<PAGE>
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 April 30, 1999 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: April 29, 1999, 2,795,000
Common Shares outstanding
Transitional Small Business Disclosure (check One):
Yes / / No / X /
<PAGE>
DECTRON INTERNATIONALE INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1- FINANCIAL STATEMENTS
Consolidated Balance Sheet - April 30, 1999......................................................
Consolidated Statements of Operations - For the three months ended April 30, 1999 ...............
Consolidated Statements of Cash Flows - For the three months ended April 30, 1999.............
Notes to Financial Statements....................................................................
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS............................................................
PART II - OTHER INFORMATION
ITEM 2 - CHANGES IN SECURITIES............................................................................
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.................................................................
SIGNATURES................................................................................................
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999
TABLE OF CONTENTS
<TABLE>
<S> <C>
Interim Consolidated Balance Sheet 2 - 3
Interim Consolidated Statement of Income For The Three Months Period Ended April 30, 1999 4-5
Interim Consolidated Statement of Cash Flows 6- 8
Interim Consolidated Statement of Stockholders' Equity 9
Interim Notes to Consolidated Financial Statements 10 - 25
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM CONSOLIDATED BALANCE SHEET
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
April January
30, 31,
1999 1999
$ $
---------- ----------
<S> <C> <C>
ASSETS
Cash -- 389,702
Accounts receivable (note 2) 7,142,985 5,998,864
Inventory (note 3) 5,591,491 5,138,154
Current portion of loans receivable -- 43,018
(note 4)
Prepaid expenses and sundry asset 1,151,401 629,260
---------- ----------
13,885,877 12,198,998
Sinking funds (note 5) 109,303 74,075
Loans receivable (note 4) 67,335 63,627
Property, plant and equipment (note 6) 5,796,079 5,406,295
Goodwill (note 7) 1,906,564 1,888,400
---------- ----------
21,765,158 19,631,395
---------- ----------
---------- ----------
</TABLE>
APPROVED ON BEHALF OF THE BOARD
Director
- --------------------------------------------
Director
- --------------------------------------------
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM CONSOLIDATED BALANCE SHEET
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
April January
30, 31,
1999 1999
$ $
---------- ----------
<S> <C> <C>
LIABILITIES
Bank loans (note 8) 4,017,844 2,831,015
Accounts payable and accrued expenses
(note 9) 4,410,402 4,098,077
Income taxes payable 78,579 7,896
Current portion of long-term debt (note 10) 515,903 440,523
Notes payable (note 11) 417,064 533,199
Other loan payable -- 64,553
Current portion of deferred revenue (note 14) 181,626 161,226
----------- ----------
9,621,418 8,136,489
Long-term debt (note 10) 1,484,623 1,605,947
Due to director (note 12) 53,553 51,639
Loan payable (note 13) 268,653 259,052
Deferred revenue (note 14) 651,826 605,345
Deferred income taxes 442,100 426,300
----------- ----------
12,522,173 11,084,772
----------- ----------
STOCKHOLDERS' EQUITY
Capital stock (note 15) 6,867,529 6,867,529
Retained earnings 2,115,309 1,746,761
Cumulative translation adjustments 260,147 (67,667)
----------- ----------
Total stockholders' equity 9,242,985 8,546,623
----------- ----------
Total liabilities and stockholders' equity 21,765,158 19,631,395
----------- ----------
----------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED APRIL 30, 1999 AND 1998
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended
April 30, April 30,
1999 1998
-----------------------------
$ $
<S> <C> <C>
Net sales 7,316,795 5,133,744
Cost of sales 5,156,786 3,710,304
---------- ---------
Gross profit 2,160,009 1,423,440
---------- ---------
Operating expenses
Selling 858,608 531,703
General and administrative 406,402 289,975
Depreciation and amortization 253,184 91,721
Interest expense 88,412 95,764
---------- ---------
1,606,606 1,009,163
---------- ---------
Income before income taxes 553,403 414,277
Income taxes 184,855 116,007
---------- ---------
Net Income 368,548 298,270
---------- ---------
---------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
DECTRON INTERNATIONALE INC
INTERIM CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED APRIL 30, 1999
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Three Months Ended Year
April 30, Ended
1999 January 31,
1999
-------------------------------------
$ $
<S> <C> <C>
