SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For The Quarter Ended October 31, 1998 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For The Transition Period from _______to______
Commission File Number 1-14503
DECTRON INTERNATIONALE INC.
---------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
QUEBEC, CANADA N/A
- -------------- ---
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4300 POIRIER BLVD., MONTREAL H4R 2C5
- ---------------------------- -------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 514-334 9609
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: December 14, 1998,
2,795,000 Common Shares outstanding
Transitional Small Business Disclosure (check One):
Yes [ ] No [ X ]
<PAGE>
DECTRON INTERNATIONALE INC.
INDEX
-----
PAGE
----
PART I - FINANCIAL INFORMATION
ITEM 1- FINANCIAL STATEMENTS
- ----------------------------
Consolidated Balance Sheet - October 31, 1998........................ 3
Consolidated Statements of Operations - For the three months and
nine months ended October 31, 1998 and October 31, 1997.............. 5
Consolidated Statements of Cash Flows - For the nine months ended
October 31, 1998 and January 31, 1998................................ 6
Notes to Financial Statements........................................10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ----------------------------------------------------------
CONDITIONS AND RESULTS OF OPERATIONS.................................24
------------------------------------
PART II - OTHER INFORMATION
ITEM 2 - CHANGES IN SECURITIES................................................26
- ------------------------------
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.....................................26
- -----------------------------------------
SIGNATURES....................................................................27
- ----------
2
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM CONSOLIDATED BALANCE SHEETS
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1998 1998
----------- -----------
$ $
ASSETS
<S> <C> <C>
Cash 35,758 28,155
Deposit certificates 1,919,915 --
Accounts receivable (note 2) 3,708,048 3,043,829
Inventory (note 3) 3,676,358 3,817,448
Prepaid expenses and sundry assets 339,368 292,931
Loan receivable -- 87,306
---------- ----------
Total current assets 9,679,447 7,269,669
Sinking funds 27,805 8,038
Loans receivable (note 4) 104,440 91,508
Capital assets (note 5) 4,307,170 4,111,085
Patents and trademarks 28,233 --
Goodwill (note 6) 102,074 44,528
---------- ----------
Total assets 14,249,169 11,524,828
========== ==========
</TABLE>
3
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM CONSOLIDATED BALANCE SHEETS
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1998 1998
----------- -----------
$ $
LIABILITIES
<S> <C> <C>
Bank indebtedness (note 7) 415,385 3,127,340
Accounts payable and accrued expenses (note 8) 2,101,331 1,964,280
Income taxes payable 227,087 200,502
Current portion of long-term debt (note 9) 402,949 427,116
Deferred revenue (note 12) 114,149 127,857
Due to shareholders (note 13) 322,445 --
Other loan payable (note 11) 374,751 --
---------- ----------
Total current liabilities 3,958,097 5,847,095
Long-term debt (note 9) 1,480,560 1,564,384
Due to directors (note 10) 50,571 67,345
Other loan payable (note 11) 253,696 355,336
Deferred revenue (note 12) 561,876 470,058
Deferred income taxes 387,408 410,643
---------- ----------
6,692,208 8,714,861
---------- ----------
Minority interest in equity consolidated entity -- 352,469
---------- ----------
STOCKHOLDERS' EQUITY
Cumulative translation adjustment (274,349) (95,377)
Capital stock (note 14) 6,277,900 1,934,695
Retained earnings (deficit) 1,553,410 618,180
---------- ----------
Total stockholders' equity 7,556,961 2,457,498
---------- ----------
Total liabilities and stockholders' equity 14,249,169 11,524,828
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED OCTOBER 31, 1998 AND 1997
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
NINE NINE
MONTHS MONTHS
ENDED ENDED
OCTOBER 31, OCTOBER 31,
1998 1997
----------- -----------
$ $
<S> <C> <C>
Net sales 15,072,431 12,383,259
Cost of sales 10,294,822 8,403,317
---------- ----------
Gross profit 4,777,609 3,979,942
---------- ----------
Operating expenses
Selling 1,709,474 1,605,091
General and administrative 900,917 768,845
Depreciation and amortization 404,513 199,911
Interest expense 283,932 191,136
---------- ----------
3,298,836 2,764,983
---------- ----------
Income before income taxes 1,478,773 1,214,959
Income taxes 543,543 434,003
---------- ----------
Net income 935,230 780,956
========== ==========
5
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED OCTOBER 31, 1998 AND 1997
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
THREE THREE
MONTHS MONTHS
ENDED ENDED
OCTOBER 31, OCTOBER 31,
1998 1997
----------- ----------
$ $
<S> <C> <C>
Net sales 5,169,840 4,695,197
