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SECURITIES AND EXCHANGE COMMISSION FORM 6-K REPORT OF ISSUER PURSUANT TO SECTION 13a-16
OR 15d-16
DECTRON INTERNATIONALE INC.
Quebec, Canada 4300 Poirier
Blvd., Telephone:
(514) 334-9609 Indicate by check mark whether the registrant files or will file
annual reports under cover Form 20F- or Form 40-F. FORM 20-F X
Form 40-F Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934. Yes _______ No
X If "Yes" is marked, indicated below the file number assigned to the
registrant in connection with Rule 12g3-2(b): N/A
Washington, D.C. 20549
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Month Ended
Commission File Number
September, 2006
001-14503
(Exact name of the registrant as specified in its
charter)
(Jurisdiction of Incorporation or Organization)
Montreal, Quebec
Canada H4R 2C5
(Address of Principal Executive Offices)
EXHIBIT LIST
DECTRON INTERNATIONALE INC.
SIGNATURESPursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
DECTRON INTERNATIONALE INC. | |
(Registrant) | |
Date: September 15, 2006 | |
/s/ Glenn La Rusic | |
Name: Glenn La Rusic | |
Title: Chief Financial Officer |
![]() |
PRESS RELEASE |
NASDAQ: DECT | |
TSX: DTL |
Dectron Announces Second Quarter 2007 Results
Montreal, September 14, 2006 - Dectron Internationale, Inc., a leader in the heating, ventilation and air conditioning, indoor air security and water generation markets, announced today its financial results for the second quarter ended July 31, 2006 (in USD).
Revenues for the six months ended July 31, 2006 were $27.1 million, a $3.3 million (13.8%) increase over the prior year's revenues of $23.8 million. The growth is attributed to sales of Dectron dehumidification units for water parks as well as stronger international sales in the Circul-aire division.
Gross profit increased by $1.7 million to $7.2 million from $5.6 million in the same period last year. As a percentage of revenues, gross profit increased to 26.7% from 23.4%. The gross profit margin was positively affected by a sales mix of products.
Selling expenses increased by $744,000 to $3.4 million in the six months ended July 31, 2006 compared to $2.6 million for the period ended July 31, 2005. The increase is primarily due to higher commissions paid on the increased sales levels and the costs of attending trade shows. As a percentage of revenues, selling and marketing expenses increased to 12.5% from 11.1%. The majority of our selling, general and administrative expenses are incurred in Canadian dollars; accordingly the expenses as presented in U.S. dollars increased approximately 8% in conjunction with the appreciation of the Canadian dollar versus the U.S. dollar over the period. Consequently selling expenses increased by $273,000 as a result of the foreign exchange fluctuation.
General and administrative expenses increased by $332,000 (19.1%) to $2.1 million from $1.7 million for the period ended July 31, 2005. The increase is primarily a result of foreign exchange fluctuations ($167,000), loss of rental income following the disposal of the Liberty Drive operations and the sale of the property last year ($110,000) and the stock compensation charge for the options granted ($48,000) . As a percentage of revenues, general and administrative actually increased to 7.7% from 7.3%.
Depreciation and amortization expenses increased to $774,000 in the six months ending July 31, 2006 compared to $644 in 2005 due to the amortization of deferred charges. Financing expenses increased slightly ($141,000) to $539,000 from $398,000.
There were no discontinued operations in the six months
period ending July 31, 2006. The losses, net of taxes, in the first half of 2005
were $777,000 (offset in part by disposal gains of $126,000) both resulting from
the discontinued operations of Liberty Drive Property, Inc. Net earnings in the six months period ending July 31, 2006
was $328,000 (or $0.10 per share) compared to net losses of $541,000 (or $0.17
per share) in the corresponding period in 2005. EBITDA (Earnings Before Interest, Taxes, Depreciation and
Amortization) is a non-GAAP measure used by many in the industry as a
measurement of operational performance. For the six month period ended July 31,
2006 EBITDA increased 50.1% over the previous year to $1.8 million from $1.2
million. More detailed information on the Company and its results are
available through the TSX (www.sedar.com).
This release contains forward-looking statements, as
described in the "safe harbor" provision of the Private Securities Litigation
Reform Act of 1995. These statements involve a number of risks and uncertainties
and actual results could differ materially from those projected. These
forward-looking statements regarding future events and the future results of
Dectron Internationale Inc. are based on current expectations, estimates,
forecasts, and projections about the markets in which we operate and the beliefs
and assumptions of our management. Words such as "expects," "anticipates,"
"targets," "goals," "projects," "intends," "plans," "believes," "seeks,"
"estimates," variations of such words, and similar expressions are intended to
identify such forward-looking statements. In addition, any statements that refer
to projections of our future financial performance, our anticipated growth and
trends, and other characterizations of future events or circumstances, are
forward-looking statements. Readers are cautioned that these forward-looking
statements are only predictions and are subject to risks, uncertainties, and
assumptions. Therefore, actual results may differ materially and adversely from
those expressed in any forward-looking statements. Readers are referred to the
cautionary statements and important factors discussed in Item 1A. Risk Factors
of our Annual Report on Form 10-K for the year ended January 31, 2006 for
further information. We undertake no obligation to revise or update publicly any
forward-looking statements for any reason. Dectron Internationale, Inc. is a global provider of
custom and semi-custom IAQ (indoor air quality) and HVAC-R (heating, ventilation
and air conditioning and refrigeration) products and services to the building
systems, food processing, medical, petrochemical, and various industrial and
commercial markets. Established in Montreal, the Company has 400 employees in
its manufacturing facilities. Its shares are listed on the NASDAQ (DECT) and the
TSX (DTL).