Net sales 7,316,795 20,215,849
Cost of sales 5,156,786 13,697,877
---------- ----------
Gross profit 2,160,009 6,517,972
----------- ----------
Operating expenses
Selling 858,608 2,527,915
General and administrative 406,402 1,219,981
Depreciation and amortization 253,184 733,744
Interest expense 88,412 395,941
----------- ----------
1,606,606 4,877,581
----------- ----------
Income before income taxes 553,403 1,640,391
Income taxes 184,855 511,210
----------- ----------
Net Income 368,548 1,129,181
----------- ----------
----------- ----------
Net income per common stock 0.13 0.54
----------- ----------
----------- ----------
Number of common stock oustanding 2,795,000 2,082,781
----------- ----------
----------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED APRIL 30, 1999
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Three
Months Year
Ended Ended
April 30, January 31,
1999 1999
---------------------------
$ $
<S> <C> <C>
Cash flows from operating activities:
Net income 368,548 1,129,181
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 253,184 733,744
Loss on disposal of property, plant and
equipment -- --
Increase in accounts receivable (1,144,121) (2,955,035)
Increase in inventory (453,337) (1,320,706)
Increase in prepaid expenses and sundry
assets (522,141) (336,329)
Increase in accounts payable and accrued
expenses 312,325 2,133,797
Increase (decrease) in income taxes
payable 70,683 (192,606)
Increase (decrease) in deferred income
taxes 15,800 15,657
Increase in deferred revenue 66,881 168,656
---------- ----------
Net cash (used in) provided by operating
activities (1,032,178) (623,641)
---------- ----------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED APRIL 30, 1999
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Three
Months Year
Ended Ended
April 30, January 31,
1999 1999
---------------------------
$ $
<S> <C> <C>
Cash flows from investing activities:
Purchase of property, plant and equipment (389,482) (1,939,538)
Acquisition of Goodwill -- (1,931,638)
---------- ----------
Net cash used in investing activities (389,482) (3,871,176)
Cash flows from financing activities:
Acquisition of minority interest in equity -- (352,469)
consolidated entity
Sinking funds (35,228) (66,037)
Advances to directors -- 15,706
(Advances to) repayments from
corporate shareholders 39,310 72,169
Notes payable (131,975) 533,199
Other loan payable (64,553) 64,553
Advances from (re-payment of)
long term debt (118,381) 54,970
Advances from (repayment of)
loan payable -- (96,284)
Advances (repayments) of bank loans 1,186,829 (296,325)
Issuance of common shares -- 4,932,834
---------- ----------
Net cash provided by financing activities 876,002 4,830,904
Effect of foreign currency exchange rate
changes 155,956 25460
---------- ----------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED APRIL 30, 1999
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Three
Months Year
Ended Ended
April 30, January 31,
1999 1999
--------------------------
$ $
<S> <C> <C>
Net increase (decrease) in cash and cash (389,702) 361,547
equivalents
Beginning of year 389,702 28,155
-------- --------
End of year -- 389,702
-------- --------
-------- --------
Supplemental disclosure of cash
flow information
Interest 85,808 450,324
-------- --------
-------- --------
Income taxes 244,646 398,091
-------- --------
-------- --------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
APRIL 30, 1999
<TABLE>
<CAPTION>
Common Stock Cumulative
------------------- Retained Translation
Number Amount Earnings Adjustments
------ ------ -------- -----------
$ $ $
<S> <C> <C> <C> <C>
Balance January 31, 1997 91,267 (1,934,695) (245,751) 73,722
Foreign currency translation -- -- -- (168,499)
Net income for the year -- -- 863,331 --
--------- ---------- --------- --------
Balance January 31, 1998 91,267 1,934,695 617,580 (94,777)
Redemption of shares (91,267) (1,934,695) -- --
Issuance of common shares 2,795,000 8,421,450 -- --
Cost of issuance -- (1,553,921) -- --
Foreign currency translation -- -- -- 27,110
Net income for the year -- -- 1,129,181 --
--------- ---------- --------- --------
Balance January 31, 1999 2,795,000 6,867,529 1,746,761 (67,667)
Net income for period ended -- -- 368,548
April 30, 1999
Foreign currency translation 327,814
April 30, 1999
--------- ---------- --------- --------
Balance April 30, 1999 2,795,000 6,867,529 2,115,309 260,147
--------- ---------- --------- --------
--------- ---------- --------- --------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
APRIL 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Consolidated Financial Statements Presentation
These consolidated financial statements include the accounts of Dectron
Internationale Inc., Dectron Inc. Consolidated and Circul-aire Group.
