<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 1999
Commission File Number 001-14503
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, Quebec, Canada H4R 2C5
------------------------- -------
(Address of principal executive offices) (Zip Code)
(514) 334-9609
--------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
Redeemable Common Stock Purchase Warrants
-----------------------------------------
(Title of Class)
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. /X/
The Company's sales for the year ended January 31, 1999 were $20,215,849.
<PAGE>
As of April 29, 1999, the aggregate market value of the voting stock held by
non-affiliates of the registrant (based on The Nasdaq Stock Market closing price
of $2 5/16 on April 29, 1999) was $2,163,315.
As of April 29, 1999, there were 2,795,000 shares of the registrant's common
stock outstanding.
<PAGE>
PART I.
Item 1. DESCRIPTION OF BUSINESS
ACQUISITIONS
On November 27, the Company acquired all of the capital stock of the
Circul-aire Group consisting of Cascade Technologies, Inc., 9048-3140Quebec,
Inc. and its subsidiaries, P.M. Wright Ltd. (collectively referred to as
"Circul-aire") for an aggregate purchase price of CDN$3,593,000 paid in cash.
The transaction was negotiated on an arms-length basis with unaffiliated
parties. The Company utilized a portion of the proceeds of its recent initial
public offering to consummate the acquisition.
The purchase included all of the plant and equipment utilized in
Circul-aire's business which business was air, gas, dust and fume filtration,
Indoor Air Quality and heat recovery. Dectron intends to utilize such plant and
equipment for the same purpose.
GENERAL
The Company is located primarily in and around Montreal, Quebec,
Canada. Through its operating subsidiaries, Dectron, Refplus, Thermoplus,
Klaasco and Circul-aire the Company manufactures and supplies an array of
products for the dehumidification, refrigeration, air conditioning and indoor
air quality ("IAQ") markets. The products manufactured and supplied include
mechanical dehumidifiers and energy recovery systems through Dectron, and
refrigeration and air conditioning systems through RefPlus and ThermoPlus.
ThermoPlus has also recently introduced a new line of air filtration products.
Circul-aire specializes in air, gas, dust and fume filtration, IAQ and heat
recovery. Klaasco is responsible for producing the bulk of the Company's special
steel enclosures, electrical control panels, and other steel products. However,
each of the Company's manufacturing subsidiaries have the capability of doing
its own sheet metal work.
Management believes that it has structured the Company in such a way
that, other than with respect to the raw materials required to make the
components for its products and certain specialty products, the Company is not
dependent on outside suppliers for fabricated parts for its products. The
Company has invested significant resources in its manufacturing equipment and as
a result the Company can manufacture the most important components for any of
its fabricated products, regardless of whether the product is standard or a
custom design.
DECTRON
Dectron, the largest of the subsidiaries, was incorporated in 1977 to
develop, manufacture and market standard and custom design dehumidification
equipment. After extensive research and development, Dectron introduced a line
of indoor pool and commercial dehumidifiers under its DRY-O-TRON(TM) trademark.
The product line has experienced tremendous success in North America and as a
result has allowed the Company to become, in the opinion of management, the
leader in North America's indoor pool dehumidification business. Management
believes that the Company is now one of North America's leading manufacturers of
dehumidification and closed looped energy recyclers.
Dectron's standard products are now primarily manufactured by
ThermoPlus. As a result, Dectron focuses its own manufacturing operations on the
manufacture of its customized dehumidification systems. Management believes that
the customized product market is where the Company's competitive advantage is
most evident. Ordinarily, with a customized product, it is often very difficult
to commit to an aggressive delivery date for the finished product. However,
<PAGE>
since the Company manufactures many of the component parts in-house, it is able
to commit to an aggressive delivery schedule. The Company has taken the
necessary steps to align itself with several suppliers of its raw materials so
that it is not dependent on any one supplier. In addition, the Company keeps in
storage a sufficient inventory of raw material to supply its immediate needs.
Some of the Company's customized product customers include Celebration City,
Walt Disney World in Florida and the Goodwill Games which were held in Atlanta,
Georgia.
Dectron, through its subsidiary Dectron USA, operates a sales office in
the United State located in Roswell, Georgia. This office supports the efforts
of Dectron's network of trained manufacturer's representatives who sell
Dectron's products throughout the United States. Dectron also has sales
representatives throughout Canada and overseas. The Company also invites its
independent sales representatives and their technicians to be trained and
certified by Dectron's own technical staff at no cost to the attendees at a
training school run by the Company. Management uses the training school to both
market its products and demonstrate to potential buyers, first hand, the
technical excellence its employees have to offer as a service to its customers.
Management believes that customer service and technical expertise are a large
part of what sets the Company apart from its competitors. The Company also
markets its products in trade magazines, through industry associations and by
attending trade shows where it displays and demonstrates many of its products.
REFPLUS
RefPlus was incorporated in 1993 to manufacture high quality modular
commercial and industrial refrigeration and air conditioning equipment for
commercial and special applications. Its products include refrigeration systems,
condensers, coils, walk-in storage coolers and freezers. In addition, RefPlus
manufactures all of the heat transfer coils used by Dectron. RefPlus' primary
customers are supermarkets and convenience or grocery stores. RefPlus' product
line, which has recently been revamped and is now designed around
hydrofluorocarbon refrigerants ("HFC"), features high quality products intended
to meet the needs of a broad range of customers. See "Industry Overview."
Since inception, RefPlus has manufactured some complex products for
application in fruit storage facilities, industrial baking facilities and blast
chillers for meat processing plants. Management believes that the Company's
RefPlus product lines offer an excellent opportunity for future expansion. See
"Expansion Plans."
RefPlus has a small network of sales representatives in Canada,
however, the majority of its sales are conducted through a network of
independent wholesalers.
THERMOPLUS
In 1987, Keepkool Transfer de Chaleur Inc. ("Keepkool"), the former
parent company of ThermoPlus, purchased the manufacturing facilities of York
International in St-Jerome, Quebec. Keepkool was owned by a group of investors
active in the heating, ventilation and air-conditioning ("HVAC") industry, which
group included Ness Lakdawala, the Company's President and CEO, to manufacture
air conditioning systems. Since inception, Thermoplus has introduced and sold a
variety of' HVAC product lines through a network of Canadian wholesalers. In
1995, ThermoPlus' introduced specialized product lines in the field of
dehumidification and specialized air conditioning.
ThermoPlus' present product lines include dehumidification equipment,
water source air conditioners and heat pumps, portable or mobile air
conditioning equipment, industrial air handlers and air to fluid heat
exchangers. These product lines are sold through a network of Canadian
wholesalers and HVAC representatives. Although ThermoPlus' products are sold
throughout North America, with some exports outside of North America, the
majority of its revenues are derived from sales to Dectron. Management believes
that ThermoPlus' product lines have growth potential, estimating that the
present potential for growth in both sales and manufacturing output is roughly 3
times its present output. See "Expansion Plans."
<PAGE>
In keeping with the Company's strategic plan to expand into the IAQ
market segment, Thermoplus has recently introduced a new, engineered line of IAQ
air filtration products.
CIRCUL-AIRE
The Company acquired Circul-aire in 1998. Circul-aire a division of
P.M. Wright Limited, a Canadian company established in 1921 is considered one of
the pioneers of the air treatment industry and is a worldwide recognized leader
in the advanced technologies of gas-phase filtration and energy recovery.
