SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q/A
(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, 2003 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 001-14503
DECTRON INTERNATIONALE INC.
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(Exact name of registrant as specified in its charter)
Quebec, Canada N/A
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(State of Incorporation or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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4300 Poirier Blvd., Montreal, Quebec, Canada H4R 2C5
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(Address of principal executive offices) (Zip Code)
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Registrants' 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 [ ]
Indicate by check mark whether the Registrant is an accelerated filer as defined
in Rule 12b-2 of the Exchange Act. Yes | | No |X|
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: September 10, 2003, 2,969,500 shares
of Common Stock outstanding
DECTRON INTERNATIONALE INC.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements........................................................................ 1
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 1
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................................. 6
Item 4. Controls and Procedures..................................................................... 6
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................................................ 6
Item 2. Changes in Securities and Use of Proceeds.................................................... 6
Item 3. Defaults Upon Senior Securities.............................................................. 6
Item 4. Submission of Matters to a Vote of Security Holders.......................................... 6
Item 5. Other Information............................................................................ 6
Item 6. Exhibits and Reports on Form 8-K............................................................. 6
SIGNATURES........................................................................................... 7
EXPLANATORY NOTE
Dectron is filing this amendment to its Form 10-QSB filed for the fiscal period
ended July 31, 2003 on Form 10-Q/A to reflect that it was as of such date not a
"Small Business Issuer" as defined in Item 10 of Reg S-B. In consequence
thereof, Dectron has revised the disclosure contained in its Form 10-QSB to
comply with the requirements of Reg S-K. Dectron's financial statements were
filed in compliance with Reg S-K and are thus not included in this Form 10-Q/A.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained herein including, without limitation,
those concerning (i) the strategy of Dectron Internationale Inc. ("Dectron"),
(ii) Dectron's expansion plans and (iii) Dectron's capital expenditures, contain
forward-looking statements (within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") concerning Dectron's
operations, economic performance and financial condition. Because such
statements involve risks and uncertainties, actual results may differ materially
from those expressed or implied by such forward-looking statements. Factors that
could cause such differences include, but are not limited to, those discussed
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations." Dectron undertakes no obligation to publicly release
the result of any revisions to these forward-looking statements that may be made
to reflect any future events or circumstances.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
See Form 10-QSB filed with the Commission on September 16, 2003 as well as the
Explanatory Note hereto.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Critical Accounting Policies
----------------------------
Our 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:
o Revenue Recognition
o Deferred Revenue
o Intangible Assets and Goodwill
o Foreign currency translation
o Accounting for Income Taxes
Revenue Recognition
-------------------
The Company recognizes revenue in accordance with SEC Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101), as
amended by SAB 101A and 101B. SAB 101 requires that four basic criteria must be
met before revenue can be recognized: (1) persuasive evidence of an arrangement
exists; (2) delivery has occurred or services rendered; (3) the fee is fixed and
determinable: and (4) collectibility is reasonably assured. Determination of
criteria (3) and (4) are based on management's judgments regarding the fixed
nature of the fee charged for services rendered and products delivered and the
collectibility of those fees. Should changes in conditions cause management to
determine these criteria are not met for certain future transactions, revenue
recognized for any reporting period could be adversely affected.
Deferred Revenue
----------------
The company 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.
1
Intangible Assets and Goodwill
The company 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 the Company 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. 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 represents the excess of purchase price over the fair value of
identifiable assets acquired in a purchase business combination. For the years
2002 and 2001, goodwill was amortized using the straight-line method, over a
period of 10 years.
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
The Company 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.
2
Results of Operations
Six month period ended July 31, 2003 compared to Six month period ended July 31,
2002.
Revenues for the six month period ended July 31, 2003 were $22,490,485,
a 15.1% increase over prior year of $19,545,319.
Gross profit increased by $577,601 to $6,033,282 over the same period
in 2002. Gross profit increased by 10.6% compared to an increase in sales of
15.1% for the six month period ended July 31,2003.
Selling expenses increased by $378,206 for the six month period ended
July 31, 2003 from $2,378,460 to $2,756,666. As a percentage of revenues,
selling and marketing expenses increased from 12.17% to 12.26% during the six
months ended July 31, 2003.
General and administrative expenses increased by $734,744 from
$1,296.792 to $2,031,536. As a percentage of revenues, general and
administrative increased from 6.63% to 9.03%.
Amortization expenses increased by $104,178 from $694,117 to
$798,295. As a percentage of revenues, amortization expenses remained stable at
3.55%
Financing expenses decreased by $290,006 from $550,135 to $260,129.
As a percentage of revenues, financing expenses decreased from 2.81% to 1.16%.