For further information, please contact: | |
Dectron Internationale Inc. | Renmark Financial Communications |
Glenn La Rusic | Phone: (514) 939-3989 |
Chief Financial Officer | Fax: (514) 939-3717 |
Phone : (514) 336-3330 | www.renmarkfinancial.com |
investor@dectron.com | |
www.dectron.com | |
Investors: | |
Tina Cameron: tcameron@renmarkfinancial.com | |
Henri Perron: hperron@renmarkfinancial.com | |
Media: | |
Lynda Martineau: lmartineau@renmarkfinancial.com |
INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2006
DECTRON INTERNATIONALE INC. INTERIM CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2006 TABLE OF CONTENTS The accompanying notes are an integral part of these consolidated financial
statements.
Interim
Consolidated Balance Sheets
2 -
3
Interim
Consolidated Statements of Earnings
4 -
5
Interim
Consolidated Statements of Cash Flows
6 -
7
Interim
Consolidated Statements of Stockholders' Equity
8
Notes to Interim
Consolidated Financial Statements
9 -
13
DECTRON INTERNATIONALE INC. | |
Interim Consolidated Balance Sheets | |
As at July 31, 2006 and January 31, 2006 | |
(Amounts Expressed in thousands of United States Dollars, unless specified) | Page 2 |
July 31, | January 31, | |||
2006 | 2006 | |||
Assets | ||||
Current | ||||
Cash | $ | 1,308 | $ | 1,519 |
Accounts receivable | 13,877 | 11,718 | ||
Inventory | 12,305 | 10,841 | ||
Prepaid expenses and sundry assets | 779 | 552 | ||
Loans receivable | 1,070 | 477 | ||
29,339 | 25,107 | |||
Investment tax credits receivable | 512 | 508 | ||
Loan receivable | 166 | 1,290 | ||
Property, plant and equipment | 6,716 | 7,144 | ||
Deferred charges | 293 | 159 | ||
Intangibles | 69 | 68 | ||
Goodwill | 1,822 | 1,810 | ||
Deferred income taxes | 363 | 363 | ||
$ | 39,280 | $ | 36,449 |
The accompanying notes are an integral part of these consolidated financial statements.
DECTRON INTERNATIONALE INC. | |
Interim Consolidated Balance Sheets (Continued) | |
As at July 31, 2006 and January 31, 2006 | |
(Amounts Expressed in thousands of United States Dollars, unless specified) |
Page 3 |
July 31, | January 31, | |||
2006 | 2006 | |||
Liabilities | ||||
Current | ||||
Bank loans | $ | 9,683 | $ | 12,634 |
Accounts payable and accrued expenses | 9,363 | 7,508 | ||
Income taxes payable | 599 | 391 | ||
Current portion of long-term debt | 877 | 548 | ||
Deferred revenue | 4 | 5 | ||
20,526 | 21,086 | |||
Long-term debt | 4,343 | 1,534 | ||
Deferred revenue | 1,708 | 1,636 | ||
26,577 | 24,256 | |||
Stockholders' equity | ||||
Capital stock (note 3) | 7,093 | 7,041 | ||
Treasury stock | (89) | (89) | ||
Contributed Surplus (note 3) | 48 | - | ||
Accumulated other comprehensive income | 3,389 | 3,307 | ||
Retained earnings | 2,262 | 1,934 | ||
12,703 | 12,193 | |||
$ | 39,280 | $ | 36,449 |
The accompanying notes are an integral part of these consolidated financial statements.
DECTRON INTERNATIONALE INC. | |
Interim Consolidated Statements of Earnings | |
For the Six Months Period Ended July 31, 2006 and 2005 | |
(Amounts Expressed in thousands of United States Dollars, unless specified) |
Page 4 |
Six Months | Six Months | |||
Ended | Ended | |||
July 31, 2006 | July 31, 2005 | |||
Sales | $ | 27,103 | $ | 23,807 |
Cost of sales | 19,868 | 18,245 | ||
Gross profit | 7,235 | 5,563 | ||
Operating expenses | ||||
Selling | 3,378 | 2,634 | ||
General and administrative | 2,068 | 1,736 | ||
Depreciation and amortization | 774 | 644 | ||
Interest expense | 539 | 398 | ||
6,759 | 5,412 | |||
Earning before income taxes and | ||||
discontinued operations | 476 | 150 | ||
Income taxes | 148 | 40 | ||
Earnings before discontinued operations | 328 | 110 | ||
Loss from discontinued operations, net of tax | - | (777) | ||
Gain on disposal of discontinued operations, net of | ||||
tax | - | 126 | ||
Net earnings | $ | 328 | $ | (541) |
Net earnings (loss) per common share, basic and diluted | ||||
(in US$) | ||||
Continuing operations | $ | 0.10 | $ | 0.03 |
Discontinued operations | - | (0.24) | ||
Disposal of discontinued operations | - | 0.04 | ||
$ | 0.10 | $ | (0.17) | |
Weighted average number of common shares | ||||
outstanding | ||||
Basic | 3,155,000 | 3,155,000 | ||
Diluted | 3,251,752 | 3,155,000 |
The accompanying notes are an integral part of these consolidated financial statements.