Circul-aire's in house laboratory and team of experienced engineers
offer a systematic integrated approach in solving ever changing and difficult
environmental control problems. Unique systems are designed and manufactured in
Circul-aire's facilities to suit specific applications. Equipment efficiency and
filter media life is optimized with Circul-aire's preventive maintenance
program.
Circul-aire's Multi-Mix media and integrated systems are used to reduce
the odor and corrosion potential of commercial, institutional, sewage treatment
and industrial environments. Combined with air-to-air heat exchanger options,
Circul-aire's systems recapture valuable energy from various airstreams. All
Circul-aire systems are engineered and manufactured to withstand the most
severe industrial environments, including those containing corrosive gases.
Circul-aire's reputation has been built on years of research and
development and growing numbers of worldwide satisfied customers.
KLAASCO
Klaasco, which was acquired by the Company in 1989, has been
manufacturing in-house a wide range of metal products for more than 20 years.
Most of its product demand has been special enclosures, electrical control
panels, control room consoles, shelters and busbars. Although most of Klaasco's
products are manufactured for Dectron, Inc., it does manufacture some metal
products for sales other than by the Company.
Management believes that the acquisition of Klaasco was an important
strategic decision and it has given the Company the quality assurance, product
control and a significantly greater ability to meet aggressive delivery
deadlines.
OVERVIEW OF IAQ INDUSTRY; PRODUCT APPLICATIONS
The Company is aware of an increased public movement to encourage
healthy environments in all public places and the resulting market potential
for its products. For example, the hazards of second hand smoke have led to
the ban of cigarette smoking in most public areas. The public's demands have
also been focused on finding engineered solutions to ensure a healthy and
comfortable environment in schools and in the workplace. The theme has become
much wider in scope and has gained recognition as IAQ.
The American Society of Heating, Refrigeration and Air Conditioning
Engineers ("ASHRAE") is the organization that sets ventilation standards in the
heating, refrigeration and air-conditioning industries for the United States and
Canada. ASHRAE has revised and re-drafted virtually all of the previous
ventilation standards with the objective to meet the public demand for healthier
indoor environments and to eliminate potential health hazards such as the
much-publicized "Sick Building Syndrome." These standards are found in Article
62-1989R "Standard for Acceptable Ventilation Rates" ("62-1989R") and have
gained the acceptance and support of many important and related institutions
such as the International Society for Indoor Air Quality ("ISIAQ") and other
worldwide environmental associations.
Management believes that the standards in 62-1989R will have a
far-reaching effect on the fresh air requirements for all new and existing
public buildings in Canada and the USA. These standards specify, among other
things, that 5 to 20 cubic feet per minute (CFM) per person of fresh air should
be introduced into all public places. The exact amount depends on the level of
activity and the capacity of the space in question.
<PAGE>
As a result, a new market has been created by these new fresh air
requirements. HVAC experts agree that the biggest challenge and key to avoid
"Sick Building Syndrome" is to introduce fresh air and to remove humidity from
said air. Moisture and humidity has been identified as one of the main causes of
health hazards such as Legionnaire's Disease.
Heightened IAQ awareness has created a niche market for new product
development. The Company has developed a product line of "Make-Up Air
Dehumidifiers" that management believes can solve what it perceives as the two
main problems in IAQ: moisture and humidity. The Company's products are capable
of bringing the required amounts of outdoor air into public areas while at the
same time dehumidifying the air, thus addressing the problems of moisture and
humidity.
The Company's engineers have designed its products for the IAQ market
with a reversible Water Source Heat Pump, a commonly used heating system that
can be easily connected to the popular water loop systems found today in almost
every building in every major North American city. Management believes that the
Company's Make-Up Air Dehumidifiers represent the most economical solution to
meet the new standards for healthy buildings. Management believes that its
Make-Up Air Dehumidifiers have the potential to become one of the Company's most
important and fastest growing product lines, along with its swimming pool
dehumidifiers.
In addition, the Company intends to aggressively market ThermoPlus' new
Air Filtration & Purification product line which management believes offers a
comprehensive solution to IAQ in industrial and non-industrial applications.
The Company's goal is to aggressively expand into the IAQ market, while
continuing to maintain and expand the individual markets currently served by the
Company.
EXPANSION PLANS
The Company has grown from a single product and single-market company
(Dectron) into a group of companies that cover a full range of humidity control,
IAQ control, energy recycling and refrigeration products and air purification,
and has production potential for both custom engineered and mass-produced
products. Management believes that the introduction of a complete line of
products to penetrate all segments of the IAQ market will put the Company in the
unique position of being one of the only fully integrated companies of its kind.
Management expects that with a strong sales and marketing strategy to promote
these and other subsequent products, the Company will experience a period of
substantial growth, although there can be no assurance thereof. The Company
plans to continuously inform its current and new targeted customers about its
products through technical seminars, product exhibitions and publication of
major events in industry journals.
The Company intends to strengthen its position in the United States by
establishing multiple regional sales and distribution offices. Management
believes that the Company's active presence in the United States with Dectron
products will allow it to closely track the performance of the Company's
products in the market and will help solidify alternate distribution networks
for its RefPlus product. Management also intends to aggressively pursue other
international markets, starting with South America, followed by the Caribbean
and Mexico.
The present need for specialized IAQ equipment in North America
represents a market, estimated by management to be in the multi-million dollar
range, in which only a limited number of companies have presently taken the
lead. Management believes that with the Company's team of engineering and design
specialists, it can be on the leading edge as a manufacturer and supplier of
specialized IAQ equipment into the next century.
BUSINESS STRATEGY
The Company's objective is to become North America's leading supplier
of dehumidification, refrigeration and other IAQ products, and to develop a
strong international sales network. As the Company intensifies its marketing
efforts, the Company will continue to attempt to increase its market share for
its various products.
<PAGE>
Management intends to place special emphasis in the short term on its RefPlus
products in the United States to address the need for HFC refrigeration, and on
ThermoPlus' Make-Up Air and Air Filtration & Purification products for the IAQ
market.
SALES AND MARKETING
The Company's current sales and marketing efforts take place at the
subsidiary level, with each subsidiary taking its own approach with respect to
its products.
Dectron markets its products on several levels. Nationally, Dectron
markets its products directly through trade magazines and industry associations,
as well as by attending and demonstrating its products at numerous trade shows
throughout North America. Regionally, Dectron markets its products through
non-employee sales representatives who enjoy exclusive rights to their
respective sales regions. At present, Dectron has approximately 120 regional
representatives throughout North America, and expects to add more in 1998.
Internationally, Dectron has sales coverage in England, Portugal, Israel, Kuwait
and Taiwan. Management believes that while the international markets provide
tremendous growth opportunities for the Company, it is important to first
develop a strong support network.
ThermoPlus' advertising and marketing is limited because the majority
of its revenues are derived from sales made to Dectron and Refplus. ThermoPlus
primarily sells its products through wholesalers in Canada, and through
manufacturing representatives, one based in Canada and the other based in the
United States. However, the Company recently began marketing ThermoPlus'
products, including its newly introduced Air Filtration & Purification product
line for the IAQ market, through Dectron's sales representatives.