Earnings before income taxes was $186,656, a decrease of $349,521
compared to the six month period ended July 31, 2002. Relative to sales,
earnings before income taxes decreased from 2.74% for the six month period ended
July 31, 2002 to 0.83 % in the six month period ended July 31, 2003.
Provisions for Income tax as a percentage of taxable earnings increased
from 28% for the six month ended July 31, 2002 to 31.16% for 2003.
As a result of the above factors, the Company's net earnings decreased
from $386,048 to $128,494.
Three month period ended July 31, 2003 compared to Three month period ended July
31, 2002.
Revenues for the three month period ended July 31, 2003 were
$12,343,154, a 17.60% increase over prior year revenues of $10,496,214.
Gross profit increased by $456,418 to $3,100,950 over the same period.
This represents an increase of 17.26%, expressed in relation to sales. Gross
profit increased by 17.26% compared to an increase in sales of 17.6%.
Selling expenses increased by $203,775 in the three month period ended
July 31, 2003. As a percentage of revenues, selling and marketing expenses
decreased from 11.77% to 11.66%.
General and administrative expenses increased by $418,170 to $963,663.
As a percentage of revenues, general and administrative increased from 5.20% to
7.81%.
Amortization expenses increased by $9,491 from $377,409 to $386,900.
As a percentage of revenues, amortization expenses decreased from 3.6% to 3.13%.
Financing expenses decreased by $53,182 from $264,354 to $211,172.
As a percentage of revenues, financing expenses decreased from 2.52% to 1.71%.
Earnings before income taxes were $99,381 a decrease of $121,836
compared to the three month period ended July 31, 2002. Relative to sales,
earnings before income taxes decreased from 2.11% for the three month period
ended July 31, 2002 to 0.81% in the three month period ended July 31, 2003.
3
Provisions for Income tax as a percentage of taxable income increased
from 28.0% for the three month ended July 31, 2002 to 31.16% for 2003. Therefore
the tax expenses has decreased by $30,959.
As a result of the above factors, the Company's net earnings decreased
from $159,601 to $68,724, a decrease of 57%.
Six-month period ended July 31, 2002 compared to Six-month period ended July 31,
2001.
Revenues for the six-month period ended July 31, 2002 were $19,545,319,
a 6.61% increase over prior year of $18,333,139.
Gross profit decreased by $1,084,495 to $5,455,681 over the same period
in 2001. This represents a decrease of 16.58%, expressed in relation to sales.
Gross profit decreased by 16.58% compared to an increase in sales of 6.61% for
the six month period ended July 31,2002.
Selling and marketing expenses decreased by $208,950 for the six-month
period ended July 31, 2002 from $2,587,410 to $2,378,460. As a percentage of
revenues, selling and marketing expenses decreased from 14.11% to 12.17% during
the six months ended July 31, 2002.
General and administrative expenses decreased by $149,624 from
$1,446.416 to $1,296,792. As a percentage of revenues, general and
administrative expenses decreased from 7.89% to 6.63%.
Amortization expenses decreased by $79,067 from $773,184 to $694,117.
As a percentage of revenues, amortization expenses decreased from 4.22% to 3.55%
Financing expenses decreased by $270,962 from $821,097 to $550,135. As
a percentage of revenues, financing expenses decreased from 4.48% to 2.81%.
Earnings before income taxes was $536,177, a decrease of $375,892
compared to the six-month period ended July 31, 2001. Relative to sales,
earnings before income taxes decreased from 4.97% for the six-month period ended
July 31, 2001 to 2.74% in the six-month period ended July 31, 2002.
Provisions for Income tax as a percentage of taxable earnings increased
from 12.51% for the six month ended July 31, 2001 to 28% for 2002. Tax expenses
increased by $36,037 because of the increase in applicable tax rate.
As a result of the above factors, Dectron's net earnings decreased from
$797,977 to $386,048 a decrease of 51.62%.
Three-month period ended July 31, 2002 compared to Three-month period ended July
31, 2001.
Revenues for the three-month period ended July 31, 2002 were
$10,496,214, a 20.74% increase over prior year revenues of $8,693,307.
Gross profit decreased by $533,818 to $2,644,532 over the same period.
This represents a decrease of 16.8%, expressed in relation to sales. Gross
profit decreased by 16.8% compared to an increase in sales of 20.74%.
Selling and marketing expenses decreased by $48,371 in the three-month
period ended July 31, 2002. As a percentage of revenues, selling and marketing
expenses decreased from 14.77% to 11.77%.
General and administrative expenses decreased by $109,283 to $545,493.
As a percentage of revenues, general and administrative expenses decreased from
7.53% to 5.20%.
Amortization expenses decreased by $15,786 from $393,195 to $377,409.
As a percentage of revenues, amortization expenses decreased from 4.52% to 3.6%.
4
Financing expenses decreased by $137,131 from $401,485 to $264,354. As
a percentage of revenues, financing expenses decreased from 4.62% to 2.52%.