Cost of sales 3,491,142 3,145,819
----------- ----------
Gross profit 1,678,698 1,549,378
----------- ----------
Operating expenses
Selling 564,835 564,087
Depreciation and amortization 166,344 77,015
Interest expense 119,368 76,251
----------- ----------
1,138,258 1,015,682
----------- ----------
Income before income taxes 540,440 533,696
Income taxes 212,563 202,829
----------- ----------
Net income 327,877 330,867
=========== ==========
</TABLE>
6
DECTRON INTERNATIONALE INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 31, 1998
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
OCTOBER 31, JANUARY 31,
1998 1998
----------- -----------
$ $
Cash flows from operating activities:
<S> <C> <C>
Net income 935,230 863,331
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 404,513 461,100
(Increase) decrease in accounts receivable (664,219) (385,013)
(Increase) decrease in inventory 141,090 (1,311,838)
(Increase) decrease in income taxes receivable 26,585 299,641
(Increase) decrease in prepaid expenses
and sundry assets (46,437) (116,901)
Increase (decrease) in accounts payable
and accrued expenses 137,051 309,169
Increase (decrease) in deferred income taxes (23,235) (164,587)
Increase (decrease) in deferred revenue 78,110 110,279
-------- --------
Net cash provided by operating activities 988,688 65,181
-------- --------
</TABLE>
6
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 31, 1998
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
OCTOBER 31, JANUARY 31,
1998 1998
------------ -----------
$ $
Cash flows from investing activities:
<S> <C> <C>
Acquisition of minority interest (352,469) --
Purchase of property, plant and equipment (808,866) (1,978,811)
Proceeds from disposal of property, plant
and equipment -- 233,428
Purchase of patents and trademarks (28,233) --
Acquisition of Goodwill (90,809) --
---------- ----------
Net cash used in investing activities (1,280,377) (1,745,383)
---------- ----------
Cash flow from financing activities:
Sinking funds (19,767) (8,038)
Grant receivable -- 25,019
(Advances to) repayments from directors (16,774) (29,996)
(Advances to) repayments from
corporate shareholders -- (110,089)
(Advances to) repayments from loan
receivable (12,932) 47,950
Advances from (repayment of) long-term
debt (107,991) 453,346
Advances from (repayment of) loan payable 273,111 (320,320)
Advances (repayments) of bank
indebtedness (2,711,955) 1,504,150
Advance from shareholders 322,445 --
Proceeds from issuance of capital stock 4,681,467 --
---------- ----------
Net cash flow (used in) provided by financing
activities 2,407,604 1,562,022
---------- ----------
Effect of foreign currency exchange rate
changes (188,397) 94,334
---------- ----------
</TABLE>
7
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 31, 1998
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
OCTOBER 31, JANUARY 31,
1998 1998
----------- -----------
$ $
<S> <C> <C>
Net increase (decrease) in cash and cash
equivalents 1,927,518 (23,846)
Beginning of period/year 28,155 52,001
--------- --------
End of period/year 1,955,673 28,155
========= ========
Supplemental disclosure of cash flow
information
Cash paid during the year
Interest 195,621 317,784
========= ========
Income taxes 160,000 358,315
========= ========
Cash consists of:
Cash 35,758 52,001
Deposit certificates 1,919,915 --
--------- --------
1,955,673 52,001
========= ========
</TABLE>
8
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AS AT OCTOBER 31, 1998
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
COMMON STOCK CUMULATIVE
RETAINED TRANSLATION
NUMBER AMOUNT EARNINGS ADJUSTMENTS
------ ------ -------- -----------
$ $ $
<S> <C> <C> <C> <C>
Balance as of January 31, 1997 91,267 1,934,695 (245,151) 73,722
Foreign currency translation -- -- -- (169,099)
Net income for the year -- -- 863,331 --
--------- --------- --------- --------
Balance January 31, 1998 91,267 1,934,695 618,180 (95,377)
Redemption of common stock
immediately prior to I.P.O -- (338,262) -- --
(91,267)
Share for share exchange 1,750,000 -- -- --
Issuance of new capital stock 1,000,000 4,681,467 -- --
Foreign currency translation -- -- -- (178,972)
Net income for the period -- -- 935,230 --
--------- --------- --------- --------
Balance as of October 31, 1998 2,750,000 6,277,900 1,553,410 (274,349)
========= ========= ========= ========
</TABLE>
9
<PAGE>
DECTRON INTERNATIONALE INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1998
(AMOUNTS EXPRESSED IN US DOLLARS)
1. BASIS OF COMBINED FINANCIAL STATEMENTS PRESENTATION
a) Basis of Presentation
The financial statements for the nine months ended October 31, 1998
and 1997 are unaudited. The interim results are not necessarily
indicative of the results for any future period. In the opinion of
management, the data in the financial statements reflects all
adjustments necessary for a fair presentation of the results of the
interim period disclosed. All adjustments are of a normal and
recurring nature.