RefPlus' marketing and advertising is currently done almost exclusively
through trade magazines. Most of its sales are through wholesalers and original
equipment manufacturers. Generally, RefPlus does not sell directly to the end
user. Its sales force currently consists of service personnel who are based at
the Company's headquarters, outside sales people based in Canada and in the
United States, and two sales agencies covering Canada and the United States with
approximately 22 representatives. Management believes that with the phasing out
of hydrochlorofluorocarbons ("HCFC") refrigeration products and the legislative
push towards HFC refrigeration products (like RefPlus products), RefPlus'
product line is well suited for an aggressive growth commitment.
Circul-aire markets its products on several levels. In Canada, the
Company's products are sold through a network of sales agents that cover every
province and major market area. In the United States, the Company's products
(air filtration and energy recuperation) are sold through a network of core
representation organizations. The Company is presently looking for additional
representatives to more fully cover the U.S. market.
In Asia and Europe, Circul-aire's market is extended through agents
located in each major market. Circul-aire has also opened branch offices staffed
with sales, engineering and service personnel in Jakarta, Indonesia, Bangalore,
India and Vancouver, Canada.
Circul-aire advertises in industry journals, magazines, has recently
launched its website where prospective customers can obtain information on its
products and also actively participates in trade associations and tradeshows.
Klaasco does not currently market a significant amount of its products
to outside purchasers. The majority of Klaasco's revenues are derived from sales
to Dectron.
COMPETITION
The industries in which the Company competes are highly competitive.
<PAGE>
The Company competes against a number of local, regional and national
manufacturers in each of its business segments, many of which have been in
existence longer than the Company and some of which have substantially
greater financial resources than the Company. The Company competes on various
basis, including price, quality and ability to meet delivery schedules.
Dectron competes with, among others, DesertAire and Engineered Air, and
Refplus and Thermoplus compete with, among others, Cancoil and Keeprite.
Circul-aire competes with, among others, Purafil and Unisorb. The Company
believes that competition from new entrants, especially in the IAQ markets
will come, if at all, from large corporations which may be able to compete
with the Company on the basis of price, and as a result may have a material
adverse affect on the results of operations of the Company. In addition,
there can be no assurance that other companies will not develop new or
enhanced products that are either more effective than the Company's products,
or would render its products non-competitive or obsolete.
EMPLOYEES
As of March 31, 1999, the Company (including the Subsidiaries)
employed a total of approximately 322 full-time employees, four of which are
in executive positions, 35 of whom are engaged in engineering and research
and development, 27 of whom are engaged in sales and related services, 34 of
whom are in administration, and the remainder of which are in production. Of
the Company's employees, 36 employees, all of who are at ThermoPlus, are
represented by an in-house union. Certain terms of their employment are part
of a collective bargaining agreement that expires in 2001. Management
considers its relations with its employees to be satisfactory.
PATENTS AND TRADEMARKS
The Company has two United States and two Canadian patents. The patents
expire between 2000 and 2011. Three of the patents relate to swimming pool
dehumidifiers and the other relates to the Method and Apparatus for Controlling
Heat Rejection in a Refrigeration System.
The Company has trademarked the Dectron and Dry-O-Tron names in both
the United States and Canada. The trademarks come up for renewal between 2000
and 2010. The company also holds the trademark in MultiMix and MM Multi-Mix in
the United States and Canada. The trademarks fall due for renewal in the year
2014. In addition the Company holds the trademark in CIRCUL-AIRE in the United
States and Canada. . The trademark falls due for renewal in 1999.
Item 2 PROPERTIES
The Company maintains its executive office at leased premises located
at 4300 Poirier Blvd., Montreal, Quebec H4R 2C5. This lease expires January 31,
2000, but may be renewed for an additional five years. The Company also has
seven additional manufacturing facilities, of which five are leased, two are
owned. All are located in or near Montreal, Quebec. The two owned
manufacturing facilities are located in St-Jerome and Boucherville, Quebec.
The facilities are in good condition and do not require any significant
capital expenditure. The Company maintains property insurance on the two
owned manufacturing facilities in an amount that it believes to be
sufficient. Of the five leased facilities, three of the leases expire on
January 31, 2000, but may be renewed for an additional five years. Of the
other two leases, one expires on August 31, 1999, but may be renewed for an
additional year and the other expires March 2001 but may be renewed for an
additional five-year term. The Company also leases, for a monthly rent of
$2,324, a 4,000 square foot sales and training facility in Roswell, Georgia.
The Company's facilities have an aggregate of approximately 215,000 square
feet. The Company pays an aggregate of approximately $20,470 rent per month.
The Company believes that suitable additional space will be available in the
future on commercially reasonable terms.
The Company is seeking International Quality Standard ISO-9001
certification for its Dectron facility and International Quality Standard
ISO-9002 certification for its Thermoplus facility. ISO 9001 and ISO 9002
<PAGE>
require the facility to meet certain stringent requirements established in
Europe but adopted throughout the world which ensure that facilities'
manufacturing processes, equipment and associated quality control systems
will satisfy specific customer requirements. Management believes that ISO
certification will benefit the Company in the markets in which it competes.
There is no assurance that ISO certification will be obtained in the near
future, if at all.
Item 3 LEGAL PROCEEDINGS
The Company is not currently a party to any legal proceedings.
PART II.
Item 1. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) The Company is traded on the NASDAQ - Small Cap Market and on the Boston
Stock Exchange. The high and low bid price of the Company's common stock for
each quarter of fiscal year ended January 31, 1999 are as follows:
<TABLE>
<CAPTION>
COMMON STOCK WARRANTS
High Low High Low
<S> <C> <C> <C> <C>
Fiscal year ended January 31, 1999: 8.25 1.50 2.093 0.437
First quarter (2/1/98 thru 4/30/98) NA NA NA NA
Second quarter (5/1/98 thru 7/31/98) NA NA NA NA
Third quarter ( 8/1/98 thru 10/31/98) 8.25 5.875 2.093 0.875
Fourth quarter ( 11/1/98 thru 1/31/99) 8.00 4.25 1.875 0.437
</TABLE>
The Company has not paid dividends on its Common Stock and does not anticipate
paying cash dividends in the foreseeable future. The Company intends to retain
any earnings to finance the growth of the Company.
PART III
Item 3. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The statements contained in this Filing that are not historical are
forward looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act, including statements regarding the
Company's expectations, intentions, beliefs or strategies regarding the future.
All forward looking statements include the Company's statements regarding
liquidity, anticipated cash needs and availability and anticipated expense
levels. All forward looking statements included in this report are based on
information available to the Company on the date hereof, and the Company assumes
no obligation to update any such forward looking statement. It is important to
note that the Company's actual results could differ materially from those in
such forward looking statements.
GENERAL
The Company has been in operation since June 1977 and has grown from a
single product and single market company into a group of companies that cover a
full range of humidity control, IAQ control, energy recycling, air purification
and refrigeration products which are marketed in worldwide. The Company secures
its contracts through a network of representatives. The Company is not dependent
upon any major customer for a significant portion of its revenues.
<PAGE>
The Company's goal is to aggressively seek a leading position in the
IAQ market through lateral growth and acquisition. The Company intends to devote
significant efforts to the development of equipment for the IAQ market.
Management anticipates that the IAQ market will have enormous growth in the next
25 years. The Company believes that there is a need in the North American market
for specialized IAQ equipment and this represents a tremendous opportunity. The
Company expects a period of substantial growth, which will be supported by a
strong marketing strategy to promote these and other subsequent new products.