DECTRON INTERNATIONALE INC. | |
Interim Consolidated Statements of Earnings | |
For the Three Months Period Ended July 31, 2006 and 2005 | |
(Amounts Expressed in thousands of United States Dollars, unless specified) |
Page 5 |
Three Months | Three Months | |||
Ended | Ended | |||
July 31, 2006 | July 31, 2005 | |||
Sales | $ | 13,285 | $ | 12,897 |
Cost of sales | 9,852 | 10,330 | ||
Gross profit | 3,433 | 2,567 | ||
Operating expenses | ||||
Selling | 1,623 | 1,309 | ||
General and administrative | 1,001 | 731 | ||
Depreciation and amortization | 414 | 321 | ||
Interest expense | 283 | 165 | ||
3,321 | 2,526 | |||
Earning before income taxes and | ||||
discontinued operations | 112 | 41 | ||
Income taxes | 35 | 13 | ||
Earnings before discontinued operations | 77 | 28 | ||
Loss from discontinued operations, net of tax | - | (678) | ||
Gain on disposal of discontinued operations, net of | ||||
tax | - | 62 | ||
Net earnings | $ | 77 | $ | (588) |
Net earnings (loss) per common share, basic and diluted | ||||
(in US$) | ||||
Continuing operations | $ | 0.02 | $ | 0.01 |
Discontinued operations | - | (0.22) | ||
Disposal of discontinued operations | - | 0.02 | ||
$ | 0.02 | $ | (0.19) | |
Weighted average number of common shares | ||||
outstanding | ||||
Basic | 3,155,000 | 3,155,000 | ||
Diluted | 3,251,752 | 3,155,000 |
The accompanying notes are an integral part of these consolidated financial statements.
DECTRON INTERNATIONALE INC. | |
Interim Consolidated Statements of Cash Flows | |
For the Six Months Period Ended July 31, 2006 and 2005 | |
(Amounts Expressed in thousands of United States Dollars, unless specified) |
Page 6 |
Six Months | Six Months | |||
Ended | Ended | |||
July 31, 2006 | July 31, 2005 | |||
Operating activities | ||||
Net earnings from continuing operations | $ | 328 | $ | 110 |
Adjustments to reconcile net earnings to net cash provided | ||||
by (used in) operating activities: | ||||
Depreciation and amortization | 580 | 644 | ||
Increase in accounts receivable | (2,159) | (2,514) | ||
Decrease (increase) in inventory | (1,464) | 1,207 | ||
Increase in prepaid expenses and sundry assets | (227) | (46) | ||
Decrease in deferred income taxes | - | (1) | ||
Increase in accounts payable and accrued expenses | 1,855 | 1,359 | ||
Increase in income taxes receivable | - | (164) | ||
Increase in income taxes payable | 208 | - | ||
Increase in deferred revenue | 72 | 27 | ||
Increase in contributed surplus | 48 | |||
Net cash provided by (used in) operating activities | (759) | 623 | ||
Investing activities | ||||
Acquisition of property, plant and equipment | (107) | (155) | ||
Increase in deferred charges | (132) | - | ||
Net cash used in investing activities | (239) | (155) | ||
Financing activities | ||||
Repayment of (advances to) loans receivable | 531 | (552) | ||
Advances from (repayments of) bank loans | (2,951) | 212 | ||
Advances from (repayments of) long-term debt | 3,138 | (2,626) | ||
Repayments from share purchase plan receivable | 52 | - | ||
Net cash provided by (used in) financing activities | 770 | (2,967) | ||
Effect of foreign currency exchange rate on cash and | ||||
cash equivalents | 17 | (27) | ||
Effect of discontinued operations | - | 2,586 |
The accompanying notes are an integral part of these consolidated financial statements.
DECTRON INTERNATIONALE INC. | |
Interim Consolidated Statements of Cash Flows (continued) | |
For the Six Months Period Ended July 31, 2006 and 2005 | |
(Amounts Expressed in thousands of United States Dollars, unless specified) |
Page 7 |
Six Months | Six Months | |||
Ended | Ended | |||
July 31, 2006 | July 31, 2005 | |||
Net increase (decrease) in cash and cash equivalents | $ | (211) | $ | 115 |
Cash and cash equivalents, beginning of year | 1,518 | 1,075 | ||
Cash and cash equivalents, end of period | $ | 1,308 | $ | 1,190 |
Supplemental disclosure of cash flow information: | ||||
Interest paid | $ | 531 | $ | 399 |
Income taxes paid | $ | 92 | $ | 281 |
The accompanying notes are an integral part of these consolidated financial statements.
