<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 October 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: October 31, 1999, 2,795,000
Common Shares outstanding
Transitional Small Business Disclosure (check One):
Yes [ ] No [ X ]
<PAGE>
DECTRON INTERNATIONALE INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1- FINANCIAL STATEMENTS
Interim Consolidated Balance Sheet - October 31, 1999.......................... 1-2
Interim Consolidated Statements of Income - For the nine months ended
October 31, 1999............................................................... 3
Interim Consolidated Statements of Income - For the three months ended
October 31, 1999............................................................... 4
Interim Consolidated Statements of Cash Flows - For the nine months ended
October 31, 1999 and October 31, 1998.......................................... 5-7
Interim Consolidated Statement of Stockholder's Equity - October 31, 1999...... 8
Notes to Financial Statements.................................................. 9-24
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS.................................................. 25
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K........................................................ 28
SIGNATURES....................................................................................... 29
</TABLE>
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999
TABLE OF CONTENTS
<TABLE>
<S> <C>
Interim Consolidated Balance Sheet..............................................................................1-2
Interim Consolidated Statement of Income For The Nine Month Period Ended October 31, 1999........................3
Interim Consolidated Statement of Income For The Three Month Period Ended October 31, 1999.......................4
Interim Consolidated Statement of Cash Flows....................................................................5-7
Interim Consolidated Statement of Stockholders' Equity...........................................................8
Interim Notes to Consolidated Financial Statements..............................................................9-24
</TABLE>
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
DECTRON INTERNATIONALE INC.
INTERIM CONSOLIDATED BALANCE SHEET
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1999 1999
$ $
<S> <C> <C>
ASSETS
CASH 364,170 389,702
ACCOUNTS RECEIVABLE (NOTE 2) 8,411,111 5,998,864
INVENTORY (NOTE 3) 6,611,578 5,138,154
CURRENT PORTION OF LOANS RECEIVABLE (NOTE 4) - 43,018
PREPAID EXPENSES AND SUNDRY ASSET 1,588,180 629,260
--------------- ---------------
16,975,039 12,198,998
SINKING FUNDS (NOTE 5) 188,154 74,075
LOANS RECEIVABLE (NOTE 4) 91,963 63,627
PROPERTY, PLANT AND EQUIPMENT (NOTE 6) 8,586,916 5,406,295
PATENTS AND TRADEMARKS 99,166 -
GOODWILL (NOTE 7) 1,785,390 1,888,400
--------------- ---------------
27,726,628 19,631,395
=============== ===============
</TABLE>
1
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM CONSOLIDATED BALANCE SHEET
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1999 1999
$ $
<S> <C> <C>
LIABILITIES
Bank loans (note 8) 4,650,685 2,831,015
Accounts payable and accrued expenses (note 9) 5,085,223 4,098,077
Income taxes payable 6,247 7,896
Current portion of long-term debt (note 10) 341,047 440,523
Notes payable (note 11) 118,033 533,199
Other note payable (note 12) 600,000 -
Other loan payable - 64,553
Current portion of deferred revenue (note 14) 208,429 161,226
------------------ -----------------
11,009,664 8,136,489
Long-term debt (note 10) 1,932,821 1,605,947
Other note payable (note 12) 3,400,000
Due to director (note 13) 51,176 51,639
Loan payable (note 14) 261,284 259,052
Deferred revenue (note 15) 701,669 605,345
Deferred income taxes 437,803 426,300
------------------ -----------------
17,794,417 11,084,772
------------------ -----------------
STOCKHOLDERS' EQUITY
Capital stock (note 16) 6,867,529 6,867,529
Retained earnings 2,980,733 1,746,761
Cumulative translation adjustments 83,949 (67,667)
------------------ -----------------
Total stockholders' equity 9,932,211 8,546,623
------------------ -----------------
Total liabilities and stockholders' equity 27,726,628 19,631,395
================== =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
OCTOBER 31, OCTOBER 31,
1999 1998
-------------------------------------
$ $
<S> <C> <C>
Net sales 22,903,712 15,072,431
Cost of sales 15,756,438 10,294,822
--------------- ----------------
Gross profit 7,147,274 4,777,609
--------------- ----------------
Operating expenses
Selling 2,830,670 1,709,474
General and administrative 1,284,465 900,917
Depreciation and amortization 868,899 404,513