On November 27, 1998, the Company acquired a 100% interest in the Circul-aire
Group ("Circul-aire") for a cash consideration of $ 2,377,895. Circul-aire,
based in Montreal, with clients throughout the world, specializes in air, gas
dust and fume filtration, Indoor Air Quality (IAQ) and heat recovery. On a
pro-forma basis, this transaction will result in an increase of approximately
$10 million dollars in revenues, and approximately $ 625,000 in net income. Net
profits will increase on a pro-forma basis to over $ 1.5 million dollars. Since
the transaction has not resulted in the issuance of any additional Common stock,
it is anticipated that this transaction will have a positive and immediate
impact on the Company's earning per share. The acquisition of Circul-aire,
having a similar corporate culture, similar operating methods, compatible
customer support philosophies and lines of products, consistent with those used
in the HVAC/air filtration industry, further widens the Company's base of
business and provides opportunities for cross selling various products and
services within the Company.
Results of Operations
FISCAL YEAR ENDED JANUARY 31, 1999 ("FISCAL 1999") COMPARED TO FISCAL ENDED YEAR
JANUARY 31, 1998 ("FISCAL 1998")
Revenues for the year ended January 31, 1999 were $ 20,215,849, a 23.5%
increase over prior year revenues of $ 3,845,000. This increase was in part due
to very good economic conditions in the Company's principal market, the United
States of America, good economic conditions also in Canada, the Company's
secondary market and a contribution of $ 1,002,775 from the Company's newly
acquired division, Circul-aire.
Gross profit increased by $ 924,483 to $ 6,517,972 over the same
period. This represents a decrease of 1.93%, expressed in relation to sales.
Compared to the increase in sales of 23.5%, the gross profit increased by 16.5%
due to a slightly higher cost of sales.
Selling and marketing expenses increased $ 255,862 in Fiscal 1999. 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 13.9% to 12.5%.
General and administrative expenses decreased by $ 84,033 from $
1,304,014 to $1,219,981. As a percentage of revenues, general and administrative
decreased from 7.9% to 6.0%. Both percentage and dollar amount decreases are a
result of better control on fixed costs and expenses
Financing expenses increased by $ 108,264 from $ 287,677 to $ 395,941.
As a percentage of revenues, financing expenses increased from 1.76% to 1.96%.
Income before income taxes was $ 1,640,391 an increase of $ 371,746
over the comparative period. Relative to sales, income before income taxes
slightly increased from 7.75% in Fiscal 1998 to 8.11% in Fiscal 1999.
Income tax expenses as a percentage of taxable income decreased from
32.0% for 1998 to 31.2% for 1999. Tax expenses increased by $ 105,896 mainly
because of the increase in taxable income.
As a result of the above factors, the Company`s net income increased
from $ 863,331 to $ 1,129,181, an increase of 30.8%.
<PAGE>
FISCAL YEAR ENDED JANUARY 31, 1998 ("FISCAL 1998") COMPARED TO FISCAL YEAR ENDED
JANUARY 31, 1997 ("FISCAL 1997")
Revenues for the year ended January 31, 1998 were $ 16,370,849, a 28.8%
increase over prior year revenues of $ 12,712,413. This increase was in part due
to expansion of our manufacturing facilities and increased production planning
and scheduling.
Gross profit increased by $1,359,361 to $ 5,593,489 over the same
period. This represents an increase of. 0.86%, expressed in relation to sales.
Compared to the increase in sales of 28.8%, the gross profit increased by 32.1%
due to a reduction in cost of sales.
Selling and marketing expenses increased $ 939,210 in Fiscal 1998.
Approximately $486,100 of this increase is a result of a change in the Company's
invoicing policy. To insure timely collection of receivables, the end user is
now invoiced and commissions are paid to the Company's representatives. The
remaining increase of $ 453,110 for this period reflects the costs of additional
personnel and marketing expenses necessitated by sales growth. As a percentage
of revenues, selling and marketing expenses increased from 10.5% to 13.9%.
General and administrative expenses increased by $ 48,442 from $
1,287,971 to $1,304,014. As a percentage of revenues, general and administrative
decreased from 10.1% to 7.9%. The percentage decrease is a result of fixed costs
and expenses; while the dollar increase is a result of annual salary increases.
Interest expenses decreased by $ 46,816 from $ 334,493 to $ 287,677. As
a percentage of revenue a diminution of 0.87%. This change reflects the
Company's decision to refinance operating and terms loans, and negotiate a
substantially improved banking facility with the National Bank of Canada in the
second half of Fiscal 1998
Income before income taxes was $ 1,268,645; an increase of $ 279,080
over the comparative period but relative to sales, remained at the same level in
both years (7.8%).
Income tax expenses as a percentage of taxable income increased to
32.0% for Fiscal 1998 from 22.6% for Fiscal 1997. Tax expenses increased by $
181,617 because of the increase in taxable income and non-deductible items.
As a result of the above factors, the Company`s net income increased
from $ 696,778 to $ 863,331, an increase of 23.9%.
LIQUIDITY AND CAPITAL RESOURCES
In Fiscal 1999, the Company generated a negative cash flow from
operating activities of $ 623,641 due mainly to higher accounts receivable, and
the implementation of a stocking program, following consolidation of the
Company's acquisition of Circul-aire. In Fiscal 1998, the Company generated a
positive cash flow from operating activities of $ 65,181.
The principal source of cash was an increase in accounts payable of $
2,133,797, net income of $ 1,129,181, and non-cash items in the amount of $
733,744. Accounts payable increased because of the increased volume in business.
Net income increased principally because of increased revenues. Non-cash items
increased due to investment in capital assets. The principal uses of cash were
an increase in accounts receivable of $ 2,955,035 and increase in inventory of $
1,320,706. Increases in accounts payable, accounts receivable, inventory and
non-cash items are also affected by the consolidation of the Company's new
acquisition, Circul-aire. Cash flow from investing activities was reduced by $
3,871,176 mainly as a result of the purchase of the Company's new division,
Circul-aire for $ 2,377,895 and acquisition of new machinery and equipment.
Financing activities provided net cash flow in the amount of $ 4,830,904. The
principal sources of cash flow from financing came from the net proceeds of the
Company's initial public offering in the amount of $ 4,932,834 and the issuance
of notes payable in the amount of $ 533,199. The principal uses of cash flow
<PAGE>
from financing were repayment of bank loan payable in the amount of $ 296,325
and minority interest in the amount of $ 352,469. Net cash flow generated after
all activities was $ 361,547.
FISCAL 1999
In fiscal 1999, the Company renewed a secured credit arrangement with
National Bank of Canada. This new facility included an aggregated credit line of
Cdn $ 7,000,000 of which Cdn $3,500,000 can be financed through bankers
acceptance. The amount available to the Company is equal to 75% of "eligible
accounts receivable" as defined in the Line of Credit Agreement, plus 50% of the
inventory values, net of work in process, up to a maximum advance against
inventory of approximately $ 2,700,000. The Company's borrowings under the Line
of credit bears interest at Canadian prime plus .25%, which on January 31, 1999
amounted to 6.75%. Interest on any borrowings is payable monthly. The Company is
in full compliance with all of the banking covenants (including financial
covenants and ratios) and is required to report to its bankers on a monthly
basis. The Company finances its operations mainly through the use of Bankers
Acceptance bearing an average lending rate of prime. All borrowings are
collateralized by the assets of the Company.