DECTRON INTERNATIONALE INC. | |
Interim Consolidated Statements of Stockholders' Equity | |
For the Six Months Period Ended July 31, 2006 | |
(Amounts Expressed in thousands of United States Dollars, unless specified) |
Page 8 |
Cumulative | Other | ||||||||||
Retained | Comprehensive | Treasury | Contributed | ||||||||
Number | Amount | Earnings | Income | Stock | Surplus | ||||||
Balance, January 31, | |||||||||||
2005 | 3,155,000 | $ | 6,873 | $ | 2,228 | $ | 2,304 | $ | (89) | $ | - |
Share purchase plan | |||||||||||
receivable | - | $ | 168 | $ | - | $ | - | $ | - | $ | - |
Issuance of shares | - | - | - | - | - | - | |||||
Foreign currency | |||||||||||
translation | - | - | - | 1,003 | - | - | |||||
Net loss for the year | - | - | (294) | - | - | - | |||||
Balance, January 31, | |||||||||||
2006 | 3,155,000 | $ | 7,041 | $ | 1,934 | $ | 3,307 | $ | (89) | $ | - |
Stock-based | |||||||||||
compensation | - | $ | - | $ | - | $ | - | $ | - | $ | 48 |
Share purchase plan | |||||||||||
receivable | - | 52 | - | - | - | - | |||||
Issuance of shares | - | - | - | - | - | - | |||||
Foreign currency | |||||||||||
translation | - | - | - | 82 | - | - | |||||
Net earnings for the | |||||||||||
period | - | - | 328 | - | - | - | |||||
Balance, July 31, 2006 | 3,155,000 | $ | 7,093 | $ | 2,262 | $ | 3,389 | $ | (89) | $ | 48 |
The accompanying notes are an integral part of these consolidated financial statements.
DECTRON INTERNATIONALE INC. | |
Notes to Interim Consolidated Financial Statements | |
July 31, 2006 and January 31, 2006 | |
(Amounts Expressed in thousands of United States Dollars, unless specified) |
Page 9 |
1. Notice of No Auditor Review of the Interim Consolidated Financial Statements
The interim consolidated financial statements are the responsibility of the Company's management and have been approved by its Board of Directors. The Company's independent auditor has not performed a review of these Interim financial statements in accordance with the standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity's auditor.
2. Significant Accounting Policies
These unaudited interim consolidated financial statements have been prepared in accordance with United State generally accepted accounting principles, using the same accounting principles as those mentioned in Note 1 to the consolidated financial statements for the year ended January 31, 2006. The unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto for the year ended January 31, 2006. These consolidated financial statements require management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and the notes thereto. Actual results could differ from these estimates.
Basis of Consolidated Financial Statements Presentation
These consolidated financial statements include the accounts of Dectron Internationale Inc., Dectron Inc. Consolidated, Circul-aire Group and International Water Makers Inc.
Dectron Inc. Consolidated is comprised of Dectron Inc. and of its wholly-owned subsidiaries, Refplus Inc., Thermoplus Air Inc., Dectron U.S.A. Inc. and Liberty Drive Property, Inc. (formely Ipac 2000 Inc).
Circul-aire Group is comprised of Cascade Technologies Inc., and of its wholly-owned subsidiaries, Purafil Canada Inc. and Circul-aire Inc. and its wholly-owned subsidiary Tranzmetal Inc.
All inter-company profits, transactions and account balances have been eliminated.
Foreign Currency Translation
The company maintains its books and records in Canadian dollars. The operation of the company's subsidiary in the United States is an integrated corporation. As a result, monetary assets and liabilities in foreign currency are translated into Canadian dollars at exchange rates in effect at the balance sheet date, whereas non-monetary assets and liabilities are translated at the average exchange rates in effect at transaction dates. Income and expenses in foreign currency are translated at the average rate effective during the year with the exception of depreciation and amortization, which is translated at the historical rate. Gains and losses resulting from the translation of foreign currency transactions are included in earnings.
The translation of the financial statements from Canadian dollars into United States dollars is performed for the convenience of the reader. Balance sheet accounts are translated using closing exchange rates in effect at the balance sheet date and income and expense accounts are translated using an average exchange rate prevailing during each reporting period. No representation is made that the Canadian dollar amounts could have been, or could be, converted into United States dollars at the rates on the respective dates and or at any other certain rates. Adjustments resulting from the translation are included in the accumulated other comprehensive income in stockholder's equity.
DECTRON INTERNATIONALE INC. | |
Notes to Interim Consolidated Financial Statements | |
July 31, 2006 and January 31, 2006 | |
(Amounts Expressed in thousands of United States Dollars, unless specified) |
Page 10 |
2. Significant Accounting Policies (continued)
Effect of recent accounting pronouncements
a) On February 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment," ("SFAS 123(R)") which requires the measurement and recognition of compensation expense for all share-based payments to employees and directors including employee stock options and stock purchases related to the Company's employee stock option and award plans based on estimated fair values. SFAS 123(R) supersedes the Company's previous accounting under Accounting Principles Board Option No. 25, "Accounting for Stock Issued to employees" ("APB25") for periods beginning in fiscal 2006. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 ("SAB 107") relating to SFAS 123(R). The Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R).