Dectron Inc. Consolidated is comprised of Dectron Inc.'s accounts and
of its wholly-owned subsidiaries, Refplus Inc., Thermoplus Air Inc.,
Fiber Mobile Ltd. and Dectron U.S.A. Inc.
Circul-aire Group is comprised of 9048-3140 Quebec Inc. and Cascades
Technologies Inc.'s accounts and of its wholly-owned subsidiaries, PM
Wright Ltd., Purafil Canada Inc. and 122248 Canada Inc.
All material inter-company accounts transactions have been eliminated.
b) Principal Activities
The registrant Dectron Internationale Inc., was incorporated on March
30, 1998. These companies are principally engaged in the production of
dehumidification, refrigeration, indoor air quality (IAQ), ventilation,
air conditioning and air purification systems in Canada and its
distribution worldwide. The activities of Dectron Internationale Inc.,
Cascades Technologies Inc., 9048-3140 Quebec Inc. are immaterial in the
aggregate, as their only activity is to hold the investments in the
operating companies.
c) 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.
d) Other Financial Instruments
The carrying amount of the company's accounts receivables and payables
approximates fair value because of the short maturity of these
instruments.
e) Inventory
Inventory is valued at the lower of cost and net realizable value. Cost
is determined on the first-in, first-out basis.
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
APRIL 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
f) Property, Plant and Equipment
Property, plant and equipment are recorded at cost and are amortized on
the basis of their estimated useful lives at the undernoted rates and
methods:
<TABLE>
<S> <C> <C>
Building 4 or 5% Straight line
Machinery and manufacturing equipment 10% Straight line or 20% declining balance
Furniture and fixtures 15 or 20% Straight line or 20% declining balance
Computers 15 or 30% Straight line 0r 30% declining balance
Rolling stock 30% Straight line or 30% declining balance
Leasehold improvements Straight line over term of the lease
Equipment under capital lease 20 or 30% Declining balance
</TABLE>
Depreciation for assets acquired during the year are recorded at one
half of the indicated rates.
g) 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.
h) 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 basis of assets and liabilities.
i) 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.
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
APRIL 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
J) 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 consolidated interim financial statements from
Canadian dollars (CDN $) 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 expenses accounts are translated using an average exchange rate
prevailing during each reporting period. No representation is made that
the Canadian dollar amounts could be, converted in United States
dollars at the rates on their respective dates and or at any other
certain rates. Adjustments resulting from the translation are included
in the cumulative translation adjustments in stockholder's equity.
k) Net Income Per Weighted Average 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 period.
l) Use of Estimates
The preparation of 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 financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
m) 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.