In November 1998, the Company also secured a 5 year financing in the
amount of Cdn $700,000 through the Immigrant Investors Program at an annual rate
of 5.59%. The Immigrant Investors Program is a program in Canada through which
persons seeking Canadian Citizenship pool monies for investment in companies
that meet established criteria. Interest is paid monthly and the Company is
committed to make monthly payments of Cdn $11,666 in a sinking fund which is
given as security against the immigrant loan. The sinking fund proceeds will be
applied to the outstanding balance, which is due in September 2003. The Company
intends to re-negotiate a new loan to replace the immigrant loan prior to the
immigrant loan's repayment date.
Through the acquisition of Circul-aire, the Company also acquired
existing credit facilities with Royal Bank of Canada consisting of a line of
credit in the amount of Cdn $3,000,000. The amount available to the Company is
equal to 75% of "eligible accounts receivable" as defined in the Line of Credit
Agreement, plus 50% of the inventory values, net of work in process, up to a
maximum advance against inventory of approximately $ 1,000,000. The Company's
borrowings under the Line of credit bears interest at an average of Canadian
prime plus .5%, which at January 31, 1999 amounted to 6.75%. Interest on any
borrowings is payable monthly. The Company is in full compliance with all of the
banking covenants (including financial covenants and ratios) and is required to
report to its bankers on a monthly basis. All borrowings are collateralized by
the assets of the Company.
FISCAL 1998
In November 1997, the Company renewed a secured credit arrangement with
National Bank of Canada. This new facility included an aggregated credit line of
Cdn $ 5,400,000 of which Cdn $ 2,700,000 can be financed through bankers
acceptance. The amount available to the Company is equal to 75% of "eligible
accounts receivable" as defined in the Line of Credit Agreement, plus 50% of the
inventory values, net of work in process, up to a maximum advance against
inventory of approximately $ 1,750,000. The Company's borrowings under the Line
of credit bears interest at Canadian prime plus 1/2% (1% for Thermoplus Air)
which at January 31, 1998 amounted to 6.0%. Interest on any borrowings is
payable monthly. The Company is in full compliance with all of the banking
covenants (included financial covenants and ratios) and is required to report to
its bankers on a monthly basis. The Company finances its operations mainly
through the use of Bankers Acceptance bearing an average lending rate of prime.
All borrowings are collateralized by the assets of the Company
In November 1997, the Company acquired one of it's leased manufacturing
facilities, financed as follows:
1) The Company secured a 5 year financing in the amount of Cdn $700,000
through the Immigrant Investors Program at a rate of 5.21%. The
Immigrant Investors Program is a program in Canada through which
persons seeking Canadian Citizenship pool monies for investment in
companies that meet
<PAGE>
established criteria. Interest is paid monthly and the Company is
committed to make monthly payments of Cdn $ 3,900 in a sinking fund
which is given as security against the immigrant loan. Said capital
repayment will be applied to the outstanding balance, which is due in
November 2002. The Company's intention is to re-negotiate a new
investor loan at that point in time.
2) The Company negotiated a balance of sale in the amount of Cdn $ 350,000
payable semi-annually (Cdn $ 58,888 per payment) without interest due
October 2000.
3) The Company also secured an additional amount of Cdn $ 150,000 from
National Bank of Canada at a fixed rate of 7.99% maturing in December
2002.
In November 1997, the Company also re-negotiated, at more favorable
conditions, a loan originally obtained through a " Company Assistance Program".
The Company obtained a term loan in the amount of Cdn $ 121,000 bearing interest
at prime plus 1% maturing in April 2002.
In November 1997, the Company also re-negotiated a "Small Business
Loan" and a bank term loan with a new term loan in the amount of Cdn $ 365,000
bearing average interest bank prime rate plus 1% per annum maturing in April
2002.
In Fiscal 1998, the principal source of cash were from net income of $
863,331, and from non-cash items in the amount of $ 461,100. Non-cash items
increased slightly due to investments in capital assets. The principal use of
cash was the increase in inventory of $ 1,311,838 and the increase in accounts
receivable of $ 385,013. Accounts receivable and inventory increased because of
the increase in the volume of business. Cash flow from investing activities was
reduced by $ 1,745,383 as a result of the purchase of a production facilities
and equipment in the amount of $1,978,811. Financing activities provided cash
flow in the amount of $ 1,562,022. The principal sources of cash flow from
financing come from advances from bank indebtedness in the amount of $ 1,504,150
and advances from long term debt in the amount of $ 453,346. The principal use
of cash flow from investing is repayment of loan payable in the amount of $
320,320. Net cash flow generated after all activities was negative in the amount
of $ 23,846.
YEAR 2000
Many computer systems used today may be unable to interpret data
correctly after December 31, 1999, because they allow only two digits to
indicate the year in a date. The Company has been engaged in assessing this Year
2000 issue as it relates to its business. This project, along with developing
and implementing solutions to the Year 2000 issue is continuing. Management
currently anticipates that the project, which is substantially completed, should
be completed and fully tested by the end of June 1999 and will not have a
material impact on the Company's financial result or position.
FOREIGN EXCHANGE
The Company is a Canadian company with U.S. sales amounting to
approximately 50% of it's total sales while the majority of the Company's
expenses are incurred in Canadian dollars. Due to the relatively high proportion
of sales in U.S. dollars, the Company's results could be adversely affected by
upward variations in the value of the Canadian dollar. As of January 31, 1999,
the Company did not have a formal foreign exchange policy in effect.
<PAGE>
Item 4. CHANGES IN ACCOUNTANTS AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
Item 10. FINANCIAL STATEMENTS
The Financial Statements are included with this report commencing on page
F-1.
PART IV.
Item 1. DIRECTOR, EXECUTIVE OFICERS, PROMOTERS AND CONTROL PERSONS
The Company intends to file with the Securities and Exchange Commission
within 120 days of the end of the fiscal year covered by this report an
information statement (the "Information Statement"), pursuant to Regulation 14C
pertaining to the Annual Meeting of Stockholders to be held in June, 1998.
Information regarding directors and executive officers of the Company will
appear under the caption "Election of Directors" in the Information Statement
and is incorporated herein by reference.
Item 2. EXECUTIVE COMPENSATION
Information regarding executive compensation will appear under the caption
"Executive Compensation" in the Information Statement and is incorporated herein
by reference.
<PAGE>
Item 3. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information regarding ownership of certain beneficial owners and management will
appear under the caption "Ownership of Securities" in the Information Statement
and is incorporated herein by reference.
Item 4. CERTAIN TRANSACTIONS
Information regarding Certain Transaction will appear under the caption "Certain
Transaction" in the Information Statement and is incorporated herein by
reference.
Item 5. SECTION 16(a) REPORTING
All executive officers and directors of the Company timely filed the reports
required under Section 16(a) of the Securities Exchange Act of 1934, as amended
during the fiscal year.
PART VI
Item 1. EXHIBITS LIST
*** 3.1 Bylaws of Registrant
** 3.2 Articles of Incorporation
** 4.1 Form of Underwriters' Warrant
** 4.2 Form of Public Warrant Agreement
** 4.3 Specimen Common Stock Certificate
** 4.4 Specimen Warrant Certificate
* 10.1 Form of Financial Consulting Agreement
**** 10.2 1998 Stock Option Plan
*** 10.3 Lease of Company's Executive offices, 4300 Poirier Blvd., Montreal
Quebec H4R-2C5
** 10.4 Form of Employment Agreement with Ness Lakdawala
** 10.5 Form of Shareholder's Restructuring Agreement
***** 10.6 Share Purchase Agreement dated November 14, 1998 by and between
Dectron Internationale, Inc., Investissements Novacap Inc., 9048-3140
Quebec Inc., Harry Topikian, Nick Agopian and Brian Monk.