b) Consolidated Financial Statements
These consolidated financial statements consolidate the accounts of
Thermoplus Air Inc., Dectron Inc., Fiber Mobile Ltd., Dectron
U.S.A. Inc. and Refplus Inc. All material intercompany accounts and
transactions have been eliminated.
c) Principal Activities
The companies Dectron Inc., Ref Plus Inc., Thermoplus Air Inc.,
Dectron U.S.A. Inc. and Fibermobile Ltd. were incorporated in
Canada on June 7, 1977, September 15, 1993, March 6, 1991, May 23,
1994, June 30, 1988 respectively.
The companies are principally engaged in the production of
dehumidification, refrigeration, indoor air quality (IAQ)
ventilation and air conditioning systems in Canada and its
distribution in Canada and the United States of America. The
activity of Dectron International Inc. is immaterial in the
aggregate, as its only activity is to hold the investment in
Dectron Inc.
d) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, amounts due from
banks and any other highly liquid investments purchased with a
maturity of three months or less. The carrying amounts approximates
fair value because of the short maturity of these instruments.
e) Other Current Financial Instruments
The carrying amount of the companies' accounts receivables and
payables approximates fair value because of the short maturity of
these instruments.
10
<PAGE>
f) Long-Term Financial Instruments
The fair value of each of the companies' long-term financial assets
and debt instruments is based on the amount of future cash flows
associated with each instrument discounted using an estimate of
what the companies' current borrowing rate for similar instruments
of comparable maturity would be.
g) Inventory
Inventory is valued at the lower of cost or market. Cost is
determined on the first-in, first-out basis.
11
<PAGE>
DECTRON INTERNATIONALE INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1998
(AMOUNTS EXPRESSED IN US DOLLARS)
1. BASIS OF COMBINED FINANCIAL STATEMENTS PRESENTATION (Continued)
h) Property, Plant and Equipment
Property, plant and equipment are recorded at cost and are
amortized on the basis over their estimated useful lives at the
undernoted rates and methods:
Building 5% Declining balance
Machinery and equipment 10% Straight line or 20%
declining balance
Furniture and fixtures 10% Straight line or 20%
declining balance
Computers 15% Straight line 0r 30%
declining balance
Leasehold improvements 20% Straight line
Automobile 30% Straight line
Moulds and dies 20% Straight line
Equipment under capital lease 30% Declining balance
Amortization for assets acquired during the year are recorded at
one half of the indicated rates which approximates when they were
put into use.
i) Goodwill
Goodwill is the excess of cost over the value of net assets
acquired. It is amortized on the straight line basis over ten
years.
j) Income Taxes
The company accounts for income taxes under the provisions of
statement of financial accounting standards No. 109, which requires
recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the
financial statements and tax returns. Deferred income taxes are
provided using the liability method. Under the liability method,
deferred income taxes are recognized for all significant temporary
differences between the tax and financial statements bases of
assets and liabilities.
k) Deferred Revenue
The company has sold extended warranty contracts covering a period
of four years beyond the one year basic guarantee. The deferred
revenue is recognized as income over the four year period on a
straight line basis commencing one year from the sale of the
contracts.
