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Previous: LODESTAR HOLDINGS INC, 10-Q, 1999-09-14 |
Next: COYNE INTERNATIONAL ENTERPRISES CORP, 10-Q, 1999-09-14 |
<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 July 31, 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: July 30, 1999, 2,795,000
Common Shares outstanding
Transitional Small Business Disclosure (check One):
Yes [ ] No [ X ]
<PAGE>
DECTRON INTERNATIONALE INC.
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1- FINANCIAL STATEMENTS
Consolidated Balance Sheet - July 31, 1999........................
Consolidated Statements of Income - For the three months ended
July 31, 1999 ....................
Consolidated Statements of Cash Flows - For the six months
ended July 31, 1999 and July 31, 1998.............................
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
- ----------
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999
<TABLE>
TABLE OF CONTENTS
<S> <C>
Interim Consolidated Balance Sheet 2 - 3
Interim Consolidated Statement of Income For The Three Months Period Ended July 31, 1999 4 - 6
Interim Consolidated Statement of Cash Flows 7 - 9
Interim Consolidated Statement of Stockholders' Equity 10
Interim Notes to Consolidated Financial Statements 11 - 26
</TABLE>
<PAGE>
ITEM 1
DECTRON INTERNATIONALE INC.
INTERIM CONSOLIDATED BALANCE SHEET
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
July 31, January 31,
1999 1999
--------------- ---------------
$ $
ASSETS
<S> <C> <C>
Cash 682,654 389,702
Accounts receivable (note 2) 6,387,511 5,998,864
Inventory (note 3) 5,531,033 5,138,154
Current portion of loans receivable - 43,018
(note 4)
Prepaid expenses and sundry asset 1,375,086 629,260
--------------- ---------------
13,976,284 12,198,998
Sinking funds (note 5) 138,368 74,075
Loans receivable (note 4) 94,898 63,627
Property, plant and equipment (note 6) 5,770,874 5,406,295
Goodwill (note 7) 1,794,034 1,888,400
--------------- ---------------
21,774,458 19,631,395
--------------- ---------------
--------------- ---------------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM CONSOLIDATED BALANCE SHEET
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
July 31, January 31,
1999 1999
--------------- ---------------
$ $
LIABILITIES
<S> <C> <C>
Bank loans (note 8) 3,939,360 2,831,015
Accounts payable and accrued expenses
(note 9) 4,334,725 4,098,077
Income taxes payable 20,102 7,896
Current portion of long-term debt (note 10) 379,872 440,523
Notes payable (note 11) 229,146 533,199
Other loan payable - 64,553
Current portion of deferred revenue (note 14) 189,634 161,226
--------------- ---------------
9,092,839 8,136,489
Long-term debt (note 10) 1,898,187 1,605,947
Due to director (note 12) 49,987 51,639
Loan payable (note 13) 259,860 259,052
Deferred revenue (note 14) 664,111 605,345
Deferred income taxes 427,631 426,300
--------------- ---------------
12,392,615 11,084,772
--------------- ---------------
STOCKHOLDERS' EQUITY
Capital stock (note 15) 6,867,529 6,867,529
Retained earnings 2,600,644 1,746,761
Cumulative translation adjustments (86,330) (67,667)
--------------- ---------------
Total stockholders' equity 9,381,843 8,546,623
--------------- ---------------
Total liabilities and stockholders' equity 21,774,458 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 SIX MONTHS ENDED JULY 31, 1999 AND 1998
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Six Months Six MonthS
Ended Ended
July 31, July 31,
1999 1998
----------------------------
$ $
<S> <C> <C>
Net sales 14,282,994 9,902,591
Cost of sales 9,797,322 6,803,680
-------------- --------------
Gross profit 4,485,672 3,098,911
-------------- --------------
Operating expenses
Selling 1,734,945 1,144,639
General and administrative 797,534 613,206
Depreciation and amortization 520,015 238,169
Interest expense 173,763 164,564
-------------- --------------
3,226,257 2,160,578
-------------- --------------
Income before income taxes 1,259,415 938,333
Income taxes 405,532 330,981
-------------- --------------
Net Income 853,883 607,352
-------------- --------------
-------------- --------------
</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 JULY 31, 1999
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended
July 31, July 31,
1999 1998
----------------------------------
$ $
<S> <C> <C>
Net sales 6,966,199 4,768,847
Cost of sales 4,640,536 3,096,376
-------------- --------------
Gross profit 2,325,663 1,675,471
-------------- --------------
Operating expenses