***** 10.7 Closing Agreement dated November 27, 1998 by and between Dectron
Internationale Inc., Investissements Novacap Inc., 9048-3140 Quebec Inc.,
Harry Topikian, Nick Agopian and Brian Monk.}
* 21.1 List of Subsidiaries
* Incorporated by reference from registrant's Registration Statement on Form
SB-2, filed on July 17,1998.
** Incorporated by reference from registrant's Registration Statement on Form
SB-2, Amendment No.1, filed on August 26,1998.
*** Incorporated by reference from registrant's Registration Statement on Form
SB-2, Amendment No.2, filed on September 14,1998.
<PAGE>
**** Incorporated by reference from registrant's Registration Statement on Form
SB-2, Amendment No.3, filed on September 25,1998.
***** Incorporated by reference from registrant's Current Report on Form 8-K ,
filed on December 14,1998.
<PAGE>
Part VII
Item 1. RECENT SALE OF UNREGISTERED SECURITIES; USE OF PROCEEDS FROM REGISTERED
SECURITIES
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.
<TABLE>
<CAPTION>
EXPENSE AMOUNT
------- ------
<S> <C>
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
</TABLE>
- --------------
(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 utilized the net proceeds from the sale of the Securities in
the offering for the acquisition of Circul-aire ($2,377,895) and the balance for
repayment of debt and working capital.
<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.
April 30, 1999
By: /s/ NESS LAKDAWALA
----------------------
Ness Lakdawala
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the date indicated.
<TABLE>
<CAPTION>
Name Position Date
- ---- -------- ----
<S> <C> <C>
/s/ NESS LAKDAWALA Chairman, Chief Executive April 30, 1999
- ----------------------------- Officer
Ness Lakdawala
Executive Vice President April 30, 1999
---------------------------- and Director
Reinhold Kittler
/s/ ROSHAN KATRAK Vice President of Human April 30, 1999
---------------------------- Relations and Director
Roshan Katrak
/s/ MAURO PARISSI Chief Financial Officer, April 30, 1999
---------------------------- Secretary and Director
Mauro Parissi
Director April 30, 1999
----------------------------
Guy Houle
/s/ LEENA LAKDAWALA Executive Vice President April 30, 1999
---------------------------- and Director
Leena Lakdawala
Director April 30, 1999
----------------------------
Richard Ness
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS AT JANUARY 31, 1999
F1
<PAGE>
DECTRON INTERNATIONALE INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS AT JANUARY 31, 1999
TABLE OF CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors 1
Consolidated Balance Sheet 2 - 3
Consolidated Statement of Income 4
Consolidated Statement of Cash Flows 5 - 7
Consolidated Statement of Stockholders' Equity 8
Notes to Consolidated Financial Statements 9 - 24
</TABLE>
<PAGE>
[LETTERHEAD OMITTED]
REPORT OF INDEPENDENT AUDITORS
To the Stockholders of
Dectron Internationale Inc.
We have audited the consolidated balance sheet of Dectron Internationale Inc. as
at January 31, 1999 and the statements of income, cash flows and changes in
stockholders' equity for the year then ended. These consolidated financial
statements are the responsibility of the companies' management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the financial statements
are free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly , in all
material respects, the consolidated financial position of Dectron Internationale
Inc. as at January 31, 1999 and the consolidated results of its operations and
its cash flows for the year then ended, in conformity with generally accepted
accounting principles in the United States of America.
Montreal, Quebec
April 7, 1999 Chartered Accountants
<PAGE>
DECTRON INTERNATIONALE INC.
CONSOLIDATED BALANCE SHEET
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
January January
31, 31,
1999 1998
---------- ---------
<S> <C> <C>
$ $
ASSETS
Cash 389,702 28,155
Accounts receivable (note 2) 5,998,864 3,043,829
Inventory (note 3) 5,138,154 3,817,448
Current portion of loans receivable (note 4) 43,018 87,306
Prepaid expenses and sundry asset 629,260 292,931
---------- ---------
12,198,998 7,269,669
Sinking funds (note 5) 74,075 8,038
Loans receivable (note 4) 63,627 91,508
Property, plant and equipment (note 6) 5,406,295 4,111,085
Goodwill (note 7) 1,888,400 44,528
---------- ---------
19,631,395 11,524,828
---------- ---------
---------- ---------
</TABLE>
APPROVED ON BEHALF OF THE BOARD
Director
Director
<PAGE>
DECTRON INTERNATIONALE INC.
CONSOLIDATED BALANCE SHEET
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
January 31, January 31,
1999 1998
---------- ----------
<S> <C> <C>
$ $
LIABILITIES
Bank loans (note 8) 2,831,015 3,127,340
Accounts payable and accrued expenses
(note 9) 4,098,077 1,964,280
Income taxes payable 7,896 200,502
Current portion of long-term debt (note 10) 440,523 427,116
Notes payable (note 11) 533,199 -
Other loan payable 64,553 -
Current portion of deferred revenue (note 14) 161,226 127,857
---------- ----------
8,136,489 5,847,095
Long-term debt (note 10) 1,605,947 1,564,384
Due to director (note 12) 51,639 67,345
Loan payable (note 13) 259,052 355,336
Deferred revenue (note 14) 605,345 470,058
Deferred income taxes 426,300 410,643
---------- ----------
11,084,772 8,714,861
---------- ----------
Minority interest in equity consolidated entity - 352,469
---------- ----------
STOCKHOLDERS' EQUITY
Capital stock (note 15) 6,867,529 1,934,695
Retained earnings 1,746,761 617,580
Cumulative translation adjustments (67,667) (94,777)
---------- ----------
Total stockholders' equity 8,546,623 2,457,498
---------- ----------
Total liabilities and stockholders' equity 19,631,395 11,524,828
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
DECTRON INTERNATIONALE INC.
