets		(129,512	)		(292,766	)		(66,320	)		(124,127	)
Proceeds on sale of land and building		108,186			—			—			—
Proceeds on sale of marketable securities		291,611			—			98,917			—
Purchase of marketable securities		—			(251,727	)		—			(188,730	)

		270,285			(544,493	)		32,597			(312,857	)

Financing activities
Issue of share capital		570,000			1,175,000			135,000			—
Bank indebtedness advances (repayments)		75,000			(284,488	)		—			(242,146	)
Long-term debt repayments		(63,254	)		(1,065,934	)		50,848			(1,013,488	)

		581,746			(175,422	)		185,848			(1,255,634	)

Foreign exchange loss (gain) on cash held in foreign currency		6,096			(598	)		6,518			(2,354	)

Net increase (decrease) in cash		1,631,996			(814,694	)		216,793			(1,671,056	)

Cash, beginning of period		1,561,199			1,408,637			2,976,402			2,264,999

Cash, end of period	$	3,193,195		$	593,943		$	3,193,195		$	593,943

API Electronics Group Inc.

Summary of Significant Accounting Policies

(Expressed in US Dollars)

(Unaudited)

November 30, 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 Name Changes		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 (a) 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(b) to the financial statements.

API Electronics Group Inc.

Summary of Significant Accounting Policies

(Expressed in US Dollars)

(Unaudited)

November 30, 2003 and 2002


Principles of Consolidation		The consolidated financial statements include the 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

API Electronics Group Inc.

Summary of Significant Accounting Policies

(Expressed in US Dollars)

(Unaudited)

November 30, 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 November 30, 2003.

Intangible Assets	Intangible assets that 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 Translation	The Company’s functional currency is United States 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.

API Electronics Group Inc.

Summary of Significant Accounting Policies

(Expressed in US Dollars)

(Unaudited)

November 30, 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 Compensation Plans		The Company has a stock-based compensation plan that 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 Development Expenses		Research and development expenses are recorded 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.

		As at November 30, 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.

API Electronics Group Inc.

Notes to Consolidated Financial Statements

(Expressed in US Dollars)

(Unaudited)

November 30, 2003 and 2002

1(a)

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.

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

(b)

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 6, 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.

API Electronics Group Inc.

Notes to Consolidated Financial Statements

(Expressed in US Dollars)

(Unaudited)

November 30, 2003 and 2002

1(b)

Incorporation and Asset Purchase (continued)

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.

2.	Marketable Securities


	November 30 2003		May 31 2003
Shares in venture issues	$	2,139	$	2,139
Income trust units		34,245		186,632
Short-term company paper and bonds (maturity less than one year)		145,041		242,397

	$	181,425	$	431,168

3.	Inventories

API Electronics Group Inc.

Notes to Consolidated Financial Statements

(Expressed in US Dollar)

(Unaudited)

November 30, 2003 and 2002

4.	Capital Assets


	November 30, 2003
	Cost		Accumulated Amortization		Net Book Value
Land	$	413,301	$	—	$	413,301
Buildings		2,235,610		378,192		1,857,418
Computer equipment		94,315		50,751		43,564
Computer software		140,784		75,400		65,384
Furniture and fixtures		84,670		32,537		52,133
Machinery and equipment		1,871,252		1,223,742		647,510
Vehicles		26,304		6,714		19,590
Web site development costs		30,826		20,551		10,275

	$	4,897,062	$	1,787,887	$	3,109,175


	May 31, 2003
	Cost		Accumulated Amortization		Net 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

Included in machinery and equipment is $158,774 (May 31, 2003 - $158,774) of property held under capital leases. Depreciation and amortization expense amounted to $444,780 (2002 - $186,811). Of this amount $102,045 (2002 - $73,183) was included in cost of sales.

API Electronics Group Inc.

Notes to Consolidated Financial Statements

(Expressed in US Dollars)

(Unaudited)

November 30, 2003 and 2002

5.	Intangible Assets


	November 30 2003			May 31 2003
Non-compete agreements	$	858,712		$	858,712
Less: Accumulated amortization		(200,799	)		(96,392	)
Customer contracts (Note 1(c))		1,715,784			1,715,784
Less: Accumulated amortization		(260,277	)		(107,235	)

	$	2,113,420		$	2,370,869

6.	Bank Indebtedness

The Company’s wholly owned subsidiary, API Electronics has a working capital line of credit of $250,000. API Electronics has borrowed $75,000 (May 31, 2003 - $Nil) against this line of credit as at November 30, 2003. The credit is secured by all of its assets pursuant to a general security agreement. The bank indebtedness is due on demand and bears interest at prime plus 1%.

The Company’s wholly owned subsidiary, Filtran Canada is currently negotiating to renew a line of credit of Cdn $1,000,000 (approx. US$770,000)). Filtran Canada has borrowed $Nil (May 31, 2003 - $Nil) against this line of credit as at November 30, 2003.

API Electronics Group Inc.

Notes to Consolidated Financial Statements

(Expressed in US Dollars)

(Unaudited)

November 30, 2003 and 2002

7.	Long-term Debt


	November 30 2003		May 31 2003
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	$	1,115,985	$	1,098,418

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		1,475,652

Bank term loan, secured by machinery and equipment, repayable in monthly instalments of $1,565 plus interest at prime plus 2%		39,948		47,400

Loan payable, unsecured and non-interest bearing		—		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%		81,633		138,489

Various equipment capital leases, with monthly lease payments of $3,545 including interest at approximately 9%, secured by the leased assets		116,888		132,112

Due to shareholder, non-interest bearing with no specific terms of repayment		1,266		616

		2,831,372		2,931,687
Less: Current portion		2,649,883		2,699,458

	$	181,489	$	232,229

The long-term debt repayable over the next five fiscal years is as follows:


2004 (6 months)	$	2,635,851
2005		86,266
2006		80,531
2007		28,724
2008		—

API Electronics Group Inc.