Selling 876,337 612,936
General and administrative 391,132 323,231
Depreciation and amortization 266,831 146,448
Interest expense 85,351 68,800
-------------- --------------
1,619,651 1,115,415
-------------- --------------
Income before income taxes 706,012 524,056
Income taxes 220,677 214,974
-------------- --------------
Net Income 485,335 309,082
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
DECTRON INTERNATIONALE INC
INTERIM CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JULY 31, 1999
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
July 31, January 31,
1999 1999
------------------------------------
$ $
<S> <C> <C>
Net sales 14,282,994 20,215,849
Cost of sales 9,797,322 13,697,877
-------------- ----------------
Gross profit 4,485,672 6,517,972
-------------- ----------------
Operating expenses
Selling 1,734,945 2,527,915
General and administrative 797,534 1,219,981
Depreciation and amortization 520,015 733,744
Interest expense 173,763 395,941
-------------- ----------------
3,226,257 4,877,581
-------------- ----------------
Income before income taxes 1,259,415 1,640,391
Income taxes 405,532 511,210
-------------- ----------------
Net Income 853,883 1,129,181
-------------- ----------------
-------------- ----------------
Net income per common stock 0.31 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 SIX MONTHS ENDED JULY 31, 1999
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
July 31, January 31,
1999 1999
--------------------------------------
$ $
<S> <C> <C>
Cash flows from operating activities:
Net income 853,883 1,129,181
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization 424,820 733,744
Loss on disposal of property, plant and
equipment -- --
Increase in accounts receivable (388,647) (2,955,035)
Increase in inventory (392,879) (1,320,706)
Increase in prepaid expenses and sundry
assets (745,826) (336,329)
Increase in accounts payable and accrued
expenses 236,648 2,133,797
Increase (decrease) in income taxes
payable 12,206 192,606
Increase (decrease) in deferred income
taxes -- 15,657
Increase in deferred revenue 87,174 168,656
---------- ----------
Net cash (used in) provided by operating
activities 87,379 (623,641)
---------- ----------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 31, 1999
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
July 31, January 31,
1999 1999
-------------------------------------
$ $
<S> <C> <C>
Cash flows from investing activities:
Purchase of property, plant and equipment (777,042) (1,939,538)
Acquisition of Goodwill - (1,931,638)
-------------- ---------------
Net cash used in investing activities (777,042) (3,871,176)
Cash flows from financing activities:
Acquisition of minority interest in equity - (352,469)
consolidated entity
Sinking funds (64,293) (66,037)
Advances to directors - 15,706
(Advances to) repayments from
corporate shareholders - 72,169
Notes payable (304,053) 533,199
Other loan payable (64,553) 64,553
Advances from (re-payment of)
long term debt 231,589 54,970
Advances from (repayment of)
loan payable 11,747 (96,284)
Advances (repayments) of bank loans 1,108,345 (296,325)
Issuance of common shares - 4,932,834
-------------- ---------------
Net cash provided by financing activities 918,782 4,830,904
Effect of foreign currency exchange rate
changes 63,833 25,460
-------------- ---------------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 31, 1999
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
July 31, January 31,
1999 1999
---------------------------------------
$ $
<S> <C> <C>
Net increase (decrease) in cash and cash 292,952 361,547
equivalents
Beginning of year 389,702 28,155
--------------- -----------------
End of year 682,654 389,702
--------------- -----------------
--------------- -----------------
Supplemental disclosure of cash
flow information
Interest 110,856 450,324
--------------- -----------------
--------------- -----------------
Income taxes 426,595 398,091
--------------- -----------------
--------------- -----------------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
JULY 31, 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 - - 853,883
July 31, 1999
Foreign currency translation (18,663)
July 31, 1999
---------- ---------- ---------- ----------
Balance July 31, 1999 2,795,000 6,867,529 2,600,644 (86,330)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
JULY 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 approximate
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.