The Company adopted SFAS 123(R) using the modified prospective transition method, which requires the application of the accounting standard as of February 1, 2006, the first day of the Company's fiscal year 2007. The Company's financial statements as of and for the Six Months period ended July 31, 2006 reflect the impact of SFAS 123(R) of $48,059. In accordance with the modified prospective transition method, the Company's financial statements for the prior year have not been restated to reflect, and do not include, the impact of SFAS 123(R).
b) In November 2004, the FASB issued SFAS 151, "Inventory Costs - an amendment of ARB No.43, Chapter 4," which requires companies to expense abnormal freight, handling costs, or spoilage in the period incurred and to allocate fixed overhead based on normal capacity, with adjustment if production is abnormally high. This standard became effective for the Company on August 1, 2005, with early adoption permitted. The Company currently accounts for abnormal freight, handling costs, and spoilage consistent with the standard. There was no material impact on the results of the Company.
c) In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections," a replacement of Accounting Principles Board Opinion No. 20, "Accounting Changes," and SFAS No. 3, "Reporting Accounting Changes in Interim Financial statements" ("SFAS No. 154"). SFAS No. 154 changes the requirements for, the accounting for, and reporting of, a change in accounting principle. Previously voluntary changes in accounting principles were generally required to be recognized by way of a cumulative effect adjustment within net income during the period of the change. SFAS No. 154 requires retrospective application to prior periods' financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005; however, the statement does not change the transition provisions of any existing accounting pronouncements. The adoption of this statement is not expected to have a material effect on the company's financial position or results of operations.
DECTRON INTERNATIONALE INC. | |
Notes to Interim Consolidated Financial Statements | |
July 31, 2006 and January 31, 2006 | |
(Amounts Expressed in thousands of United States Dollars, unless specified) |
Page 11 |
3. Capital stock
Authorized
An unlimited number of preferred shares, cumulative, voting, no par value
An unlimited number of common shares, voting, no par value
Issued
July 31, | January 31, | |||
2006 | 2006 | |||
3,155,000 Common shares (2005: 3,155,000) |
$ | 7,093 | $ | 7,041 |
During the fiscal year ended January 31, 2006, no employees have exercised their options under the 2001 Stock Option Plan.
Employee stock option plans
In 2001, the Company also adopted the 2001 Stock Option Plan (the "2001 Plan") pursuant to which 500,000 shares of Common stock are reserved for issuance, 141,000 options are currently issued and outstanding.
On January 4, 2002, the Board granted options under the 2001 Plan to certain members of the Board and certain employees. Subject to certain limitations, the options granted are exercisable one year after issuance. Subsequent to the one-year anniversary date of the grant, the option holders may exercise the option up to 25% per year of the total options granted for the following four years. Each of the options was fully exercisable on January 4, 2006 and expire on January 4, 2011. The exercise price of the option is $4.20 U.S.
On June 9, 2006, the Board granted options under the 2001 Plan to certain members of the Board and certain employees. The exercise price of the option is $4.90. Compensation expense related to the stock option grants for the period ending July 31, 2006 is $48,059, the total amount was recorded under contributed surplus.
The Plans are administered by the Board of Directors, who will determine, among other things, those individuals who shall receive options, the time period during which the options may be partially or fully exercised, the number of shares of Common Stock issuable upon the exercise of the options and the option exercise price.
The 2001 Plan is effective for a period of ten years expiring in 2011. Options may be granted to officers, directors, consultants, key employees, advisors and similar parties who provide the company with their skills and expertise. Options granted under the 2001 Plan are exercisable for up to ten years, and shall be at an exercise price as determined by the Board. Options are non-transferable except by the laws of descent and distribution or a change in control of Dectron, as defined in the Plans, and are exercisable only by the participant during his or her lifetime.
Change in control include (i) the sale of substantially all of the assets of Dectron and merger or consolidation with another company, or (ii) a majority of the Board changes other than by election by the stockholders pursuant to Board solicitation or by vacancies filled by the Board caused by death or resignation of such person.
If a participant ceases affiliation with Dectron by reason of death, permanent disability or retirement at or after age 70, the option remains exercisable for one year from such occurrence but not beyond the option's expiration date. Other types of termination allow the participant Six Months to exercise, except for termination for cause, which results in immediate termination of the option.
DECTRON INTERNATIONALE INC. | |
Notes to Interim Consolidated Financial Statements | |
July 31, 2006 and January 31, 2006 | |
(Amounts Expressed in thousands of United States Dollars, unless specified) |
Page 12 |
3. Capital stock (continued)
Employee stock option plans (continued)
Option under the 2001 Plan must be issued within ten years from the effective date.
Any unexercised options that expire or that terminate upon an employee's ceasing to be employed by the company become available again for issuance under the Plans.
The Plans may be terminated or amended at any time by the Board of Directors, except that the number of shares of Common Stock reserved for issuance upon the exercise of options granted under the Plans may not be increased without consent of the stockholders.