12
<PAGE>
DECTRON INTERNATIONALE INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1998
(AMOUNTS EXPRESSED IN US DOLLARS)
1. BASIS OF COMBINED FINANCIAL STATEMENTS PRESENTATION (Continued)
l) The company maintains its books and records in Canadian dollars.
Foreign currency translations are translated using the temporal
method. Under this method, all monetary items are translated into
Canadian funds at the rate of exchange prevailing at balance sheet
date. Non-monetary items are translated at historical rates. Income
and expenses are translated at the rate in effect on the
transaction dates. Transactions gains and losses are included in
the determination of earnings for the year/period.
The translation of the combined financial statements from Canadian
dollars (ACDN $@) to United States dollars is performed for the
convenience of the reader. Balance sheet accounts are translated
using closing exchange rates in effect at the balance sheet date
and income and expense accounts are translated using an average
exchange rate prevailing during each reporting period. No
representation is made that the Canadian dollar amounts could have
been, or could be, converted in United States dollars at the rates
on the respective dates and or at any other certain rates.
Adjustments resulting from the translation are included in the
cumulative translation adjustments in stockholders' equity.
m) Net Income Pro Forma Common Stock
Net income per common stock is computed by dividing net income for
the year by the weighted average number of common stock outstanding
during the year.
n) Use of Estimates
The preparation of combined financial statements in conformity with
generally accepted accounting principles in the United States of
America requires management to make estimates and assumptions that
effect certain reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
combined financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from these estimates.
o) Government Assistance and Investment Tax Credits
Government assistance and investment tax credits are recorded on
the accrual basis and are accounted for as a reduction of related
current or capital expenditures.
13
<PAGE>
DECTRON INTERNATIONALE INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1998
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
2 ACCOUNTS RECEIVABLE
OCTOBER 31, JANUARY 31,
1998 1998
$ $
----------- ----------
<S> <C> <C>
Accounts receivable 3,761,113 3,105,239
Less: Allowance for doubtful accounts 53,065 61,410
--------- ---------
Accounts receivable - net 3,708,048 3,043,829
========= =========
3 INVENTORY
Inventory is comprised of the following:
OCTOBER 31, JANUARY 31,
1998 1998
$ $
----------- -----------
Raw materials 2,205,612 2,247,631
Work-in-process 514,640 580,112
Finished goods 956,106 989,705
--------- ---------
3,676,358 3,817,448
========= =========
4 LOANS RECEIVABLE
Loans receivable consists of the following:
OCTOBER 31, JANUARY 31,
1998 1998
$ $
----------- ------------
Loan receivable - private company (secured) 77,986 63,467
Loan receivable - corporate shareholders
(unsecured) 26,454 115,347
--------- ---------
104,440 178,814
Current portion -- 87,306
--------- ---------
104,440 91,508
========= =========
</TABLE>
14
<PAGE>
DECTRON INTERNATIONALE INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1998
(AMOUNTS EXPRESSED IN US DOLLARS)
4. LOANS RECEIVABLE (Continued)
These loans are non-interest bearing with no specific terms of repayment.
5. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
OCTOBER JANUARY
31, 31,
1998 1998
$ $
------- -------
<S> <C> <C>
Land 225,225 238,733
Building 1,679,843 1,732,386
Machinery and manufacturing equipment 3,441,767 2,983,063
Furniture and fixtures 341,506 322,367
Computers 620,504 529,722
Automobile 26,312 15,181
Leasehold improvements 336,547 340,833
Equipment under capital lease -- 52,139
--------- ---------
Cost 6,671,704 6,214,424
--------- ---------
Less accumulated depreciation and amortization:
Building 213,197 174,779
Machinery and manufacturing equipment 1,191,061 1,005,575
Furniture and fixtures 239,666 234,100
Computers 426,582 381,279
Automobile 9,088 2,087
Leasehold improvement 284,940 287,696
Equipment under capital lease -- 17,823
--------- ---------
Net 4,307,170 4,111,085
========= =========
</TABLE>
15
<PAGE>
DECTRON INTERNATIONALE INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1998
(AMOUNTS EXPRESSED IN US DOLLARS)
6. GOODWILL
<TABLE>
<CAPTION>
OCTOBER JANUARY
31, 31,
1998 1998
$ $
------- -------
<S> <C> <C>
Cost 143,320 55,660
Less: Accumulated amortization 41,246 11,132
------- ------
Net 102,074 44,528
======= ======
</TABLE>
7. BANK INDEBTEDNESS
The bank loan bears interest at the banks prime lending rate plus 1/4% per
annum with interest payable monthly.