<PAGE>
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)
JULY 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% declning 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
<PAGE>
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)
JULY 31, 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 expense 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)
JULY 31, 1999
2. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
July January
31, 31,
1999 1999
--------------- ---------------
$ $
<S> <C> <C>
Accounts receivable 6,476,876 6,073,650
Less: Allowance for doubtful accounts 89,367 74,786
--------------- ---------------
Accounts receivable - net 6,387,509 5,998,864
--------------- ---------------
--------------- ---------------
</TABLE>
3. INVENTORY
Inventory is comprised of the following:
<TABLE>
<CAPTION>
JULY JANUARY 31,
31, 1999
1999
--------------- ---------------
$ $
<S> <C> <C>
Raw materials 3,674,566 3,182,498
Work-in-process 873,463 856,308
Finished goods 983,004 1,099,348
--------------- ---------------
5,531,033 5,138,154
--------------- ---------------
--------------- ---------------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
JULY 31, 1999
4. LOANS RECEIVABLE
The loans receivable consist of the following:
<TABLE>
<CAPTION>
July January
31, 31,
1999 1999
---- ----
$ $
<S> <C> <C>
Loan receivable - private company (secured) 28,251 61,138
Loan receivable - corporate shareholder
(unsecured) 61,759 45,507
--------------- ---------------
89,759 106,645
Current portion - 43,018
--------------- ---------------
89,759 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)
JULY 31, 1999
6. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
JULY JANUARY 31,
31, 1999
1999
--------------- ---------------
$ $
<S> <C> <C>
Land 230,678 229,980
Building 2,386,440 1,977,700
Machinery and manufacturing equipment 5,084,870 4,788,949
Furniture and fixtures 525,543 513,720
Computers 1,241,947 1,175,318
Rolling stock 97,320 91,831
Leasehold improvements 430,942 424,463
Equipment under capital lease 522,404 520,779
--------------- ---------------
Cost 10,520,164 9,722,740
--------------- ---------------
Less accumulated depreciation and amortization:
Building 286,659 244,168
Machinery and manufacturing equipment 2,547,841 2,309,951
Furniture and fixtures 407,768 390,403
Computers 928,928 854,833
Rolling stock 36,897 24,760
Leasehold improvements 333,927 320,582
Equipment under capital lease 207,270 171,748
--------------- ---------------
4,749,290 4,316,445
--------------- ---------------
Net 5,770,874 5,406,295
--------------- ---------------
--------------- ---------------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
JULY 31, 1999
7. GOODWILL
<TABLE>
<CAPTION>
JULY JANUARY
31, 31,
1999 1999
--------------- ---------------
$ $
<S> <C> <C>
Cost 1,993,499 1,987,298
Less: Accumulated amortization 199,465 98,898
--------------- ---------------
Net 1,794,034 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 $3,983,270 hypothec on
all assets of the company, including a first ranking hypothec in the
amount of $3,983,270 on the proceeds of all risks insurance on the
property and a solidary guarantee in the amount of $3,319,392.
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>
July January
31, 31,
1999 1999
--------------- ---------------
$ $
Accounts payable and accrued expenses are comprised of the following:
<S> <C> <C>
Trade payable 2,239,644 2,723,858
Accrued expenses 2,095,081 1,374,219
--------------- ---------------
4,334,725 4,098,077
--------------- ---------------
--------------- ---------------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
JULY 31, 1999
10. LONG-TERM DEBT
<TABLE>
<CAPTION>
JULY JANUARY
31, 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 $38,726 due April and October, maturing October 2000.
This loan was paid during the period. - 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. 464,715 463,269
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. 464,715 463,269
d) 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 5.26% per
annum, due on May 2004. 464,715 463,269
e) Bank loan, bearing interest at prime plus 1% per annum repayable in
monthly capital repayments of $1,488, maturing April 2002. 49,087 57,833
--------------- ---------------
Balance carried forward 1,443,232 1,138,794
--------------- ---------------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
JULY 31, 1999
10. LONG-TERM DEBT (Continued)
<TABLE>
<CAPTION>
July January
31, 31,
1999 1999
--------------- ---------------
$ $
<S> <C> <C>
Balance brought forward 1,443,232 1,138,794
f) Bank loan, bearing interest at prime rate plus 1% per annum
repayable in monthly capital repayments of 5,053 and a final
repayment of $5,053 plus interest, maturing November 2001 140,984 171,107
g) The loan from Societe Development 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 $33,194 per
annum. 76,953 82,229
h) Bank term loan secured by machinery and equipment bearing interest
at prime plus 1.75% repayable in monthly capital repayments of
$2,766, maturing May 1999. This loan was paid during the period. - 11,030
i) Small business investment loan, secured by machinery and equipment,
repayable in monthly instalments of $2,456 plus interest at prime
plus 1.75%, maturing February 2000. 18,323 35,407
j) Bank loan, bearing interest at prime rate plus 1% per annum
repayable in monthly capital repayments of $369 and a final
repayment of $43,879 plus interest, maturing May 2001 66,019 -
--------------- ---------------
Balance carried forward 1,745,511 1,438,567
--------------- ---------------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
JULY 31, 1999
10. LONG-TERM DEBT (Continued)
<TABLE>
<CAPTION>
July January
31, 31,
1999 1999
--------------- ---------------
$ $
<S> <C> <C>
Balance brought forward 1,745,511 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 $554 plus a final
repayment of $66,876 in December 2002.