Earnings before income taxes were $221,667 a decrease of $223,247
compared to the three-month period ended July 31, 2001. Relative to sales,
earnings before income taxes decreased from 5.12% for the three-month period
ended July 31, 2001 to 2.11% in the three-month period ended July 31, 2002.
Provisions for Income tax as a percentage of taxable income increased
from 12.5% for the three-month ended July 31, 2001 to 28% for 2002. Therefore
the tax expenses has increased by $6,368.
As a result of the above factors, Dectron's net earnings decreased from
$389,216 to $159,601, a decrease of 59%.
Liquidity and Capital Resources
-------------------------------
The Company had a positive net change in cash of $996,457 for the six
month period ended July 31, 2003. The principal sources of cash were from an
increase in accounts payable in the amount of $1,444,296, advances of bank loans
in the amount of $3,292,721, and depreciation and amortization of $798,295.
Principal uses of cash were an increase in accounts receivable in the amount of
$ 2,058,994, acquisition of assets in the amount of 1,088,027 and increase in
inventory in the amount of $1,763,995.
Off-balance Sheet Arrangements
------------------------------
The Company does not have any off-balance sheet arrangements.
Contractual Obligations and Commercial Commitments
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The Company's significant contractual obligations as of July 31, 2003
are for debt and operating leases. Debt by year of maturity and future rental
payments under operating lease agreements are presented below. As of July 31,
2003, the Company has an outstanding balance on its line of credit of
$11,568,391 and does not have any purchase obligations. The Company has not
engaged in off-balance sheet financing, commodity contract trading or
significant related party transactions.
Contractual Obligations Payments Due by Period
----------------------- -------------------------------------------------------------------
Total Less than one 1-3 years 4-5 years After 5 years
year
----------------------- --------- --------- --------- --------- ---------
Balance of Sale 234,908 117,454 117,454
Capital Lease 1,128,515 344,336 399,998 391,181 0
Long-term debt 5,388,082 799,711 2,072,621 2,466,163 49,587
Operating lease 2,580,776 632,105 1,156,204 792,467 -
Management believes that these commitments will be satisfied with
current operating cash flow.
5
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to fluctuations in interest rates
on its debt. Increase in prevailing interest rates could increase the Company's
interest payment obligations relating to variable rate debt. For example, a 100
basis point increase in interest rates would increase the Company's annual
interest expense by $120,000.
ITEM 4. CONTROLS AND PROCEDURES
Immediately following the signature page of this report is the Certification
that is required under Section 302 of the Sarbanes-Oxley Act of 2002. This
section of the report contains information concerning the controls evaluation
referred to in the Section 302 Certifications and the information contained
herein should be read in conjunction with the Certification.
Internal controls are designed with the objective of ensuring that assets are
safeguarded, transactions are authorized, and financial reports are prepared on
a timely basis in accordance with generally accepted accounting principles in
the United States. The disclosure procedures are designed to comply with the
regulations established by the Securities and Exchange Commission.
Internal controls, no matter how designed, have limitations. It is the Company's
intent that the internal controls be conceived to provide adequate, but not
absolute, assurance that the objectives of the controls are met on a consistent
basis. Management plans to continue its review of internal controls and
disclosure procedures on an ongoing basis.
The Company's principal executive officer and principal financial officer, after
supervising and participating in an evaluation of the effectiveness of the
Company's internal and disclosure controls and procedures as of April 30, 2003
(the "Evaluation Date"), have concluded that as of the Evaluation Date, the
Company's internal and disclosure controls and procedures were effective.
There were no significant changes in the Company's internal and disclosure
controls or in other factors that could significantly affect such internal and
disclosure controls subsequent to the date of their evaluation.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Certification pursuant to 18 U.S.C. Section 1350 by Ness Lakdawala
99.2 Certification pursuant to 18 U.S.C. Section 1350 by Mauro Parissi
(b) Reports on Form 8-K.
There were no reports filed on Form 8-K during the period covered by this
report.
6
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DECTRON INTERNATIONALE INC.
April 30, 2004 By: /s/ Mauro Parissi
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Mauro Parissi
Chief Financial Officer
7
CERTIFICATION
I, Ness Lakdawala, Chairman of the Board, Chief Executive Officer and President
of Dectron Internationale Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of Dectron
Internationale Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls.
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: April 30, 2004
By: /s/ Ness Lakdawala
------------------
Ness Lakdawala, Chairman of the Board,
Chief Executive Officer and President
8
CERTIFICATION
I, Mauro Parissi, Chief Financial Officer of Dectron Internationale Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of Dectron
Internationale Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls.
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: April 30, 2004
By: /s/ Mauro Parissi
-----------------
Mauro Parissi
Chief Financial Officer
9