The bank indebtedness is secured by a general assignment of book debts,
pledge of inventory under Section 427 of the Bank Act of Canada, general
security agreements providing a first floating charge over all assets. An
amount of $3,888,770 secured by all assets of the company including a first
ranking security in the amount of $3,240,642 on the proceeds of all risks
insurance on the property.
The company finances its operations mainly through the use of Bankers
Acceptance bearing an average lending rate of prime.
8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
OCTOBER JANUARY
31, 31,
1998 1998
$ $
------- -------
Accounts payable and accrued expenses
are comprised of the following:
<S> <C> <C>
Trade payable 1,344,851 1,285,294
Accrued expenses 756,480 678,986
--------- ---------
2,101,331 1,964,280
========= =========
</TABLE>
16
<PAGE>
DECTRON INTERNATIONALE INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1998
(AMOUNTS EXPRESSED IN US DOLLARS)
9. LONG-TERM DEBT
<TABLE>
<CAPTION>
OCTOBER JANUARY
31, 31,
1998 1998
$ $
------- -------
<S> <C> <C>
a) Balance of sale secured by land and building plus
rent, present and future on the building, without
interest, repayable in semi-annual repayment of
$37,810 due April and October. Maturing October
2000. 151,230 240,451
b) Immigration loan secured by a first ranking
universal hypothec on the universality of the
property, moveable and immovable, present and future
and corporeal and incorporeal, bearing interest at
5.21% per annum due on November 2002. 453,691 480,901
c) Immigration loan secured by a first ranking
universal hypothec on the universality of the
property, moveable and immoveable present and future
and corporeal and incorporeal bearing interest at
5.59% per annum due on September 2003. 453,691 --
d) Bank term loan bearing interest at prime plus 1% per
annum repayable in monthly capital repayment of
$1,453. Maturing April 2002. 60,994 78,509
e) Bank loan, bearing interest bank prime rate plus 1%
repayable in monthly instalments of $4,928 and a
last instalment of $4,933 plus interest. 182,355 240,308
Maturing on November 2001.
f) Loan secured by providing land and a personal
guarantee from a director as collateral bearing
interest at prime plus 1% repayable by monthly
capital repayments of $1,296. -- 52,706
g) The loan from Societe Developpement Industriel du
Quebec bearing interest at a rate approximately
prime plus 1.50% which is deferred and capitalized
for the minimum of either 12 months or when the
accumulated interest is greater than 10% of the loan
advance, repayable in annual payments commencing
June 30, 1997 at a rate of 15% of the prior year's
net income to a maximum of $32,406. 96,732 113,983
---------- ---------
Balance carried forward 1,398,693 1,206,858
---------- ---------
</TABLE>
17
<PAGE>
DECTRON INTERNATIONALE INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1998
(AMOUNTS EXPRESSED IN US DOLLARS)
9. LONG-TERM DEBT (Continued)
<TABLE>
<CAPTION>
OCTOBER JANUARY
31, 31,
1998 1998
$ $
------- -------
<S> <C> <C>
Balance brought forward 1,398,693 1,206,858
h) Bank term loan secured by machinery and equipment
bearing interest at prime plus 1.75% repayable in
monthly capital repayment of $2,701. Maturing May
2000. 18,903 45,800
i) Small business loan payable, secured by machinery 39,471 63,479
and equipment, repayable in monthly instalments of
$2,398 plus interest at prime plus 1.75%. Maturing
February 2000.