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
APRIL 30, 1999
2. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
April January
30, 31,
1999 1999
--------- ---------
$ $
<S> <C> <C>
Accounts receivable 7,232,703 6,073,650
Less: Allowance for doubtful accounts 89,718 74,786
--------- ---------
Accounts receivable - net 7,142,985 5,998,864
--------- ---------
--------- ---------
</TABLE>
3. INVENTORY
Inventory is comprised of the following:
<TABLE>
<CAPTION>
April January
30, 31,
1999 1999
--------- ---------
$ $
<S> <C> <C>
Raw materials 3,572,376 3,182,498
Work-in-process 1,033,378 856,308
Finished goods 985,737 1,099,348
----------- ---------
5,591,491 5,138,154
----------- ---------
----------- ---------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
APRIL 30, 1999
4. LOANS RECEIVABLE
The loans receivable consist of the following:
<TABLE>
<CAPTION>
April January
30, 31,
1999 1999
--------- ---------
$ $
<S> <C> <C>
Loan receivable - private company (secured) 18,792 61,138
Loan receivable - corporate shareholder
(unsecured) 8,543 45,507
-------- --------
67,335 106,645
Current portion -- 43,018
-------- --------
67,335 63,627
-------- --------
-------- --------
</TABLE>
These loans are non-interest bearing with no specific terms of repayment.
5. SINKING FUNDS
The sinking funds are restricted in use since all amounts paid into them
must be used to repay the immigration loans (see note 10-b and c).
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
APRIL 30, 1999
6. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
April January
30, 31,
1999 1999
---------- ----------
$ $
<S> <C> <C>
Land 238,504 229,980
Building 2,304,803 1,977,700
Machinery and manufacturing equipment 5,054,598 4,788,949
Furniture and fixtures 541,346 513,720
Computers 1,264,772 1,175,318
Rolling stock 95,235 91,831
Leasehold improvements 445,524 424,463
Equipment under capital lease 540,080 520,779
----------- ----------
Cost 10,484,862 9,722,740
----------- ----------
Less accumulated depreciation and amortization:
Building 273,003 244,168
Machinery and manufacturing equipment 2,512,584 2,309,951
Furniture and fixtures 413,290 390,403
Computers 923,123 854,833
Rolling stock 31,742 24,760
Leasehold improvements 338,843 320,582
Equipment under capital lease 196,198 171,748
----------- ----------
4,688,783 4,316,445
----------- ----------
Net 5,796,079 5,406,295
----------- ----------
----------- ----------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
APRIL 30, 1999
7. GOODWILL
<TABLE>
<CAPTION>
April January
30, 31,
1999 1999
---------- ----------
$ $
<S> <C> <C>
Cost 2,060,953 1,987,298
Less: Accumulated amortization 154,389 98,898
----------- ---------
Net 1,906,564 1,888,400
----------- ---------
----------- ---------
</TABLE>
8. BANK LOANS
The bank loans bear interest at the prime lending rate plus 0.25% per annum
with interest payable monthly.
As security, the company has provided a moveable hypothec on accounts
receivable, inventories and commercial equipment, a $4,118,051 hypothec on
all assets of the company, including a first ranking hypothec in the amount
of $4,118,051 on the proceeds of all risks insurance on the property and a
solidary guarantee in the amount of $3,431,709.
The company finances its operations mainly through the use of Bankers
Acceptance bearing an average lending rate of less than prime.