A summary of the status of the company's stock option plans are as follows:
July 31, 2006 |
January 31, 2006 |
||||||
Weighted | Weighted | ||||||
Average | Average | ||||||
Number of | Exercise | Number | Exercise | ||||
Options | Price | of Options | Price | ||||
Outstanding, beginning of year | 108,500 | $ | 4.20 | 108,500 | $ | 4.20 | |
Granted | 32,500 | $ | 4.90 | - | - | ||
Exercised | - | - | - | - | |||
Cancelled | - | - | - | - | |||
Outstanding, end of year | 141,000 | $ | 4.36 | 108,500 | $ | 4.20 | |
Options, exercisable, end of year | 141,000 | 108,500 |
The following table summarizes information about fixed stock options outstanding:
July 31, 2006 |
|||
Options Outstanding |
Options Exercisable |
Weighted Average | Weighted | Weighted | |||||||
Remaining Years of | Average | Average | |||||||
Number of | Contractual | Exercise | Number of | Exercise | |||||
Exercise price | Options | Life | Price | Options | Price | ||||
$ 4.20 | 108,500 | 4.9 | $ 4.20 | 108,500 | $ 4.20 | ||||
$ 4.90 | 32,500 | 4.9 | $ 4.90 | 32,500 | $ 4.90 | ||||
141,000 | 4.9 | $ 4.36 | 141,000 | $ 4.36 |
DECTRON INTERNATIONALE INC. | |
Notes to Interim Consolidated Financial Statements | |
July 31, 2006 and January 31, 2006 | |
(Amounts Expressed in thousands of United States Dollars, unless specified) |
Page 13 |
3. Capital stock (continued)
Employee stock option plans (continued)
Share purchase plan receivable
The SEC staff Accounting Bulletins require that accounts or notes receivable arising from transactions involving capital stock should be presented as deductions from shareholders' equity and not as assets. Accordingly, in order to comply with U.S. GAAP, stockholders' equity increased by $52 at July 31, 2006, to reflect the loans due from certain employees and officers, which relate to the purchase of common shares of the company.
4. Segmented Information
|
July 31, | January 31, | |||
|
2006 | 2006 | |||
a) |
The breakdown of sales by geographic area is as follows: | ||||
|
|||||
|
Canada | $ | 13,582 | $ | 24,450 |
|
United States of America | 10,340 | 20,463 | ||
|
International | 3,181 | 2,453 | ||
|
$ | 27,103 | $ | 47,366 | |
|
|||||
b) |
The breakdown of earnings (losses) by geographic area is as | ||||
|
follows: | ||||
|
|||||
|
Canada | $ | 164 | $ | (152) |
|
United States of America | 125 | (127) | ||
|
International | 38 | (15) | ||
|
$ | 328 | $ | (294) | |
|
|||||
c) |
The breakdown of identifiable assets by geographic area are as | ||||
|
follows : | ||||
|
|||||
|
Canada | $ | 38,452 | $ | 35,537 |
|
United States of America | 828 | 912 | ||
|
$ | 39,280 | $ | 36,449 |
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MANAGEMENT DISCUSSION AND ANALYSIS |
Management's Discussions and Analysis of Financial Conditions and Results of Operations ("MD&A") should be read in conjunction with the unaudited interim consolidated financial statements for the six months ended July 31, 2006 and the audited consolidated financial statements and MD&A for the year ended January 31, 2006. This MD&A is based on reported earnings in accordance with United States generally accepted accounting principles (GAAP).
Dectron's interim consolidated financial statements have been prepared using the same accounting policies as described in note 1 of Dectron's audited consolidated financial statements for the year ended January 31, 2006. Please refer to Note 2 of the interim consolidated financial statements for the six months ended July 31, 2006 for further information.
Information filed with the U.S. Securities and Exchange commission, and reports filed with the Canadian Securities regulatory authorities, can be found on-line at www.sec.gov and www.sedar.com respectively, as well as on our corporate web site at www.dectron.com.
Forward-looking information
Certain statements contained in this MD&A constitute forward-looking statements. Forward-looking statements include, but are not limited to, Dectron Internationale's statements regarding liquidity, anticipated cash needs and availability and anticipated expense levels. All forward-looking statements included in this MD&A are based on information available to Dectron Internationale on the date hereof, and Dectron Internationale assumes no obligation to update any such forward-looking statement. Dectron Internationale's actual results could differ materially from those in such forward-looking statements.
Critical Accounting Policies
Dectron's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. The significant accounting policies that we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:
Revenue Recognition
Dectron recognizes revenue for finished products when the goods are shipped and title passes to the customer, provided that there are no uncertainties regarding customer acceptance, persuasive evidence of an arrangement exist, the sales price is fixed or determinable, and collectibility is deemed probable.
Deferred Revenue
Dectron has sold extended warranty contracts covering a period of four to nine years beyond the one year basic guarantee. The deferred revenue is recognized as income over the four to nine year period on a straight-line basis commencing one year from the sale of the contracts.
Intangible Assets and Goodwill Dectron accounts for intangible
assets and goodwill in accordance with Statement of Financial Accounting
Standards (SFAS) 142, "Goodwill and Other Intangible Assets", which was adopted
by Dectron on February 1, 2002 in accordance with that statement, goodwill and
intangible assets with indefinite lives are no longer amortized, but rather
tested for impairment at least annually. Goodwill represents the excess of
purchase price over the fair value of identifiable assets acquired in a purchase
business combination. Intangible assets with estimable useful lives, consisting
of patents, trademarks, and rights, are amortized on a straight-line basis over
the estimated useful lives of 5 to 15 years, and are reviewed for impairment in
accordance with SFAS 144, "Accounting for the Impairment of Long-Lived Assets".