j) Small business investment loan secured by a hypothec
on specific equipment plus a personal guarantee from
a director of the company bearing interest at prime
plus 1.75% repayable by monthly capital instalments
of $1,930. -- 103,652
k) Bank term loan secured by a first ranking universal
hypothec on the universality of the property,
moveable and immoveable, present and future and
corporeal and incorporeal, bearing interest at 7.99%
per annum repayable in monthly capital repayments of
$540 plus a final repayment of $65,289 in December
2002. 91,808 102,477
l) Loan secured by a universal hypothec on land and
building, plus floating charge on all other assets
bearing interest at prime plus 4% repayable by
monthly capital repayment of $1,621. 124,765 147,705
--------- ---------
Balance carried forward 1,673,640 1,669,971
--------- ---------
</TABLE>
18
<PAGE>
DECTRON INTERNATIONALE INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1998
(AMOUNTS EXPRESSED IN US DOLLARS)
9. LONG-TERM DEBT (Continued)
<TABLE>
<CAPTION>
OCTOBER JANUARY
31, 31,
1998 1998
$ $
------- -------
<S> <C> <C>
Balance brought forward 1,673,640 1,669,971
m) Loan secured by a first and fixed mortgage charge on
the land and building and a floating charge on all
other assets, bearing Interest at 9 1/2% repayable
by monthly capital repayments of $6,481. 200,920 274,801
0) Other 8,949 46,728
--------- ---------
1,883,509 1,991,500
Less: Current portion 402,949 427,116
--------- ---------
1,480,560 1,564,384
========= =========
Future principal payment obligations are as follows:
OCTOBER JANUARY
31, 31,
1998 1998
$ $
------- -------
1999 211,989 427,116
2000 367,590 404,707
2001 323,610 356,286
2002 156,370 172,159
2003 370,259 586,577
Subsequent to 2003 453,691 44,655
--------- ---------
1,883,509 1,991,500
========= =========
</TABLE>
19
<PAGE>
DECTRON INTERNATIONALE INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1998
(AMOUNTS EXPRESSED IN US DOLLARS)
10. DUE TO DIRECTOR
The amount due to director is unsecured, non-interest bearing and is due on
April 15, 2002.
11. OTHER LOANS PAYABLE
These loans are non interest and are repayable approximately 90 days
subsequent to having received the proceeds from the initial public offering
except for an amount of $133,276 which is repayable by 12 equal consecutive
monthly payments of $11,595 each beginning approximately 90 days subsequent
to the proceeds received from the initial public offering. An amount of
$253,696 owed to a private company is not due prior to April 15, 2002.
12. DEFERRED REVENUE
<TABLE>
<CAPTION>
OCTOBER JANUARY
31, 31,
1998 1998
$ $
------- -------
<S> <C> <C>
Deferred revenue 676,025 597,915
Current portion 114,149 127,857
------- -------
561,876 470,058
======= =======
Deferred revenue will be recognized as income as follows:
OCTOBER JANUARY
31, 31,
1998 1998
$ $
------- -------
1999 126,209 127,857
2000 128,131 184,327
2001 179,421 136,482
2002 135,965 98,277
2003 106,299 50,972
------- -------
676,025 597,915
======= =======
</TABLE>
13. DUE TO SHAREHOLDERS:
Due to shareholders are non interest bearing and are payable approximately
90 days subsequent to the proceeds received from the initial public
offering except for the principal shareholder which is payable by 12 equal
consecutive monthly payments of $19,983 beginning approximately 90 days
subsequent to the proceeds from the initial public offering.
20
<PAGE>
DECTRON INTERNATIONALE INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1998
(AMOUNTS EXPRESSED IN US DOLLARS)
14. CAPITAL STOCK
a) Authorized an unlimited number of preferred shares non-cumulative voting
without any par value.
Authorized an unlimited number of common share without any par value.
Issued
<TABLE>
<CAPTION>
OCTOBER JANUARY
31, 31,
1998 1998
$ $
------- -------
<S> <C> <C> <C>
2,750,000 Class shares 6,277,900 --
by Thermoplus Air Inc.
91,242Class A common shares
by 159653 Canada Inc. -- 1,934,525
1,571,000 Class D preference shares -- 152
25 Class A common shares -- 18
--------- ---------
6,277,900 1,934,695
========= =========
</TABLE>
b) On October 5, 1998 the company issued 1,000,000 common shares in an
initial public offering (the I.P.O.) for gross proceeds of $6,125,000
less underwriting commissions and other expenses of $1,443,533 ($866,120
net of income taxes recoverable).
Immediately prior to the I.P.O. the company issued 1,750,000 common
shares for a share for share exchange valued at $1,596,433.