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
April January
30, 31,
1999 1999
---------- ----------
$ $
<S> <C> <C>
Accounts payable and accrued expenses are
comprised of the following:
Trade payable 2,384,995 2,723,858
Accrued expenses 2,025,407 1,374,219
---------- ---------
4,410,402 4,098,077
---------- ---------
---------- ---------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
APRIL 30, 1999
10. LONG-TERM DEBT
<TABLE>
<CAPTION>
April January
30, 31,
1999 1999
---------- --------
$ $
<S> <C> <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
repayments of $40,037 due April and October, maturing October 2000. 120,110 154,423
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. 480,439 463,269
c) Immigration loan secured by a first ranking universal hypothec on the
universality of the property, moveable and immovable, present and
future, corporeal and incorporeal, bearing interest at 5.59% per
annum, due on September 2003. 480,439 463,269
d) Bank loan, bearing interest at prime plus 1% per annum repayable in
monthly capital repayments of $1,538, maturing April 2002. 55,362 57,833
--------- ---------
Balance carried forward 1,136,350 1,138,794
--------- ---------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
APRIL 30, 1999
10. LONG-TERM DEBT (Continued)
<TABLE>
<CAPTION>
April January
30, 31,
1999 1999
---------- --------
$ $
<S> <C> <C> <C>
Balance brought forward 1,136,350 1,138,794
e) Bank loan, bearing interest at prime rate plus 1% per annum repayable
in monthly capital repayments of $5,219 and a final
repayment of $5,219 plus interest, maturing November 2001. 161,793 171,107
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 $1,373. This loan was repaid
during the year. -- --
g) The loan from Societe Developpement Industriel du Quebec bearing
interest at a rate of 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 $34,317 per annum. 79,557 82,229
h) Bank term loan secured by machinery and equipment bearing interest at
prime plus 1.75% repayable in monthly capital repayments of
$2,860, maturing May 1999. 2,860 11,030
i) Small business investment loan, secured by machinery and equipment,
repayable in monthly instalments of $2,539 plus interest at prime
plus 1.75%, maturing February 2000. 29,101 35,407
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 $2,043. This loan was repaid during the year. -- --
---------- ---------
Balance carried forward 1,409,661 1,438,567
---------- ---------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
APRIL 30, 1999
10. LONG-TERM DEBT (Continued)
<TABLE>
<CAPTION>
April January
30, 31,
1999 1999
---------- --------
$ $
<S> <C> <C> <C>
Balance brought forward 1,409,661 1,438,567
k) Bank term 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 7.99% per
annum repayable in monthly capital repayments of $573 plus a final
repayment of $69,139 in December 2002. 93,782 92,088
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 repayments of $1,716. This loan was
repaid during the year. -- --
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 $6,863. This
loan was repaid during the year. -- --
n) Obligation under capital lease for machinery and equipment subject to
blended monthly instalments of $8,139 including imputed interest
at 7.64% per annum to April 2000. 158,545 159,609
0) Obligation under capital lease for furniture and lab equipment
subject to blended monthly instalments of $5,880 included imputed
interest at 7.10% per annum to April 2001. 150,897 173,357
p) Government loans, without guarantee nor interest, repayable 15 years
after their date of receipt, the first portion of $31,572 received
July 1989 is repayable in July 2004. 63,143 60,887
--------- ---------
Balance carried forward 1,876,028 1,924,508
--------- ---------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
APRIL 30, 1999
10. LONG-TERM DEBT (Continued)
<TABLE>
<CAPTION>
April January
30, 31,
1999 1999
---------- --------
$ $
<S> <C> <C> <C>
Balance brought forward 1,876,028 1,924,508
q) Government loan of an original amount of $212,684, without guarantee
nor interest, repayable in 4 equal annual instalments starting at the
latest on December 1, 1997, maturing in December 2000. 106,342 102,542
r) Other 18,156 19,420
----------- ----------
2,000,526 2,046,470
Less: Current portion 515,903 440,523
----------- ----------
1,484,623 1,605,947
----------- ----------
----------- ----------
Future principal payment obligations are as follows:
2000 $ 515,903 $ 440,523
2001 314,662 396,873
2002 72,786 145,015
2003 553,593 570,347
2004 543,582 493,712
----------- ----------
$2,000,526 $2,046,470
----------- ----------
----------- ----------
</TABLE>
11. NOTES PAYABLE
The notes payable are non-interest bearing for which a portion of $395,102
is payable by 12 equal monthly payments of $32,924 beginning February 1,
1999 and the balance of $157,859 is due prior to January 31 2000.
12. DUE TO DIRECTOR
The amount due to director is unsecured, non-interest bearing and is due on
April 15, 2002.
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
APRIL 30, 1999
13. LOAN PAYABLE
This loan payable is non-interest bearing and is owed to a private company,
due on April 15, 2002.