Interest expense 370,417 283,932
--------------- ----------------
5,354,451 3,298,836
--------------- ----------------
Income before income taxes 1,792,823 1,478,773
Income taxes 558,851 543,543
--------------- ----------------
Net income 1,233,972 935,230
=============== ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
DECTRON INTERNATIONALE INC
INTERIM CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED OCTOBER 31, 1999 AND 1998
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
THREE THREE
MONTHS MONTHS
ENDED ENDED
OCTOBER 31, OCTOBER 31,
1999 1998
------------------------------------
$ $
<S> <C> <C>
Net sales 8,620,718 5,169,840
Cost of sales 5,959,116 3,491,142
--------------- ---------------
Gross profit 2,661,602 1,678,698
--------------- ---------------
Operating expenses
Selling 1,095,725 564,835
General and administrative 486,931 287,711
Depreciation and amortization 348,884 166,344
Interest expense 196,654 119,368
--------------- ---------------
2,128,194 1,138,258
--------------- ---------------
Income before income taxes 533,408 540,440
Income taxes 153,319 212,563
--------------- ---------------
Net income 380,089 327,877
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 31, 1999
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
OCTOBER 31, JANUARY 31,
1999 1999
---------------------- ---------------
$ $
<S> <C> <C>
Cash flows from operating activities:
Net income 1,233,972 1,129,181
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 875,031 733,744
Loss on disposal of property, plant and
equipment - -
Increase in accounts receivable (2,412,247) (2,955,035)
Increase in inventory (1,473,424) (1,320,706)
Increase in prepaid expenses and sundry
assets (858,920) (336,329)
Increase in accounts payable and accrued
expenses 987,146 2,133,797
Increase (decrease) in income taxes
payable (1,649) (192,606)
Increase (decrease) in deferred income
taxes 11,503 15,657
Increase in deferred revenue 143,527 168,656
-------------- ---------------
Net cash (used in) provided by operating
activities (1,495,061) (623,641)
-------------- ---------------
</TABLE>
5
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 31, 1999
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
OCTOBER 31, 1999 JANUARY 31, 1999
--------------------------------------
$ $
<S> <C> <C>
Cash flows from investing activities:
Purchase of property, plant and equipment (3,732,886) (1,939,538)
Purchase of patents and trademarks (100,000)
Acquisition of goodwill - (1,931,638)
-------------- ----------------
Net cash used in investing activities (3,832,886) (3,871,176)
Cash flows from financing activities:
Acquisition of minority interest in equity - (352,469)
consolidated entity
Sinking funds (114,079) (66,037)
Advances to directors - (15,706)
(Advances to) repayments from
corporate shareholders (14,682) 72,169
Notes payable (415,166) 533,199
Note payable to bank 4,000,000
Other loan payable (64,553) 64,553
Advances from (re-payment of)
long term debt 227,398 54,970
Advances from (repayment of)
loan payable - (96,284)
Advances (repayments) of bank loans 1,819,670 (296,325)
Issuance of common shares - 4,932,834
-------------- ----------------
Net cash provided by financing activities 5,438,588 4,830,904
Effect of foreign currency exchange rate
changes (136,173) 25,460
-------------- ----------------
</TABLE>
6
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 31, 1999
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
OCTOBER 31, 1999 JANUARY 31, 1999
----------------------- ----------------
$ $
<S> <C> <C>
Net increase (decrease) in cash and cash (25,532) 361,547
Equivalents
Beginning of year 389,702 28,155
--------------- ----------------
End of year 364,170 389,702
=============== ================
Supplemental disclosure of cash
Flow information
Interest 248,279 450,324
=============== ================
Income taxes 613,075 398,091
=============== ================
</TABLE>
7
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
OCTOBER 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 - - 1,233,972
October 31,1999
Foreign currency translation 151,316
October 31,1999
------------ --------------- ---------------- ---------------
Balance October 31, 1999 2,795,000 6,867,529 2,980,733 83,649
============ =============== ================ ===============
</TABLE>
8
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
OCTOBER 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. Dectron U.S.A. Inc. and Ipac 2000 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.
e) Inventory
Inventory is valued at the lower of cost and net realizable value.
Cost is determined on the first-in, first-out basis.