Goodwill and intangible assets with definite lives
are tested annually for impairment in accordance with the provisions of SFAS
142. Impairment of goodwill is tested at
the reporting unit level by comparing the reporting unit's carrying amount,
including goodwill, to the fair value of the reporting unit. The fair values of
the reporting units are estimated using a combination of the income or
discounted cash flows approach and the market approach, which utilizes
comparable companies' data. If the carrying amount of the reporting unit exceeds
its fair value, then a second step is performed to measure the amount of
impairment loss, if any. Any impairment loss would be expensed in the
consolidated statements of earnings. The impairment test for intangibles with
indefinite useful lives consists of a comparison of the fair value of the
intangible assets with its carrying amount. When the carrying amount of the
intangible assets exceeds its fair value, an impairment loss would be recognized
for the difference. Intangible assets with estimable
lives and other long-lived assets are reviewed for impairment when events or
changes in circumstances indicate that the carrying amount of an asset or assets
group may not be recoverable in accordance with SFAS 144. Recoverability of
intangible assets with estimable lives and other long- lived assets is measured
by a comparison of the carrying amount of an assets or asset group to future net
undiscounted pretax cash flows expected to be generated by the assets or asset
group. If these comparisons indicated that an asset is not recoverable, the
impairment loss recognized is the amount by which the carrying amount of the
asset or the asset group exceeds the related estimated fair value. Foreign Currency Translation Dectron maintains its books and
records in Canadian dollars. Foreign currency transactions 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. Transaction gains and
losses are included in the determination of earnings for the year. The translation of the financial
statements from Canadian dollars into United States dollars is performed for the
convenience of the reader. Balance sheet accounts are translated using closing
exchange rates in effect at the balance sheet date and income and expense
accounts are translated using an average exchange rate prevailing during each
reporting period. No representation is made that the Canadian dollar amounts
could have been, or could be, converted into United States dollars at the rates
on the respective dates and or at any other certain rates. Adjustments resulting
from the translation are included in the accumulated other comprehensive income
in stockholder's equity. Income Taxes As part of the process of preparing
our financial statements, we will be required to estimate our income taxes in
each of the jurisdictions in which we operate. This process will involve
estimates of our actual current tax exposure together with assessing temporary
differences resulting from differing treatment of items, such as depreciation
and amortization, for tax and accounting purposes.
Selected Financial Information | ||
(in thousands of dollars, except share data) | July 31, 2006 | January 31, |
2006 | ||
FINANCIAL POSITION | $ | $ |
Cash and cash equivalents | 1,308 | 1,519 |
Total Assets | 39,280 | 36,449 |
Total Debt | 5,220 | 2,082 |
Shareholder's equity | 12,703 | 12,193 |
- per common share | 4.03 | 3.86 |
Working capital | 8,813 | 4,021 |
Working capital ratio | 1.43:1 | 1.19:1 |
Weighted average number of common shares outstanding (basic) | 3,155,000 | 3,155,000 |
Weighted average number of common shares outstanding (diluted) | 3,251,752 | 3,155,000 |
Results of Operations
Six month period ended July 31, 2006 compared to Six month period ended July 31, 2005.
Revenues for the six months ended July 31, 2006 were $27.1 million, a $3.3 million (13.8%) increase over the prior period last year revenues of $23.8 million. The growth is attributed to sales of Dectron dehumidification units for water parks as well as stronger international sales in the Circul-aire division.
Gross profit increased by $1.7 million to $7.2 million from $5.6 million in the same period last year. As a percentage of revenues, gross profit increased to 26.7% from 23.4% last year. The gross profit margin was positively affected by a stronger sales mix of products.
Selling expenses increased by $744,000 to $3.4 million in the six months ended July 31, 2006 compared to $2.6 million for the period ended July 31, 2005. The increase is primarily due to higher commissions paid on the increased sales levels and the costs of attending trade shows. As a percentage of revenues, selling and marketing expenses increased to 12.5% from 11.1%. The majority of our selling, general and administrative expenses are incurred in Canadian dollars; accordingly the expenses as presented in U.S. dollars increased approximately 8% in conjunction with the appreciation of the Canadian dollar versus the U.S. dollar over the period. Consequently selling expenses increased by $273,000 as a result of the foreign exchange fluctuation.
General and administrative expenses increased by $332,000 (19.1%) to $2.1 million from $1.7 million for the period ended July 31, 2005. The increase is primarily a result of foreign exchange fluctuations ($167,000), loss of rental income following the disposal of the Liberty Drive operations and the sale of the property last year ($110,000) and the stock compensation charge for the options granted ($48,000) . As a percentage of revenues, general and administrative actually decreased to 7.7% from 7.3%.
Depreciation and amortization expenses increased to $774,000 in the six months ending July 31, 2006 compared to $644,000 in 2005 due to the amortization of deferred charges. Financing expenses increased ($142,000) to $539,000 from $398,000 due to increased utilization of the line of credit and the assumption of new debt.