CONSOLIDATED STATEMENT OF INCOME
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
January January January
31, 31, 31,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
$ $ $
Net sales 20,215,849 16,370,849 12,712,413
Cost of sales 13,697,877 10,777,360 8,478,285
--------- --------- ---------
Gross profit 6,517,972 5,593,489 4,234,128
--------- --------- ---------
Operating expenses
Selling 2,527,915 2,272,053 1,332,843
General and administrative 1,219,981 1,304,014 1,287,971
Depreciation and amortization 733,744 461,100 289,256
Interest expense 395,941 287,677 334,493
--------- --------- ---------
4,877,581 4,324,844 3,244,563
--------- --------- ---------
Income before income taxes and minority
interest 1,640,391 1,268,645 989,565
Income taxes (note 16) 511,210 405,314 223,697
--------- --------- ---------
Income before minority interest 1,129,181 863,331 765,868
Minority interest in earnings of consolidated
entity - - 69,090
--------- --------- ---------
Net income 1,129,181 863,331 696,778
--------- --------- ---------
--------- --------- ---------
Net income per weighted
average common stock 0.40 0.49 0.40
--------- --------- ---------
--------- --------- ---------
Weighted average number of common stock
outstanding 2,795,000 1,750,000 1,750,000
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
DECTRON INTERNATIONALE INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
January January January
31, 31, 31,
1999 1998 1997
---------- ---------- --------
<S> <C> <C> <C>
$ $ $
Cash flows from operating activities:
Net income 1,129,181 863,331 696,778
Adjustments to reconcile net income to net
operating activities:
Depreciation and amortization 733,744 461,100 289,256
Loss on disposal of property, plant and
equipment - - 6,000
Minority interest - - 69,090
Increase in accounts receivable (2,955,035) (385,013) (527,956)
Increase in inventory (1,320,706) (1,311,838) (895,202)
Increase in prepaid expenses and sundry
assets (336,329) (116,901) (69,866)
Increase in accounts payable and accrued
expenses 2,133,797 309,169 12,074
Increase (decrease) in income taxes
payable (192,606) 299,641 171,087
Increase (decrease) in deferred income
taxes 15,657 (164,587) 8,640
Increase in deferred revenue 168,656 110,279 91,749
---------- ---------- --------
Net cash (used in) provided by operating
activities (623,641) 65,181 (148,350)
---------- ---------- --------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
January January January
31, 31, 31,
1999 1998 1997
--------- --------- -------
<S> <C> <C> <C>
$ $ $
Cash flows from investing activities:
Purchase of property, plant and equipment (1,939,538) (1,978,811) (556,323)
Proceeds from disposal of property, plant
and equipment - 233,428 7,467
Acquisition of Goodwill (1,931,638) - (60,147)
--------- --------- -------
Net cash used in investing activities (3,871,176) (1,745,383) (609,003)
--------- --------- -------
Cash flows from financing activities:
Acquisition of minority interest in equity
consolidated entity (352,469) - 311,796
Sinking funds (66,037) (8,038) -
Grant receivable - 25,019 (25,019)
Advances to directors (15,706) (29,996) 118,732
(Advances to) repayments from
corporate shareholders 72,169 (110,089) -
Repayments from loan receivable - 47,950 -
Notes payable 533,199 - -
Other loan payable 64,553 - -
Advances from long-term debt 54,970 453,346 (30,606)
Advances from (repayment of)
loan payable (96,284) (320,320) 626,406
Advances (repayments) of bank
loans (296,325) 1,504,150 294,224
Issuance of common shares 4,932,834 - (509,115)
--------- --------- -------
Net cash provided by financing activities 4,830,904 1,562,022 786,418
--------- --------- -------
Effect of foreign currency exchange rate
changes 25,460 94,334 (42,063)
--------- --------- -------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
January January January
31, 31, 31,
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
$ $ $
Net increase (decrease) in cash and cash
equivalents 361,547 (23,846) (12,998)
Beginning of year 28,155 52,001 64,999
------- ------- -------
End of year 389,702 28,155 52,001
------- ------- -------
------- ------- -------
Supplemental disclosure of cash
flow information
Interest 450,324 317,784 279,004
------- ------- -------
------- ------- -------
Income taxes 398,091 358,315 116,460
------- ------- -------
------- ------- -------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
AS AT JANUARY 31, 1999
<TABLE>
<CAPTION>
Common Stock
------------------------------ Cumulative
Retained Translation
Number Amount Earnings Adjustments
--------
<S> <C> <C> <C> <C>
$ $ $
Balance (deficit) January 31, 1995 91,292 1,934,713 (1,159,229) 45,108
Foreign currency translation - - - 25
Net income for the year - - 726,397 -
--------- --------- --------- -------
Balance January 31, 1996 91,292 1,934,713 (432,832) 45,133
Foreign currency translation - - - 28,589
Net income for the year - - 696,778 -
Redemption of shares over
stated capital (25) (18) (509,697) -
--------- --------- --------- -------
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)
--------- --------- --------- -------
--------- --------- --------- -------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
JANUARY 31, 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
JANUARY 31, 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
JANUARY 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
j) 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 year.
k) 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.
l) 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.
2. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
January January
31, 31,
1999 1998
--------- ---------
<S> <C> <C>
$ $
Accounts receivable 6,073,650 3,105,239
Less: Allowance for doubtful accounts 74,786 61,410
--------- ---------
Accounts receivable - net 5,998,864 3,043,829
--------- ---------
--------- ---------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
JANUARY 31, 1999
3. INVENTORY
Inventory is comprised of the following:
<TABLE>
<CAPTION>
January January
31, 31,
1999 1998
--------- ---------
<S> <C> <C>
$ $
Raw materials 3,182,498 2,247,631
Work-in-process 856,308 580,112
Finished goods 1,099,348 989,705
--------- ---------
5,138,154 3,817,448
--------- ---------
--------- ---------
</TABLE>
4. LOANS RECEIVABLE
The loans receivable consist of the following:
<TABLE>
<CAPTION>
January January
31, 31,
1999 1998
------- -------
<S> <C> <C>
$ $
Loan receivable - private company (secured) 61,138 63,467
Loan receivable - corporate shareholder
(unsecured) 45,507 115,347
------- -------
106,645 178,814
Current portion 43,018 87,306
------- -------
63,627 91,508
------- -------
------- -------
</TABLE>
These loans are non-interest bearing with no specific terms of repayment except
for the current portion which is expected to be repaid prior to January 31,
2000, and the balance is not expected to be received prior to February 1, 2000.
<PAGE>
DECTRON INTERNATIONALE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
JANUARY 31, 1999
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).
6. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
January January
31, 31,
1999 1998
--------- ---------
<S> <C> <C>
$ $
Land 229,980 238,733
Building 1,977,700 1,732,386
Machinery and manufacturing equipment 4,788,949 2,983,063
Furniture and fixtures 513,720 322,367
Computers 1,175,318 529,722
Rolling stock 91,831 15,181
Leasehold improvements 424,463 340,833
Equipment under capital lease 520,779 52,139
--------- ---------
Cost 9,722,740 6,214,424
--------- ---------
Less accumulated depreciation and amortization:
Building 244,168 174,779
Machinery and manufacturing equipment 2,309,951 1,005,575
Furniture and fixtures 390,403 234,100
Computers 854,833 381,279
Rolling stock 24,760 2,087
Leasehold improvements 320,582 287,696
Equipment under capital lease 171,748 17,823
--------- ---------
4,316,445 2,103,339
--------- ---------
Net 5,406,295 4,111,085
--------- ---------
--------- ---------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
JANUARY 31, 1999
7. GOODWILL
<TABLE>
<CAPTION>
January January
31, 31,
1999 1998
--------- -------
<S> <C> <C>
$ $
Cost 1,987,298 55,660
Less: Accumulated amortization 98,898 11,132
--------- ------
Net 1,888,400 44,528
--------- ------
--------- ------
</TABLE>
8. BANK LOANS
The bank loans bear interest at the prime lending rate plus 0.25% to 0.5%
per annum with interest payable monthly.
As security, the company has provided a moveable hypothec on accounts
receivable, inventories and commercial equipment, a $3,970,880 hypothec on
all assets of the company, including a first ranking hypothec in the
amount of $3,970,880 on the proceeds of all risks insurance on the
property and a solidary guarantee in the amount of $3,309,067.
The company finances its operations mainly through the use of Bankers
Acceptance bearing an average lending rate of less than prime.