9
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
OCTOBER 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% or 14% 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.
Patents and Trademarks Straight line over 15 years
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.
10
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
OCTOBER 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.
11
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
OCTOBER 31, 1999
2. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
October 31, January 31,
1999 1999
---------------- ----------------
$ $
<S> <C> <C>
Accounts receivable 8,504,075 6,073,650
Less: Allowance for doubtful accounts 92,963 74,786
---------------- ----------------
Accounts receivable - net 8,411,111 5,998,864
================ ================
</TABLE>
3. INVENTORY
Inventory is comprised of the following:
<TABLE>
<CAPTION>
October 31, January 31,
1999 1999
---------------- ----------------
$ $
<S> <C> <C>
Raw materials 4,955,239 3,182,498
Work-in-process 917,122 856,308
Finished goods 739,217 1,099,348
---------------- ----------------
6,611,578 5,138,154
================ ================
</TABLE>
12
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
OCTOBER 31, 1999
4. LOANS RECEIVABLE
The loans receivable consist of the following:
<TABLE>
<CAPTION>
October 31, January 31,
1999 1999
---------------- ----------------
$ $
<S> <C> <C>
Loan receivable - private company (secured) 28,923 61,138
Loan receivable - corporate shareholder
(unsecured) 62,971 45,507
---------------- ----------------
91,895 106,645
Current portion - 43,018
---------------- ----------------
91,895 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).
13
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
OCTOBER 31, 1999
6. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
October 31, January 31,
1999 1999
---------- ----------
$ $
<S> <C> <C>
Land 236,186 229,980
Building 2,510,476 1,977,700
Machinery and manufacturing equipment 7,924,624 4,788,949
Furniture and fixtures 616,123 513,720
Computers 1,328,510 1,175,318
Rolling stock 103,305 91,831
Leasehold improvements 493,857 424,463
Equipment under capital lease 534,831 520,779
---------- ----------
Cost 13,747,912 9,722,740
---------- ----------
Less accumulated depreciation and amortization:
Building 326,948 244,168
Machinery and manufacturing equipment 2,787,501 2,309,951
Furniture and fixtures 429,221 390,403
Computers 996,121 854,833
Rolling stock 42,910 24,760
Leasehold improvements 348,185 320,582
Equipment under capital lease 230,110 171,748
---------- ----------
5,160,996 4,316,445
---------- ----------
Net 8,586,916 5,406,295
========== ==========
</TABLE>
14
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
OCTOBER 31, 1999
7. GOODWILL
<TABLE>
<CAPTION>
October 31, January 31,
1999 1999
---------- -----------
$ $
<S> <C> <C>
Cost 2,040,922 1,987,298
Less: Accumulated amortization 255,532 98,898
--------- ---------
Net 1,785,390 1,888,400
========= =========
</TABLE>
8. BANK LOANS
The bank loans bear interest at the prime lending rate plus 0.25% per
annum with interest payable monthly.
As security, the company has provided a moveable hypothec on accounts
receivable, inventories and commercial equipment, a $4,078,026 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 $3,398,355.