14. DEFERRED REVENUE
<TABLE>
<CAPTION>
April January
30, 31,
1999 1999
---------- ----------
$ $
<S> <C> <C>
Deferred revenue 833,452 766,571
Current portion 181,626 161,226
-------- --------
651,826 605,345
-------- --------
-------- --------
Deferred revenue will be recognized as income as follows:
2000 $181,626 $161,226
2001 214,257 216,524
2002 172,237 177,409
2003 197,708 136,867
2004 67,624 74,545
-------- --------
$833,452 $766,571
-------- --------
-------- --------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
APRIL 30, 1999
15. CAPITAL STOCK
a) Authorized
An unlimited number of preferred shares, non-cumulative, voting, no par
value
An unlimited number of common shares, voting, no par value
b) Issued
<TABLE>
<CAPTION>
April January
30, 31,
1999 1999
---------- ----------
$ $
<S> <C> <C>
2,795,000 common shares 6,867,529 6,867,529
---------- ----------
---------- ----------
</TABLE>
c) On October 5, 1998 the company issued 1,000,000 common shares in an
Initial Public Offering (the "IPO") for gross proceeds of $6,000,000
and 1,000,000 warrants for $125,000 less underwriting commission and
other expenses of $1,443,533 ($866,120 net of income taxes
recoverable).
On November 15, 1998 the company issued an additional 45,000 common
shares for gross proceeds of $270,000 and 150,000 warrants for $18,750
less underwriting commission and other expenses of $37,400.
Immediately prior to the "IPO" the company issued 1,750,000 common
shares for a share for share exchange valued at $1,596,433.
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
APRIL 30, 1999
16. COMMITMENTS AND CONTINGENCIES
a) The company is committed to payments under operating leases for its
premises totaling $288,735. Annual payments for the next three years
are as follows:
<TABLE>
<S> <C>
2000 $194,604
2001 94,131
--------
$288,735
--------
--------
</TABLE>
b) The company is committed to make monthly payments of $10,684 into
sinking funds which are given as security against the immigration
loans. The annual payments for the next five years are as follows:
<TABLE>
<S> <C>
2000 $128,211
2001 128,611
2002 128,611
2003 128,611
2004 20,563
</TABLE>
c) The company is in the process of constructing additional manufacturing
facilities. The expected cost to complete the project is approximately
$618,000 of which $549,100 been incurred to date.
d) The company sells warranties on its products. Since there is no history
of claims, no liability has been set up in the accounts. Payments under
these warranties are accounted for as current expenditures.
17. SEGMENTED INFORMATION
<TABLE>
<CAPTION>
Three Year
Months Ended
Ended January
April 30, 31,
1999 1999
----------- -----------
$ $
<S> <C> <C>
The breakdown of sales by geographic area is as follows:
Canada 2,773,600 9,531,130
United States of America 3,256,705 10,191,540
International 1,286,490 493,179
----------- -----------
7,316,795 20,215,849
----------- -----------
----------- -----------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
APRIL 30, 1999
18. ACQUISTIONS
a) Refplus Inc. and Thermoplus Air Inc.
On February 1st, 1998 the company acquired 49.99% interest in Refplus
Inc. for $430,180 and 100% interest in Thermoplus Air Inc. for
$1,408,755. The allocation of purchase price is summarized as follows:
<TABLE>
<S> <C>
Current assets $ 1,161,885
Property, plant and equipment 1,852,492
Goodwill 590,877
Minority interest in Refplus Inc. (352,469)
Liabilities (1,413,850)
------------
$ 1,838,935
------------
------------
</TABLE>
b) Circul-aire Group
On November 27, 1998 the company acquired 100% interest in Cascades
Technologies Inc. and 9048-3140 Quebec Inc., corporate shareholders of
the Circul-aire Group, for a total consideration of $2,377,895. The
allocation of purchase price is summarized as follows:
<TABLE>
<S> <C>
Current assets $ 3,611,627
Property, plant and equipment 758,234
Goodwill 1,340,761
Investment 237,263
Liabilities (3,569,990)
------------
$ 2,377,895
------------
------------
</TABLE>
c) Accounting for Acquisitions
The acquisitions in a) and b) have been accounted for by the purchase
method and the results of operations of Refplus Inc., Thermoplus Air
Inc. and Circul-aire Group from their date of acquisition, have been
included in these consolidated financial statements.