21
<PAGE>
DECTRON INTERNATIONALE INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1998
(AMOUNTS EXPRESSED IN US DOLLARS)
15. COMMITMENTS
a) The company is committed to payments under operating leases for its
premises totalling $127,740. Annual payments for the next three years
are as follows:
<TABLE>
<CAPTION>
OCTOBER JANUARY
31, 31,
1998 1998
$ $
------- -------
<S> <C> <C>
1999 21,453 85,810
2000 73,037 73,037
2001 33,250 33,250
-------- ---------
127,740 192,097
======== =========
</TABLE>
The company is committed to make monthly payments of $2,528 in a sinking
fund which is given as security against the immigration loan. The annual
payments for the next five years are $30,336 per year.
c) The company is committed to make monthly payments of $7,561 in a sinking
fund which is given as security against the immigration loan. The annual
payments for the next five years are $90,732 per year
16. SEGMENTED INFORMATION
<TABLE>
<CAPTION>
OCTOBER JANUARY
31, 31,
1998 1998
$ $
------- -------
Breakdown of sales by geographic area is as follows:
<S> <C> <C>
Canada 5,276,858 5,698,411
United States of America 9,795,573 10,672,428
---------- ----------
15,072,431 16,370,849
========== ==========
</TABLE>
22
<PAGE>
DECTRON INTERNATIONALE INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1998
(AMOUNTS EXPRESSED IN US DOLLARS)
17. ACQUISITION
On February 1, 1998 the company acquired a 49.99% interest in Refplus Inc.
for $352,469 and 100% interest in Thermoplus Air Inc. for $1,448,446. The
acquisition has been accounted for by the purchase method and the results
of operations at Refplus Inc. and Thermoplus Air Inc. from February 1, 1998
have been included in the interim consolidated financial statements.
The allocation of purchase price is summarized as follows:
Current assets 1,137,863
Property , plant and equipment 1,814,191
Minority interest in Refplus Inc. 352,469
Goodwill 90,809
Liabilities (1,594,417)
----------
Total acquisition cost 1,800,915
==========
23
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NINE MONTH PERIOD ENDED OCTOBER 31, 1998 COMPARED TO NINE MONTH PERIOD ENDED
OCTOBER 31, 1997
Revenues for the nine month period ended October 31, 1998 were
$15,072,431, a 21.7% increase over prior year revenues of $12,383,259. This
increase was due in part to increased sales in all our divisions and in part to
a favorable foreign exchange situation with the Canadian Dollar. Gross Profit
increased by $797,666 to $4,777,609 over the same period. This represents a
slight decrease of 0.44%, expressed in relation to sales. Compared to the
increase in sales of 21.7%, the gross profit increased by 20.0%, due to a slight
increase in cost of sales.
Selling and marketing expenses increased $104,383 in 1998. This increase
reflects the costs of additional personnel and marketing expenses necessitated
by sales growth. As a percentage of revenues, selling and marketing expenses
decreased from 13.0% to 11.3%.
General and administrative expenses increased by $132,072 from $768,485 to
$900,917 due to sales growth. As a percentage of revenues, general and
administrative expenses slightly decreased from 6.21% to 5.98%.
Interest expenses increased by $92,796 from $119,368 to $298,932. As a
percentage of revenue, an increase of 0.34%. This is due to increased use of our
credit facilities to finance new equipment and the acquisition of leased
facilities in one of our division in November 1997.
Income before provision for income taxes was $1,478,773, an increase of
$263,813 over the comparative period but relative to sales, remained at the same
level in both years (9.81%).
Income tax expenses as a percentage of taxable income slightly increased
to 36.7% for 1998 from 35.7% for 1997. Tax expenses increased by $109,540
because of te increase in taxable income and non-deductible items.
As a result of the above factors, the Company's net income increased from
$790,956 to $935,229, an increase of 19.7%.
THREE MONTH PERIOD ENDED OCTOBER 31, 1998 COMPARED TO THREE MONTH PERIOD ENDED
OCTOBER 31, 1997
Revenues for the three month period ended October 31, 1998 were
$5,169,840, a 10.1% increase over prior year revenues of $4,695,1997, due to
better sales and a better foreign exchange rate. Gross profit increased by
$129,320 to $1,678,698 over the same period. This represents a decrease of
0.53%, expressed in relation to sales. Compared to the increase in sales of
10.1%, the gross profit increased by 8.35% due to an increase in cost of sales.