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>
October 31, January 31,
1999 1999
---------------- ----------------
$ $
Accounts payable and accrued expenses are comprised of the following:
<S> <C> <C>
Trade payable 2,607,087 2,723,858
Accrued expenses 2,478,136 1,374,219
---------------- ----------------
5,085,223 4,098,077
================ ================
</TABLE>
15
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
OCTOBER 31, 1999
10. LONG-TERM DEBT
<TABLE>
<CAPTION>
October 31, January 31,
1999 1999
---------------- ----------------
$ $
<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
$39,647 due April and , maturing 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. 475,770 463,269
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. 475,770 463,269
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. 475,770 -
e) Bank loan, bearing interest at prime plus 1% per annum repayable in
monthly capital repayments of $1,523, maturing April 2002. 45,685 57,833
---------------- ----------------
Balance carried forward 1,472,995 1,138,794
---------------- ----------------
</TABLE>
16
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
OCTOBER 31, 1999
10. LONG-TERM DEBT (Continued)
<TABLE>
<CAPTION>
October 31, January 31,
1999 1999
---------------- ----------------
$ $
<S> <C> <C>
Balance brought forward 1,472,995 1,138,794
f) Bank loan, bearing interest at prime rate plus 1% per annum repayable in
monthly capital repayments of 5,168 and a final repayment of $5,173 plus
interest, maturing November 2001 167,598 171,107
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 $33,984 per annum. 33,472 82,229
h) Bank term loan secured by machinery and equipment bearing interest at
prime plus 1.75% repayable in monthly capital repayments of $2,832,
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 $2,515 plus interest at prime plus
1.75%, maturing February 2000. 13,729 35,407
j) Bank loan, bearing interest at prime rate plus 1% per annum repayable in
monthly capital repayments of $378 and a final repayment of $44,923 plus
interest, maturing May 2001 66,078 -
---------------- ----------------
Balance carried forward 1,753,872 1,438,567
---------------- ----------------
</TABLE>
17
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
OCTOBER 31, 1999
10. LONG-TERM DEBT (Continued)
<TABLE>
<CAPTION>
October 31, January 31,
1999 1999
---------------- ----------------
$ $
<S> <C> <C>
Balance brought forward 1,753,872 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 $568 plus a final repayment of
$68,467 in December 2002. 89,465 92,088
l) Obligation under capital lease for machinery and equipment subject to
blended monthly instalments of $8,060 including imputed interest at 7.64%
per annum to April 2000. 99,131 159,609
m) Obligation under capital lease for furniture and lab equipment subject to
blended monthly instalments of $5,823 included imputed interest at 7.10%
per annum to April 2001. 134,252 173,357
n) Government loans, without guarantee nor interest, repayable 15 years after
their date of receipt, the first portion of $31,265 received July 1989 is
repayable in July 2004. 62,530 60,887
---------------- ----------------
Balance carried forward 2,159,070 1,924,508
---------------- ----------------
</TABLE>
18
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
OCTOBER 31, 1999
10. LONG-TERM DEBT (Continued)
<TABLE>
<CAPTION>
October 31, January 31,
1999 1999
---------------- ----------------
$ $
<S> <C> <C>
Balance brought forward 2,159,070 1,924,508
o) Government loan of an original amount of $210,616 without guarantee nor
interest, repayable in 4 equal annual instalments starting at the latest
on December 1, 1997, maturing in December 2000.
105,308 102,542
p) Other 29,310 19,420
---------------- ----------------
2,273,868 2,046,470
Less: Current portion 341,047 440,523
---------------- ----------------
1,932,821 1,605,947
================ ================
</TABLE>
Future principal payment obligations are as follows:
<TABLE>
<S> <C> <C>
2000 $ 341,047 $ 440,523
2001 214,495 396,873
2002 102,695 145,015
2003 553,627 570,347
2004 1,062,004 493,712
------------ ------------
$ 2,273,868 $ 2,046,470
============ ============
</TABLE>
11. NOTES PAYABLE TO SHAREHOLDERS
The notes payable are non-interest bearing and due prior to January 31
2000.
12. OTHER NOTE PAYABLE
This amount is a bridge loan bearing interest at U.S. prime plus 3%
secured by the subsidiaries to be replaced by a conventional term loan
prior to January 31, 2000.
13. DUE TO DIRECTOR
The amount due to director is unsecured, non-interest bearing and is due
on April 15, 2002.
19
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
OCTOBER 31, 1999
14. LOAN PAYABLE
This loan payable is non-interest bearing and is owed to a private
company, due on April 15, 2002.
15. DEFERRED REVENUE
<TABLE>
<CAPTION>
October 31, January 31,
1999 1999
----------- -----------
$ $
<S> <C> <C>
Deferred revenue 910,097 766,571
Current portion 208,429 161,226
-------- -------
701,669 605,345
======== =======
</TABLE>
Deferred revenue will be recognized as income as follows:
<TABLE>
<S> <C> <C>
2000 $ 208,429 $ 161,226
2001 191,101 216,524
2002 150,561 177,409
2003 95,553 136,867
2004 264,453 74,545
------------ -------------
$ 910,097 $ 766,571
============ =============
</TABLE>
20
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
OCTOBER 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>
OCTOBER 31, JANUARY 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
InitialPublic 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.