89,049 92,088
l) Obligation under capital lease for machinery and equipment subject to
blended monthly instalments of $7,873 including imputed interest
at 7.64% per annum to April 2000. 118,324 159,609
m) Obligation under capital lease for furniture and lab equipment
subject to blended monthly instalments of $5,687 included imputed
interest at 7.10% per annum to April 2001. 145,646 173,357
n) Government loans, without guarantee nor interest, repayable 15 years
after their date of receipt, the first portion of $30,538 received
July 1989 is repayable in July 2004. 61,077 60,887
--------------- ---------------
Balance carried forward 2,159,607 1,924,508
--------------- ---------------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
JULY 31, 1999
10. LONG-TERM DEBT (Continued)
<TABLE>
<CAPTION>
July January
31, 31,
1999 1999
--------------- ---------------
$ $
<S> <C> <C>
Balance brought forward 1,876,028 1,924,508
o) Government loan of an original amount of $205,723, without guarantee
nor interest, repayable in 4 equal annual instalments starting at the
latest on December 1, 1997, maturing in December 2000.
102,861 102,542
p) Other 15,891 19,420
--------------- ---------------
2,278,059 2,046,470
Less: Current portion 379,872 440,523
--------------- ---------------
1,898,187 1,605,947
--------------- ---------------
--------------- ---------------
</TABLE>
Future principal payment obligations are as follows:
<TABLE>
<S> <C> <C>
2000 $ 379,872 $ 440,523
2001 266,029 396,873
2002 55,097 145,015
2003 538,248 570,347
2004 1,038,813 493,712
------------ ------------
$ 2,278,059 $ 2,046,470
------------ ------------
------------ ------------
</TABLE>
<PAGE>
11. NOTES PAYABLE
The notes payable are non-interest bearing for which a portion of $382,170
is payable by 12 equal monthly payments of $32,924 beginning February 1,
1999 and the balance of $152,692 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)
JULY 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>
July January
31, 31
1999 1999
--------------- ---------------
$ $
<S> <C> <C>
Deferred revenue 853,745 766,571
Current portion 189,953 161,226
--------------- ---------------
664,111 605,345
--------------- ---------------
--------------- ---------------
</TABLE>
Deferred revenue will be recognized as income as follows:
<TABLE>
<S> <C> <C>
2000 $ 189,634 $ 161,226
2001 196,953 216,524
2002 156,831 177,409
2003 107,987 136,867
2004 202,340 74,545
------------ ------------
$ 853,745 $ 766,571
------------ ------------
------------ ------------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
JULY 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>
July January
31, 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)
JULY 31, 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 $ 166,424
2001 67,211
---------------
$ 233,635
---------------
---------------
</TABLE>
b) The company is committed to make monthly payments of $12,990 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 $ 155,881
2001 155,881
2002 155,881
2003 93,918
2004 28,613
</TABLE>
c) The company completed construction of additional manufacturing
facilities. The total cost incurred for the project is $680,196.
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>
Six Year
Months Ended
Ended January
July 31, 31,
1999 1999
--------------- ---------------
$ $
The breakdown of sales by geographic area is as follows:
<S> <C> <C>
Canada 5,202,450 9,531,130
United States of America 7,124,589 10,191,540
International 1,955,955 493,179
--------------- ---------------
14,282,994 20,215,849
--------------- ---------------
--------------- ---------------
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
JULY 31, 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
---------------
---------------
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>
<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)
JULY 31, 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
SIX MONTH PERIOD ENDED JULY 31, 1999 COMPARED TO SIX MONTH PERIOD ENDED JULY 31,
1998.
Revenues for the six month period ended July 31, 1999 were $14,282,994, a
44.23% increase over prior year revenues of $9,902,591. A major part of this
increase is due to the consolidation of the Company's newly acquired division,
Circul-aire.
Gross profit increased by $1,386,761 to $4,485,672 over the same period.
This represents a slight increase of 0.12%, expressed in relation to sales. Due
to low manufacturing costs, gross profit increased by 44.75% compared to an
increase in sales of 44.23%.
Selling and marketing expenses increased $590,306 in the six month period
ended July 31, 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 11.56% to 12.15%.
General and administrative expenses increased by $184,328 from $613,206 to
$797,534. As a percentage of revenues, general and administrative decreased from
6.19% to 5.58%. The increase in dollar amount reflects the costs of integrating
Circul-aire's general and administrative expenses in the Company's results.