Selling and marketing expenses remained stable compared to the same period
in 1997. As a percentage of revenues, selling and marketing expenses decreased
from 12.1% to 10.9%.
General and administrative expenses increased by $10,618 from $287,711 to
$298,329. As a percentage of revenues, general and administrative expenses
decreased from 6.3% to 5.8%. The percentage decrease is a result of a higher
level of sales; while the dollar increase is minimal.
24
<PAGE>
Interest expenses by $43,117 from $76,251 to $119,368. As a percentage of
revenue an increased of 0.69%. This is due to increased use of our credit
facilities to finance new equipment and the acquisition of leased facilities in
one of our division in November 1997.
Income before provision for income taxes was $540,440, an increase of
$6,744 over the comparative period. Income relative to sales income decreased
from 11.4% to 10.5%.
Income tax expenses as a percentage of taxable income increased to 39.3%
for 1998 from 38.0% for 1997. Provision for tax expenses increased by $9,734
because of the increase in taxable income and non-deductible items.
As a result of the above factors, the Company's net income decreased
marginally by 0.9% from $330,867 to $327,877.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a positive net change in cash of $1,927,518 for the nine
month period ended October 31, 1998. The principal sources of cash were net
income of $935,230 and proceeds from share capital in the amount of $4,684,467.
These items were off set by $2,711,955 used to reduce bank indebtedness,
$686,746 for the purchase of equipment and an increase in receivables of
$664,219 as a result of the increase in the volume of business. This is
substantially different from fiscal year 1997 where net income was $863,331,
$1,978,811 was used to purchase property, plant and equipment and $1,311,838 was
used to increase inventory.
25
<PAGE>
PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company completed an initial public offering of its Common Stock, no
par value ("Common Stock") and Common Stock Purchase Warrants ("Warrants") (the
Common Stock and Warrants are collectively referred to as the "Securities")
pursuant to a registration statement declared effective by the Commission on
October 5, 1998, File No. 333-59285 ("Registration Statement"). Each Warrant
entitles the holder, upon exercise, to purchase one share of Common Stock. On
November 19, 1998, the Underwriters exercised the over-allotment option with
respect to 45,000 shares and 150,000 Warrants.
The following are the Company's expenses incurred in connection with the
issuance and distribution of the Securities in the offering from the effective
date of the Registration Statement to the ending date of the reporting period of
this 10-QSB.
EXPENSE AMOUNT
------- ------
Underwriter's Discounts and Commission $ 641,375
Financial Advisory Fee $ 96,000
Expenses Paid To or For Underwriters $ 32,000
Other Expenses(1) $ 711,695
Total Expenses $1,481,070
- --------------
(1) Estimate (includes $192,413 non-accountable expense allowance).
None of the foregoing expenses were paid, directly or indirectly, to any
director or officer of the Company or their associates, to any person who owns
10 percent or more of any class or equity of securities of the Company, or to
any affiliate of the Company.
The net offering proceeds to the Company after deducting for the foregoing
expenses were approximately $4,932,680.
The Company did not utilize any of the net proceeds from the sale of the
Securities in the offering from the effective date of the Registration Statement
to the ending date of the reporting period of this 10-QSB.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
On December 14, 1998, the Company filed a report dated December 14, 1998
on Form 8-K, Item 2, covering the acquisition by the Company of all of the
capital stock of Cascade Technologies, Inc.
26
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
DECTRON INTERNATIONALE INC.
December 15, 1998 By:/S/ MAURO PARISSI
-----------------------------
Mauro Parissi
Chief Financial Officer/
Principal Accounting Officer
27
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 1,955,673
<SECURITIES> 0
<RECEIVABLES> 3,708,048
<ALLOWANCES> 0
<INVENTORY> 3,676,358
<CURRENT-ASSETS> 9,679,447
<PP&E> 4,307,170
<DEPRECIATION> 166,344
<TOTAL-ASSETS> 14,249,169
<CURRENT-LIABILITIES> 3,958,097
<BONDS> 0
<COMMON> 6,277,900
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 14,279,169
<SALES> 5,169,840
<TOTAL-REVENUES> 5,169,840
<CGS> 3,491,142
<TOTAL-COSTS> 1,138,258
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 119,368
<INCOME-PRETAX> 540,440
<INCOME-TAX> 212,563
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 327,877
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.08
</TABLE>