21
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
OCTOBER 31, 1999
16. COMMITMENTS AND CONTINGENCIES
a) The company is committed to payments under operating leases for its
premises totaling $229,860. Annual payments for the next three years
are as follows:
<TABLE>
<S> <C>
2000 $ 148,728
2001 75,158
2002 5,981
----------------
$ 229,860
================
</TABLE>
b) The company is committed to make monthly payments of $13,231 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 $ 158,774
2001 158,774
2002 71,747
2003 60,966
2004 15,904
</TABLE>
c) The company completed construction of additional manufacturing
facilities. The total cost incurred for the project is $ 753,586.
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>
Nine
Months Year
Ended Ended
October 31, January 31,
1999 1999
---------------- ---------------
$ $
<S> <C> <C>
The breakdown of sales by geographic area is as follows:
Canada 8,438,300 9,531,130
United States of America 11,756,462 10,191,540
International 2,708,950 493,179
---------------- ----------------
22,903,712 20,215,849
================ ================
</TABLE>
22
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
OCTOBER 31, 1999
18. ACQUISITIONS
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) On September 13, 1999, the company acquired assets from Ipac Inc.
for total consideration of $3,700,000. The allocation of the
purchase price is summarized as follows.
<TABLE>
<S> <C>
Machinery & Equipment $ 2,550,000
Inventory 1,000,000
Furniture and Fixtures 50,000
Patents & Trademarks 100,000
--------------------
$ 3,700,000
====================
</TABLE>
23
<PAGE>
DECTRON INTERNATIONALE INC.
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
OCTOBER 31, 1999
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.
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.
24
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NINE MONTH PERIOD ENDED OCTOBER 31, 1999 COMPARED TO NINE MONTH PERIOD ENDED
OCTOBER 31, 1998.
Revenues for the nine month period ended October 31, 1999 were
$22,903,712, a 51.96% increase over prior year revenues of $15,072,431. A major
part of this increase is due to the consolidation of the Company's newly
acquired divisions, Circul-aire and Ipac.
Gross profit increased by $2,369,665 to $7,147,274 over the same
period. This represents a slight decrease of 0.49%, expressed in relation to
sales. Due to higher manufacturing costs, gross profit increased by 49.60%
compared to an increase in sales of 51.96%.
Selling and marketing expenses increased $1,121,196 in the nine month
period ended October 31, 1999. This increase reflects the costs of integrating
Circul-aire's and Ipac's sales and marketing personnel and related expenses into
the Company's results. This increase also reflects the Company's increased
participation in various trade shows. Also the number of trade seminars given by
the Company increased due to the addition of many new sales representatives. As
a percentage of revenues, selling and marketing expenses increased from 11.34%
to 12.36%.
General and administrative expenses increased by $383,548 from $900,917
to $1,284,465. As a percentage of revenues, general and administrative decreased
from 5.98% to 5.61%. The increase in dollar amount reflects the costs of
integrating Circul-aire's and Ipac's general and administrative expenses in the
Company's results.
Depreciation expenses increased by $ 464,386 to $868,899 due to a high
level of property, plant and equipment acquisitions in the last quarter of
fiscal 1999 and since the beginning of fiscal 2000.
Financing expenses increased by $ 86,485 from $283,932 to $370,417. As
a percentage of revenues, financing expenses decreased from 1.88% to 1.62%
Income before income taxes was $1,792,823, an increase of $314,050
compared to the nine month period ended October 31, 1998. Relative to sales,
income before income taxes decreased from 9.81% for the nine month period ended
October 31, 1998 to 7.83% in the nine month period ended October 31, 1999.
Provisions for Income tax expenses as a percentage of taxable income
decreased from 36.76% for the nine month period ended October 31, 1998 to 31.17%
for 1999. Tax expenses increased by $15,308 mainly because of the increase in
taxable income.
As a result of the above factors, the Company`s net income increased
from $935,230 to $1,233,972, an increase of 31.94%.
25
<PAGE>
THREE MONTH PERIOD ENDED OCTOBER 31, 1999 COMPARED TO THREE MONTH PERIOD ENDED
OCTOBER 31, 1998.
Revenues for the three month period ended October 31, 1999 were
$8,620,718, a 66.75% increase over prior year revenues of $5,169,840. A major
part of this increase is due to the consolidation of the Company's newly
acquired divisions, Circul-aire and Ipac.
Gross profit increased by $982,904 to $2,661,602 over the same period.