<PAGE>
DECTRON INTERNATIONALE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
JANUARY 31, 1999
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
January January
31, 31,
1999 1998
--------- ---------
<S> <C> <C>
$ $
Accounts payable and accrued expenses are comprised of the following:
Trade payables 2,723,858 1,285,294
Accrued expenses 1,374,219 678,986
--------- ---------
4,098,077 1,964,280
--------- ---------
--------- ---------
</TABLE>
10. LONG-TERM DEBT
<TABLE>
<CAPTION>
January January
31, 31,
1999 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
repayments of $38,606 due April and October, maturing October 2000.
154,423 240,451
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.
463,269 480,901
c) Immigration loan secured by a first ranking universal hypothec on the
universality of the property, moveable and immoveable, present and
future, corporeal and incorporeal, bearing interest at 5.59% per
annum, due on September 2003.
463,269 -
d) Bank loan, bearing interest at prime plus 1% per annum repayable in
monthly capital repayments of $1,483, maturing April 2002. 57,833 78,509
--------- -------
Balance carried forward 1,138,794 799,861
--------- -------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
JANUARY 31, 1999
10. LONG-TERM DEBT (Continued)
<TABLE>
<CAPTION>
January January
31, 31,
1999 1998
--------- --------
<S> <C> <C>
$ $
Balance brought forward 1,138,794 799,861
e) Bank loan, bearing interest at prime rate plus 1% per annum repayable
in monthly capital repayments of $5,032 and a final
repayment of $5,038 plus interest, maturing November 2001. 171,107 240,308
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 $1,324. This loan was repaid
during the year. - 52,706
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 $33,091 per annum.
82,229 113,983
h) Bank term loan secured by machinery and equipment bearing interest at
prime plus 1.75% repayable in monthly capital repayments of
$2,758, maturing May 1999. 11,030 45,800
i) Small business investment loan, secured by machinery and equipment,
repayable in monthly instalments of $2,449 plus interest at prime
plus 1.75%, maturing February 2000. 35,407 63,479
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 $1,970. This loan was repaid during the year. - 103,652
--------- ---------
Balance carried forward 1,438,567 1,419,789
--------- ---------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
JANUARY 31, 1999
10. LONG-TERM DEBT (Continued)
<TABLE>
<CAPTION>
January January
31, 31,
1999 1998
--------- ---------
<S> <C> <C>
$ $
Balance brought forward 1,438,567 1,419,789
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 $553 plus a final
repayment of $66,668 in December 2002.
92,088 102,477
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 repayments of $1,655. This loan was
repaid during the year. - 147,705
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 $6,618. This
loan was repaid during the year. - 274,801
n) Obligation under capital lease for machinery and equipment subject to
blended monthly instalments of $7,848 including imputed interest
at 7.64% per annum to April 2000. 159,609 -
0) Obligation under capital lease for furniture and lab equipment
subject to blended monthly instalments of $5,670 included imputed
interest at 7.10% per annum to April 2001. 173,357 -
p) Government loans, without guarantee nor interest, repayable 15 years
after their date of receipt, the first portion of $30,443 received
July 1989 is repayable in July 2004. 60,887 -
--------- ---------
Balance carried forward 1,924,508 1,944,772
--------- ---------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
JANUARY 31, 1999
10. LONG-TERM DEBT (Continued)
<TABLE>
<CAPTION>
January January
31, 31,
1999 1998
--------- ---------
<S> <C> <C>
$ $
Balance brought forward 1,924,508 1,944,772
q) Government loan of an original amount of $205,083, without guarantee
nor interest, repayable in 4 equal annual instalments starting at the
latest on December 1, 1997, maturing in December 2000.
102,542 -
r) Other 19,420 46,728
--------- ---------
2,046,470 1,991,500
Less: Current portion 440,523 427,116
--------- ---------
1,605,947 1,564,384
--------- ---------
--------- ---------
</TABLE>
Future principal payment obligations are as follows:
<TABLE>
<S> <C> <C>
2000 $ 440,523
2001 396,873
2002 145,015
2003 570,347
2004 493,712
---------------
$ 2,046,470
--------------
--------------
</TABLE>
11. NOTES PAYABLE
The notes payable are non-interest bearing for which a portion of $380,981
is payable by 12 equal monthly payments of $31,748 beginning February 1,
1999 and the balance of $152,218 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
JANUARY 31, 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>
January January
31, 31,
1999 1998
------- -------
<S> <C> <C>
$ $
Deferred revenue 766,571 597,915
Current portion 161,226 127,857
------- -------
605,345 470,058
------- -------
------- -------
</TABLE>
Deferred revenue will be recognized as income as follows:
<TABLE>
<S> <C> <C>
2000 $ 161,226
2001 216,524
2002 177,409
2003 136,867
2004 74,545
---------------
$ 766,571
--------------
--------------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
JANUARY 31, 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>
January January
31, 31,
1999 1998
--------- ---------
<S> <C> <C>
$ $
2,795,000 common shares 6,867,529 -
Thermoplus Air Inc.
91,242 Class A common shares - 1,934,525
159653 Canada Inc.
1,571,000 Class D shares - 152
25 Class A shares - 18
--------- ---------
6,867,529 1,934,695
--------- ---------
--------- ---------
</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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
JANUARY 31, 1999
16. INCOME TAXES
Provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Year
Ended Ended
January January
31, 31,
1999 1998
-------- -------
<S> <C> <C>
$ $
a) Current 480,064 531,383
Deferred (recovered) 31,146 (126,069)
-------- -------
511,210 405,314
-------- -------
-------- -------
b) Current income taxes consists of amount
calculated at basic combined federal and
provincial rates 480,064 568,446
Increase (decrease) resulting from:
Application of losses carried forward from prior year - (20,224)
Small business deduction - (22,984)
Manufacturing and processing (114,828) (72,051)
Timing differences 145,974 84,267
Other - (6,071)
-------- -------
Effective income taxes 511,210 531,383
-------- -------
-------- -------
</TABLE>
c) Deferred income taxes represent the tax benefits derived from timing
differences between depreciation of plant and equipment and
recognition of warranty revenue charged to operations and amounts
deducted from taxable income.
<PAGE>
DECTRON INTERNATIONALE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
JANUARY 31, 1999
17. COMMITMENTS AND CONTINGENCIES
a) The company is committed to payments under operating leases for its
premises totalling $344,560. Annual payments for the next three years
are as follows:
<TABLE>
<S> <C> <C>
2000 $ 223,302
2001 108,510
2002 12,748
---------------
$ 344,560
--------------
--------------
</TABLE>
b) The company is committed to make monthly payments of $10,302 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> <C>
2000 $ 123,630
2001 123,630
2002 123,630
2003 123,630
2004 58,450
</TABLE>
c) The company is in the process of constructing additional
manufacturing facilities. The expected cost to complete the project
is approximately $595,500 of which $284,500 has 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.
18. SEGMENTED INFORMATION
<TABLE>
<CAPTION>
Year Year
Ended Ended
January January
31, 31,
1999 1998
---------- ----------
<S> <C> <C>
$ $
The breakdown of sales by geographic area is as follows:
Canada 9,531,130 5,698,411
United States of America 10,191,540 10,672,438
International 493,179 -
---------- ----------
20,215,849 16,370,849
---------- ----------
---------- ----------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
JANUARY 31, 1999
19. 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
JANUARY 31, 1999
20. 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
recognize 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.