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
APRIL 30, 1999
19. Uncertainty due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognise
the year 2000 as 1900 or some other date, resulting in errors when
information using the year 2000 is processed. In addition, similar problems
may arise in some systems which use certain dates in 1999 to represent
something other than a date. The effects of the Year 2000 Issue may be
experienced before, on, or after January 1, 2000, and, if not addressed, the
impact on operations and financial reporting may range from minor errors to
significant systems failure which could affect an entity's ability to
conduct normal business operations. It is not possible to be certain that
all aspects of the Year 2000 Issue affecting the entity, including those
related to the efforts of customers, suppliers, or other third parties, will
be fully resolved.
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED APRIL 30, 1999 COMPARED TO THREE MONTH PERIOD ENDED
APRIL 30, 1998.
Revenues for the three month period ended April 30, 1999 were $
7,316,795, a 42.52% increase over prior year revenues of $ 5,133,744. A major
part of this increase is due to the consolidation of the Company`s newly
acquired division , Circul-aire .
Gross profit increased by $736,569 to $2,160,009 over the same period.
This represents an increase of 1.79%, expressed in relation to sales. Due to low
manufacturing costs, gross profit increased by 51.75% compared to an increase in
sales of 42.52%.
Selling and marketing expenses increased $ 326,905 in the three month
period ended April 30, 1999. This increase reflects the costs of integrating
Circul-aire's sales and marketing personnel and related expenses into the
Company`s results. As a percentage of revenues, selling and marketing expenses
increased from 10.36% to 11.73%.
General and administrative expenses increased by $ 116,427 from $
289,975 to $406,402. As a percentage of revenues, general and administrative
decreased from 5.65% to 5.55%. The increase in dollar amount reflect the costs
of integrating Circul-aire's general and administrative expenses in the
Company's results..
Financing expenses decreased by $ 7,352 from $ 95,764 to $ 88,412. As a
percentage of revenues, financing expenses decreased from 1.87% to 1.21%
Income before income taxes was $553,403, an increase of $ 139,126
compared to the three month period ended April 30, 1998. Relative to sales,
income before income taxes slightly decreased from 8.05% for the three month
period ended April 30, 1998 to 7.56% in the three month period ended April 30,
1999.
Provisions for Income tax expenses as a percentage of taxable income
increased from 28.0% for the 3 month ended April 30, 1998 to 33.4% for 1999. Tax
expenses increased by $68,648 mainly because of the increase in taxable income.
As a result of the above factors, the Company`s net income increased
from $298,270 to $368,548, an increase of 23.56%.
LIQUIDITY AND CAPITAL RESSOURCES
The Company had a negative net change in cash of $389,702 for the three month
period ended April 30, 1999. The principal sources of cash were net income of
368,548 and advances of bank loans in the amount of 1,186,829 . These items
were offset by an increase in accounts receivable in the amount of 1,144,121,
an increase of $522,141 in prepaids and sundry assets and a $453,338 increase
in inventory , following an increase in the volume of business. For the three
month period ended April 30, 1998, the Company had a slightly negative cash
flow of $7,126. The principal source of cash flow was from operating
activities in the amount of $ 298,270, and the principal use was purchasing
of machinery and equipment in the amount of $ 316,213
<PAGE>
PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Reports on Form 8-K: None
<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.
June 13, 1999 By: /s/ Mauro Parissi
---------------------------------
Mauro Parissi
Chief Financial Officer/Principal
Accounting Officer