This represents a slight decrease of 1.6%, expressed in relation to sales. Gross
profit increased by 58.55% compared to an increase in sales of 66.75%. This
decrease in gross profit margin is a result of higher manufacturing costs.
Selling and marketing expenses increased $530,890 in the three month
period ended October 31, 1999. This increase reflects the costs of integrating
Circul-aire's and Ipac's sales and marketing personnel and related expenses into
the Company's results. This increase also reflects the Company's increased
participation in various trade shows. Also the number of trade seminars given by
the Company increased due to the addition of many new independent sales
representatives. As a percentage of revenues, selling and marketing expenses
slightly increased from 10.93% to 12.71%.
General and administrative expenses increased by $199,220 from $287,711
to $486,931. As a percentage of revenues, general and administrative increased
slightly from 5.57% to 5.65%. The increase in dollar amount reflects the costs
of integrating Circul-aire's and Ipac's general and administrative expenses in
the Company's results.
Depreciation expenses increased by $ 182,540 to $348,884 due to a high
level of property, plant and equipment acquisitions in the last quarter of
fiscal 1999 and since the beginning of fiscal 2000.
Financing expenses increased by $77,286 from $119,368 to $196,654. As a
percentage of revenues, financing expenses decreased from 2.31 % to 2.28%
Income before income taxes was $533,408, a decrease of $7,032 compared
to the three month period ended October 31, 1998. Relative to sales, income
before income taxes decreased from 10.45% for the three month period ended
October 31, 1998 to 6.19% in the three month period ended October 31, 1999.
Provisions for Income tax expenses as a percentage of taxable income
decreased from 39.33% for the three month ended October 31, 1998 to 28.74% for
1999. Tax expenses decreased by $59,244 mainly because of the decrease in
taxable income.
As a result of the above factors, the Company's net income increased
from $327,877 to $380,089, an increase of 15.92%
LIQUIDITY AND CAPITAL RESSOURCES
The Company had a slightly negative net change in cash of $25,532 for
the nine month period ended October 31, 1999. The principal sources of cash were
net income of $1,233,972, advances of bank loans in the amount of $1,819,670,
note payable of $4,000,000, depreciation and amortization of $875,031. Principal
uses of cash were acquisition of assets for $ 3,832,886 including the cost of
construction on the Company's new manufacturing facilities for $753,586, an
increase
26
<PAGE>
in accounts receivable in the amount of $2,412,247, an increase in inventory in
the amount of $1,473,424 and an increase of $987,146 in prepaid and sundry
assets.
For the nine month period ended October 31, 1998, the Company had a
positive net change in cash of $1,927,518. The principal sources of cash flow
were from operating activities in the amount of $935,230 and the issuance of
capital stock in the amount of $ 4,681,467. The principal uses were the
purchasing of machinery and equipment in the amount of $808,866 and repayments
of bank indebtedness of $ 2,711,955.
27
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27.1 Financial Data Schedule
(b) There were no reports filed on Form 8-K during the quarter for
which this report is filed.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DECTRON INTERNATIONALE INC.
December 14, 1999 By:/s/ Mauro Parissi
------------------------------
Mauro Parissi
Chief Financial Officer/Principal
Accounting Officer
29
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> OCT-31-1999
<CASH> 364,170
<SECURITIES> 0
<RECEIVABLES> 8,504,075
<ALLOWANCES> 92,963
<INVENTORY> 6,611,578
<CURRENT-ASSETS> 16,975,039
<PP&E> 13,747,912
<DEPRECIATION> 5,160,996
<TOTAL-ASSETS> 27,726,628
<CURRENT-LIABILITIES> 11,009,664
<BONDS> 6,784,753
0
0
<COMMON> 6,867,529
<OTHER-SE> 3,064,682
<TOTAL-LIABILITY-AND-EQUITY> 27,726,628
<SALES> 22,903,712
<TOTAL-REVENUES> 22,903,712
<CGS> 15,756,438
<TOTAL-COSTS> 18,587,108
<OTHER-EXPENSES> 2,153,364
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 370,417
<INCOME-PRETAX> 1,792,823
<INCOME-TAX> 558,851
<INCOME-CONTINUING> 1,233,972
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,233,972
<EPS-BASIC> 0.44
<EPS-DILUTED> 0.44
</TABLE>