Financing expenses increased by $ 9,199 from $164,564 to $173,763. As a
percentage of revenues, financing expenses decreased from 1.66% to 1.22%
Income before income taxes was $1,259,415, an increase of $321,082
compared to the six month period ended July 31, 1998. Relative to sales, income
before income taxes slightly decreased from 9.48% for the six month period ended
July 31, 1998 to 8.82% in the six month period ended July 31, 1999.
Provisions for Income tax expenses as a percentage of taxable income
decreased from 35.27% for the six month ended July 31, 1998 to 32.2% for 1999.
Tax expenses increased by $74,5511 mainly because of the increase in taxable
income.
As a result of the above factors, the Company`s net income increased from
$607,352 to $853,883, an increase of 40.59%.
THREE MONTH PERIOD ENDED JULY 31, 1999 COMPARED TO THREE MONTH PERIOD ENDED JULY
31, 1998.
Revenues for the three month period ended July 31, 1999 were $6,966,199, a
46.08% increase over prior year revenues of $4,768,847. A major part of this
increase is due to the consolidation of the Company's newly acquired division,
Circul-aire.
Gross profit increased by $653,192 to $2,325,663 over the same period.
This represents a slight decrease of 1.69%, expressed in relation to sales.
Gross profit increased by 39.06% compared to an increase in sales of 46.08%.
Selling and marketing expenses increased $263,401 in the three month
period ended July 31, 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
slightly decreased from 12.85% to 12.58%.
<PAGE>
General and administrative expenses increased by $67,901 from $323,231 to
$391,132. As a percentage of revenues, general and administrative decreased from
6.78% to 5.61%. The increase in dollar amount reflects the costs of integrating
Circul-aire's general and administrative expenses in the Company's results.
Financing expenses increased by $16,551 from $68,800 to $85,351. As a
percentage of revenues, financing expenses decreased from 1.44% to 1.23%
Income before income taxes was $706,012, an increase of $181,956 compared
to the three month period ended July 31, 1998. Relative to sales, income before
income taxes slightly decreased from 10.99% for the three month period ended
July 31, 1998 to 10.13% in the three month period ended July 31, 1999.
Provisions for Income tax expenses as a percentage of taxable income
decreased from 41.02% for the three month ended July 31, 1998 to 31.26% for
1999. Tax expenses increased by $5,703 mainly because of the increase in taxable
income.
As a result of the above factors, the Company's net income increased from
$309,082 to $485,335, an increase of 57.02%.
LIQUIDITY AND CAPITAL RESSOURCES
The Company had a positive net change in cash of $292,952 for the six month
period ended April 30, 1999. The principal sources of cash were net income of
853,883, advances of bank loans in the amount of $1,108,345 and depreciation and
amortization of $424,820. Principal uses of cash were the cost of construction
on the Company's new manufacturing facilities for $680.196, an increase of
$745,825 in prepaid and sundry assets, an increase in inventory in the amount of
$392,879and an increase in accounts receivable in the amount of $388,647.
For the six month period ended April 30, 1998, the Company had a negative net
change in cash of $ 8,830. The principal sources of cash flow was from operating
activities in the amount of $607,352 and advances of bank indebtedness of $
753,239. The principal uses were an increase of accounts receivables in the
amount of $1,286,832 and the purchasing of machinery and equipment in the amount
of $632,425
<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.
September 13, 1999 By:/s/ Mauro Parissi
-----------------
Mauro Parissi
Chief Financial Officer/Principal Accounting
Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF NET INCOME INCLUDED IN
THE REGISTRANT'S FORM 10-QSB FOR THE QUARTER ENDED JULY 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> JUL-31-1999
<CASH> 682,654
<SECURITIES> 0
<RECEIVABLES> 6,476,876
<ALLOWANCES> 89,367
<INVENTORY> 5,531,033
<CURRENT-ASSETS> 13,976,284
<PP&E> 10,520,164
<DEPRECIATION> 4,749,290
<TOTAL-ASSETS> 21,774,458
<CURRENT-LIABILITIES> 9,092,839
<BONDS> 3,299,776
0
0
<COMMON> 6,867,529
<OTHER-SE> 2,514,314
<TOTAL-LIABILITY-AND-EQUITY> 21,774,458
<SALES> 14,282,994
<TOTAL-REVENUES> 14,282,994
<CGS> 9,797,322
<TOTAL-COSTS> 12,849,816
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 173,763
<INCOME-PRETAX> 1,259,415
<INCOME-TAX> 405,532
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 853,883
<EPS-BASIC> 0.31
<EPS-DILUTED> 0.31
</TABLE>
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