There were no discontinued operations
in the six months ending July 31, 2006. The losses, net of taxes, in the first
two quarters of 2005 were $651,000 resulting from the discontinued operations of
Liberty Drive Property, Inc. Net earnings in the six months period ending July 31,
2006 was $328,000 (or $0.10 per share) compared to net loss of $541,000 (or
$0.17 per share) in the corresponding period in 2005. EBITDA (Earnings Before Interest,
Taxes, Depreciation and Amortization) is a non-GAAP measure used by many in the
industry as a measurement of operational performance. For the six month period
ended July 31, 2006 EBITDA (as defined below) increased 50.1% over the previous
year to $1.8 million from $1.2 million.
EBITDA RECONCILIATION | |||
Six Months Ended July 31, | |||
(in thousands of dollars) | |||
2006 |
2005 |
Change |
|
Net income |
$328 |
$(541) |
|
Before |
|
|
|
Income Taxes |
148 |
40 |
|
Items related to |
|
|
|
discontinued operations |
- |
651 |
|
Interest |
539 |
398 |
|
Depreciation & |
|
|
|
Amortization |
774 |
644 |
|
EBITDA |
$1,789 |
$1,192 |
50.1% |
% of sales |
7.7% |
5.0% |
|
Liquidity and Capital Resources
Our cash requirements are primarily for working capital, capital expenditures and principal payments on our capital lease obligations. Historically, these cash needs have been met by cash flows from operations as well as borrowings under our revolving credit facility.
Dectron had a net decrease in cash of $211,000 for the six months period ended July 31, 2006. Dectron had working capital (current assets less current liabilities) of $8.8 million at July 31, 2006 an increase of $4.8 million from the working capital of January 31, 2006. The increase is due to the reclassification of loans receivable (from a company under common control) to short-term as management believes they will be repaid in the current fiscal year as well as higher accounts receivable and inventory due to improved sales activity. The principal source of cash was from advances from long-term debt in the amount of $3.1 million, accounts payables in the amount of $1.9 million and the repayment of some loans receivable. The principal uses of cash were an increase in account receivables and inventory of $2.2 million and $1.5 million respectively.
As previously reported, the Company refinanced its primary operating credit line and currently has a Cdn$15,000 secured credit arrangement with a Canadian chartered bank. Borrowing availability is calculated as a function of "eligible accounts receivable" and "eligible inventory" each as defined in the Line of Credit Agreement. Dectron's borrowings under the line of credit bear interest at Canadian prime plus 0.5%, which at July 31, 2006 amounted to 6.5%. Interest on any borrowings is payable monthly. All borrowings are collateralized by our assets. At that time the Company also secured a Cdn $ 5.0 million term loan, the proceeds of which were used to refinance the existing long-term debt and for working capital.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements.
Contractual Obligations and Commercial Commitments
Our significant contractual obligations as of July 31, 2006 are for debt and operating leases. As of July 31, 2006, we had an outstanding balance on our line of credit of $9,683 and do not have any purchase obligations. We have not engaged in off-balance sheet financing, commodity contract trading or significant related party transactions.
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
I, Glenn La Rusic, C.A., Chief Financial Officer of Dectron Internationale Inc.,
certify that:1. I have reviewed the interim filings (as this term is defined in Multilateral Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings) of Dectron Internationale Inc. (the "Issuer") for the interim period ending July 31, 2006;
2. Based on my knowledge, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings;
3. Based on my knowledge, the interim financial statements together with the other financial information included in the interim filings fairly present in all material respects the financial condition, results of operations and cash flows of the Issuer, as of the date and for the periods presented in the interim filings;
4. The Issuer's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures and internal control over financial reporting for the Issuer, and we have:
(a) designed such disclosure controls and procedures, or caused them to be designed under our supervision, to provide reasonable assurance that material information relating to the Issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the interim filings are being prepared; and
(b) designed such internal control over financial reporting, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the Issuer's GAAP; and
5. I have caused the Issuer to disclose in the interim MD&A any change in the Issuer's internal control over financial reporting that occurred during the Issuer's most recent interim period that has materially affected, or is reasonably likely to materially affect, the Issuer's internal control over financial reporting.
Date: September 14, 2006
(s) Glenn La Rusic
Glenn La Rusic, C.A.
Chief Financial Officer
FORM 52-109F2 CERTIFICATION OF INTERIM FILINGS I, Ness Lakdawala, President & Chief Executive
Officer of Dectron Internationale Inc.,
1. I have reviewed the interim filings (as this term is defined in Multilateral Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings) of Dectron Internationale Inc. (the "Issuer") for the interim period ending July 31, 2006;
2. Based on my knowledge, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings;
3. Based on my knowledge, the interim financial statements together with the other financial information included in the interim filings fairly present in all material respects the financial condition, results of operations and cash flows of the Issuer, as of the date and for the periods presented in the interim filings;
4. The Issuer's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures and internal control over financial reporting for the Issuer, and we have:
(a) designed such disclosure controls and procedures, or caused them to be designed under our supervision, to provide reasonable assurance that material information relating to the Issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the interim filings are being prepared; and
(b) designed such internal control over financial reporting, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the Issuer's GAAP; and
5. I have caused the Issuer to disclose in the interim MD&A any change in the Issuer's internal control over financial reporting that occurred during the Issuer's most recent interim period that has materially affected, or is reasonably likely to materially affect, the Issuer's internal control over financial reporting.
Date: September 14, 2006
(s) Ness Lakdawala
Ness Lakdawala
President & Chief Executive Officer
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