Notes to Consolidated Financial Statements

(Expressed in US Dollars)

(Unaudited)

November 30, 2003 and 2002

8.	Income Taxes

The significant components of future income tax assets consist of the following as at May 31, 2003:


	May 31 2003
Future income tax assets
Loss carry forwards	$	624,000
Other		15,000
Marketable securities		77,000
Capital assets		184,000

		900,000

Future income tax liabilities
Capital assets		(381,000	)
Non-compete agreement		(47,000	)
Inventory		(108,000	)
Unrealized foreign exchange gain		(117,000	)

		(653,000	)

Valuation allowance		(608,000	)

	$	(356,000	)

A reconciliation between income taxes provided at actual rates and at the basic rate of 37.79% (May 31, 2002 - 40.29%) for federal and provincial taxes is as follows:


Net loss	$	(590,428	)

Recovery of income tax at statutory rates	$	(223,000	)
Increase in taxes resulting from:
Non-deductible items and other		(33,413	)
Tax reassessment 1998		—
Change in valuation allowance		215,000

Provision for income taxes – May 31, 2003	$	(41,413	)

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.

API Electronics Group Inc.

Notes to Consolidated Financial Statements

(Expressed in US Dollars)

(Unaudited)

November 30, 2003 and 2002

9.	Share Capital

Authorized

Unlimited special shares

Unlimited common shares

(b)

Issued Common Shares


	Number of Shares	Consideration
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
Shares issued upon exercise of warrants	950,000		570,000

Balance at November 30, 2003	23,541,314	$	9,314,507

(c)

Warrants

Common shares purchase warrants (“Warrants”)

As at November 30, 2003 the following Warrants are outstanding and exercisable:


Number Outstanding	Share for Warrants	Exercise Price	Expiry Date
1,649,579	1 for 1	0.45	February 28, 2004
1,649,579	1 for 1	0.75	August 30, 2004
500,000	1 for 1	3.00	June 30, 2004
2,450,000	1 for 1	0.60	February 28, 2005

The continuity of common share purchase warrants is as follows:


Warrants outstanding, May 31, 2002	3,525,825
Issued:
- Re: Private Placement - June 2002	500,000
- Re: 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
Exercised:
- Re: Private Placement – February 2003	(950,000	)
Warrants outstanding, November 30, 2003	6,249,158

API Electronics Group Inc.

Notes to Consolidated Financial Statements

(Expressed in US Dollars)

(Unaudited)

November 30, 2003 and 2002

9.	Share Capital (continued)

(d)

Stock Options:

As at November 30, 2003 the following options are exercisable and outstanding:


Issued to	Number Outstanding	Exercise Price		Expiry 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:


	Number of Options		Weighted Average Price
Options outstanding, May 31, 2002	325,000		$	0.73
Cancelled: - February 2003	(25,000	)		(2.35	)
Exercised: - December 2002	(100,000	)		(0.45	)
- January 2003	(100,000	)		(0.75	)

Options outstanding, November 30, 2003 and May 31, 2003	100,000		$	0.60

10.

Cash Flow Information

(a)

Changes in non-cash working capital are as follows:


	Six Months ended						Three Months ended
	November 30, 2003			November 30, 2002			November 30, 2003			November 30, 2002
Accounts receivable	$	461,927		$	(112,748	)	$	256,165		$	(111,129	)
Inventory		(277,745	)		(244,502	)		(43,195	)		(184,910	)
Unbilled revenue		225,760			—			(17,619	)		—
Prepaid expenses		(17,966	)		11,860			9,617			22,916
Accounts payable		(91,273	)		176,745			(14,441	)		99,118
Deferred revenue		187,337			—			(410,809	)		—

	$	488,040		$	(168,645	)	$	(220,282	)	$	(174,005	)

(b)

Supplemental Cash Flow Information


	Six Months ended				Three Months ended
	November 30, 2003		November 30, 2002		November 30, 2003		November 30, 2002
Cash paid for interest	$	54,247	$	59,949	$	30,596	$	28,966

API Electronics Group Inc.

Notes to Consolidated Financial Statements

(Expressed in US Dollars)

(Unaudited)

November 30, 2003 and 2002

11.

Related Party Transactions

Included in general and administrative expenses are consulting fees of $22,146 (2002 - $19,317) paid to an individual who is a director and officer of the Company and rent, management fees, and office administration fees of $81,121 (2002 - $Nil) paid to a company in which two of the directors are also directors 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.

Per Share Data

The weighted average number of shares issued and outstanding for the period ended November 30, 2003 was 23,066,314 (2002 - 15,304,913).

The effect of the exercise of outstanding options and warrants would be anti-dilutive.

13.

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, 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, 2003.


2004 (6 months)	$	11,532
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 period ended November 30, 2003, the Company incurred $Nil (2002 - $3,842) as its obligation under the terms of the plan. Of this amount $Nil (2002 - $3,842) has been charged to general and administrative expenses.

15.

Comparative Figures

Comparative figures have been reclassified to conform to the current period presentation.

November 30
2003

May 31

2003

Inventory as at November 30, 2003 was estimated based upon gross margin percentage

3,256,205

Filing Compare · API ELECTRONICS GROUP INC